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| BLK > SEC Filings for BLK > Form 10-K on 1-Mar-2013 | All Recent SEC Filings |
1-Mar-2013
Annual Report
Forward-looking Statements
This report, 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
report 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 and information
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 The PNC Financial Services Group, Inc. ("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.
Overview
BlackRock, Inc. ("BlackRock" or the "Company") is the world's largest publicly traded investment management firm. BlackRock has portfolio managers located around the world, including the United States, the United Kingdom, the Netherlands, Japan, Hong Kong, Singapore, Australia and Germany. At December 31, 2012, the Company managed $3.792 trillion of assets under management ("AUM") on behalf of institutional and individual investors worldwide. The Company provides a wide array of products, including passively and actively managed products in various equity, fixed income, multi-asset class, alternative investment and cash management products. BlackRock offers clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange-traded products, hedge funds and funds of funds. BlackRock also provides global advisory services for private investment funds and retail products. The Company's non-U.S. investment funds are based in a number of domiciles and cover a range of asset classes, including equities, fixed income, cash management and alternatives. In addition, BlackRock Solutions® provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.
In the United States, retail offerings include various open-end and closed-end funds, including iShares®, the global product leader in exchange-traded products for institutional, retail and HNW investors. There were 621 iShares products at December 31, 2012 compared with 504 at December 31, 2011 globally across equities, fixed
income and commodities, which trade like common stocks on 20 exchanges worldwide. iShares AUM totaled $752.7 billion at December 31, 2012. The BlackRock Global Funds, the Company's primary retail fund group offered outside the United States, are authorized for distribution in 35 jurisdictions worldwide. Additional fund offerings include structured products, real estate funds, hedge funds, hedge funds of funds, private equity funds and funds of funds, managed futures funds and exchange-traded products. These products are sold to both U.S. and non-U.S. HNW, retail and institutional investors in a wide variety of active and passive strategies covering both equity and fixed income assets.
BlackRock's client base consists of financial institutions and other corporate clients, pension plans, charities, official institutions, such as central banks, sovereign wealth funds, supranational authorities and other government entities, HNW individuals and retail investors around the world. BlackRock maintains a significant sales and marketing presence both inside and outside the United States that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships. BlackRock also distributes its products and services through Merrill Lynch under a
global distribution agreement in effect until January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met.
On May 29, 2012, BlackRock completed a secondary offering of 26,211,335 shares of common stock held by Barclays Bank PLC ("Barclays") at a price of $160.00 per share, which included 23,211,335 shares of common stock issued upon the conversion of Series B Convertible Participating Preferred Stock ("Series B Preferred") by a subsidiary of Barclays. Upon completion of this offering, BlackRock repurchased 6,377,552 shares directly from Barclays at a price of $156.80 per share (consisting of 6,346,036 shares of Series B Preferred and 31,516 shares of common stock). The total transactions, including the full exercise of the underwriters' option to purchase 2,621,134 additional shares in the secondary offering, amounted to 35,210,021 shares, resulting in Barclays exiting its entire ownership position in BlackRock.
On December 31, 2012, PNC held 20.8% of the Company's voting common stock and 21.9% of the Company's capital stock, which includes outstanding common and non-voting preferred stock.
Financial information concerning the Company's results of operations for the 12 months ended December 31, 2012 ("2012"), December 31, 2011 ("2011") and December 31, 2010 ("2010") are discussed below.
Executive Summary (Dollar amounts in millions, except per share data) 2012 2011 2010 GAAP basis: Total revenue $ 9,337 $ 9,081 $ 8,612 Total expenses 5,813 5,832 5,614 Operating income $ 3,524 $ 3,249 $ 2,998 Operating margin 37.7 % 35.8 % 34.8 % Non-operating income (expense), less net income (loss) attributable to non-controlling interests (1) (36 ) (116 ) 36 Income tax expense (1,030 ) (796 ) (971 ) Net income attributable to BlackRock $ 2,458 $ 2,337 $ 2,063 % attributable to common shares 99.9 % 99.1 % 98.6 % Net income attributable to common shares $ 2,455 $ 2,315 $ 2,033 Diluted EPS components: Operating income $ 13.65 $ 11.60 $ 10.28 Non-operating income (expense), less net income (loss) attributable to non-controlling interests (1) (0.14 ) (0.41 ) 0.12 Income tax benefit 0.28 1.18 0.15 Diluted earnings per common share $ 13.79 $ 12.37 $ 10.55 Effective tax rate 29.5 % 25.4 % 32.0 % As adjusted(2): Total revenue $ 9,337 $ 9,081 $ 8,612 Total expenses 5,763 5,689 5,445 Operating income $ 3,574 $ 3,392 $ 3,167 Operating margin 40.4 % 39.7 % 39.3 % Non-operating income (expense), less net income (loss) attributable to non-controlling interests (1) (42 ) (113 ) 25 Income tax expense (1,094 ) (1,040 ) (1,053 ) Net income attributable to BlackRock $ 2,438 $ 2,239 $ 2,139 % attributable to common shares 99.9 % 99.1 % 98.6 % Net income attributable to common shares $ 2,435 $ 2,218 $ 2,109 Diluted EPS components: Operating income $ 13.84 $ 12.12 $ 10.85 Non-operating income (expense), less net income (loss) attributable to non-controlling interests (1) (0.16 ) (0.40 ) 0.09 Income tax benefit - 0.13 - Diluted earnings per common share $ 13.68 $ 11.85 $ 10.94 Effective tax rate 31.0 % 31.7 % 33.0 % Other: Assets under management (end of period) $ 3,791,588 $ 3,512,681 $ 3,560,968 Diluted weighted-average common shares outstanding(3) 178,017,679 187,116,410 192,692,047 Shares outstanding (end of period) 171,215,729 178,309,109 191,191,553 Book value per share(4) $ 148.20 $ 140.07 $ 136.09 Cash dividends declared and paid per share $ 6.00 $ 5.50 $ 4.00 |
(1) Net of net income (loss) attributable to non-controlling interests ("NCI") (redeemable and nonredeemable).
(2) As adjusted items are described in more detail in Non-GAAP Financial Measures.
(3) Unvested restricted stock units ("RSUs") that contain non-forfeitable rights to dividends are not included as they are deemed to be participating securities in accordance with accounting principles generally accepted in the Unites States ("GAAP"). Upon vesting of the participating RSUs the shares are added to the weighted-average shares outstanding that results in an increase to the percentage of net income attributable to common shares. In addition, non-voting preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share.
(4) Total BlackRock stockholders' equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at December 31 of the respective year-end.
2012 Compared with 2011.
GAAP. Operating income of $3,524 million and operating margin of 37.7% increased $275 million and 190 bps, respectively, from 2011 reflecting growth in base fees and higher performance fees. Operating income in 2012 included a $30 million charge related to a contribution to certain of the Company's bank-managed short-term investment funds ("STIFs"). Non-operating income (expense), less net income (loss) attributable to non-controlling interests) increased $80 million due to higher net positive marks on investments in 2012 compared with 2011, partially offset by higher interest expense resulting from long-term debt issuances in May 2012 and May 2011. In 2012, income tax expense included a $21 million benefit related to the resolution of certain outstanding tax positions and a $50 million net non-cash benefit related to the revaluation of certain deferred income tax liabilities including tax legislation enacted in the United Kingdom and the state and local income tax effect resulting from changes in the Company's organizational structure. In 2011, income tax expenses included a $24 million benefit related to the resolution of certain outstanding tax positions and $198 million of net non-cash tax benefits due to a state tax election and enacted U.K., Japan, U.S. state and local tax legislation. Earnings per diluted common share rose $1.42 from 2011 due to higher net income and the benefit of share repurchases. During 2012, the Company repurchased 9.1 million shares.
As Adjusted.Operating income of $3,574 million and operating margin of 40.4% increased $182 million and 70 bps, respectively, from 2011 reflecting higher revenues. Operating income on an as adjusted basis excluded non-GAAP expense adjustments totaling $50 million in 2012 and $143 million in 2011. Non-operating income (expense), less net income (loss) attributable to non-controlling interests) increased $71 million. Income tax expense on an as adjusted basis excluded the $50 million and $198 million non-cash benefits for 2012 and 2011, respectively, described above. Earnings per diluted common share rose $1.83 from 2011 reflecting the improvement in net income and the benefit of share repurchases.
See Non-GAAP Financial Measures for further information on as adjusted items.
2011 Compared with 2010.
GAAP. Operating income of $3,249 million and operating margin of 35.8% increased $251 million and 100 bps, respectively, from 2010 reflecting higher base fees and higher BlackRock Solutions and advisory revenue, partially offset by lower performance fees and higher operating expenses related to business growth. Operating income and operating margin in 2011 also reflected $63 million of U.K. lease exit costs related to the Company's exit from two London locations and $32 million of restructuring
charges. Results for 2010 included $90 million of Barclays Global Investors
("BGI") integration costs. Non-operating income (expense), less net income
(loss) attributable to non-controlling interests) decreased $152 million due to
lower net positive marks on investments compared with 2010 and higher interest
expense resulting from long-term debt issuances in May 2011. Income tax expense
in 2011 included the previously mentioned $24 million benefit and $198 million
of net non-cash tax benefits. In 2010, income tax expense included a $30 million
net non-cash benefit related to the revaluation of certain net deferred income
tax liabilities primarily related to acquired intangible assets due to enacted
U.K. tax legislation. In addition, 2010 included the effect of favorable tax
rulings and the resolution of certain outstanding tax positions. Earnings per
diluted common share rose $1.82 from 2010.
As Adjusted. Operating income of $3,392 million and operating margin of 39.7% increased $225 million and 40 bps, respectively, from 2010 reflecting higher revenues, partially offset by net increases in operating expenses as discussed above. Operating income on an as adjusted basis excluded non-GAAP expense adjustments totaling $143 million in 2011 and $169 million in 2010. Non-operating income (expense), less net income (loss) attributable to non-controlling interests) decreased $138 million. Income tax expense on an as adjusted basis excluded the $198 million and $30 million non-cash benefits in 2011 and 2010, respectively, described above. Earnings per diluted common share rose $0.91 from 2010.
For further discussion of BlackRock's revenue, expenses, non-operating results and income tax expense, see Discussion of Financial Results herein.
Business Outlook
BlackRock offers clients a broad range of equity, fixed income, multi-asset and alternative investment products designed to track various indices (beta), achieve returns in excess of specified benchmarks (alpha) or deliver absolute returns. The diversity of BlackRock's investment platform, across asset classes, investment styles and geographies - combined with world-class risk management, analytics and advisory expertise - positions the Company well to meet the needs of clients in 2013 and beyond and to continue to attract asset flows as investor needs and sentiment evolve.
BlackRock ended 2012 with record assets under management ("AUM") of $3.792 trillion as clients sought efficient tools and innovative solutions to meet their investment objectives over both the short and long term. The Company experienced strong client demand for exchange traded funds and products ("ETFs" and "ETPs", respectively), alternative and emerging market investment products, high-yielding income strategies, outcome-oriented solutions and retirement-related products, and the Company expects this demand to continue into 2013.
In early 2013, BlackRock continues to see signs of an improving global economy. While this offers the potential for greater financial market stability, political and regulatory dynamics, persistent low interest rates and protracted periods of heightened volatility will continue to pose challenges in the investment landscape. BlackRock will continue to monitor these factors actively in 2013, along with global credit and monetary policies (including quantitative easing and the direction of interest rates) and their effects on corporate earnings growth.
While investing for stable income remains a core objective for many of its
clients, BlackRock expects clients - particularly in its institutional business
- to trend towards barbelling their risk profile through the combination of
active and index strategies and the use of alternative and multi-asset
investment solutions, complemented with access to BlackRock's risk management
tools and advisory services.
AUM and Flows
• BlackRock's unique combination of index and active capabilities positions the Company well to help underfunded corporate and public pension plans narrow the gap between their assets and liabilities with barbell strategies that use a combination of index, alpha, multi-asset and alternative products. As responsibility for retirement funding continues to move away from defined benefit plans into defined contributions plans and ultimately to individuals, BlackRock is also well positioned to offer individual investment options through its LifePath® target date portfolios and a wide array of ETFs and other mutual fund products.
• BlackRock has a leading global market share in ETPs through iShares, which leads the industry in AUM and the number of products offered in various markets. The industry's global growth reflects both continued adoption of ETFs by institutional and retail investors and the introduction of new products. ETP asset growth has historically been linked to positive markets, with investors looking to capitalize on strong market returns. In the continued environment of ultra-low interest rates, industry flows shifted in 2012 toward fixed income products and, within equities, to developed markets. BlackRock believes there is opportunity in emerging markets and is well positioned to grow its active franchise in these markets, including China. While more asset managers may enter the marketplace and offer similar products at lower fees, BlackRock believes that many factors beyond price influence investor preferences. These preferences are driven to varying degrees by performance (as measured by tracking error, or the
difference between net returns on the ETP and the corresponding targeted index), liquidity (the bid-ask spread), tax-efficiency, transparency and client service.
• BlackRock believes alternative investments will continue to become more important for both institutional and retail clients seeking higher returns through alpha-generating products. Several of BlackRock's single strategy hedge funds are top performers in the industry and are well positioned to grow in 2013.
• Cash management assets may decline from year-end levels if clients begin to re-risk their portfolios in the search for yield or equity return opportunities amid continued low interest rates, including in the United States where the Federal Reserve expects rates to remain low until 2014. BlackRock's diversified global product offerings, record of client service and independent advisory capabilities may enable it to retain a portion of these assets.
Regulatory Reform
• BlackRock will continue to monitor the evolving regulatory landscape and to assess its influence on the competitive environment, including on liquidity and trading costs, which may present risks as well as opportunities for BlackRock and its clients.
Performance fees and BRS/advisory fees
• BlackRock improved investment performance in key areas such as fixed income and scientific active equity in 2012 and strong investment performance will again be a priority in 2013. Higher market levels and investment performance may continue to enable the Company's alternative investment products to contribute additional performance fee revenue.
• BlackRock expects continuing strong global demand for its Aladdin operating platform and its comprehensive risk reporting capabilities from sophisticated institutional investors and governmental agencies investing in longer-term risk management solutions. The Company also expects to see continuing strong demand for its BlackRock Solutions financial markets advisory services.
Future opportunities
• BlackRock intends to continue to invest in its people, its platform and its global brand. The Company will continue to build out its product offering and geographic presence, including in emerging markets, and to grow its iShares franchise, both through organic growth and targeted acquisitions.
Non-GAAP Financial Measures
BlackRock reports its financial results in accordance with GAAP; however, management believes evaluating the Company's ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock's financial performance over time. BlackRock's management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Computations for all periods are derived from the consolidated statements of income as follows:
(a) Operating income, as adjusted, and operating margin, as adjusted:
Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems non-recurring, or transactions that ultimately will not impact BlackRock's book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement, divided by revenue (net of distribution and servicing costs and amortization of deferred sales commissions) used for operating margin measurement, as indicated in the table below.
(Dollar amounts in millions) 2012 2011 2010 Operating income, GAAP basis $ 3,524 $ 3,249 $ 2,998 Non-GAAP expense adjustments: BGI transaction/integration costs Employee compensation and benefits - - 25 General and administration - - 65 Total BGI transaction/integration costs - - 90 U.K. lease exit costs (8 ) 63 - Contribution to STIFs 30 - - Restructuring charges - 32 - PNC LTIP funding obligation 22 44 58 Merrill Lynch compensation contribution - 7 10 Compensation expense related to appreciation (depreciation) on deferred compensation plans 6 (3 ) 11 Operating income, as adjusted 3,574 3,392 3,167 Closed-end fund launch costs 22 26 15 Closed-end fund launch commissions 3 3 2 Operating income used for operating margin measurement $ 3,599 $ 3,421 $ 3,184 Revenue, GAAP basis $ 9,337 $ 9,081 $ 8,612 Non-GAAP adjustments: . . . |
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