<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________.
Commission file number 001-15305
BlackRock, Inc.
---------------
(Exact name of registrant as specified in its charter)
Delaware 51-038-0803
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 754-5560
--------------
(Registrant's telephone number, including area code)
____________________________
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
As of August 10, 2000, there were 9,002,841 shares of the registrant's
class A common stock issued and outstanding and 54,886,382 shares of the
registrant's class B common stock issued and outstanding.
<PAGE>
BlackRock, Inc.
Index to Form 10-Q
PART I
FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
i
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BlackRock, Inc.
Consolidated Statements of Financial Condition
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- --------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 116,633 $ 157,129
Accounts receivable 71,024 63,726
Investments, available for sale (cost: $10,141 and $2,486, respectively) 10,004 2,255
Property and equipment, net 28,661 22,677
Intangible assets, net 197,370 194,257
Receivable from affiliates 1,225 2,111
Other assets 8,812 5,427
------------- --------------
Total assets $ 433,729 $ 447,582
============= ==============
Liabilities and stockholders' equity
Note payable to affiliate $ -- $ 28,200
Accrued compensation 63,950 90,350
Accounts payable and accrued liabilities
Affiliate 30,404 33,476
Other 9,357 10,474
Accrued interest payable to affiliates -- 705
Acquired management contract obligation 8,040 --
Other liabilities 791 3,851
------------- --------------
Total liabilities 112,542 167,056
------------- --------------
Stockholders' equity
Common stock, class A, $0.01 par value, 250,000,000 shares authorized
and 9,001,419 and 9,000,000 shares outstanding, respectively 90 90
Common stock, class B, $0.01 par value, 100,000,000 shares authorized
and 54,864,382 shares outstanding 549 549
Additional paid-in capital 169,714 169,554
Retained earnings 152,757 112,703
Unearned compensation (1,840) (2,139)
Accumulated other comprehensive loss (83) (231)
------------- --------------
Total stockholders' equity 321,187 280,526
------------- --------------
Total liabilities and stockholders' equity $ 433,729 $ 447,582
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
BlackRock, Inc.
Consolidated Statements of Income
(Dollar amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Investment advisory and administration fees
Mutual funds 56,228 51,123 115,328 99,637
Separate accounts 51,204 35,968 93,974 71,334
BAI -- (614) -- (2,054)
Other income
Affiliate 1,250 1,250 2,500 2,500
Other 3,889 4,490 8,829 8,675
---------- ---------- ---------- ----------
Total revenue 112,571 92,217 220,631 180,092
---------- ---------- ---------- ----------
Expense
Employee compensation and benefits 42,680 32,731 83,350 65,963
BAI incentive compensation -- (115) -- (1,493)
Fund administration and servicing costs - affiliates 18,450 18,359 38,209 36,335
General and administration
Affiliate 1,314 1,246 2,503 2,566
Other 13,291 10,663 25,202 21,268
Amortization of intangible assets 2,514 2,413 4,927 4,827
---------- ---------- ---------- ----------
Total expense 78,249 65,297 154,191 129,466
---------- ---------- ---------- ----------
Operating income 34,322 26,920 66,440 50,626
Non-operating income (expense)
Interest and dividend income 1,417 675 2,467 1,293
Interest expense (86) (3,451) (439) (7,121)
---------- ---------- ---------- ----------
Total non-operating income (expense) 1,331 (2,776) 2,028 (5,828)
---------- ---------- ---------- ----------
Income before income taxes 35,653 24,144 68,468 44,798
Income taxes 14,796 10,377 28,414 18,813
---------- ---------- ---------- ----------
Net income 20,857 13,767 40,054 25,985
========== ========== ========== ==========
Earnings per share
Basic $ 0.33 $ 0.25 $ 0.63 $ 0.47
Diluted $ 0.32 $ 0.25 $ 0.62 $ 0.47
Weighted-average shares outstanding
Basic 63,865,770 54,807,482 63,865,076 54,807,482
Diluted 64,492,447 54,982,635 64,423,376 54,982,635
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
BlackRock, Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 40,054 $ 25,985
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 9,535 9,456
Amortization of discount on issuance of class B common stock 299 --
Shares issued under the Nonemployee Directors Stock Compensation Plan 29 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (7,298) 4,198
Decrease (increase) in receivable from affiliates 886 (981)
Increase in other assets (3,385) (3,423)
Decrease in accrued compensation (26,400) (19,864)
(Decrease) increase in accounts payable and accrued liabilities (4,189) 2,496
Decrease in accrued interest payable to affiliates (705) (470)
Decrease in other liabilities (3,060) (1,781)
--------- ---------
Cash provided by operating activities 5,766 15,616
Cash flows from investing activities
Purchase of property and equipment (10,592) (9,114)
(Purchase) sale of investments (7,575) 110
--------- ---------
Cash used in investing activities (18,167) (9,004)
Cash flows from financing activities
Repayment of note and loan payable to affiliates (28,200) (43,800)
Additional proceeds received from issuance of class A common stock 222 --
Expenses related to issuance of class A common stock (91) --
--------- ---------
Cash used in financing activities (28,069) (43,800)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (26) --
--------- ---------
Net decrease in cash and cash equivalents (40,496) (37,188)
Cash and cash equivalents, beginning of period 157,129 113,450
--------- ---------
Cash and cash equivalents, end of period $ 116,633 $ 76,262
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BlackRock, Inc.
Notes to Consolidated Financial Statements
Quarter Ended June 30, 2000 and 1999
(Dollar amounts in thousands, except share data)
(unaudited)
1. Significant Accounting Policies
Basis of Presentation
The consolidated interim financial statements of BlackRock, Inc. and
its subsidiaries ("BlackRock" or the "Company") included herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. These consolidated
financial statements are unaudited and should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. The
Company follows the same accounting policies in the preparation of interim
reports. In the opinion of management, the consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the financial position, results of operations and cash
flows of BlackRock for the interim periods presented and are not necessarily
indicative of a full year's results.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the amounts reported in
the financial statements. Actual results could differ from those estimates.
Intangible Assets
Intangible assets are comprised of goodwill and management contract
acquired. Goodwill is amortized on a straight-line basis over their estimated
useful lives of twenty-five years. Management contract acquired is amortized in
proportion to and over the period of contract revenue. This period is estimated
to be ten years. The Company continually evaluates the carrying value of
intangible assets. Any impairment would be recognized when the future operating
cash flows derived from such intangible assets is less than their carrying
value. In such instances, impairment, if any, is measured on a discounted future
cash flow basis.
Reclassification of Prior Period's Statements
Certain items previously reported have been reclassified to conform
with the current year's presentation.
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company has adopted SAB No. 101 as required in the first quarter of 2000. The
adoption of SAB No. 101 has not had a material effect on the Company's
consolidated results of operations and financial position.
4
<PAGE>
2. Property and Equipment
Property and equipment consists of the following:
June 30, December 31,
-----------------------
2000 1999
------- -------
Equipment and Computer Software $31,353 $26,778
Leasehold improvements 7,501 7,454
Furniture and fixtures 7,106 6,893
Land 3,564 3,564
Construction in progress 5,748 --
------- -------
55,272 44,689
------- -------
Less accumulated depreciation 26,611 22,012
------- -------
Property and equipment, net $28,661 $22,677
======= =======
Depreciation expense was approximately $2,388 and $1,688 for the three
months ended June 30, 2000 and 1999, respectively and $4,608 and $4,629 for the
six months ended June 30, 2000 and 1999, respectively.
During the fourth quarter of 1999, the Company purchased land in
Wilmington, Delaware for $3,564 and is presently constructing an 84,000 square
foot office building at an estimated cost of approximately $20,000.
Construction in progress reflects expenditures on capital projects
located in Wilmington, Delaware and New York City, New York.
3. Intangible Assets
a) Goodwill
The consolidated financial statements reflect the results of
operations of BlackRock Financial Management, LP ("BFM") and
BFM Advisory LP, which were acquired by The PNC Financial
Services Group, Inc. on February 28, 1995. Goodwill recognized
at acquisition approximated $240,000 and is being amortized by
the straight-line method over 25 years.
b) Management Contract Acquired
On May 15, 2000, BlackRock entered into a contract in
connection with the agreement and plan of merger of CORE Cap,
Inc. with Anthracite Capital, Inc., a BlackRock managed REIT.
This agreement assigns the managerial rights and duties of
CORE Cap, Inc.'s former manager to BlackRock for consideration
in the amount of $12,500 to be paid by BlackRock over a ten-
year period. The present value of the acquired contract using
an imputed interest rate of 10 percent is $8,040. This amount
is recorded as an intangible asset and is being amortized over
ten years.
5
<PAGE>
4. Note and Loan Payable to Affiliates
On February 29, 2000, the Company paid the remaining balance
of $28,200 on the unsecured note with B.P. Partners, L.P., an entity comprised
of former partners of BFM, who received deferred notes on February 28, 1995 as
part of the purchase price for BFM.
5. Commitments
a) Lease Commitments
The Company leases its primary office space under agreements
which expire in 2017. Future minimum commitments under these operating
leases, net of rental reimbursements of $1,831 through 2005 from a
sublease arrangement, are as follows:
2000 $ 3,624
2001 4,901
2002 8,774
2003 9,541
2004 9,541
Thereafter 114,693
--------
$151,074
========
In connection with certain lease agreements, the Company is
responsible for escalation payments.
Occupancy expense amounted to $2,181 and $1,911 for the three months
ended June 30, 2000 and 1999, respectively and $4,414 and $3,843 for the six
months ended June 30, 2000 and 1999, respectively.
On May 3, 2000, BlackRock signed a lease with 40 East 52nd Street L.P.
for approximately 171,000 square feet of office space at 40 East 52nd Street,
New York, New York. This location will house BlackRock's corporate headquarters
and will accommodate all of BlackRock's current New York City based operations.
Under the lease, BlackRock will occupy approximately 19,000 square feet in July,
2000 with the remaining 152,000 square feet to commence on or about September 1,
2001. The lease will terminate on February 28, 2017. Total rent payments over
the lease term will approximate $138,000. The 152,000 square feet of new space
will be placed in service in early 2002 consistent with the termination of all
other New York City leaseholds on February 28, 2002.
b) Acquired Management Contract Obligation
In connection with the management contract acquired associated with
the agreement and plan of merger of CORE Cap, Inc. with Anthracite Capital,
Inc., a BlackRock managed REIT, the Company recorded an $8,040 liability using
an imputed interest rate of 10 percent. At June 30, 2000, the future minimum
commitment under the agreement is as follows:
2001 $1,500
2002 1,500
2003 1,500
2004 1,500
2005 1,500
Thereafter 5,000
------
12,500
------
less:
Imputed interest 4,460
------
Present value of Management Contract $8,040
======
6
<PAGE>
6. Comprehensive Income
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 20,857 $ 13,767 $ 40,054 $ 25,985
Accumulated other comprehensive gain (loss):
Unrealized gain (loss) from investments, available for sale, net 423 (99) 174 (99)
Foreign currency translation loss (16) -- (26) --
-------- -------- -------- --------
Comprehensive income $ 21,264 $ 13,668 $ 40,202 $ 25,886
======== ======== ======== ========
</TABLE>
7. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Net income $ 20,857 $ 13,767 $ 40,054 $ 25,985
----------- ----------- ----------- --------------
Basic weighted-average shares outstanding 63,865,770 54,807,482 63,865,076 54,807,482
Dilutive potential shares from forward sales 175,153 175,153 175,153 175,153
Dilutive potential shares from stock options 451,524 -- 383,147 --
----------- ----------- ----------- --------------
Dilutive weighted-average shares outstanding 64,492,447 54,982,635 64,423,376 54,982,635
Basic earnings per share $ 0.33 $ 0.25 $ 0.63 $ 0.47
=========== =========== =========== ==============
Diluted earnings per share $ 0.32 $ 0.25 $ 0.62 $ 0.47
=========== =========== =========== ==============
</TABLE>
Net income per common share is computed using the weighted-average
number of common and common equivalent shares outstanding. Common and common
equivalent shares from stock options are excluded from the computation if their
effect is antidilutive, except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin 98, "Earnings per share," common and common
equivalent shares issued at prices below the public offering price during the
twelve months immediately preceding the date of BlackRock's initial public
offering have been included in the calculation as if they were outstanding for
all periods presented using the treasury stock method and the options' exercise
price of $14.00.
7
<PAGE>
8. Supplemental Statements of Cash Flows Information
Supplemental disclosure of cash flow information:
Six months ended
June 30,
2000 1999
-----------------------
Cash paid for interest $ 1,058 $ 7,591
======= =======
Cash paid for income taxes $26,988 $16,889
======= =======
Supplemental schedule of noncash transactions:
Six months ended
June 30,
2000 1999
-----------------------
Acquired management contract $8,040 --
======= =======
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
BlackRock, Inc., a Delaware corporation (together with its subsidiaries
"BlackRock" or the "Company"), is one of the 30 largest investment management
firms in the United States with approximately $177.3 billion of assets under
management at June 30, 2000. BlackRock is a majority owned indirect subsidiary
of The PNC Financial Services Group, Inc. ("PNC"), one of the largest
diversified financial services organizations providing regional banking,
corporate banking, real estate finance, asset-backed lending, asset management,
global funds services and mortgage banking. PNC acquired BlackRock in 1995 and
consolidated a substantial part of PNC's asset management businesses under the
BlackRock name in 1998. On October 1, 1999, BlackRock offered 9 million shares
of class A common stock in an initial public offering ("IPO"). As of June 30,
2000, PNC owns approximately 70%, the public owns approximately 14% and
BlackRock employees own approximately 16% of BlackRock.
The following table summarizes BlackRock's operating performance for
the three months ended and six months ended June 30, 2000 and June 30, 1999:
BlackRock, Inc.
Financial Highlights
($ in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------
June 30, Variance
------------------------------ ----------------------
2000 1999 Amount %
------------------------------ ------------ -------
<S> <C> <C> <C> <C>
Total revenue $ 112,571 $ 92,217 $ 20,354 22%
Total expense $ 78,249 $ 65,297 $ 12,952 20%
Operating income $ 34,322 $ 26,920 $ 7,402 27%
Net income $ 20,857 $ 13,767 $ 7,090 51%
Diluted earnings per share $ 0.32 $ 0.25 $ 0.07 28%
Diluted cash earnings per share (a) $ 0.37 $ 0.30 $ 0.07 23%
Average diluted shares outstanding 64,492,447 54,982,635 9,509,812 17%
EBITDA (b) $ 40,641 $ 31,696 $ 8,945 28%
Operating margin (c) 36.5% 36.4%
Assets under management ($ in millions) $ 177,337 $ 141,801 $ 35,536 25%
<CAPTION>
Six months ended
June 30, Variance
------------------------------ ----------------------
2000 1999 Amount %
------------------------------ ------------ -------
<S> <C> <C> <C> <C>
Total revenue $ 220,631 $ 180,092 $ 40,539 23%
Total expense $ 154,191 $ 129,466 $ 24,725 19%
Operating income $ 66,440 $ 50,626 $ 15,814 31%
Net income $ 40,054 $ 25,985 $ 14,069 54%
Diluted earnings per share $ 0.62 $ 0.47 $ 0.15 32%
Diluted cash earnings per share (a) $ 0.70 $ 0.56 $ 0.14 25%
Average diluted shares outstanding 64,423,376 54,982,635 9,440,741 17%
EBITDA (b) $ 78,442 $ 61,375 $ 17,067 28%
Operating margin (c) 36.4% 35.2%
Assets under management ($ in millions) $ 177,337 $ 141,801 $ 35,536 25%
</TABLE>
(a) Net income plus amortization expense for the period divided by average
diluted shares outstanding.
(b) Earnings before interest, taxes, depreciation and amortization.
(c) Operating income divided by total revenue less fund administration and
servicing costs - affiliates.
9
<PAGE>
General
BlackRock derives a substantial portion of its revenue from investment
advisory and administration fees, which are recognized as the services are
performed. Such fees are primarily based on predetermined percentages of the
market value of assets under management and are affected by changes in assets
under management, including market appreciation or depreciation and net
subscriptions or redemptions. Net subscriptions or redemptions represent the sum
of new client assets, additional fundings from existing clients, withdrawals of
assets from and termination of client accounts and purchases and redemptions of
mutual fund shares.
Investment advisory agreements for certain separate accounts and
BlackRock's alternative investment products provide for performance fees in
addition to fees based on assets under management. Performance fees are earned
when investment performance exceeds a contractual threshold and, accordingly,
may increase the volatility of BlackRock's revenue and earnings.
BlackRock provides a variety of risk management services to insurance
companies, finance companies, pension funds, REITs, commercial and mortgage
banks, savings institutions and government agencies. The services range from
consulting assignments to actual execution of hedging transactions on behalf of
BlackRock's clients. The fees earned on risk management advisory engagements are
recorded as other income.
BlackRock Asset Investors ("BAI") was an alternative investment product
created in 1994 in response to the opportunity that the Company perceived in the
commercial real estate sector. Due to reduced opportunities to generate
appropriate returns, BAI's Board of Trustees and shareholders approved
management's recommendation in 1997 to liquidate the fund, which was completed
on September 27, 1999. As a result of the liquidation, which involved the sale
of BAI's assets, BAI generated an operating loss of $0.5 million and $0.6
million for the three months and six months ended June 30, 1999, respectively.
Operating revenue primarily consists of investment advisory and
administration fees earned on separate account and mutual fund assets under
management and other income. Revenue associated with BAI, which was liquidated
in 1999, is reported separately and is included in total revenue.
Operating expense primarily consists of employee compensation and benefits,
fund administration and servicing costs-affiliates, general and administration,
and amortization of intangible assets. Employee compensation and benefit expense
reflects salaries, deferred and incentive compensation, and related benefit
costs. Fund administration and servicing costs-affiliates expense reflects
payments made to PNC affiliated entities primarily associated with the
administration and servicing of PNC client investments in the BlackRock Funds.
BAI incentive compensation expense, which is reported separately and included in
total expense, reflects compensation earned by investment advisory and other
employees of BlackRock in accordance with various contractual and other
arrangements with PNC and the fund. Intangible assets at June 30, 2000 and
December 31, 1999, was $197.4 million and $194.3 million, respectively, with
amortization expense of approximately $2.5 million and $2.4 million for the
three months ended June 30, 2000 and 1999, respectively and $4.9 million and
$4.8 million for the six months ended June 30, 2000 and 1999, respectively.
Intangible assets reflect PNC's acquisition of BlackRock Financial Management,
L.P. ("BFM") on February 28, 1995 and a management contract acquired in
connection with the agreement and plan of merger of CORE Cap, Inc. with
Anthracite Capital, Inc., a BlackRock managed REIT using a 10 percent imputed
interest rate on May 15, 2000. This agreement assigns the managerial rights and
duties of CORE Cap, Inc.'s external manager to BlackRock for consideration in
the amount of $12.5 million to be paid by BlackRock over a ten-year period. The
present value of the acquired contract is $8.0 million. This amount is recorded
as an intangible asset and is being amortized over ten years.
10
<PAGE>
Assets Under Management
Assets under management ("AUM") increased $35.5 billion, or 25%, to $177.3
billion at June 30, 2000, compared with $141.8 billion at June 30, 1999. The
growth in assets under management was attributable to increases of $28.7 billion
in separate accounts and $6.9 billion in mutual fund assets. The increase in
separate accounts was due to net subscriptions of $25.3 billion and market
appreciation of $3.4 billion. Net subscriptions in fixed income, liquidity and
equity accounts was $15.4 billion, $5.3 billion and $4.6 billion, respectively.
Market appreciation was $2.7 billion and $.6 billion in fixed income and equity
accounts, respectively. The rise in liquidity separate accounts was largely
attributable to a $4.9 billion increase in cash collateral assets associated
with client securities lending activities . The growth in equity assets was
primarily the result of new business in the international sector, generated by
BlackRock's European equity team, of approximately $5.0 billion. The $6.9
billion increase in mutual fund assets reflected net subscriptions totaling $6.0
billion and market appreciation of $.9 billion. The rise in mutual fund assets
was largely due to net subscriptions in the BlackRock Funds and Provident
Institutional Funds, which increased $3.0 billion or 12% and $4.0 billion or
19%, respectively.
<TABLE>
<CAPTION>
June 30, % Change
----------------------- ------------------------
2000 1999 Amount Percent
--------- --------- ---------- -----------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts
Fixed income * $ 86,344 $ 68,286 $18,058 26.4%
Liquidity 17,707 12,362 5,345 43.2
Equity 7,621 2,353 5,268 223.9
-------- -------- ------- -------
Subtotal $111,672 $ 83,001 $28,671 34.5
-------- -------- ------- -------
Mutual Funds
Fixed income 13,919 13,617 302 2.2
Liquidity 35,944 31,921 4,023 12.6
Equity 15,802 13,262 2,540 19.2
-------- -------- ------- -------
Subtotal 65,665 58,800 $ 6,865 11.7
-------- -------- ------- -------
Total $177,337 $141,801 $35,536 25.1%
======== ======== ======= =======
</TABLE>
*Includes alternative investment products.
11
<PAGE>
BlackRock, Inc
Component Changes in Assets Under Management
(unaudited)
The following tables present the component changes in BlackRock's assets
under management for the three month and six month periods ended June 30, 2000
and 1999. The data reflects certain reclassifications between net subscriptions
(redemptions) and market appreciation (depreciation) from amounts previously
reported.
For the three months and six months ended June 30, 2000, net subscriptions
represented 106% and 75%, respectively, of the total increase in assets under
management. Net subscriptions were $5.1 billion and $9.6 billion for the three
months and six months ended June 30, 2000, respectively.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
Separate Accounts*
Beginning assets under management $ 105,349 $ 80,477 $ 99,220 $ 69,112
Net subscriptions 5,815 2,903 9,622 14,527
Market appreciation (depreciation) 508 (379) 2,830 (638)
--------- --------- --------- ---------
Ending assets under management 111,672 83,001 111,672 83,001
--------- --------- --------- ---------
Mutual Funds
Beginning assets under management 67,224 59,749 65,297 61,530
Net redemptions (762) (1,546) (2) (3,452)
Market appreciation (depreciation) (797) 597 370 722
--------- --------- --------- ---------
Ending assets under management 65,665 58,800 65,665 58,800
--------- --------- --------- ---------
Total $ 177,337 $ 141,801 $ 177,337 $ 141,801
========= ========= ========= =========
Net subscriptions $ 5,053 $ 1,357 $ 9,620 $ 11,075
% of Change in AUM from net subscriptions 106.1% 86.2% 75.0% 99.2%
</TABLE>
*Includes alternative investment products.
12
<PAGE>
BlackRock, Inc.
Assets Under Management
Quarterly Trend
(Dollar amounts in millions)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
1999 2000 Six months ended
--------------------------------------------------------------
June 30 September 30 December 31 March 31 June 30 June 30, 2000
-------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Separate Accounts *
Fixed Income
Beginning assets under management $64,381 $68,286 $69,266 $ 75,206 $ 79,825 $ 75,206
Net subscriptions 4,509 886 6,106 2,541 5,851 8,392
Market appreciation (depreciation) (604) 94 (166) 2,078 668 2,746
----------------------------------------------------------- --------
Ending assets under management 68,286 69,266 75,206 79,825 86,344 86,344
----------------------------------------------------------- --------
Liquidity
Beginning assets under management 13,975 12,362 17,310 20,934 19,110 20,934
Net subscriptions (redemptions) (1,626) 4,933 3,602 (1,847) (1,423) (3,270)
Market appreciation 13 15 22 23 20 43
----------------------------------------------------------- --------
Ending assets under management 12,362 17,310 20,934 19,110 17,707 17,707
----------------------------------------------------------- --------
Equity
Beginning assets under management 2,121 2,353 2,454 3,080 6,414 3,080
Net subscriptions 20 94 35 3,113 1,387 4,500
Market appreciation (depreciation) 212 7 591 221 (180) 41
----------------------------------------------------------- --------
Ending assets under management 2,353 2,454 3,080 6,414 7,621 7,621
----------------------------------------------------------- --------
Total Separate Accounts
Beginning assets under management 80,477 83,001 89,030 99,220 105,349 99,220
Net subscriptions 2,903 5,913 9,743 3,807 5,815 9,622
Market appreciation (depreciation) (379) 116 447 2,322 508 2,830
----------------------------------------------------------- --------
Ending assets under management $83,001 $89,030 $99,220 $105,349 $111,672 $111,672
=========================================================== ========
Mutual Funds
BlackRock Funds
Beginning assets under management $24,757 $25,255 $24,453 $ 27,339 $ 29,280 $ 27,339
Net subscriptions (redemptions) (259) (172) 1,577 994 (168) 826
Market appreciation (depreciation) 757 (630) 1,309 947 (850) 97
----------------------------------------------------------- --------
Ending assets under management 25,255 24,453 27,339 29,280 28,262 28,262
----------------------------------------------------------- --------
PIF
Beginning assets under management 22,978 21,578 22,387 25,554 25,755 25,554
Net subscriptions (redemptions) (1,400) 809 3,167 201 (140) 61
Market appreciation - - - - - -
----------------------------------------------------------- --------
Ending assets under management 21,578 22,387 25,554 25,755 25,615 25,615
----------------------------------------------------------- --------
Closed End
Beginning assets under management 7,668 7,507 7,579 7,340 7,560 7,340
Net subscriptions (redemptions) (1) 121 (130) - (30) (30)
Market appreciation (depreciation) (160) (49) (109) 220 53 273
----------------------------------------------------------- --------
Ending assets under management 7,507 7,579 7,340 7,560 7,583 7,583
----------------------------------------------------------- --------
Short Term Investment Funds (STIF)
Beginning assets under management 4,346 4,460 4,653 5,064 4,629 5,064
Net subscriptions (redemptions) 114 193 411 (435) (424) (859)
Market appreciation - - - - - -
----------------------------------------------------------- --------
Ending assets under management 4,460 4,653 5,064 4,629 4,205 4,205
----------------------------------------------------------- --------
Total Mutual Funds
Beginning assets under management 59,749 58,800 59,072 65,297 67,224 65,297
Net subscriptions (redemptions) (1,546) 951 5,025 760 (762) (2)
Market appreciation (depreciation) 597 (679) 1,200 1,167 (797) 370
----------------------------------------------------------- --------
Ending assets under management $58,800 $59,072 $65,297 $ 67,224 $ 65,665 $ 65,665
=========================================================== ========
</TABLE>
*Includes alternative investment products.
13
<PAGE>
Operating Results For The Three Months Ended June 30, 2000 Compared With The
Three Months Ended June 30, 1999.
Revenue
Total revenue for the three months ended June 30, 2000 increased $20.4
million or 22% to $112.6 million compared with the three months ended June 30,
1999. Investment advisory and administration fees increased $21.0 million or 24%
to $107.4 million for the three months ended June 30, 2000, compared with the
three months ended June 30, 1999. The growth in investment advisory and
administration fees was primarily due to increases in assets under management,
which totaled $177.3 billion at June 30, 2000, a 25% increase compared with June
30, 1999.
<TABLE>
<CAPTION>
Three months ended
June 30, Change
-------------------- -----------------------
2000 1999 Amount Percent
-------- -------- ---------- -----------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Investment advisory and administration fees:
Mutual funds $ 56,228 $ 51,123 $ 5,105 10.0%
Separate accounts 51,204 35,968 15,236 42.4
BAI revenue -- (614) 614 NM
-------- -------- --------- -------
Total investment advisory and administration fees: 107,432 86,477 20,955 24.2
Other income 5,139 5,740 (601) (10.5)
-------- -------- --------- -------
Total revenue $112,571 $ 92,217 $ 20,354 22.1%
======== ======== ========= =======
</TABLE>
NM-Not meaningful
Mutual fund advisory and administration fees increased $5.1 million or 10%
to $56.2 million for the three months ended June 30, 2000 compared with the
three months ended June 30, 1999, primarily due to an increase in assets under
management in the BlackRock Funds and the Provident Institutional Funds of $3.0
billion and $4.0 billion, respectively. Separate account advisory fees increased
$15.2 million or 42%, primarily due to a $28.7 billion or 35% increase in assets
under management and higher performance fees. The increase in separate account
assets was driven by continued strong growth in fixed income and liquidity
assets (26% and 43%, respectively) and a $5 billion increase in international
equity assets. The $.6 million change in BAI advisory fees was due to the
discontinuance of any further business activity together with reversals of
previously accrued performance fees associated with the fund's liquidation in
1999.
14
<PAGE>
Expense
Total expense increased $13.0 million to $78.2 million for the three months
ended June 30, 2000, compared with $65.2 million for the three months ended June
30, 1999. The change was primarily the result of increases in employee
compensation and benefits and general and administration expenses.
<TABLE>
<CAPTION>
Three months ended
June 30, Change
------------------- -----------------------
2000 1999 Amount Percent
-------- -------- ---------- -----------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Employee compensation and benefits $ 42,680 $ 32,731 $ 9,949 30.4%
BAI incentive compensation -- (115) 115 NM
Fund administration and servicing costs-affiliates 18,450 18,359 91 0.5
General and administration 14,605 11,909 2,696 22.6
Amortization of intangible assets 2,514 2,413 101 4.2
-------- -------- --------- --------
Total expense $ 78,249 $ 65,297 $ 12,952 19.8%
======== ======== ========= ========
</TABLE>
NM-Not meaningful
Employee compensation and benefits increased $9.9 million or 30% due to
additional expenses of $5.3 million for incentive compensation primarily based
on operating profit growth and $4.6 million related to salary and benefits.
Salary and benefit cost increases were the result of a 16% increase in full-time
employees to support business growth. The change in BAI incentive compensation
was due to the discontinuance of any further business activity together with
reversals of previously accrued incentive compensation for the three months
ended June 30, 1999 associated with the fund's liquidation. General and
administration expenses increased $2.7 million or 23% due to a $1.2 million
increase in marketing and promotional costs associated with the BlackRock Funds
and international business expansion, a $.8 million increase in portfolio and
related services, a $.4 million increase in technology and related services, and
a $.3 million increase in office and related services. Amortization of
intangible assets increased $.1 million or 4% primarily due to the management
contract entered into on May 15, 2000 in connection with the agreement and plan
of merger of CORE Cap, Inc. with Anthracite Capital, Inc., a BlackRock managed
REIT.
Operating Income and Net Income
Operating income was $34.3 million for the three months ended June 30, 2000
representing a $7.4 million or 28% increase compared with the three months ended
June 30, 1999. Non-operating income increased $4.1 million to $1.3 million for
the three months ended June 30, 2000 as compared with $2.8 million of non-
operating expense for the three months ended June 30, 1999. The significant
improvement largely reflects reduced interest expense due to the repayment of
$153.2 million in debt since June 30, 1999 of which approximately $115 million
represented net proceeds from the IPO. Income tax expense was $14.8 million and
$10.4 million representing effective tax rates of 41.5% and 43.0% for the three
months ended June 30, 2000 and 1999, respectively. Net income totaled $20.9
million for the three months ended June 30, 2000 compared with $13.8 million for
the three months ended June 30, 1999, representing an increase of 51%.
15
<PAGE>
Operating Results For The Six Months Ended June 30, 2000 Compared With The Six
Months Ended June 30, 1999.
Revenue
Total revenue for the six months ended June 30, 2000 increased $40.5
million or 23% to $220.6 million compared with the six months ended June 30,
1999. Investment advisory and administration fees increased $40.4 million or 24%
to $209.3 million for the six months ended June 30, 2000, compared with the six
months ended June 30, 1999. The growth in investment advisory and administration
fees was primarily due to increases in assets under management, which totaled
$177.3 billion at June 30, 2000, a 25% increase compared with June 30, 1999.
<TABLE>
<CAPTION>
Six months ended
June 30, Change
------------------- -----------------------
2000 1999 Amount Percent
-------- -------- ---------- -----------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Investment advisory and administration fees:
Mutual funds $115,328 $ 99,637 $ 15,691 15.7%
Separate accounts 93,974 71,334 22,640 31.7
BAI revenue - (2,054) 2,054 -
-------- -------- --------- --------
Total investment advisory and administration fees: 209,302 168,917 40,385 23.9
Other income 11,329 11,175 154 1.4
-------- -------- --------- --------
Total revenue $220,631 $180,092 $ 40,539 22.5%
======== ======== ========= ========
</TABLE>
NM-Not meaningful
Mutual fund advisory and administration fees increased $15.7 million or 16%
to $115.3 million for the six months ended June 30, 2000 compared with the six
months ended June 30, 1999, primarily due to a $3.0 billion increase in assets
under management in the BlackRock Funds. Separate account advisory fees
increased $22.6 million or 32%, primarily due to a $28.7 billion or 35% increase
in assets under management and higher performance fees. The $2.1 million change
in BAI advisory fees was due to the discontinuance of any further business
activity together with reversals of previously accrued performance fees
associated with the fund's liquidation in 1999.
16
<PAGE>
Expense
Total expense increased $24.7 million or 19% to $154.2 million for the six
months ended June 30, 2000, compared with $129.5 million for the six months
ended June 30, 1999. The change was primarily the result of increases in
employee compensation and benefits, fund administration and servicing costs-
affiliates and general and administration expenses.
<TABLE>
<CAPTION>
Six months ended
June 30, Change
------------------- -----------------------
2000 1999 Amount Percent
-------- -------- ---------- -----------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
Employee compensation and benefits $83,350 $65,963 $ 17,387 26.4%
BAI incentive compensation - (1,493) 1,493 NM
Fund administration and servicing costs-affiliates 38,209 36,335 1,874 5.2
General and administration 27,705 23,834 3,871 16.2
Amortization of goodwill 4,927 4,827 100 2.1
-------- -------- --------- --------
Total expense $154,191 $129,466 $ 24,725 19.1%
======== ======== ========= ========
</TABLE>
NM-Not meaningful
Employee compensation and benefits increased $17.4 million due to
additional expenses of $10.3 million related to salary and benefits and $7.1
million for incentive compensation primarily based on operating profit growth.
Salary and benefit cost increases were the result of a 16% increase in full-time
employees to support business growth. The change in BAI incentive compensation
was due to the discontinuance of any further business activity together with
reversals of previously accrued incentive compensation in the six months ended
June 30, 1999 associated with the fund's liquidation. Fund administration and
servicing costs-affiliates increased $1.9 million due to higher levels of PNC
client assets invested in the BlackRock Funds. General and administration
expenses increased $3.9 million or 16% primarily due to a $2.3 million increase
in marketing and promotional costs associated with the BlackRock Funds and
international business expansion, a $1.3 million increase in portfolio and
related services and a $.7 million increase in office and related services. The
increases were partially offset by a reduction in professional fees of $.5
million.
Operating Income and Net Income
Operating income was $66.4 million for the six months ended June 30, 2000,
representing a $15.8 million or 31% increase compared with the six months ended
June 30, 1999. Non-operating income increased $7.8 million to $2.0 million for
the six months ended June 30, 2000 as compared with $5.8 million of non-
operating expense for the six months ended June 30, 1999. The significant
improvement largely reflects reduced interest expense due to the repayment of
$153.2 million in debt since June 30, 1999 of which approximately $115 million
represented net proceeds from the IPO. Income tax expense was $28.4 million and
$18.8 million representing effective tax rates of 41.5% and 42.0% for the six
months ended June 30, 2000 and 1999, respectively. Net income totaled $40.1
million for the six months ended June 30, 2000 compared with $26.0 million for
the six months ended June 30, 1999, representing an increase of $14.1 million or
54%.
17
<PAGE>
Liquidity and Capital Resources
BlackRock has historically met its working capital requirements through cash
generated by its operating activities and borrowings from PNC Bank, N.A. ("PNC
Bank") under a $175.0 million revolving credit facility. Cash provided by
operating activities totaled $5.7 million and $15.6 million for the six months
ended June 30, 2000 and 1999, respectively.
Net cash flow used in investing activities was $18.2 million and $9.0
million for the six months ended June 30, 2000 and 1999, respectively. Capital
expenditures for property and equipment were $10.6 million and $9.1 million for
the six months ended June 30, 2000 and 1999, respectively. Capital expenditures
in 2000 includes $5.3 million in construction costs incurred to date on a new
office building in Wilmington, Delaware as well as higher technology investments
associated with risk management activities and increased office and related
costs to support personnel growth. Net investments were $7.6 million for the six
months ended June 30, 2000 and represented investments made in the new BlackRock
Funds and alternative investment products, which were launched during the second
quarter.
Net cash used in financing activities was $28.0 million and $43.8 million
for the six months ended June 30, 2000 and 1999, respectively. Debt repayments
totaled $28.2 million and $43.8 million for the six months ended June 30, 2000
and 1999, respectively.
Total capital at June 30, 2000 was $321.2 million and was comprised solely
of stockholders' equity.
Seasonality
BlackRock does not believe its operations are subject to significant
seasonal fluctuations.
Interest Rates
The value of assets under management is affected by changes in interest
rates. Since BlackRock derives the majority of its revenue from investment
advisory and administration fees based on assets under management, BlackRock's
revenue may be adversely affected by changing interest rates. In a period of
rapidly rising interest rates, BlackRock's assets under management would likely
be negatively affected by reduced asset values and increased redemptions.
Inflation
The majority of BlackRock's revenue is based on the value of assets under
management. There is no predictable relationship between the rate of inflation
and the value of assets under management, except that inflation may affect
interest rates. BlackRock does not believe inflation will significantly affect
its compensation costs, as they are substantially variable in nature. However,
the rate of inflation may affect BlackRock's expenses such as information
technology and occupancy costs. To the extent inflation results in rising
interest rates and has other effects upon the securities markets, it may
adversely affect BlackRock's results of operations by reducing BlackRock's
assets under management, revenue or otherwise.
18
<PAGE>
Forward-Looking Statements
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act with respect to financial performance
and other financial and business matters. Forward-looking statements are
typically identified by words or phrases such as "likely," "believe," "expect"
"anticipate," "intend," "estimate," "position," and variations of such words and
similar expressions, or future or conditional verbs such as "will", "would,"
"should," "could," "may" or similar expressions. BlackRock cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, all of which change over time, and BlackRock assumes no duty to
update forward-looking statements. Actual results could differ materially from
those anticipated in these forward-looking statements and future results could
differ materially from historic performance.
The following factors, among others, could cause actual results to differ
materially from forward-looking statements or historic performance: the
introduction, withdrawal, success and timing of business initiatives and
strategies; economic conditions; changes in interest rates and financial and
capital markets; the investment performance of BlackRock's sponsored investment
products and separately managed accounts; competitive conditions; capital
improvement projects; future acquisitions; and the impact, extent and timing of
technological changes and legislative and regulatory actions and reforms.
Reference is made to BlackRock's Annual Report on Form 10-K for the year
ended December 31, 1999 and subsequent reports filed with the Securities and
Exchange Commission which identify additional factors that can affect forward-
looking statements.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
No material developments have occurred during the second quarter
regarding previously reported legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial data schedule
(b) Reports on Form 8-K
Since March 31, 2000, the Company has filed the following Current
Reports on Form 8-K:
Form 8-K dated as of April 11, 2000, reporting the Company's
results of operations for the three months ended March 31, 2000,
filed pursuant to Item 5.
Form 8-K dated as of July 12, 2000, reporting the Company's
results of operations for the three months and six months ended
June 30, 2000, filed pursuant to Item 5.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACKROCK, INC.
(Registrant)
Date: August 11, 2000 By: /s/ Paul L. Audet
-------------------------
Paul L. Audet
Managing Director &
Chief Financial Officer
21
