SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2004
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 | 51-0380803 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
40 East 52nd Street, New York, NY 10022
(Address of principal executive offices)
(Zip Code)
(212) 754-5300
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes x No ¨
As of April 30, 2004, there were 18,430,451 shares of the registrant’s class A common stock outstanding and 45,282,013 shares of the registrant’s class B common stock outstanding.
BlackRock Inc.
| Page | ||||
| PART I | ||||
| FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | |||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 40 | ||
| Item 4. |
Controls and Procedures | 42 | ||
| PART II | ||||
| OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 43 | ||
| Item 2. |
Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities | 44 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 45 | ||
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PART I — FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
(Dollar amounts in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 301,109 | $ | 315,941 | ||||
| Accounts receivable |
147,038 | 127,235 | ||||||
| Investments |
177,288 | 234,923 | ||||||
| Property and equipment, net |
87,716 | 87,006 | ||||||
| Intangible assets, net |
185,824 | 192,079 | ||||||
| Receivable from affiliates |
118 | 81 | ||||||
| Other assets |
10,349 | 9,958 | ||||||
| Total assets |
$ | 909,442 | $ | 967,223 | ||||
| Liabilities |
||||||||
| Accrued compensation |
$ | 88,508 | $ | 172,447 | ||||
| Accounts payable and accrued liabilities |
||||||||
| Affiliate |
55,746 | 40,668 | ||||||
| Other |
19,071 | 19,430 | ||||||
| Acquired management contract obligation |
5,736 | 5,736 | ||||||
| Other liabilities |
13,130 | 14,395 | ||||||
| Total liabilities |
182,191 | 252,676 | ||||||
| Minority interest |
4,300 | 1,239 | ||||||
| Stockholders’ equity |
||||||||
| Common stock, class A, 19,243,878 shares issued |
192 | 192 | ||||||
| Common stock, class B, 46,073,214 and 46,120,737 shares issued, respectively |
461 | 461 | ||||||
| Additional paid - in capital |
193,269 | 196,446 | ||||||
| Retained earnings |
609,836 | 570,535 | ||||||
| Unearned compensation |
(8,801 | ) | (10,270 | ) | ||||
| Accumulated other comprehensive income |
6,290 | 6,027 | ||||||
| Treasury stock, class A, at cost, 896,903 and 954,067 shares issued, respectively |
(45,427 | ) | (45,054 | ) | ||||
| Treasury stock, class B, at cost, 789,201 and 313,626 shares issued, respectively |
(32,869 | ) | (5,029 | ) | ||||
| Total stockholders’ equity |
722,951 | 713,308 | ||||||
| Total liabilities and stockholders’ equity |
$ | 909,442 | $ | 967,223 | ||||
See accompanying notes to consolidated financial statements.
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PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
Consolidated Statements of Income
(Dollar amounts in thousands, except share data)
(unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
||||||||
| Investment advisory and administration fees |
||||||||
| Mutual funds |
$ | 56,446 | $ | 48,740 | ||||
| Separate accounts |
103,872 | 77,625 | ||||||
| Other income |
||||||||
| Affiliate |
1,250 | 1,250 | ||||||
| Other |
20,255 | 15,136 | ||||||
| Total revenue |
181,823 | 142,751 | ||||||
| Expense |
||||||||
| Employee compensation and benefits |
66,069 | 55,386 | ||||||
| Fund administration and servicing costs |
||||||||
| Affiliate |
5,068 | 6,943 | ||||||
| Other |
3,292 | 1,015 | ||||||
| General and administration |
||||||||
| Affiliate |
3,925 | 2,061 | ||||||
| Other |
27,374 | 23,048 | ||||||
| Amortization of intangible assets |
231 | 232 | ||||||
| Impairment of intangible assets |
6,097 | — | ||||||
| Total expense |
112,056 | 88,685 | ||||||
| Operating income |
69,767 | 54,066 | ||||||
| Non-operating income (expense) |
||||||||
| Investment income, net |
6,897 | 3,529 | ||||||
| Interest expense |
(1,084 | ) | (164 | ) | ||||
| Total non-operating income |
5,813 | 3,365 | ||||||
| Income before income taxes and minority interest |
75,580 | 57,431 | ||||||
| Income taxes |
20,089 | 22,111 | ||||||
| Income before minority interest |
55,491 | 35,320 | ||||||
| Minority interest |
284 | — | ||||||
| Net income |
$ | 55,207 | $ | 35,320 | ||||
| Earnings per share |
||||||||
| Basic |
$ | 0.87 | $ | 0.54 | ||||
| Diluted |
$ | 0.84 | $ | 0.54 | ||||
| Cash dividends declared per share |
$ | 0.25 | — | |||||
| Weighted-average shares outstanding |
||||||||
| Basic |
63,775,783 | 65,056,537 | ||||||
| Diluted |
65,807,605 | 65,867,032 | ||||||
See accompanying notes to consolidated financial statements.
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PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
(unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 55,207 | $ | 35,320 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
4,949 | 5,295 | ||||||
| Impairment of intangible assets |
6,097 | — | ||||||
| Minority interest |
284 | — | ||||||
| Stock-based compensation |
4,269 | 2,614 | ||||||
| Deferred income taxes |
6,467 | 1,101 | ||||||
| Tax impact of stock-based compensation |
(407 | ) | 4,167 | |||||
| Net gain on investments |
(1,627 | ) | (248 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Increase in accounts receivable |
(20,926 | ) | (1,231 | ) | ||||
| Increase in investments, trading, net |
(10,281 | ) | (17,836 | ) | ||||
| Increase in receivable from affiliates |
(37 | ) | (226 | ) | ||||
| Decrease (increase) in other assets |
470 | (558 | ) | |||||
| Decrease in accrued compensation |
(83,939 | ) | (75,071 | ) | ||||
| Increase in accounts payable and accrued liabilities |
6,866 | 16,866 | ||||||
| (Decrease) increase in other liabilities |
(1,265 | ) | 1,160 | |||||
| Cash used in operating activities |
(33,873 | ) | (28,647 | ) | ||||
| Cash flows from investing activities |
||||||||
| Purchase of property and equipment |
(4,586 | ) | (3,355 | ) | ||||
| Purchase of investments |
(10,059 | ) | (25,660 | ) | ||||
| Sale of investments |
76,180 | 8,292 | ||||||
| Deemed cash contribution upon consolidation of VIE |
6,412 | — | ||||||
| Acquisition of business, net of cash acquired |
(73 | ) | (260 | ) | ||||
| Cash provided by (used in) investing activities |
67,874 | (20,983 | ) | |||||
| Cash flows from financing activities |
||||||||
| Issuance of class A common stock |
— | 562 | ||||||
| Dividends paid |
(15,906 | ) | — | |||||
| Dividends paid to minority interest holders |
(110 | ) | — | |||||
| Purchase of treasury stock |
(40,426 | ) | (16,463 | ) | ||||
| Reissuance of treasury stock |
6,643 | 1,866 | ||||||
| Cash used in financing activities |
(49,799 | ) | (14,035 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
966 | (355 | ) | |||||
| Net decrease in cash and cash equivalents |
(14,832 | ) | (64,020 | ) | ||||
| Cash and cash equivalents, beginning of period |
315,941 | 255,234 | ||||||
| Cash and cash equivalents, end of period |
$ | 301,109 | $ | 191,214 | ||||
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PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2004 and 2003
(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 accounting principles generally accepted in the United States of America 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 condensed 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, 2003. The Company follows the same accounting policies in the preparation of interim reports as set forth in the annual report. 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.
Investments
Readily Marketable Securities
The accounting method used for the Company’s readily marketable securities is dependent upon the Company’s ownership level. If the Company does not possess significant influence over the issuer’s operations, the securities are classified as trading or available for sale, depending on the Company’s intent on holding the security. Investments, trading, primarily represent investments made by the Company in certain of the BlackRock Funds which are held in a Rabbi trust with respect to senior employee elections under BlackRock deferred compensation plans and are recorded at fair market value with unrealized gains and losses included in the accompanying consolidated statements of income as investment income (expense), net. Investments, available for sale, consist primarily of corporate investments in BlackRock funds and municipal bonds. The resulting unrealized gains and losses on investments, available for sale, are included in the accumulated other comprehensive income or loss component of stockholders’ equity, net of tax. If the Company holds significant influence over the issuer of a readily marketable equity security, the investment is accounted for under the equity method of accounting and included in investments, other. The Company’s share of the investee’s net income is included in investment income (expense), net.
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PART I — FINANCIAL INFORMATION (continued)
Item 1. Financial Statements (continued)
| 1. | Significant Accounting Policies (continued) |
Investments (continued)
Nonmarketable Equity Securities
Items classified as investments, other, consist primarily of certain institutional and private placement portfolios (“alternative investment products”) and operating joint ventures undertaken by the Company and are accounted for using the cost or equity methods of accounting. If the Company has significant influence over the investee’s operations, the equity method of accounting is used and the Company’s share of the investee’s net income is recorded as investment income (expense), net, for alternative investment products and other income for operating joint ventures. If the Company does not maintain significant influence over the investee’s operations, the cost method of accounting is used.
Realized gains and losses on trading, available for sale and other investments are calculated on a specific identification basis and, along with interest and dividend income, are included in investment income (expense), net, in the accompanying consolidated statements of income. The Company’s management periodically assesses impairment on investments to determine if it is other than temporary. Several of the Company’s available for sale investments represent interests in collateralized debt obligations in which the Company acts in the capacity of collateral manager. The Company reviews cash flow estimates throughout the life of each collateralized debt obligation to determine if an impairment charge is required to be taken through current earnings. If the updated estimate of future cash flows (taking into account both timing and amount) is less than the last revised estimate, an impairment is recognized based on the excess of the carrying amount of the investment over its fair value. In evaluating impairments on all other available for sale and other securities, the Company considers the length of time and the extent to which the security’s market value, if determinable, has been less than its cost, the financial condition and near-term prospects of the security’s issuer and the Company’s intended holding period for the security. Any impairment on investments which is deemed other than temporary is recorded in investment income (expense), net, on the consolidated statements of income as a realized loss.
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