BlackRock Reports Third Quarter 2014 Diluted EPS of $5.37, or $5.21 as adjusted

  • 10% AUM growth from the third quarter of 2013
  • $28.7 billion of long-term net inflows for the third quarter of 2014
  • 20% operating income growth (24% as adjusted) from the third quarter of 2013
  • 40.6% operating margin (44.2% as adjusted) for the third quarter of 2014
  • 28% diluted EPS growth (34% as adjusted) from the third quarter of 2013
  • Consistent capital management with $250 million of quarterly share repurchases

NEW YORK--()--BlackRock, Inc. (NYSE:BLK):

FINANCIAL RESULTS

                                   
(in millions, except per share data)   Q3

2014

  Q3

2013

  Change   Q2

2014

  Change  

Nine Months Ended September 30,

  Change
            2014     2013  
AUM $ 4,524,575 $ 4,096,356 10% $ 4,593,612 (2%) $ 4,524,575     $ 4,096,356 10%

GAAP basis:

Revenue $ 2,849 $ 2,472 15% $ 2,778 3% $ 8,297 $ 7,403 12%
Operating income $ 1,157 $ 966 20% $ 1,122 3% $ 3,330 $ 2,724 22%
Operating margin 40.6% 39.1% 150 bps 40.4% 20 bps 40.1% 36.8% 330 bps
Net income(1) $ 917 $ 730 26% $ 808 13% $ 2,481 $ 2,091 19%
Diluted EPS $ 5.37 $ 4.21 28% $ 4.72 14% $ 14.48 $ 12.02 20%
Weighted average diluted shares 170.8 173.4 (1%) 171.2 -% 171.4 174.0 (1%)

As Adjusted:

Operating income(2) $ 1,214 $ 978 24% $ 1,133 7% $ 3,409 $ 2,881 18%
Operating margin(2) 44.2% 41.2% 300 bps 42.4% 180 bps 42.7% 40.8% 190 bps
Net income(1) (2) $ 890 $ 672 32% $ 837 6% $ 2,489 $ 2,031 23%
Diluted EPS(2)   $ 5.21   $ 3.88   34%   $ 4.89   7%   $ 14.53     $ 11.67   25%

(1) Net income represents net income attributable to BlackRock, Inc.
(2) See notes (1) through (4) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

BlackRock, Inc. (NYSE:BLK) today reported financial results for the three and nine months ended September 30, 2014.

“BlackRock’s unique business model, combining active and index products on a single platform alongside Aladdin’s industry-leading risk management and analytics capabilities, once again delivered strong results in the third quarter,” commented Laurence D. Fink, Chairman and CEO of BlackRock. “We continue to invest in our platform and our team in order to enhance our business model and position BlackRock to capture market opportunities – and most importantly, to partner with our clients to help them meet their investment goals.

“The commitment we made six years ago to rebuild our fixed income business is now showing results. With 87% of BlackRock’s taxable fixed income assets outperforming their benchmark or peer median over the three-year period – including our top-decile Total Return Fund – and the breadth of our offerings across both active and index strategies, we are delivering investment outperformance to our clients as they navigate a challenging global interest rate environment. We once again saw strong interest in our global unconstrained fixed income platform in the third quarter, raising more than $4 billion of net new flows in our Strategic Income Opportunities and Fixed Income Global Opportunities funds, collectively, and that momentum has continued into the fourth quarter.

“As client demand for investment solutions continues to increase, BlackRock’s multi-asset franchise is a key differentiator. Our team-based culture enables our multi-asset managers to benefit from the best alpha engines and risk management capabilities BlackRock has to offer, to construct portfolios that go beyond traditional benchmarks to deliver outcomes to clients. In the third quarter, we raised $7.4 billion of net new flows in multi-asset strategies, driven by our flagship global franchises: Multi-asset Income, Global Allocation and our LifePath target-date funds.

“In iShares, we saw net new flows of $18.2 billion, driven by strong equity flows into the Core Series and demand for emerging markets and Asian equities, and we have seen elevated interest in our iShares fixed income platform as clients look for options to maintain exposure to the broad fixed income market in the current environment.

“BlackRock has never been better positioned to meet the varying needs of global investors. Our process, our people and our culture set us apart. We leverage our global reach, including the insight-sharing benefits of the BlackRock Investment Institute and the international scope of our platform, to generate durable alpha. We take full advantage of our Aladdin risk management and analytics capabilities to manufacture and deliver investment solutions. We are intensely focused on building on the strength of our leadership team – the management changes we announced in the second quarter are contributing to positive change across the organization. And we have a team-based investment philosophy, with no centralized CIO or single decision-maker, which empowers our One BlackRock culture to drive our business.

“We remain intensely focused on performance, on continuing to enhance our differentiated platform and on developing talent at all levels of the organization so that we can be the most trusted advisor for our clients as they build their financial futures. Our people are critical to our success and I want to once again thank BlackRock employees for their commitment to delivering excellence to our clients and shareholders.”

RESULTS BY CLIENT TYPE

               
(in millions), (unaudited)   Q3 2014

Net flows

  September 30, 2014

AUM

  Q3 2014

Base Fees(1)

  September 30, 2014

AUM

% of Total

  Q3 2014

Base Fees(1)

% of Total

Retail  

$4,860

  $525,479   $846   12%   35%
iShares 18,209 974,170 850 23% 35%
Institutional:
Active 135 954,889 469 23% 20%
Index 5,485   1,765,875   231   42%   10%
Total institutional 5,620   2,720,764   700   65%   30%
Total long-term   $28,689   $4,220,413   $2,396   100 %   100%

RESULTS BY PRODUCT

               
(in millions), (unaudited)   Q3 2014

Net flows

  September 30, 2014

AUM

  Q3 2014

Base Fees(1)

  September 30, 2014

AUM

% of Total

  Q3 2014

Base Fees(1)

% of Total

Equity   $10,234   $2,400,105   $1,351   56 %   56%
Fixed income 11,111 1,333,528 548 32% 23%
Multi-asset 7,424 373,054 315 9% 13%
Alternatives (80)   113,726   182   3%   8%
Total long-term   $28,689   $4,220,413   $2,396   100 %   100%

(1)       Base fees include investment advisory, administration fees and securities lending revenue.

Long-Term Business Highlights

Long-term net inflows were positive across all regions, with net inflows of $10.8 billion, $7.4 billion and $10.5 billion from clients in the Americas, EMEA and Asia-Pacific, respectively. At September 30, 2014, BlackRock managed 61% of its long-term AUM for investors in the Americas and 39% for clients in EMEA and Asia-Pacific.

A discussion of the Company’s net flows by client type for the third quarter of 2014 is presented below.

  • Retail long-term net inflows of $4.9 billion included net inflows of $2.8 billion in the United States and $2.1 billion internationally. Net flows were led by fixed income with $5.4 billion, which reflected strong interest in unconstrained fixed income offerings, including more than $3 billion of net inflows, collectively, into our Strategic Income Opportunities and Strategic Municipal Opportunities funds in the United States and $1.2 billion of net inflows into our Fixed Income Global Opportunities cross-border fund. Equity net outflows of $3.4 billion were driven by outflows from European equities, which were impacted by macro headwinds. Multi-asset class net inflows of $2.5 billion were led by our Multi-Asset Income fund family, which raised over $2 billion of net new assets.
  • iShares® long-term net inflows of $18.2 billion included equity net inflows of $13.8 billion, driven by flows into the Core Series as well as demand for emerging markets and Asian equity exposures. Fixed income net inflows of $3.7 billion were paced by $1.3 billion of net inflows into our Core U.S. Aggregate fund (AGG).
  • Institutional active long-term net inflows of $0.1 billion were led by multi-asset class net inflows of $5.2 billion, which reflected ongoing demand for our LifePath® target-date suite and fiduciary mandate wins. Fixed income net outflows of $3.5 billion were impacted by several client-specific asset allocation decisions. Alternatives net outflows of $1.0 billion included $1.1 billion of capital successfully returned to investors.
  • Institutional index long-term net inflows of $5.5 billion were driven by fixed income net inflows of $5.5 billion.

Cash management AUM increased 5% to $281.0 billion.

Advisory AUM decreased 24% to $23.2 billion due to disposition portfolio liquidations. The execution of these liquidations contributed to BlackRock Solutions® and advisory revenue in the quarter.

INVESTMENT PERFORMANCE AT SEPTEMBER 30, 2014(1)

 

  One-year period   Three-year period   Five-year period
Fixed Income:
Actively managed products above benchmark or peer
median
Taxable 78 % 87 % 89 %
Tax-exempt 72 % 69 % 82 %
Index products within or above applicable tolerance   97 %   98 %   99 %
Equity:
Actively managed products above benchmark or peer
median
Fundamental 42 % 50 % 48 %
Scientific 78 % 96 % 93 %
Index products within or above applicable tolerance   93 %   97 %   97 %

(1) Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to performance disclosure detail.

Teleconference, Webcast and Presentation Information

Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary S. Shedlin, will host a teleconference call for investors and analysts on Wednesday, October 15, 2014 at 8:30 a.m. (Eastern Time). 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) 679-8281, shortly before 8:30 a.m. and reference the BlackRock Conference Call (ID Number 7362882). 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 12:30 p.m. (Eastern Time) on Wednesday, October 15, 2014 and ending at midnight on Wednesday, October 29, 2014. To access the replay of the teleconference, callers from the United States should dial (800) 585-8367 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 7362882. To access the webcast, please visit the investor relations section of www.blackrock.com.

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2014, BlackRock’s AUM was $4.525 trillion. BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of September 30, 2014, the firm had approximately 12,100 employees in more than 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa.

For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock

         
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

(in millions, except per share data), (unaudited)

 
                         
Three Months
Three Months Ended Ended
September 30, June 30,
2014 2013 Change 2014 Change
Revenue
Investment advisory, administration fees and securities lending revenue $2,468 $2,153 $315 $2,434 $34
Investment advisory performance fees 133 96 37 115 18
BlackRock Solutions and advisory 165 156 9 146 19
Distribution fees 17 19 (2 ) 18 (1 )
Other revenue 66   48   18   65   1  
 
Total revenue 2,849   2,472   377   2,778   71  
 
Expense
Employee compensation and benefits 973 866 107 948 25
Distribution and servicing costs 90 85 5 89 1
Amortization of deferred sales commissions 14 14 - 14 -
Direct fund expense 199 167 32 187 12
General and administration 376 334 42 377 (1 )
Amortization of intangible assets 40   40   -   41   (1 )
 
Total expense 1,692   1,506   186   1,656   36  
 
Operating income 1,157 966 191 1,122 35
 
Nonoperating income (expense)
Net gain (loss) on investments 46 32 14 45 1
Net gain (loss) on consolidated variable interest entities (47 ) (6 ) (41 ) 28 (75 )
Interest and dividend income 10 8 2 3 7
Interest expense (61 ) (52 ) (9 ) (60 ) (1 )
 
Total nonoperating income (expense) (52 ) (18 ) (34 ) 16   (68 )
 
Income before income taxes 1,105 948 157 1,138 (33 )
Income tax expense 232   219   13   297   (65 )
 
Net income 873 729 144 841 32
Less:
Net income (loss) attributable to noncontrolling interests (44 ) (1 ) (43 ) 33   (77 )
 
Net income attributable to BlackRock, Inc. $917   $730   $187   $808   $109  
 
Weighted-average common shares outstanding
Basic 167,933,040 169,811,633 (1,878,593 ) 168,712,221 (779,181 )
Diluted 170,778,766 173,371,508 (2,592,742 ) 171,150,153 (371,387 )

Earnings per share attributable to BlackRock, Inc. common stockholders (4)

Basic $5.46 $4.30 $1.16 $4.79 $0.67
Diluted $5.37 $4.21 $1.16 $4.72 $0.65
Cash dividends declared and paid per share $1.93 $1.68 $0.25 $1.93 $-
 

Supplemental information:

 
AUM (end of period) $4,524,575 $4,096,356 $428,219 $4,593,612 ($69,037 )
Shares outstanding (end of period) 167,610,257 169,412,929 (1,802,672 ) 168,363,315 (753,058 )
GAAP:
Operating margin 40.6 % 39.1 % 150 bps 40.4 % 20 bps
Effective tax rate 20.2 % 23.1 % (290) bps 26.8 % (660) bps
As adjusted:

Operating income (1)

$1,214 $978 $236 $1,133 $81

Operating margin (1)

44.2 % 41.2 % 300 bps 42.4 % 180 bps

Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2)

($8 ) ($21 ) $13 ($20 ) $12

Net income attributable to BlackRock, Inc. (3)

$890 $672 $218 $837 $53

Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4)

$5.21 $3.88 $1.33 $4.89 $0.32
Effective tax rate   26.2 %   29.9 %   (370) bps     24.8 %   140 bps  
 

See the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items.

 
     
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

(in millions, except per share data), (unaudited)

 
               
Nine Months Ended
September 30,
2014 2013 Change
Revenue
Investment advisory, administration fees and securities lending revenue $7,193 $6,459 $734
Investment advisory performance fees 406 293 113
BlackRock Solutions and advisory 465 420 45
Distribution fees 54 54 -
Other revenue 179   177   2  
 
Total revenue 8,297   7,403   894  
 
Expense
Employee compensation and benefits 2,903 2,635 268
Distribution and servicing costs 268 266 2
Amortization of deferred sales commissions 43 38 5
Direct fund expense 565 490 75
General and administration 1,066 1,130 (64 )
Amortization of intangible assets 122   120   2  
 
Total expense 4,967   4,679   288  
 
Operating income 3,330 2,724 606
 
Nonoperating income (expense)
Net gain (loss) on investments 167 235 (68 )
Net gain (loss) on consolidated variable interest entities (35 ) (2 ) (33 )
Interest and dividend income 23 18 5
Interest expense (174 ) (159 ) (15 )
 
Total nonoperating income (expense) (19 ) 92   (111 )
 
Income before income taxes 3,311 2,816 495
Income tax expense 853   715   138  
 
Net income 2,458 2,101 357
Less:
Net income (loss) attributable to noncontrolling interests (23 ) 10   (33 )
 
Net income attributable to BlackRock, Inc. $2,481   $2,091   $390  
 
Weighted-average common shares outstanding
Basic 168,571,354 170,581,930 (2,010,576 )
Diluted 171,351,276 174,012,876 (2,661,600 )

Earnings per share attributable to BlackRock, Inc. common stockholders (4)

Basic $14.72 $12.26 $2.46
Diluted $14.48 $12.02 $2.46
Cash dividends declared and paid per share $5.79 $5.04 $0.75
 

Supplemental information:

 
AUM (end of period) $4,524,575 $4,096,356 $428,219
Shares outstanding (end of period) 167,610,257 169,412,929 (1,802,672 )
GAAP:
Operating margin 40.1 % 36.8 % 330 bps
Effective tax rate 25.6 % 25.5 % 10 bps
As adjusted:

Operating income (1)

$3,409 $2,881 $528

Operating margin (1)

42.7 % 40.8 % 190 bps

Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (2)

($2 ) ($6 ) $4

Net income attributable to BlackRock, Inc. (3)

$2,489 $2,031 $458

Diluted earnings attributable to BlackRock, Inc. common stockholders per share (3) (4)

$14.53 $11.67 $2.86
Effective tax rate   26.9 %   29.4 %   (250) bps  
 

See the reconciliation to GAAP and notes (1) through (4) for more information on as adjusted items.

 
                               
ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

 
Current Quarter Component Changes by Client Type and Product
                                               

June 30,

2014

Net

subscriptions

(redemptions)

Market change FX impact (1)

September 30,

2014

Average AUM (2)
Retail:
Equity $ 216,469

($3,412

)

($4,267

)

($4,419

) $ 204,371 $212,051
Fixed income 172,672 5,396 (303 ) (1,517 ) 176,248 174,454
Multi-asset 126,392 2,534 (2,323 ) (704 ) 125,899 126,485
Alternatives 18,969 342   56   (406 ) 18,961 19,020
 
Retail subtotal 534,502 4,860 (6,837 ) (7,046 ) 525,479 532,010
iShares:
Equity 774,053 13,840 (21,584 ) (9,037 ) 757,272 771,007
Fixed income 200,519 3,747 (1,291 ) (3,838 ) 199,137 201,586
Multi-asset 1,624 93 (42 ) (8 ) 1,667 1,661
Alternatives 17,636 529   (1,953 ) (118 ) 16,094 17,089
 
iShares subtotal 993,832 18,209 (24,870 ) (13,001 ) 974,170 991,343
Institutional:
Active:
Equity 133,780 (646 ) 578 (3,639 ) 130,073 132,459
Fixed income 523,665 (3,497 ) 2,597 (9,425 ) 513,340 519,669
Multi-asset 239,207 5,232 2,142 (7,816 ) 238,765 240,583
Alternatives 73,781 (954 ) 1,022   (1,138 ) 72,711 73,250
 
Active subtotal 970,433 135 6,339 (22,018 ) 954,889 965,961
Index:
Equity 1,338,283 452 (6,409 ) (23,937 ) 1,308,389 1,331,200
Fixed income 443,869 5,465 12,234 (16,765 ) 444,803 447,201
Multi-asset 7,250 (435 ) 358 (450 ) 6,723 7,408
Alternatives 6,536 3   (403 ) (176 ) 5,960 6,311
 
Index subtotal 1,795,938 5,485   5,780   (41,328 ) 1,765,875 1,792,120
 
Institutional subtotal 2,766,371 5,620   12,119   (63,346 ) 2,720,764 2,758,081
 
Long-term 4,294,705 28,689   (19,588 ) (83,393 ) 4,220,413 $4,281,434
 
Cash management 268,388 16,809 9 (4,226 ) 280,980
Advisory (3) 30,519 (6,467 ) 463   (1,333 ) 23,182
 
Total $ 4,593,612 $39,031  

($19,116

)

($88,952

)

$4,524,575

                                                     
                               

Current Quarter Component Changes by Product

                                             

June 30,

2014

Net

subscriptions

(redemptions)

Market change FX impact (1)

September 30,

2014

Average AUM (2)
Equity:
Active $320,830

($5,436

)

($3,560

)

($6,962

) $304,872

$314,300

iShares 774,053 13,840

(21,584

) (9,037 ) 757,272

771,007

Fixed income:
Active 689,724 1,904 2,128 (10,586 ) 683,170 687,568
iShares 200,519 3,747 (1,291 ) (3,838 ) 199,137 201,586
Multi-asset 374,473 7,424 135 (8,978 ) 373,054 376,137
Alternatives:
Core 88,758 (327 ) 1,146 (1,297 ) 88,280 88,581
Currency and commodities (4) 28,164 247   (2,424 ) (541 ) 25,446 27,089
 
Subtotal 2,476,521 21,399 (25,450 ) (41,239 ) 2,431,231 2,466,268
Non-ETF Index:
Equity 1,367,702 1,830 (6,538 ) (25,033 ) 1,337,961 1,361,410
Fixed income 450,482 5,460   12,400   (17,121 ) 451,221 453,756
 
Subtotal Non-ETF Index 1,818,184 7,290   5,862   (42,154 ) 1,789,182 1,815,166
 
Long-term $4,294,705 $28,689  

($19,588

)

($83,393

) $4,220,413 $4,281,434
                                                   

(1) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing four months.

(3) Advisory AUM represents long-term portfolio liquidation assignments.

(4) Amounts include commodity iShares.

 
                                           
ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

 
Year-to-Date Component Changes by Client Type and Product
                                                         

December 31,

2013

Net

subscriptions

(redemptions)

Market change FX impact (1)

September 30,

2014

Average AUM (2)
Retail:
Equity $203,035 $295 $4,454

($3,413

) $204,371 $208,561
Fixed income 151,475 21,585 4,579 (1,391 ) 176,248 165,448
Multi-asset 117,054 7,201 2,146 (502 ) 125,899 122,818
Alternatives 16,213 2,908   245   (405 ) 18,961 18,330
 
Retail subtotal 487,777 31,989 11,424 (5,711 ) 525,479 515,157
iShares:
Equity 718,135 35,410 12,637 (8,910 ) 757,272 741,742
Fixed income 178,835 19,845 4,247 (3,790 ) 199,137 194,190
Multi-asset 1,310 336 29 (8 ) 1,667 1,520
Alternatives 16,092 822   (697 ) (123 ) 16,094 16,897
 
iShares subtotal 914,372 56,413 16,216 (12,831 ) 974,170 954,349
Institutional:
Active:
Equity 138,726 (13,194 ) 6,833 (2,292 ) 130,073 133,495
Fixed income 505,109 (9,666 ) 24,176 (6,279 ) 513,340 514,571
Multi-asset 215,276 13,339 17,087 (6,937 ) 238,765 230,789
Alternatives 73,299 (1,942 ) 2,109   (755 ) 72,711 73,435
 
Active subtotal 932,410 (11,463 ) 50,205 (16,263 ) 954,889 952,290
Index:
Equity 1,257,799 1,253 65,295 (15,958 ) 1,308,389 1,295,502
Fixed income 406,767 16,244 30,983 (9,191 ) 444,803 433,945
Multi-asset 7,574 (1,667 ) 1,135 (319 ) 6,723 6,953
Alternatives 5,510 670   (152 ) (68 ) 5,960 6,195
 
Index subtotal 1,677,650 16,500   97,261   (25,536 ) 1,765,875 1,742,595
 
Institutional subtotal 2,610,060 5,037   147,466   (41,799 ) 2,720,764 2,694,885
 
Long-term 4,012,209 93,439   175,106   (60,341 ) 4,220,413 $4,164,391
 
Cash management 275,554 7,889 515 (2,978 ) 280,980
Advisory (3) 36,325 (12,258 ) 869   (1,754 ) 23,182
 
Total $4,324,088 $89,070   $176,490  

($65,073

) $4,524,575
                                                         
                                           

Year-to-Date Component Changes by Product

                                                         

December 31,

2013

Net

subscriptions

(redemptions)

Market change FX impact (1)

September 30,

2014

Average AUM (2)
Equity:
Active $317,262

($17,695)

$10,392

($5,087)

$304,872 $314,553
iShares 718,135 35,410 12,637 (8,910) 757,272 741,742
Fixed income:
Active 652,209 10,012 28,407 (7,458) 683,170 674,514
iShares 178,835 19,845 4,247 (3,790) 199,137 194,190
Multi-asset 341,214 19,209 20,397 (7,766) 373,054 362,080
Alternatives:
Core 85,026 1,881 2,414 (1,041) 88,280 87,711
Currency and commodities (4) 26,088 577 (909) (310) 25,446 27,146
 
Subtotal 2,318,769 69,239 77,585 (34,362) 2,431,231 2,401,936
Non-ETF Index:
Equity 1,282,298 6,049 66,190 (16,576) 1,337,961 1,323,005
Fixed income 411,142 18,151 31,331 (9,403) 451,221 439,450
 
Subtotal Non-ETF Index 1,693,440 24,200 97,521 (25,979) 1,789,182 1,762,455
 
Long-term $4,012,209 $93,439 $175,106

($60,341)

$4,220,413 $4,164,391
                                                         

(1) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

(2) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing ten months.

(3) Advisory AUM represents long-term portfolio liquidation assignments.

(4) Amounts include commodity iShares.

 
                                           
ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

 
Year-over-Year Component Changes by Client Type and Product
                                                             

September 30,

2013

Net

subscriptions

(redemptions)

Adjustments (1) Acquisitions (2) Market change FX impact (3)

September 30,

2014

Average AUM (4)
Retail:
Equity $174,732 $5,131 $13,066 $- $13,979

($2,537

) $204,371 $202,430
Fixed income 143,186 25,455 3,897 - 4,881 (1,171 ) 176,248 160,817
Multi-asset 106,017 13,746 2,663 - 3,928 (455 ) 125,899 119,969
Alternatives 14,514 4,245   -   136 401   (335 ) 18,961 17,585
 
Retail subtotal 438,449 48,577 19,626 136 23,189 (4,498 ) 525,479 500,801
iShares:
Equity 653,528 59,524 - - 52,578 (8,358 ) 757,272 728,306
Fixed income 182,841 16,311 - - 3,431 (3,446 ) 199,137 191,448
Multi-asset 1,179 430 - - 71 (13 ) 1,667 1,451
Alternatives 19,361 (764 ) -   - (2,386 ) (117 ) 16,094 17,296
 
iShares subtotal 856,909 75,501 - - 53,694 (11,934 ) 974,170 938,501
Institutional:
Active:
Equity 130,864 (15,018 ) - - 16,507 (2,280 ) 130,073 133,812
Fixed income 503,243 (9,106 ) - - 25,845 (6,642 ) 513,340 512,536
Multi-asset 191,989 25,453 3,335 - 23,708 (5,720 ) 238,765 222,693
Alternatives 63,974 (4,791 ) -   10,836 3,686   (994 ) 72,711 72,981
 
Active subtotal 890,070 (3,462 ) 3,335 10,836 69,746 (15,636 ) 954,889 942,022
Index:
Equity 1,189,588 (1,197 ) (18,238 ) - 155,417 (17,181 ) 1,308,389 1,279,142
Fixed income 408,289 16,844 (4,723 ) - 31,268 (6,875 ) 444,803 428,983
Multi-asset 8,932 (3,065 ) - - 1,329 (473 ) 6,723 7,258
Alternatives 5,528 716   -   - (278 ) (6 ) 5,960 6,046
 
Index subtotal 1,612,337 13,298   (22,961 ) - 187,736   (24,535 ) 1,765,875 1,721,429
 
Institutional subtotal 2,502,407 9,836   (19,626 ) 10,836 257,482   (40,171 ) 2,720,764 2,663,451
 
Long-term 3,797,765 133,914   -   10,972 334,365   (56,603 ) 4,220,413 $4,102,753
 
Cash management 260,077 22,140 - - 674 (1,911 ) 280,980
Advisory (5) 38,514 (13,665 ) -   - 702   (2,369 ) 23,182
 
Total $4,096,356 $142,389   $-   $10,972 $335,741  

($60,883

) $4,524,575
                                                             
                                           

Year-over-Year Component Changes by Product

                                                             

September 30,

2013

Net

subscriptions

(redemptions)

Adjustments (1) Acquisitions (2) Market change FX impact (3)

September 30,

2014

Average AUM (4)
Equity:
Active $297,484

($16,802

) $- $- $28,643

($4,453

) $304,872 $312,809
iShares 653,528 59,524 - - 52,578 (8,358 ) 757,272 728,306
Fixed income:
Active 646,193 14,300 - - 30,373 (7,696 ) 683,170 669,057
iShares 182,841 16,311 - - 3,431 (3,446 ) 199,137 191,448
Multi-asset 308,117 36,564 5,998 - 29,036 (6,661 ) 373,054 351,371
Alternatives:
Core 72,758 1,279 - 10,972 4,185 (914 ) 88,280 86,211
Currency and commodities (6) 30,619 (1,873 ) -   - (2,762 ) (538 ) 25,446 27,697
 
Subtotal 2,191,540 109,303 5,998 10,972 145,484 (32,066 ) 2,431,231 2,366,899
Non-ETF Index:
Equity 1,197,700 5,718 (5,172 ) - 157,260 (17,545 ) 1,337,961 1,302,575
Fixed income 408,525 18,893   (826 ) - 31,621   (6,992 ) 451,221 433,279
 
Subtotal Non-ETF Index 1,606,225 24,611   (5,998 ) - 188,881   (24,537 ) 1,789,182 1,735,854
 
Long-term $3,797,765 $133,914   $-   $10,972 $334,365  

($56,603

) $4,220,413 $4,102,753
                                                                     
(1)   Amounts include $19.6 billion of AUM related to fund ranges reclassed from institutional to retail and $6.0 billion of AUM reclassed from non-ETF index equity and fixed income to multi-asset during the fourth quarter of 2013.
(2) Amounts represent $11.0 billion of AUM acquired in the MGPA acquisition in October 2013.
(3) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(4) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(5) Advisory AUM represents long-term portfolio liquidation assignments.
(6)

Amounts include commodity iShares.

 
                                           

SUMMARY OF REVENUE

(in millions), (unaudited)

                                                             

Three Months Ended
September 30,

Three Months 
Ended

Nine Months Ended
September 30,

2014

2013

Change

June 30, 2014

Change

2014

2013

Change

Investment advisory, administration fees and securities lending revenue:

 

 

Equity:
Active $475 $425 $50 $478 ($3 ) $1,416 $1,290 $126
iShares 708 589 119 677 31 2,019 1,744 275
Fixed income:
Active 359 314 45 346 13 1,029 948 81
iShares 123 113 10 122 1 358 349 9
Multi-asset 315 262 53 300 15 901 763 138
Alternatives:
Core 159 142 17 161 (2 ) 479 414 65
Currency and commodities 23 27 (4 ) 23 -   68 82 (14 )
 
Subtotal 2,162 1,872 290 2,107 55 6,270 5,590 680
Non-ETF Index:
Equity 168 145 23 183 (15 ) 509 446 63
Fixed income 66 61 5   71 (5 ) 195 179 16  
 
Subtotal Non-ETF Index 234 206 28   254 (20 ) 704 625 79  
 
Long-term 2,396 2,078 318 2,361 35 6,974 6,215 759
Cash management 72 75 (3 ) 73 (1 ) 219 244 (25 )
 
Total base fees 2,468 2,153 315 2,434 34 7,193 6,459 734
 
Investment advisory performance fees:
Equity 8 11 (3 ) 31 (23 ) 61 45 16
Fixed income 6 2 4 5 1 19 12 7
Multi-asset 8 4 4 10 (2 ) 21 14 7
Alternatives 111 79 32   69 42   305 222 83  
 
Total 133 96 37 115 18 406 293 113
 
BlackRock Solutions and advisory 165 156 9 146 19 465 420 45
Distribution fees 17 19 (2 ) 18 (1 ) 54 54 -
Other revenue 66 48 18   65 1   179 177 2  
 

Total revenue

$2,849

$2,472

$377

 

$2,778

$71

 

$8,297

$7,403

$894

 
                                                             

Highlights

  • Investment advisory, administration fees and securities lending revenue increased $315 million from the third quarter of 2013 due to higher long-term average AUM. Securities lending fees of $115 million in the current quarter increased $16 million from the third quarter of 2013.

    Investment advisory, administration fees and securities lending revenue increased $34 million from the second quarter of 2014 due to higher long-term average AUM and the effect of one additional revenue day in the current quarter, partially offset by a decrease of $25 million related to seasonally lower securities lending fees.
  • Performance fees increased $37 million from the third quarter of 2013, primarily reflecting higher fees from alternative products.
  • BlackRock Solutions and advisory revenue increased $19 million from the second quarter of 2014 due to higher revenue from advisory assignments and Aladdin® mandates. BlackRock Solutions and advisory revenue included $119 million in Aladdin business revenue in the current quarter compared with $109 million in the second quarter of 2014.
  • Other revenue increased $18 million from the third quarter of 2013, primarily due to higher earnings from certain strategic investments and higher transition management service fees.
                       
SUMMARY OF EXPENSE

(in millions), (unaudited)

                                     

Three

Months Ended
September 30,

 

Three
Months
Ended

Nine Months Ended
September 30,

2014 2013 Change

 

June 30,
2014

Change

2014   2013

 

Change

Operating Expense
Employee compensation and benefits $973 $866 $107 $948 $25 $2,903 $2,635 $268
Distribution and servicing costs 90 85 5 89 1 268 266 2
Amortization of deferred sales commissions 14 14 - 14 - 43 38 5
Direct fund expense 199 167 32 187 12 565 490 75
General and administration 376 334 42 377 (1 ) 1,066 1,130 (64 )
Amortization of intangible assets 40 40 - 41 (1 )   122 120 2  
Total Operating Expense $1,692 $1,506 $186 $1,656 $36     $4,967 $4,679 $288  
                                           

Highlights

  • Employee compensation and benefits increased $107 million from the third quarter of 2013, reflecting higher headcount and higher incentive compensation driven by higher operating income.
  • Direct fund expense increased $32 million from the third quarter of 2013, reflecting higher average AUM where BlackRock pays certain nonadvisory expenses of the funds.
  • General and administration expense increased $42 million from the third quarter of 2013, reflecting a $50 million reduction of an indemnification asset (offset by a $50 million tax benefit – see Income Tax Expense highlights), higher professional services, marketing and promotional, and other general and administration expense, partially offset by foreign currency exchange movements.

    Amounts related to the reduction of the indemnification asset have been excluded from as adjusted results.
                 
SUMMARY OF NONOPERATING INCOME (EXPENSE)

(in millions), (unaudited)

                                     

Three Months
Ended
September 30,

Three Months
Ended
June 30,
2014

Nine Months Ended
September 30,

2014 2013 Change Change 2014 2013 Change
Nonoperating income (expense), GAAP basis ($52 ) ($18 ) ($34 ) $16 ($68 ) ($19 ) $92 ($111 )
Less: Net income (loss) attributable to NCI (44 ) (1 ) (43 ) 33   (77 ) (23 ) 10   (33 )
 
Nonoperating income (expense)(1) ($8 ) ($17 ) $9   ($17 ) $9   $4   $82   ($78 )
 

 

 

Estimated
economic
investments at
September 30,
2014(2)

 

Three Months
Ended
September 30,

Three Months
Ended
June 30,
2014

Nine Months Ended
September 30,

2014 2013 Change Change 2014 2013 Change
Net gain (loss) on investments(1)
Private equity 20-25 % $10 $12 ($2 ) $12 ($2 ) $66 $35 $31
Real estate 5-10 % 3 7 (4 ) 8 (5 ) 13 17 (4 )
Distressed credit/mortgage funds/opportunistic funds < 5% 17 5 12 6 11 33 28 5
Hedge funds/funds of hedge funds

25-30

% 8 (3 ) 11 8 - 27 5 22
Other investments(3)

35-40

% 5   2   3   3   2   10   11   (1 )
 
Subtotal 43 23 20 37 6 149 96 53
Gain related to the PennyMac IPO - - - - - - 39 (39 )
Gain related to the Charitable Contribution - - - - - - 80 (80 )
Investments related to deferred compensation plans -   4   (4 ) 3   (3 ) 6   8   (2 )
 
Total net gain (loss) on investments(1) 43 27 16 40 3 155 223 (68 )
Interest and dividend income 10 8 2 3 7 23 18 5
Interest expense (61 ) (52 ) (9 ) (60 ) (1 ) (174 ) (159 ) (15 )
 
Net interest expense (51 ) (44 ) (7 ) (57 ) 6   (151 ) (141 ) (10 )
 
Total nonoperating income (expense)(1) (8 ) (17 ) 9 (17 ) 9 4 82 (78 )
Gain related to the Charitable Contribution - - - - - - (80 ) 80

Compensation expense related to
(appreciation) depreciation on deferred compensation plans

-   (4 ) 4   (3 ) 3   (6 ) (8 ) 2  
 
Nonoperating income (expense), as adjusted(1) ($8 ) ($21 ) $13   ($20 ) $12   ($2 ) ($6 ) $4  
                                                 
(1)   Net of net income (loss) attributable to noncontrolling interests (“NCI”).
(2) Percentages represent estimated percentages of BlackRock’s corporate economic investment portfolio at September 30, 2014. Economic investment amounts at June 30, 2014 for private equity, real estate, distressed credit/mortgage funds/opportunistic funds, hedge funds/funds of hedge funds and other investments were $315 million, $125 million, $143 million, $332 million and $583 million, respectively. See the 2014 second quarter Form 10-Q for more information.
(3) Amounts include net gains (losses) related to equity and fixed income investments, and BlackRock’s seed capital hedging program.

Highlights

  • Net gains on investments for the current quarter increased $16 million from the third quarter of 2013 reflecting higher net positive marks.
       
INCOME TAX EXPENSE  

(in millions), (unaudited)

       
      Three

Months Ended
September 30,

    Three

Months
Ended

   

Nine Months Ended
September 30,

2014   2013 Change

June 30,
2014

Change

2014   2013 Change
Income tax expense       $232   $219   $13   $297   ($65 )   $853   $715   $138
 

Highlights

  • The third quarter 2014 GAAP effective tax rate of 20.2% included a $32 million noncash benefit, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes, which has been excluded from the as adjusted results.

    In addition, the third quarter 2014 GAAP effective tax rate of 20.2% included a $94 million tax benefit, primarily due to the resolution of certain outstanding tax matters related to the acquisition of Barclays Global Investors. In connection with the acquisition, BlackRock recorded a $50 million indemnification asset for unrecognized tax benefits. Due to the resolution of such tax matters in the current quarter, BlackRock recorded $50 million of general and administration expense to reflect the reduction of the indemnification asset and an offsetting $50 million tax benefit. The $50 million general and administrative expense and $50 million tax benefit have been excluded from as adjusted results as there is no impact on BlackRock’s book value.

    The third quarter 2013 GAAP effective tax rate of 23.1% included a $64 million net noncash benefit primarily related to the revaluation of certain deferred income tax liabilities, including legislation enacted in the United Kingdom and domestic state and local income tax changes, which has been excluded from the as adjusted results.

    The second quarter 2014 GAAP effective tax rate of 26.8% included a $23 million net noncash expense, primarily associated with the revaluation of certain deferred income tax liabilities arising from the state and local tax effect of changes in the Company’s organizational structure, which has been excluded from as adjusted results. In addition, the second quarter of 2014 GAAP tax rate benefited from an improvement in the geographic mix of earnings and included a $34 million net tax benefit related to several favorable nonrecurring items.

ECONOMIC TANGIBLE ASSETS

(in billions), (unaudited)

The Company presents economic tangible assets as additional information to enable investors to eliminate gross presentation of certain assets that have equal and offsetting liabilities or noncontrolling interests that ultimately do not have an impact on stockholders’ equity (excluding appropriated retained earnings related to consolidated collateralized loan obligations) or cash flows. In addition, goodwill and intangible assets are excluded from economic tangible assets.

Economic tangible assets include cash, receivables, seed and co-investments, regulatory investments and other assets.

         
  September 30,   December 31,
2014 (Est.) 2013

Total balance sheet assets

$223

$220

Separate account assets and separate account collateral held under securities lending agreements (178 ) (177 )
Consolidated VIEs/sponsored investment funds

(3

)

(3

)

Goodwill and intangible assets, net (30 )

(30

)

Economic tangible assets

$12

 

$10

 
         
   

RECONCILIATION OF U.S. GAAP OPERATING INCOME AND OPERATING MARGIN TO OPERATING INCOME AND OPERATING MARGIN, AS ADJUSTED

(in millions), (unaudited)

         
Three Months Ended Nine Months Ended
September 30,   June 30, September 30,
2014   2013 2014 2014   2013
Operating income, GAAP basis $1,157 $966 $1,122 $3,330 $2,724
Non-GAAP expense adjustments:
Reduction of indemnification asset 50 - - 50 -
PNC LTIP funding obligation 7 8 8 23 25
Charitable Contribution - - - - 124
Compensation expense related to appreciation (depreciation) on deferred compensation plans -   4   3   6   8  
 
Operating income, as adjusted 1,214 978 1,133 3,409 2,881
Closed-end fund launch costs - - - - 16
Closed-end fund launch commissions -   -   -   -   2  
 
Operating income used for operating margin measurement $1,214   $978   $1,133   $3,409   $2,899  
 
Revenue, GAAP basis $2,849 $2,472 $2,778 $8,297 $7,403
Non-GAAP adjustments:
Distribution and servicing costs (90 ) (85 )

(89

)

(268 ) (266 )
Amortization of deferred sales commissions

(14

)

(14 )

(14

)

(43

)

(38 )
 
Revenue used for operating margin measurement $2,745   $2,373   $2,675   $7,986   $7,099  
 
Operating margin, GAAP basis 40.6 % 39.1 % 40.4 % 40.1 % 36.8 %
 
Operating margin, as adjusted 44.2 % 41.2 % 42.4 % 42.7 % 40.8 %
                     

See note (1) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

   

RECONCILIATION OF U.S. GAAP NONOPERATING INCOME NET OF NCI TO NONOPERATING INCOME NET OF NCI, AS ADJUSTED

(in millions), (unaudited)

         
Three Months Ended Nine Months Ended
September 30,  

June 30,

September 30,
2014   2013 2014 2014   2013

Nonoperating income (expense), GAAP basis

($52

)

($18

)

$16

($19

)

$92

Less: Net income (loss) attributable to NCI (44 ) (1 ) 33   (23 ) 10  
 
Nonoperating income (expense), net of NCI (8 ) (17 ) (17 ) 4 82
Gain related to Charitable Contribution - - - -

(80

)

Compensation expense related to (appreciation) depreciation on deferred compensation plans -   (4 )

(3

)

(6

)

(8

)

 

Nonoperating income (expense), less net income (loss)

attributable to NCI, as adjusted

($8

)

($21

)

($20

)

($2

)

($6

)

                               

See note (2) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

         
RECONCILIATION OF U.S. GAAP NET INCOME ATTRIBUTABLE TO BLACKROCK TO NET INCOME ATTRIBUTABLE TO BLACKROCK, AS ADJUSTED

(in millions, except per share data), (unaudited)

 

                   
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2014 2013 2014 2014 2013
Net income attributable to BlackRock, Inc., GAAP basis $917 $730 $808 $2,481 $2,091
Non-GAAP adjustments, net of tax:
PNC LTIP funding obligation 5 6 6 17 17
Income tax matters (32 )

(64

)

23 (9 ) (64 )
Amount related to the Charitable Contribution -   -   - -  

(13

)

 
Net income attributable to BlackRock, Inc., as adjusted $890   $672   $837 $2,489   $2,031  
 
Diluted weighted-average common shares outstanding(4) 170.8 173.4 171.2 171.4 174.0
Diluted earnings per common share, GAAP basis(4) $5.37 $4.21 $4.72 $14.48 $12.02
Diluted earnings per common share, as adjusted(4) $5.21 $3.88 $4.89 $14.53 $11.67
                             

See notes (3) and (4) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION (unaudited)

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Computations for all periods are derived from the condensed consolidated statements of income as follows:

(1) Operating income, as adjusted, and operating margin, as adjusted:

Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems nonrecurring, recurring infrequently or transactions that ultimately will not impact BlackRock’s book value. Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.

  • Operating income, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by The PNC Financial Services Group, Inc. (“PNC”) has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense). The third quarter 2014 non-GAAP expense adjustments also included the previously mentioned $50 million general and administration expense due to the reduction of an indemnification asset. The $50 million general and administration expense and the offsetting $50 million tax benefit have been excluded from as adjusted results as there is no impact on BlackRock’s book value.

    The nine months ended September 30, 2013 included a $124 million expense related to the Company’s charitable contribution of 6.1 million units of its PennyMac’s equity method investment with a fair value of $124 million to a donor advised fund (the “Charitable Contribution”). The Charitable Contribution has been excluded from operating income, as adjusted due to its nonrecurring nature and because the noncash, nonoperating pre-tax gain of $80 million related to the contributed PennyMac investment is reported in nonoperating income (expense).

    Management believes operating income exclusive of these items is a useful measure in evaluating BlackRock’s operating performance and helps enhance the comparability of this information for the reporting periods presented.
  • Operating margin, as adjusted, allows BlackRock to compare performance from period to period by adjusting for items that may not recur, recur infrequently or may have an economic offset in nonoperating income (expense). BlackRock also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance with other companies. Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. The non-GAAP measure by itself may pose limitations because it does not include all of BlackRock’s revenue and expense.

    Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact BlackRock’s results until future periods.

    Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.

(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted:

Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, equals nonoperating income (expense), GAAP basis, less net income (loss) attributable to NCI, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in nonoperating income (expense), GAAP basis.

Management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of information among reporting periods and is an effective measure for reviewing BlackRock’s nonoperating contribution to results. As compensation expense associated with (appreciation) depreciation on investments related to certain deferred compensation plans, which is included in operating income, substantially offsets the gain (loss) on the investments set aside for these plans, management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock’s nonoperating results that impact book value. During the nine months ended September 30, 2013, the noncash, nonoperating pre-tax gain of $80 million related to the contributed PennyMac investment has been excluded from nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted due to its nonrecurring nature and because the more than offsetting associated Charitable Contribution expense of $124 million is reported in operating income.

(3) Net income attributable to BlackRock, Inc., as adjusted:

Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock’s profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant nonrecurring items, charges that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

The third quarter of 2014 included a $32 million noncash benefit, primarily associated with the revaluation of certain deferred income tax liabilities as a result of domestic state and local tax changes, which has been excluded from the as adjusted results. The second quarter of 2014 included a $23 million net noncash tax expense primarily related to the revaluation of certain deferred income tax liabilities. Both the $32 million noncash benefit and the $23 million net noncash expense have been excluded from as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented.

See note (1) Operating income, as adjusted, and operating margin, as adjusted, for information on the PNC LTIP funding obligation and the Charitable Contribution.

For each period presented, the non-GAAP adjustments related to the PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. The nine months ended September 30, 2013 included a tax benefit of approximately $57 million recognized in connection with the Charitable Contribution. The tax benefit has been excluded from net income attributable to BlackRock, Inc., as adjusted due to the nonrecurring nature of the Charitable Contribution.

(4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.

Forward-looking Statements

This earnings release, and other statements that BlackRock may make, 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” and 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 risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this earnings release, 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 and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates 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; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or PNC; (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

BlackRock’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and BlackRock’s subsequent filings with the SEC, accessible on the SEC’s website at www.sec.gov and on BlackRock’s website at www.blackrock.com, discuss these factors in more detail and identify additional factors that can affect forward-looking statements. The information contained on the Company’s website is not a part of this earnings release.

Performance Notes

Past performance is not indicative of future results. Except as specified, the performance information shown is as of September 30, 2014 and is based on preliminary data available at that time. The performance data shown reflects information for all actively and passively managed equity and fixed income accounts, including U.S. registered investment companies, European-domiciled retail funds and separate accounts for which performance data is available, including performance data for high net worth accounts available as of August 31, 2014. The performance data does not include accounts terminated prior to September 30, 2014 and accounts for which data has not yet been verified. If such accounts had been included, the performance data provided may have substantially differed from that shown.

Performance comparisons shown are gross-of-fees for U.S. retail, institutional and high net worth separate accounts as well as EMEA institutional separate accounts, and net-of-fee for European domiciled retail funds. The performance tracking shown for institutional index accounts is based on gross-of-fee performance and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM available as of September 30, 2014 for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund. Fund performance reflects the reinvestment of dividends and distributions.

Source of performance information and peer medians 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.

Contacts

BlackRock, Inc.
Tom Wojcik, Investor Relations
212.810.8127
or
Brian Beades, Media Relations
212.810.5596

Contacts

BlackRock, Inc.
Tom Wojcik, Investor Relations
212.810.8127
or
Brian Beades, Media Relations
212.810.5596