UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DCWashington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20072010

Or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto.

Commission File No. 001-33099

 

 

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 32-0174431

(State or other jurisdictionOther Jurisdiction of

incorporationIncorporation or organization)Organization)

 

(I.R.S. Employer

Identification No.)

4055 East 52nd Street, New York, NY 1002210055

(Address of principal executive offices)Principal Executive Offices)

(212) 810-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

(Do not check if a smaller reporting company)    Smaller reporting company  ¨

Large accelerated filerxAccelerated filer¨
Non-accelerated filer¨  (Do not check if a smaller reporting company)Smaller reporting company¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 20072010 was approximately $2.2$5.6 billion. There isThe registrant has no non-voting common stock of the registrant outstanding.stock.

As of January 31, 2008,2011, there were 117,282,558131,795,285 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference herein:

Portions of the definitive Proxy Statement of BlackRock, Inc. to be filed pursuant to Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended, for the 20082011 annual meeting of stockholders to be held on May 27, 200825, 2011 (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

 

 


BlackRock, Inc.

Index to Form 10-K

TABLE OF CONTENTS

 

TABLE OF CONTENTS
PART I

Item 1

  

Business

 1

Item 1A

  

Risk Factors

  17
28

Item 1B

  

Unresolved Staff Comments

  22
37

Item 2

  

Properties

  23
37

Item 3

  

Legal Proceedings

  23

Item 4

37
  

Submission of Matters to a Vote of Security Holders

23
PART II

Item 5

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  24
38

Item 6

  

Selected Financial Data

  26
40

Item 7

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  28
42

Item 7A

  

Quantitative and Qualitative Disclosures About Market Risk

  64
118

Item 8

  

Financial Statements and Supplementary Data

  65
120

Item 9

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  65
120

Item 9A

  

Controls and Procedures

  65
120

Item 9B

  

Other Information

  68123
PART III

Item 10

  

Directors, Executive Officers and Corporate Governance

  68
123

Item 11

  

Executive Compensation

  68
123

Item 12

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  68
123

Item 13

  

Certain Relationships and Related Transactions, and Director Independence

  68
123

Item 14

  

Principal Accountant Fees and Services

  68123
PART IV

Item 15

  

Exhibits and Financial Statement Schedules

  69124
Signatures129


Part I

Item 1.BUSINESS

Overview

BlackRock, Inc. (“BlackRock” or the “Company”) is one of the largest publicly tradedan independent investment management firms in the United Statesfirm with $1.357$3.561 trillion of assets under management (“AUM”) at December 31, 2007.2010. The Company is highly regulated, serves its clients as a fiduciary, and derives all of its revenues from client business. We focus exclusively on investment management and risk management; we do not engage in proprietary trading or other activities that could conflict with the interests of our clients. Our business is global: we invest in capital markets throughout the world, we have employees in 25 countries and we serve investors in more than 100 countries. Our clients include taxable, tax-exempt and official institutions, retail investors and high net worth individuals.

The 2009 combination of BlackRock manages assets on behalfand Barclays Global Investors (“BGI”) created a firm with unsurpassed breadth of institutionalinvestment expertise and individual investors worldwiderisk management capabilities across the global capital markets. Our unique platform enables us to bring together active (alpha) investments with index (beta) products and risk management to develop tailored solutions for clients. Our product range includes single- and multi-asset class portfolios investing in equities, fixed income and/or money market instruments. We offer our products directly and through intermediaries in a variety of fixed income, cash management, equityvehicles, including open-end and balancedclosed-end mutual funds,iShares® exchange-traded funds (“ETFs”) and alternativeother exchange traded products (together with ETFs, “ETPs”), collective investment funds and separate accounts and funds. In addition, accounts. We also offer ourBlackRock providesSolutions® (“BRS”) investment systems, risk management investment system outsourcing and financial advisory services globally to institutional investors.

BlackRockBlackRock’s common stock is publicly traded on the New York Stock Exchange under the symbol, “BLK”. A majority of our Board of Directors is independent, in ownership and governance, withwe have no single majority stockholder andshareholder. On November 15, 2010, certain of BlackRock’s stockholders completed a majority$9.6 billion secondary offering through the sale of directors are independent. At December 31, 2007,58.7 million shares held by Bank of America Corporation (“Bank of America”) through its wholly-owned subsidiary, Merrill Lynch & Co., Inc. (“Merrill Lynch”) owned approximately 45.1% of the Company’s voting common stock, and approximately 49.0% of the Company’s capital stock on a fully diluted basis. The PNC Financial Services Group Inc. (“PNC”), owned at a price of $163.00. None of the proceeds of the offering went to the Company. At December 31, 2010, Bank of America did not hold any of BlackRock’s voting common stock outstanding and held approximately 33.5%7.1% of BlackRock’s capital stock. PNC held approximately 25.3% of BlackRock’s voting common stock outstanding and held approximately 20.3% of the Company’s capital stock. Headquartered in New York City, the Company has 70 offices in 19 countries throughout the United States, Europe, Asia and Australia.

BlackRock closed 2007 with AUM of $1.357 trillion, up $232.0 billion or 21% over year-end 2006 levels. Over the past five years, BlackRock’s AUM has had a compound annual growth rate of 37.8%.

   Assets Under Management
By Product Type
Year ended December 31,
 
(Dollars in millions)  2007  2006  2005  2004  2003  2002  5 Year
CAGR
 

Fixed income

  $513,020  $448,012  $303,928  $240,709  $214,356  $175,586  23.9%

Equity and balanced

   459,182   392,708   37,303   14,792   13,721   13,464  102.6%

Cash management

   313,338   235,768   86,128   78,057   74,345   78,512  31.9%

Alternative investments

   71,104   48,139   25,323   8,202   6,934   5,279  68.2%
                            

Total

  $1,356,644  $1,124,627  $452,682  $341,760  $309,356  $272,841  37.8%
                            

CAGR = Compound Annual Growth Rate

Growth in AUM over the past five years includes acquired AUM of $660.8 billion. On September 29, 2006, Merrill Lynch contributed the entities and assets that constituted its investment management business (the “MLIM Business,” formerly named Merrill Lynch Investment Managers or “MLIM”Barclays Bank PLC (“Barclays”) to the Company (the “MLIM Transaction”), adding $589.2 billion in AUM. Acquired AUM also includesheld approximately $21.9 billion in AUM acquired as a result2.3% of BlackRock’s acquisitionvoting common stock outstanding and held approximately 19.6% of the fund of funds business of Quellos Group, LLC (the “Quellos Business” or “Quellos”) which closed on October 1, 2007 (the “Quellos Transaction”) and approximately $49.7 billion in AUM acquired as a result of BlackRock’s acquisition of SSRM Holdings, Inc. from MetLife, Inc. in January 2005 (the “SSR Transaction”).Company’s capital stock.

1


Item 1.BUSINESS (continued)

Overview (continued)

   Assets Under Management
By Product Mix
Year ended December 31,
 
   2007  2006  2005  2004  2003 

Fixed income

  37.8% 39.8% 67.1% 70.4% 69.3%

Equity and balanced

  33.9% 34.9% 8.3% 4.3% 4.4%

Cash management

  23.1% 21.0% 19.0% 22.9% 24.0%

Alternative investments

  5.2% 4.3% 5.6% 2.4% 2.3%
                

Total

  100.0% 100.0% 100.0% 100.0% 100.0%
                

Through the MLIM, Quellos and SSR Transactions, BlackRock has enhanced the diversification of its products, offering a broad range of fixed income, equity and balanced, cash management and alternative investment products to institutional and retail clients worldwide. At December 31, 2007, fixed income products represented approximately 38%, equity and balanced products approximately 34%, cash management products approximately 23% and alternative investment products approximately 5% of BlackRock’s total AUM. At year-end 2007, approximately 69% of assets were managed for institutions and approximately 31% for retail and high net worth investors. At December 31, 2007, approximately 64% of BlackRock’s AUM was managed for U.S. investors and approximately 36% for international clients. In addition, the Company continued to expand itsBlackRock Solutions® products and related services, which achieved year-over-year revenue growth of approximately 34% in 2007.

While BlackRock operates in a global marketplace characterized by a high degree of market volatility and economic uncertainty, management believes the following factors position the Companythat can significantly affect earnings and stockholder returns in any given period. Management seeks to seek solid relativeachieve attractive returns for stockholders over time:time by, among other things, capitalizing on the following factors:

 

Thethe Company’s diversification ofdiversified product offerings, providing the firm with thewhich enhance its ability to leverage capabilities to offer botha variety of traditional and alternative investment products combined with its establishedacross the risk spectrum and to tailor single- and multi- asset class investment solutions to address specific client needs;

the Company’s longstanding commitment to risk management.management and the continued development of, and increased interest in, BRS products and services;

 

Thethe Company’s sustained competitive investment performance across products, with 58% of bond fund assets and 84% of equity fund assets in the top half of their respective peer groups and 87% of our money market fund assets over benchmark for the year ended December 31, 2007.

The continued development of, and increased interest in,BlackRock Solutions products and services.

The Company’s expanded global presence, with nearly one-thirdapproximately 41% of employees outside of the U.S. supporting local investment capabilities and serving clients in over 60 countries.of which approximately 44% of total AUM was managed for clients domiciled outside the U.S.; and

 

Thethe growing recognition of the BlackRock brand globally, the strength of the Company’s culture and the depth and breadth of its intellectual capital.

The Company’s ability to increase revenue, earnings and stockholder value over time is predicated on its ability to generate net new business in investment management andBlackRock Solutions products and services. New business efforts are dependent on BlackRock’s ability to achieve clients’ investment objectives in a manner consistent with their risk preferences and to deliver excellent client service. All of these efforts require the commitment and contributions of BlackRock employees. Accordingly, the ability to retainattract and attractretain talented professionals to BlackRock is critical to itsthe Company’s long-term success.

2


Item 1.BUSINESS (continued)

 

Overview (continued)

Selected financial results for the last six years are shown below:

 

   Selected GAAP Financial Results 
(Dollars in thousands, except per share amounts)  2007  2006  2005  2004  2003  2002  5 Year
CAGR
 

Revenue

  $4,844,655  $2,097,976  $1,191,386  $725,311  $598,212  $576,977  53.0%

Operating income

  $1,293,664  $471,800  $340,541  $165,798  $228,276  $215,139  43.2%

Net income

  $995,272  $322,602  $233,908  $143,141  $155,402  $133,249  49.5%

Diluted earnings per share

  $7.53  $3.87  $3.50  $2.17  $2.36  $2.04  29.8%
   Selected Non-GAAP Financial Results2 
(Dollars in thousands, except per share amounts)  20071  20061  20051  2004  2003  20022  5 Year
CAGR
 

Operating income, as adjusted

  $1,559,423  $688,108  $425,812  $270,791  $233,971  $216,592  48.4%

Net income, as adjusted

  $1,079,694  $444,703  $269,622  $177,709  $155,402  $133,249  52.0%

Diluted earnings per share, as adjusted

  $8.17  $5.33  $4.03  $2.69  $2.36  $2.04  32.0%
    Selected GAAP Financial Results 
(Dollar amounts in millions, except per share amounts)  2010  2009  2008  2007  2006  2005  5 Year
CAGR
 

Total revenue

  $8,612   $4,700   $5,064   $4,845   $2,098   $1,191    49

Operating income

  $2,998   $1,278   $1,593   $1,294   $472   $341    54

Operating margin

   34.8  27.2  31.5  26.7  22.5  28.6  4

Non-operating income (expense)(1)

  $36   $(28 $(422 $162   $37   $28    5

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784   $993   $321   $231    55

Diluted earnings per common share

  $10.55   $6.11   $5.78   $7.37   $3.83   $3.45    25
   Selected Non-GAAP Financial Results 
(Dollar amounts in millions, except per share amounts)  2010(2)  2009(2)  2008(2)  2007  2006  2005  5 Year
CAGR
 

As adjusted:

        

Operating income

  $3,167   $1,570   $1,662   $1,518   $674   $408    51

Operating margin

   39.3  38.2  38.7  37.4  36.7  38.9  

Non-operating income (expense)(1)

  $25   $(46 $(384 $150   $29   $18    7

Net income attributable to BlackRock, Inc.

  $2,139   $1,021   $856   $1,077   $443   $266    52

Diluted earnings per common share

  $10.94   $7.13   $6.30   $7.99   $5.29   $3.99    22

 

1(1)

Net of net income (loss) attributable to non-controlling interests.

(2)

See reconciliation to GAAP measures in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview.

2

Prior year data reflects certain reclassifications to conform to the current year presentation.

See additional information in Item 6, Selected Financial Data.

While BlackRock reports its financial results using accounting principles generally accepted in the United States of America (“GAAP”),; however, management believes that evaluating the Company’s ongoing operating results may not be as usefulenhanced if investors are limited to reviewing only GAAPhave additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess the Company’s 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. Certain prior year non-GAAP data has been restatedreclassified to conform to current year presentation.

3


Item 1.BUSINESS (continued)

 

Overview (continued)

Non-GAAP Operating Income, Adjustments:as Adjusted:

GAAP reported operating income includes all compensation relatedcertain significant items, the after-tax impact of which management considers non-recurring or transactions that ultimately will not impact BlackRock’s book value and, therefore, are excluded in calculating operating income, as adjusted.

Operating income, as adjusted (a non-GAAP measure), excludes certain expenses associated with certain of BlackRock’s long-term incentive plans (“LTIP”) which are partially funded by BlackRock common stock currently held by PNC, certain costsincurred related to the integration of the MLIM Transaction, certain costsacquisitions of SSRM Holdings, Inc. (“SSR”), Merrill Lynch Investment Managers (“MLIM”), the fund of funds business of Quellos Group, LLC (“Quellos”) and BGI, as well as advisory fees, legal fees and consulting transaction expenses related to the integration of the assets acquired from Quellos inBGI Transaction, a 2007 certain costs associated with the SSR Transaction in 2005, a termination fee for closed-end fund administration and servicing arrangements with Merrill Lynch, closed-end fund launch costs2008 and commissions,2009 restructuring charges and compensation expense associated with appreciation / appreciation/(depreciation) on assets related to BlackRock’scertain BlackRock deferred compensation plans and compensation charges, which the Company anticipates will be reimbursed by Merrill Lynch in the future.

Operatingplans. These expenses have been excluded from operating income, as adjusted, (a non-GAAP measure), excludesbecause they have been deemed non-recurring by management and to help enhance the comparability of this information to prior periods.

The portion of the LTIPcompensation expense associated with certain of BlackRock’s long-term incentive plan (“LTIP”) awards met by the distributionthat has or will be funded through distributions to participants of shares of BlackRock common stock previously held by PNC and a Merrill Lynch cash compensation contribution, a portion of which has been received, has been excluded because, exclusive of the impact related to the exercise of LTIP participants’ put options, primarily in the three months ended March 31, 2007, these charges do not impact BlackRock’s book value. A detailed discussion of the LTIP funded by PNC is included in Note 1215, Stock-Based Compensation, to the consolidated financial statements beginning on page F-1 of this Form 10-K. MLIM, Quellos and SSR integration costs consist principally of certain professional fees and compensation costs

Compensation expense associated with appreciation/(depreciation) on assets related to those transactions. Also included in MLIM Transaction costs are marketing costs associated with rebranding. MLIM, Quellos and SSR integration costs have been deemed non-recurring by management and havecertain BlackRock deferred compensation plans has been excluded fromas returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income (expense).

Management believes that operating income exclusive of these costs is more representative of the operating performance for the respective periods.

Operating Margin, as Adjusted:

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, to help ensureexcluding the comparabilityimpact of this information to prior periods. The expense related to the termination of the closed-end fund administration and servicing arrangements with Merrill Lynch has been excluded from operating income, as adjusted, as the termination of the arrangements is deemed non-recurring by management Closed-end fund launch costs and commissions have been excluded from operating income, as adjusted, becausecommissions. Management believes that excluding such costs and commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of suchthese costs will not fully impact the Company’s results until future periods. Compensation

Operating margin, as adjusted, allows the Company to compare performance from period-to-period by adjusting for items that may not recur, recur infrequently or may fluctuate based on market movements, such as restructuring charges, transaction/integration costs, closed-end fund launch costs and fluctuations in deferred compensation expense based on mark-to-market movements in investments held to fund certain compensation plans. The Company also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance to other companies. Management reviews both the GAAP and non-GAAP financial measures.

Item 1.BUSINESS (continued)

Overview (continued)

Operating Margin, as Adjusted (continued):

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and to other third parties. Management believes that excluding such costs is useful to BlackRock because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted 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, offset distribution fee revenue earned by the Company. Reimbursable property management compensation represented compensation and benefits paid to personnel of Metric Property Management, Inc. (“Metric”), a subsidiary of BlackRock Realty Advisors, Inc. (“Realty”). Prior to the transfer in 2008 to a third party, these employees were retained on Metric’s payroll when certain properties were acquired by Realty’s clients. The related compensation and benefits were fully reimbursed by Realty’s clients and have been excluded from revenue used for operating margin, as adjusted, because they did not bear an economic cost to BlackRock. 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 revenues.

Non-Operating Income (Expense), Less Net Income (Loss) Attributable to Non-controlling Interests, as Adjusted:

Non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, equals non-operating income (expense), GAAP basis, less net income (loss) attributable to non-controlling interests, GAAP basis, adjusted for compensation expense associated with thedepreciation or appreciation / (depreciation) ofon assets related to certain of BlackRock’s deferred compensation plansplans. The compensation expense offset is recorded in operating income. This compensation expense has been excluded from operatingincluded in non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, as investmentto offset returns on investments set aside for these assetsplans, which are reported in non-operating income (expense), GAAP basis.

Management believes that non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, provides for comparability of the related impact onthis information to prior periods and is an effective measure for reviewing BlackRock’s non-operating contribution to its consolidated results. As compensation expense and resultsassociated with depreciation or appreciation on assets related to certain BlackRock deferred compensation plans, which is included in a nominal impact on net income. Compensation charges to be reimbursed by Merrill Lynch have been excluded from operating income, offsets the gain/(loss) on the investments set aside for these plans, management believes that non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted, because these charges are not expected toprovides a useful measure, for both management and investors, of BlackRock’s non-operating results that impact BlackRock’s book value.

Non-GAAP Net Income Adjustments:Attributable to BlackRock, Inc., as Adjusted:

GAAP reported net income attributable to BlackRock, Inc. and GAAP diluted earnings per common share include certain charges and gains,significant items, the after-tax impact of which management considers non-recurring or transactions that ultimately will not impact BlackRock’s book value or do not have a cash flow impact and, therefore, are excluded in calculating net income attributable to BlackRock, Inc., as adjusted.

Net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted (a non-GAAP measure)(non-GAAP measures), exclude the after-tax impact of the 2008 and 2009 restructuring charges, the 2007 termination of closed-end fund administration and servicing arrangements with Merrill Lynch, LTIP expense to be funded by PNC and by an expecteda Merrill Lynch cash compensation contribution, a portion of which has been received, the SSR, MLIM, Quellos and SSRBGI integration costs, BGI transaction costs and the effect on deferred income tax expense attributable to changes in corporate income tax rate reductions.rates as a result of enacted legislation.

Item 1.BUSINESS (continued)

Overview (continued)

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a detailed reconciliation of GAAP reported operating income, non-operating income (expense) less net income (loss) attributable to non-controlling interests, net income attributable to BlackRock, Inc. and diluted earnings per common share to adjusted non-GAAP operating income, non-operating income (expense), net income attributable to BlackRock, Inc. and diluted earnings per common share.

Reported AUM by Asset Class

December 31,

 

   2005   2006   2007   2008   2009   2010 

Equity

  $36,774    $316,961    $362,705    $203,292    $1,536,055    $1,694,467  

Fixed income

   301,032     445,320     510,207     481,365     1,055,627     1,141,324  

Multi-asset class

   3,425     78,601     98,623     77,516     142,029     185,587  

Alternatives

   25,323     48,292     71,771     61,544     102,101     109,738  
                              

Long-term

   366,554     889,174     1,043,306     823,717     2,835,812     3,131,116  

Cash management

   86,128     235,453     313,338     338,439     349,277     279,175  

Advisory

   —       —       —       144,995     161,167     150,677  
                              

Total

  $452,682    $1,124,627    $1,356,644    $1,307,151    $3,346,256    $3,560,968  
                              

4

Component Changes in AUM by Asset Class


Five Years Ended December 31, 2010

   12/31/2005   Net New
Business
   Acquired
AUM, net(1)
  Market /
FX App
(Dep)
  12/31/2010   5-Year
CAGR(2)
 

Equity

  $36,774    $127,913    $1,322,892   $206,888   $1,694,467     115

Fixed income

   301,032     106,203     625,841    108,248    1,141,324     31

Multi-asset class

   3,425     53,442     111,089    17,631    185,587     122

Alternatives

   25,323     5,325     85,093    (6,003  109,738     34
                            

Long-term

   366,554     292,883     2,144,915    326,764    3,131,116     54

Cash management

   86,128     2,619     189,245    1,183    279,175     27

Advisory

   —       144,378     (10  6,309    150,677     N/A  
                            

Total

  $452,682    $439,880    $2,334,150   $334,256   $3,560,968     51
                            

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009, other reclassifications to conform to current period combined AUM policy and presentation and BGI merger-related outflows due to manager concentration considerations and scientific active equity performance.

(2)

Compounded Annual Growth Rate

AUM

AUM represents assets that we manage on a discretionary basis pursuant to investment management agreements that are expected to continue for at least 12 months. In general, reported AUM corresponds to the basis used for billing (for example, net asset value). Reported AUM does not include assets for which we provide risk management or other forms of non-discretionary advice, or assets that we are retained to manage on a short-term, temporary basis (for example, in a transition management mandate, as described below).

Item 1.BUSINESS (continued)

 

Products*Overview (continued)

BlackRock offers a wide variety of fixed income, equity and balanced, cashInvestment management and alternative investment products. Revenue from these products primarily consists of advisory fees are typically structured as a percentage of AUM and, in some instances, performance fees expressed as a percentage of returns in excess of agreed targets.net asset value. On some products, we earn securities lending fees. We also earn performance fees on certain portfolios relative to an agreed-upon benchmark or return hurdle. In addition, BlackRock also offers itsAladdin® investment system, as well as risk management, investment system outsourcing financialand advisory and transition management services, to institutional investors under theBlackRock Solutions BRS name. Revenue on these services may be based on several criteria including asset volume, number of users, accomplishment of specific deliverables or other objectives.

BlackRock’s bond portfolios are denominatedAt December 31, 2010, AUM was $3.561 trillion, representing a compound annual growth rate of 51% over the last five years. AUM growth during the period was achieved through net new business and mergers, including the acquisitions of MLIM in many currencies including U.S. dollars, pounds sterling, euros, yen and Australian dollars. The Company’s equity platform spans global markets, styles and capitalization ranges. BlackRock’s alternative investment capabilities include private equity, private equity funds2006, the fund of funds real estate equitybusiness of Quellos in 2007 and debt, hedge funds of funds, single-strategy hedge funds, long-only absolute return strategies, commodities and structured products. The Company also manages sector-specific mandates acrossBGI in 2009. These acquisitions significantly changed our AUM mix, from predominantly fixed income in 2005 to a broadly diversified product range spanning asset classes and investment styles, as well asdescribed below.

Products *

Asset Classes

Component Changes in AUM by Asset Class

   12/31/2009   Net New
Business
  Acquired
AUM,
net(1)
  Market /
FX App
(Dep)
  12/31/10
Sub-Total
   BGI
merger-
related
outflows(2)
  12/31/2010 

Equity

  $1,536,055    $69,067   $(8,310 $197,052   $1,793,864    $(99,397 $1,694,467  

Fixed income

   1,055,627     36,013    3,452    66,114    1,161,206     (19,882  1,141,324  

Multi-asset class

   142,029     26,262    3,550    13,873    185,714     (127  185,587  

Alternatives

   102,101     (136  —      8,263    110,228     (490  109,738  
                               

Long-term

   2,835,812     131,206    (1,308  285,302    3,251,012     (119,896  3,131,116  

Cash management

   349,277     (61,424  (4,852  (2,763  280,238     (1,063  279,175  

Advisory

   161,167     (12,021  —      1,541    150,687     (10  150,677  
                               

Total

  $3,346,256    $57,761   $(6,160 $284,080   $3,681,937    $(120,969 $3,560,968  
                               
          

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Includes outflows due to manager concentration considerations and scientific active equity performance.

At year-end 2010, products invested primarily in long-term assets represented 88% of total AUM or $3.131 trillion, of which 54% were equity mandates, 36% fixed income accounts, 6% multi-asset class strategies.

Fixed Income

BlackRock offers an array of fixed incomeportfolios and 4% alternative investments. The remaining AUM was in cash management products across various bond markets and sectors as well as various maturities along the yield curve. BlackRock tailors client portfolios to reflect specific investment guidelines and objectives with respect to interest rate exposure, sector allocation and credit quality. In 2007, BlackRock’s fixed income AUM increased 15% year-over-year to $513.0 billion at year-end.

All bond portfoliosadvisory mandates, which are managed by BlackRock’s fixed income team, which is comprised of regional and sector specialists as well as credit and quantitative analysts, all of whom work closely together to share information, formulate investment themes and implement specific strategies in accordance with each portfolio’s investment objectives and guidelines. They are supported by extensive analytical tools and a shared research database that includes reports from both equity and credit analysts throughout the Company.

long-term portfolio liquidation assignments. Net new business in fixed incomelong-term products totaled $27.2$131.2 billion, before giving effect to merger-related outflows (see below). Net inflows in 2007, with flows representative of the trend toward more customized solutionslong-term products were offset by net outflows in cash management products, as money market fund yields remained near zero and a broader array of investment strategies. Inflows demonstrated continued allocation of capital to global fixed income ($9.6 billion into global portfolios), the growth of target date and target return funds ($19.1 billionnet distributions from advisory portfolios.

Unless stated otherwise, net new business in targeted duration portfolios), and the redefinitionfigures are before giving effect to merger-related outflows of “traditional” fixed income strategies to include a range of absolute return and structured products ($10.4$121.0 billion, net inflows into CDOs and the reclassification of $14.0 billion of alternative assets to fixed income to better align with the evolutionor less than 7% of the business). Along$1.8 trillion of AUM acquired in the BGI Transaction. The annualized investment advisory base fee loss associated with moderate inflows in municipal bonds, the strong net inflows offsetmerger-related outflows in core, sector-specialty and equity plus mandates.is less than approximately $175 million.

During 2007, BlackRock further diversified its fixed income client base geographically with 79% of net new business, or $21.5 billion, from non-U.S. investors. At December 31, 2007, 35% of fixed income AUM was managed for non-U.S. investors, up from 31% at year-end 2006. Inflows were positive across all regions, with net new business of $5.7 billion and $21.5 billion from U.S. and international clients, respectively.

The fixed income business remains largely institutional, with 83% of total bond AUM and 93%, or $25.3 billion, of net new business from institutional clients during the year. At December 31, 2007, 44% of fixed income AUM was from tax-exempt clients, with 79%, or $21.6 billion, of net new fixed income business from tax-exempt institutions in 2007. Inflows through the retail and high net worth channels increased from a slight net outflow in 2006 to net inflows of $1.9 billion in 2007.

 

*See Product Performance Notes below.

5


Item 1.BUSINESS (continued)

Products (continued)

 

Fixed IncomeProducts (continued)

BlackRock’s fixed income portfolio management team seeks competitive investment performance by consistently employing a disciplined process designed to add incremental returns in excess of benchmarks. While competitive performance is key, ensuring that portfolio risks are consistent with client objectives is paramount. For the one-, three- and five-year periods ended December 31, 2007, 58%, 74% and 64% of bond fund assets ranked in the top two quartiles of their peer groups.

Equity and BalancedFixed Income

BlackRockEquity and fixed income AUM include a wide range of active and passive strategies. In total, equity AUM increased $158.4 billion or 10% to $1.694 trillion at year-end 2010. Growth was driven by $69.1 billion of net new business and $197.1 billion of investment performance and market appreciation. Fixed income AUM ended 2010 at $1.141 trillion, up $85.7 billion or 8% relative to December 31, 2009. Net new business contributed $36.0 billion of the growth, while markets and investment performance contributed $66.1 billion. Merger-related outflows totaled $99.4 billion and $19.9 billion in equities and fixed income, respectively, primarily due to manager concentration and underperformance in scientific active equities. (See additional discussion under “AUM by Style,” below.)

Multi-Asset Class

BlackRock’s multi-asset class AUM ended 2010 at $185.6 billion, an increase of 31% or $43.6 billion. During the year, we were awarded $26.3 billion of net new business and portfolio values rose $13.9 billion. BlackRock’s multi-asset class team manages a rangevariety of equity strategiesbespoke mandates that span the risk/return spectrum, along with several targeted opportunitiesleverage our broad investment expertise in specific market sectors. BlackRock closed 2007 with equityglobal equities, currencies, bonds and balanced AUMcommodities and our extensive risk management capabilities. Investment solutions might include a combination of $459.2 billion, up 17% year-over-year.

The Company’s equitylong-only portfolios and balanced products employ primarily either an active quantitative approach or an active fundamental approach, both of which seek to add value principally through stock selection. BlackRock’s quantitative strategies employ sophisticated, proprietary models to drive the investment process. The firm’s fundamental strategies emphasize in-depth company and industry researchalternative investments, as well as macro-economic analysis as the basis for stock selection. Portfolios are managed by distinct teams that each invest according to their own philosophy, process and style and all benefit from shared information and a common trading, systems, operations, administration and compliance platform.

Despite market volatility in the latter half of 2007, net new business in the equity platform totaled $23.5 billion in 2007. Concerns about the market drove investors to investments with more embedded advice and a broader global allocation, as evidenced by $13.9 billion of net inflows into balanced andtactical asset allocation funds over the year.overlays. The equity platform has also had strong inflows into U.S. equity, quantitative/enhanced index and sector funds, particularly natural resources, offsetting outflows from regional/country funds.products are described briefly below.

BlackRock’s equity platform is diversified across its clients and channels.multi-asset class products were managed on behalf of a well-balanced client base. At December 31, 2007, 46%2010, institutional investors represented 56% of the Company’s total equity and balancedmulti-asset class AUM, or $211.1 billion, was managed for U.S. investors and 54%, or $248.1 billion, was managed for non-U.S. investors. We continue to benefit from our global reach, expanding our presence in Asia and opening an investment center in Hong Kong in 2007. While net inflows in 2007 were heavily weighted fromwhile retail and high net worth investors (97% of net new businessaccounted for 44%. Flows were almost evenly split as well, with $15.3 billion or $22.7 billion), the channel mix at year-end remained well balanced with 42% of assets managed on behalf of institutions59% and 58% managed on behalf of$10.7 billion or 41% coming from institutional and retail and high net worth investors.

BlackRock’s equity investment teams sustained strong performance track records,investors, respectively. The geographic mix was similarly diversified, with 84%, 90% and 90%59% of equity fund assets rankedmulti-asset class AUM managed for clients based in the top two quartilesAmericas, 32% in Europe, the Middle East and Africa (“EMEA”) and 9% in Asia-Pacific. During the year, clients in the Americas and EMEA awarded BlackRock net new business of $26.6 billion, which offset net outflows of $0.5 billion from clients in Asia-Pacific.

Asset allocation and balanced products represented 59% or $109.8 billion of multi-asset class AUM at year-end, up $23.0 billion on the strength of net new business of $14.0 billion and favorable investment performance and market movements of $9.0 billion. Our industry leading global allocation funds surpassed $70 billion in AUM in 2010.

Target date and target risk funds ended the year at $41.9 billion, or 23% of multi-asset class AUM, driven by net inflows of $7.5 billion, a year-over-year organic growth rate of 26% and portfolio appreciation of $4.5 billion. Products include ourLifePath andLifePath Retirement Income® offerings, which are Qualified Default Investment Alternatives under the Pension Protection Act of 2006. These products utilize a proprietary asset allocation model that seeks to balance risk and return over an investment horizon based on the investor’s expected retirement timing.

Fiduciary management services accounted for 15% or $28.6 billion of multi-asset class AUM at December 31, 2010. AUM increased $4.1 billion during the year. These are complex mandates in which pension plan sponsors retain BlackRock to assume responsibility for some or all aspects of plan management. Customized services include tailoring investment strategy to client-specific risk budgets and return objectives, working closely with the client’s investment staff and trustees.

Volatile investor sentiment presented challenges for asset allocation strategies in 2010. While 35% of multi-asset class AUM achieved returns above their benchmarks or peer groupsmedians for the one-, three-one year, longer-term results remained strong, with 81% of multi-asset class AUM outperforming for the three years and five-year periods87% for the five years ended December 31, 2007.2010.

Cash Management

BlackRock cash management products cover the short end of the duration spectrum and reflect a firm focus on credit quality and risk management. BlackRock is a leading provider of cash management products with $313.3 billion in global cash management AUM at December 31, 2007, including a variety of money market funds and customized portfolios. AUM in these strategies increased $77.6 billion, or 33%, during 2007. Net new business totaled $75.3 billion during the year.

6


Item 1.BUSINESS (continued)

Products (continued)

 

Cash ManagementProducts (continued)

Alternative Investments

BlackRock ended 2010 with $109.7 billion of AUM in its alternative investment products, an increase of $7.6 billion. Net outflows totaled $0.1 billion, as withdrawals and disbursements in real estate, currency and opportunistic funds were offset by inflows in single- and multi-strategy hedge funds, global macro funds, funds of $52.4 billion into cash management productshedge funds and commodity products. We believe that as investors adapt their asset allocation strategies to best meet their investment objectives in the third and fourth quarters highlight the industry-wide reallocationcurrent environment, they will continue to increase their use of funds out of higher risk strategies and into money market funds in responsealternative investments to credit market concerns and reaction to Federal Reserve rate cuts. Although inflows had continued in early 2008, we anticipate outflows when overnight rates stabilize and investors return to more typical asset allocation strategies.complement their core holdings.

BlackRock’s cash management activities are primarily conducted on behalf of U.S. clients, although there is increasing demand among international clients for similar products. At December 31, 2007, cash management AUM for U.S. investors reached $286.4 billion and assets for international investors were $26.9 billion. For 2007, net inflows from U.S. investors totaled $71.0 billion and $4.3 billionThe alternative investment client base was raised from international investors. Institutional clients represent the largest percentage of BlackRock’s cash management platform with $248.4predominantly institutional, representing 75% or $81.8 billion of assets at December 31, 2007. Retailalternatives AUM with retail and high net worth investors comprising 8% or $9.3 billion of AUM at December 31, 2010.iShares comprised $18.6 billion or 17% of ending AUM. The geographic mix was well diversified, with 55% of AUM managed for clients in the Americas, 24% for clients in EMEA and 21% for clients in Asia-Pacific.

During 2010, we launched BlackRock Alternative Investors (“BAI”) to coordinate our alternative investment efforts, including product management, business development and client service. The products offered under the BAI umbrella are described below.

Real estate debt and equity products managed by BlackRock totaled $12.9 billion at year-end. Offerings include high yield debt and core, value-added and opportunistic equity portfolios. Real estate AUM decreased $5.5 billion during the year, driven by $3.3 billion in net outflows and $2.2 billion in market declines. Market performance rebounded for U.S. funds in 2010 and showed continued strength in the U.K. and within separate accounts.

Funds of funds AUM increased $1.8 billion or 8% to $23.9 billion at December 31, 2010, including $18.5 billion in funds of hedge funds and hybrid vehicles and $5.4 billion in private equity fund of funds. During the year, growth was driven by net inflows of $0.5 billion and $1.3 billion of investment and market performance. Performance was strong and a growing number of institutional clients worldwide sought our expertise in customized accounts and commingled vehicles.

Hedge funds ended the year with $25.9 billion of AUM in a variety of single-strategy, multi-strategy and global macro hedge funds, as well as portable alpha, distressed and opportunistic offerings. Products include both open-end hedge funds and similar products and closed-end funds that have been created to take advantage of specific opportunities over a defined, often longer-term investment horizon. Growth of $1.1 billion primarily came from $0.6 billion of net inflows into fixed income and multi-strategy hedge funds and strong investment and market performance of $1.8 billion across all strategies.

Currency and commodity mandates totaled $45.6 billion at year-end 2010. These products include a range of active and passive products primarily managed through institutional separate accounts. AUM increased $10.0 billion during the year, driven by $2.8 billion of net inflows, primarily in commodities and currency overlays and $7.1 billion of market appreciation. OuriShares commodities products represented $18.6 billion of AUM, which are not eligible to pay performance fees.

Cash Management and Securities Lending

AUM in cash management assets have grown from $53.6 billion at year-end 2006 to $64.9 billion at year-end 2007.

For the one-, three- and five-year periods ended December 31, 2007, 100% of BlackRock’s U.S. institutional money market fund assets outperformed their benchmarks.

Alternative Investment Products

BlackRock’s alternative investment products capitalize on evolving capital market opportunities that benefit from the Company’s resources in risk management, product development, client service and operational support. Strategies are designed to provide returns with low correlations to the broad equity and bond markets. BlackRock’s capabilities include private equity, private equity funds of funds, real estate equity and debt, hedge funds of funds, single-strategy hedge funds, long-only absolute return strategies, commodities and structured products. Total assets managed in alternative investments increased by $23.0 billion to $71.1totaled $279.2 billion at December 31, 2007. The increase accounts for $21.92010, a decrease of $70.1 billion, of assets acquired in the Quellos Transaction and a reclassification of $14.0 billion of structured products and absolute return products to fixed income earlier in the year.

In 2007, BlackRock launched BlackRock Alternative Advisors (“BAA”)or 20%, created by the merger of the Quellos Business with our existing absolute return and private equity fund of funds business. BAA will continue to manage assets across absolute return, private capital and hybrid strategies, with emphasis on the Company’s long-standing investment philosophy and process.from AUM in these strategies totaled $29.5 billion at year-end. We have already begun to realize the power of the combined businesses, with $1.4 billion of net new business in the quarter since closing the transaction.

BlackRock real estate investments span a wide range of strategies, including core, value-add and opportunistic equity and high-yield debt for institutional and private investors. AUM on the real estate platform grew to $29.4 billionreported at year-end including $7.3 billion of net new business2009. Investors continued to look for higher returns by reallocating balances to deposits and operations and to a lesser extent, longer-term investment products. Cash management products include taxable and tax-exempt money market funds and customized separate accounts. Portfolios may be denominated in 2007. Notable accomplishments this year include the launch of the Company’s first opportunity funds (Global Opportunity Fund and Retail Opportunity Fund), completion of funding for the Peter Cooper Village and Stuyvesant Town partnerships, and initiation of a broader global expansion.U.S. dollar, euro or pound sterling.

7


Item 1.BUSINESS (continued)

Products (continued)

 

Alternative Investment Products (continued)

Our cash management clientele is largely institutional, with 85% of cash AUM managed for institutions and 15% for retail and high net worth investors at year-end 2010. The investor base was also predominantly domestic, with 75% managed for investors in the Americas and 25% for clients in other regions, almost all EMEA-based. We suffered net outflows during the year, as investors sought higher yields in bank deposits, direct money market investments and as they became more confident of the market recovery, in longer-term assets. Clients also used their cash for operating purposes, as business investment increased and merger and acquisition activity increased. We expect these trends to continue, which will continue to put pressure on cash management flows.

The cash management team also invests the cash we receive as collateral for securities on loan in other portfolios. Securities lending, which is offered as a potential source of incremental returns on long-term portfolios, is managed by a dedicated team, supported by quantitative analysis, proprietary technology and disciplined risk management. Fees for securities lending can be structured as a share of earnings and/or a percentage of the value of the cash collateral. The value of the securities on loan and the revenue earned is captured in the corresponding asset class in AUM. The value of the cash or securities collateral is not included in cash management AUM.

The combination of the legacy businesses, along with the addition of new lending mandates, has increased lendable inventory and solidified BlackRock as a top tier provider of lendable assets. Outstanding loan balances ended the year at approximately $104 billion, down slightly from $111 billion at year-end 2009. Balance volatility throughout 2010 was lower than in recent years. Demand remained weak, as relatively few securities command premium lending fees. This trend is expected to continue through 2011, with a turnaround occurring when the end-borrowers of securities begin re-risking and putting their capital to work with more conviction.

BlackRock launched distressedemploys a conservative investment style that emphasizes quality, liquidity and superior client service throughout all market cycles. Disciplined risk management, including a rigorous credit surveillance process, is an integral part of the investment process. BlackRock’s Cash Management Risk Committee has established risk limits, such as aggregate issuer exposure limits and mortgage fundsmaturity limits, across many of the products BlackRock manages, including over all of its cash management products. In the ordinary course of our business, there may be instances when a portfolio may exceed an internal risk limit or when an internal risk limit may be changed and no such instances, individually or in 2007, leveragingthe aggregate, have been material to the Company. To the extent that daily evaluation/reporting of the profile of the portfolios identifies that a limit has been exceeded, the relevant portfolio will be adjusted. To the extent a portfolio manager would like to obtain a temporary waiver of a risk limit, the portfolio manager must obtain approval from the credit research team, which is independent from the cash management portfolio managers. While a risk limit may be waived, such temporary waivers are infrequent.

Item 1.BUSINESS (continued)

Products (continued)

Investment Styles

Reported Long-term AUM by Asset Class & Style

December 31, 2010

   Active   Institutional
Index
   iShares/
ETPs
   Total 

Equity

  $334,532    $911,775    $448,160    $1,694,467  

Fixed income

   592,303     425,930     123,091     1,141,324  

Multi-asset class

   181,101     4,116     370     185,587  

Alternatives

   82,544     8,603     18,591     109,738  
                    

Long-term

  $1,190,480    $1,350,424    $590,212    $3,131,116  
                    

Component Changes in Long-term AUM by Style

   12/31/2009   Net New
Business
  Acquired
AUM,  net(1)
  Market /
FX
App (Dep)
   12/31/10
Sub-Total
   BGI
merger-
related
outflows(2)
  12/31/2010 

Active

  $1,172,503    $(2,016 $(4,820 $89,395    $1,255,062    $(64,582 $1,190,480  

Institutional index

   1,169,094     89,186    3,512    143,947     1,405,739     (55,315  1,350,424  

iShares / ETPs

   494,215     44,037    —      51,960     590,212     —      590,212  
                                

Long-term

  $2,835,812    $131,207   $(1,308 $285,302    $3,251,013    $(119,897 $3,131,116  
                                

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Includes outflows due to manager concentration considerations and scientific active equity performance.

Long-term1 product offerings include active and passive (index) strategies. The investment objective for active portfolios is to earn attractive returns in excess of a market dislocationsbenchmark or performance hurdle (alpha). In contrast, passive strategies seek to closely track the returns of the corresponding index (beta), generally by investing in the securities that comprise the index or in a subset of those securities selected to approximate the risk and return profile of the index.

The BGI Transaction included an at-scale index business that materially changed BlackRock’s AUM mix. Index AUM, including institutional andiShares products, increased from 4% of AUM at year-end 2008 (prior to the BGI Transaction) to 54% of AUM at December 31, 2010.

Although many clients use both active and passive strategies, the profile of these assets differs greatly. For example, clients often use index products to gain exposure to a market or asset class pending reallocation to an active manager. This has the effect of increasing turnover on index AUM. In addition, institutional index assignments tend to be very large (multi-billion dollars) and priced at low fee rates. This has the effect of exaggerating the significance of net flows in institutional index on BlackRock’s earnings.

1

See discussions of Cash Management and Advisory (BRS) offerings.

Item 1.BUSINESS (continued)

Products (continued)

Active Strategies

Component Changes in AUM - Active

   12/31/2009   Net New
Business
  Acquired
AUM,  net(1)
  Market /
FX App (Dep)
   12/31/10
Sub-Total
   BGI
merger-
related
outflows(2)
  12/31/2010 

Equity

  $348,573    $2,632   $(3,920 $41,737    $389,022    $(54,490 $334,532  

Fixed income

   595,580     (22,142  (3,923  32,262     601,777     (9,474  592,303  

Multi-asset class

   141,473     23,402    3,023    13,331     181,229     (128  181,101  

Alternatives

   86,877     (5,908  —      2,065     83,034     (490  82,544  
                                

Long-term

  $1,172,503    $(2,016 $(4,820 $89,395    $1,255,062    $(64,582 $1,190,480  
                                

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Includes outflows due to manager concentration considerations and scientific active equity performance.

We offer two types of active strategies: those that rely primarily on fundamental research and those that utilize primarily quantitative models to drive security selection and portfolio construction. At year-end 2010, active long-term AUM increased $18.0 billion to $1.190 trillion at year-end, of which 28% was in equities, 50% in fixed income, 15% in multi-asset and 7% in alternatives. Favorable markets contributed $89.4 billion of growth, which was slightly offset by $2.0 billion of net outflows. AUM growth was significantly hampered by merger-related outflows of $64.6 billion, primarily in scientific active equities (“SAE”).

Active Equity

BlackRock’s active equity AUM closed the year at $334.5 billion, a decline of 4%, or $14.0 billion relative to year-end 2009. Net new business contributed $2.6 billion of growth, while investment and market performance added $41.7 billion. A wide variety of products are offered, including global and regional portfolios; value, growth and core products; large, mid and small cap strategies; and selected sector funds. We believe an improving U.S. economy, strong corporate balance sheets, and sustained strong growth in the emerging markets bodes well for equity markets in 2011, although geopolitical risk remains a potential drag on investor sentiment.

BlackRock manages active equity portfolios for a diverse base of institutional and retail and high net worth investors globally. At December 31, 2010, approximately half of active equity AUM ($165.8 billion) was managed on behalf of institutional investors in separate accounts, collective investment trusts and mutual funds and half ($168.7 billion) for retail and high net worth investors, largely through open-end mutual funds and separately managed accounts. Approximately 46% of our active equity AUM was managed for investors based in the Company’s clientsAmericas, 39% in EMEA and bringing $1.115% in Asia-Pacific.

Fundamental active equity ended 2010 with $239.1 billion in AUM. Net inflows of $3.9 billion in equity dividend, global, European and other regional strategies were offset by outflows of $0.2 billion in U.S. equity funds. Market appreciation of $30.4 billion bolstered AUM as equity markets rebounded late in the year. BlackRock’s fundamental active equity investors seek to add value relative to a specified index or on an absolute basis primarily through security selection based on proprietary research and portfolio manager judgment. Performance was strong in European and emerging market products, as well as selected sector funds including: energy, natural resources and health sciences. In total, 62%, 65% and 77% of fundamental active equity AUM beat their benchmarks or peer medians for the one-, three- and five-year periods ended December 31, 2010, respectively. During the year, we drew on existing talent to fill out the leadership team and attracted an experienced CIO for our U.S. fundamental active equity strategies.

Item 1.BUSINESS (continued)

Products (continued)

Scientific active equity AUM declined 32% to $95.4 billion. Portfolio appreciation of $11.4 billion was insufficient to overcome BGI merger-related outflows of $52.6 billion, much of which was anticipated due to underperformance dating back to 2007 in key developed market products. SAE strategies seek superior investment outcomes through a stock selection process that aims to systematically find and exploit pricing opportunities, while rigorously managing risk and cost. During the year, we appointed a new head of the SAE business, who reorganized the team and instilled a strong performance culture that has begun to stabilize the asset base. Though still nascent, there are early signs of improvement, as 55%, 45% and 36% of SAE AUM outperformed their benchmarks or peer medians for the one-, three- and five-year periods ended December 31, 2010, respectively.

Active Fixed Income

BlackRock’s active fixed income AUM ended 2010 at $592.3 billion, a slight decrease of 1% or $3.3 billion, from the previous year’s results. During the year, we had $22.1 billion of net new businessoutflows, partially offset by $32.3 billion of investment and market performance. Fixed income mandates are often tailored to client-specified liabilities, accounting, regulatory or rating agency requirements, or other investment policies. U.S. bonds enjoyed good absolute returns in 2007,2010. Despite a slight pullback during the fourth quarter, the Barclays Capital U.S. Aggregate Index returned 6.5% for the year. While sovereign credit risk remains a concern, particularly in parts of Europe, inflation is not expected to have a material impact on Federal Reserve policy in 2011.

Of BlackRock’s total active fixed income AUM, 82% was managed on behalf of institutional investors and 18% for retail and high net worth investors. The client base reflects our historical roots, with additional commitments to follow69% of active fixed income AUM managed for investors in 2008. BlackRock’s portable alpha business nearly doubledthe Americas, 23% for EMEA domiciled clients, and 8% for investors in 2007, with year-end assets under managementthe Asia-Pacific region. Net inflows of $1.3 billion including $549 millionfrom Asia-Pacific clients were more than offset by outflows of $23.4 billion from investors in the Americas and EMEA.

Fundamental fixed income AUM totaled $553.5 billion, or 93% of active fixed income AUM, at year-end 2010. These products emphasize risk-controlled sector rotation and security selection driven by sector experts and direct interaction with issuers and market makers. Fundamental strategies experienced net outflows of $10.2 billion largely driven by client changes in overall asset allocation and long-term performance concerns. In addition, $8.8 billion of fixed income assets, on which we have been waiving fees for more than a year, transferred to cash management. Market appreciation contributed $30.5 billion to ending AUM. Positive flows in U.S. municipal bonds of $2.0 billion were buoyed by the successful launch of the $1.2 billion Build America Bond Trust in the third quarter of the year. Fundamental taxable fixed income strategies achieved strong performance in 2010, with 72%, 49% and 49% of AUM above their benchmarks or peer medians for the one-, three-, and five-year periods ended December 31, 2010, respectively.

Model-driven fixed income AUM declined $3.9 billion or 9%, ending the year at $38.8 billion. Investment and market performance of $1.7 billion was insufficient to overcome $3.2 billion of outflows. These strategies employ models to identify relative return opportunities and to apply those results, subject to a pragmatic review of model risk, on a systematic basis across portfolios. Performance in our model-driven fixed income strategies was mixed, with 66%, 81% and 92% of AUM above their benchmarks or peer medians for the one-, three- and five-year periods ended December 31, 2010, respectively.

Multi-Asset and Alternatives

Virtually all (98%) of AUM in multi-asset class mandates, and the majority (75%) of AUM in alternative investments are managed in active strategies. These products are discussed earlier. (See the corresponding sections under “Products — Asset Classes.”)

Item 1.BUSINESS (continued)

Products (continued)

Institutional Index

Component Changes in AUM - Institutional Index

   12/31/2009   Net New
Business
   Acquired
AUM,  net(1)
  Market /
FX App (Dep)
   12/31/10
Sub-Total
   BGI
merger-
related
outflows(2)
  12/31/2010 

Equity

  $806,083    $44,569    $(4,390 $110,420    $956,682    $(44,907 $911,775  

Fixed income

   357,557     39,148     7,374    32,259     436,338     (10,408  425,930  

Multi-asset class

   354     2,721     528    513     4,116     —      4,116  

Alternatives

   5,100     2,748     —      755     8,603     —      8,603  
                                 

Long-term

  $1,169,094    $89,186    $3,512   $143,947    $1,405,739    $(55,315 $1,350,424  
                                 

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Includes outflows due to manager concentration considerations and scientific active equity performance.

Institutional index AUM, generally managed in common trust funds or separate accounts, comprised 38% of total AUM at December 31, 2010. AUM growth was driven by net new business of $89.2 billion and market appreciation of $143.9 billion. Merger-related outflows of $55.3 billion were concentrated among a relatively small number of clients. Where possible, we worked with these investors to address manager concentration issues by reallocating commoditized, low fee AUM, while retaining significant relationships and opportunities.

Equity products comprised 68% of institutional index AUM, ending the year at $911.8 billion, driven by net inflows of $44.6 billion and $110.4 billion of market appreciation. Net inflows in global, U.S. equity and other regional strategies were partially offset by outflows of $2.7 billion in other low fee currency overlays for equity strategies. Toward the end of the year, investors began to reallocate to higher return asset classes, helping to fuel a recovery in the global equity markets. Institutional index equity portfolios closely tracked their respective benchmarks, with 97%, 96% and 98% of AUM at or above tracking error tolerance for one-, three-, and five-year periods.

Fixed income products represented 32% or $425.9 billion of institutional index AUM, an increase of 19% or $68.4 billion. Net new business totaled $39.1 billion fueled by $12.8 billion of net inflows primarily in liability hedging strategies. Investors remained risk averse largely due to the European sovereign debt crisis in the first half of the year, favoring low risk fixed income exposures. As global markets stabilized and a recovery in the U.S. looked increasingly likely, equity markets recovered and investor confidence returned. Institutional index fixed income portfolios closely tracked their respective benchmarks, with 92%, 94% and 98% of AUM at or above tracking error tolerance for one-, three-, and five-year periods.

Less than 1% of institutional index AUM is in alternatives or multi-asset class products. (See discussions under “Products — Asset Classes,” above.)

Item 1.BUSINESS (continued)

Products (continued)

iShares / ETPs

Component Changes in AUM - iShares / ETPs

   12/31/2009   Net New
Business
   Acquired
AUM,  net(1)
   Market /
FX App (Dep)
   12/31/10
Sub-Total
   BGI
merger-
related
outflows(2)
   12/31/2010 

Equity

  $381,398    $21,865    $—      $44,897    $448,160    $—      $448,160  

Fixed income

   102,490     19,008     —       1,593     123,091     —       123,091  

Multi-asset class

   203     140     —       27     370     —       370  

Alternatives

   10,124     3,024     —       5,443     18,591     —       18,591  
                                   

Long-term

  $494,215    $44,037    $—      $51,960    $590,212    $—      $590,212  
                                   

(1)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Includes outflows due to manager concentration considerations and scientific active equity performance.

iShares is the leading ETF provider in the world, with $590.2 billion of AUM at December 31, 2010, an increase of $96.0 billion or 19% since year-end 2009. We were the top asset gatherer globally in 20102, with $44.0 billion of net inflows complemented by $52.0 billion of market appreciation. We also introduced 78 new ETPs during the year, maintaining our dual commitment to innovation and responsible product structuring. Our broad product range offers investors the building blocks required to assemble diversified portfolios and implement tactical asset allocation strategies and the liquidity required to make adjustments to their exposures quickly and cost-efficiently.

The market for ETPs continues to grow globally, with investor preference driven to varying degrees by performance (as measured by tracking error, which is the difference between net returns on the ETP and the corresponding index), liquidity (bid-ask spread), tax-efficiency, transparency and client service. Flows also reflect investor risk appetite, which shifted toward fixed income and, within equities, to broad and single country emerging market funds in 2010. In early 2011, investors have begun to shift equity allocations back to developed markets.

At year-end, ouriShares product mix included $448.2 billion, or 76%, in equity offerings, and $123.1 billion, or 21%, in bond ETPs. The remaining $19.0 billion or 3% ofiShares AUM was in multi-asset and alternative investments.iShares equity AUM increased $66.8 billion or 18% versus 2009, with $21.9 billion in net inflows and $44.9 billion of market and foreign exchange appreciation.iShares fixed income AUM rose $20.6 billion or 20% over the previous year, with 92% of the increase being driven by $19.0 billion of net inflows.iShares multi-asset and alternatives AUM grew by $8.6 billion or 84%, with $3.2 billion of net inflows, predominately in commodity products such as gold and silver, and $5.5 billion of market and foreign exchange appreciation.

In total, we had net inflows in 315 different ETPs during 2010. As of year-end, we managed three of the top five, six of the top ten, and twelve of the 20 largest ETFs in the U.S.2 OuriShares offerings were traded on 19 exchanges throughout the world. These included 276 funds2 in the Americas with $480.3 billion, or 81%, ofiShares AUM. Assets in these funds increased $77.6 billion, or 19%, during the year, including $27.8 billion of net inflows.

2

Year-end 2010 ETF Landscape Industry Review; BlackRock Global ETF Research and Implementation Strategy Team, Bloomberg, National Stock Exchange (NSX)

Item 1.BUSINESS (continued)

Products (continued)

Notwithstanding a substantial increase in the number of ETP sponsors and products,iShares has maintained market share of more than 48% in the U.S. and 36% in EMEA3. In addition, we are the largest ETF manager in Mexico, have pioneered the product in Chile and Peru, and have introduced products in Brazil, Australia, Hong Kong and Japan. Importantly, our share of revenues is significantly higher due to our product mix. In general, we expect to maintain our pricing, so long as it is supported by performance and theiShares value proposition, although we continually seek to achieve efficiencies and pass them through to our clients.

BlackRock Solutions and Advisory

BlackRock offers investment systems, risk management, outsourcing and advisory services under theBlackRock Solutions brand name. Over $10.0 trillion of positions are processed on ourAladdin operating platform, which serves as the investment system for BlackRock and a growing number of sophisticated institutional investors around the world. BRS also offers comprehensive risk reporting via theGreen Package®

Since its formation, BlackRock has developed and maintained proprietary investment systems to support its business. These capabilities are offered under the brand name,BlackRock Solutions. In 2007BlackRock Solutions’ revenues from system outsourcing, risk management advisory transition and investment services, increased by 34% in the aggregate to $198.3 million. During the year, six net new assignments were added. By year-end 2007,interactive fixed income analytics through our web-based calculator,BlackRock SolutionsAnSer had completed six system implementations and had four implementations in process. In addition, the advisory team added 21 and completed 18 short-term assignments. Importantly, these increases inBlackRock Solutions business occurred concurrently with the continuing and extensive efforts to complete the conversion of MLIM’s equity portfolios to the Aladdin platform.®

BlackRock Solutions’core products consist of tools that support the investment process. These include Aladdin and a variety of other proprietary analytical tools for clients that do not require all of the functionality of the enterprise system. In addition,BlackRock Solutions offers a variety of risk management and financial advisory services. In 2007,BlackRock Solutions was retained on seven net new Aladdin assignments and one net new long-term risk management and advisory assignment.BlackRock Solutions also provides investment accounting outsourcing, typically bundled with asset management services, as well as ancillary outsourcing services, such as performance measurement and, middle and back office trade support,outsourcing services and investment accounting. Clients have also retained BRS’ Financial Markets Advisory (“FMA”) group for a variety of engagements, such as valuation and risk assessment of illiquid assets, portfolio restructuring, workouts and dispositions of distressed assets and financial and balance sheet strategies.

As global capital markets have recovered, clients who wishhave focused more on risk management, and demand for BRS services continues to extend their relationships.BlackRock Solutionsbe robust. During the year, BRS added one62 net new investment accounting relationshipassignments. While revenue declined modestly by 4% to $460 million, demand was strong forAladdin and risk management services, with year-over-year revenue growing 14%, particularly in 2007.EMEA where we signed a record number of new BRS clients onto the platform.BlackRock SolutionsAladdin also offers transition managementassignments are long-term contracts providing significant recurring revenue.

During the year we added 49 new FMA assignments and completed 33 engagements. The nature of FMA assignments shifted from urgent, short-term risk analyses to longer term advisory and risk monitoring engagements, with year-over-year revenue declining 23%, as the crisis subsided and fewer clients required emergency valuation and liquidation services. Advisory AUM decreased 7% to $150.7 billion, with $1.5 billion of market appreciation insufficient to offset $12.0 billion of client distributions in these long-term liquidation portfolios.

At year-end, 2007,BlackRock Solutions managed 115 distinct assignments for 98 clients, including 28 Aladdin assignments, 62 risk management and advisory assignments and 25 outsourcing assignments.BlackRock Solutions provided these services for a well-diversified list ofBRS served 149 clients, including banks, insurance companies, broker-dealers,official institutions, pension funds, asset managers hedge funds, pensions, endowments, foundations and other financial institutions.institutional investors across North America, Europe, Asia and Australia. During the year, BlackRock acquired and integrated Helix Financial Group LLC to enhance BRScommercial real estate capabilities, which proved to be critical to BRS success in winning several high profile assignments. We will continue to consider acquisition opportunities that can expandAladdinfunctionality and our risk management expertise.

The BRS and Aladdin teams are also supporting key aspects of the BGI integration. These efforts are vital to establishing a unified operating platform and consistent operating processes. We expect functionality added in connection with the integration to enhance theAladdinplatform over time. Additionally, we will seek to leverage our scale for the benefit of our clients through the creation of a robust global trading platform and other initiatives.

Transition Management Services

BlackRock also offers transition management services, involving the temporary oversight of a client’s assets as they transition from one manager to another or from one strategy to another. We provide a comprehensive service that includes project management and implementation based on achieving best execution consistent with the client’s risk management tolerances. We use state-of-the-art tools and work closely with BlackRock’s trading cost research team to manage four dimensions of risk throughout the transition: exposure, execution, process and operational risk. The average transition assignment is executed within two weeks, although the duration can be longer or shorter depending on the size, complexity and liquidity of the related assets. These portfolios are not included in AUM unless BlackRock has been retained to manage the assets after the transition phase.

3

Year-end 2010 ETF Landscape Industry Review; BlackRock Global ETF Research and Implementation Strategy Team, Bloomberg, National Stock Exchange (NSX).

Item 1.BUSINESS (continued)

Products (continued)

Risk & Quantitative Analysis

Across all asset classes, in addition to the efforts of the portfolio management teams, the Risk & Quantitative Analysis (“RQA”) group at BlackRock provides risk management advice and independent risk oversight of the investment management processes, identifies and helps manage counterparty and operational risks, coordinates standards for firmwide investment performance measurement and determines risk management-related analytical and information requirements. Where appropriate, RQA will work with portfolio managers and developers to facilitate the development or improvement of risk models and analytics.

Product Performance Notes

Past performance is not indicative of future results. Investments inThe performance information for actively managed accounts reflects U.S. open-end and closed-end mutual funds and similar EMEA-based products with respect to peer median comparisons, and actively managed institutional separate accounts and funds located globally with respect to benchmark comparisons, as determined using objectively based internal parameters, using the most current information available as of December 31, 2010. The performance information does not include funds or accounts that are neither insured nor guaranteednot measured against a benchmark, private equity products, CDOs, or accounts managed by the U.S. government. Relative peer groupBlackRock’s Financial Markets Advisory Group. Comparisons are based on gross-of-fee performance for U.S.-based products and institutional separate accounts, and net-of-fee performance for EMEA-based products. The performance tracking information for institutional index accounts is based on quartilesgross-of-fee performance as of December 31, 2010, and includes all institutional accounts globally using an index strategy. AUM information is based on AUM for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund, as of December 31, 2010. 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. Rankings are based on total returns withFund performance reflects the reinvestment of dividends and distributions, reinvested and dobut does not reflect sales charges. BlackRock waives certain fees, without which performance would be lower. Funds with returns among the top 50% of a peer group of funds with comparable objectives are in the top two quartiles. Some funds have less than three years of performance.

Clients

Reported AUM by Client Region & Client Type

December 31, 2010

 

   Institutional   Retail /
HNW
   iShares/
ETPs(1)
   Total 

Americas

  $1,401,566    $295,036    $480,345    $2,176,947  

EMEA

   828,587     87,544     100,684     1,016,815  

Asia-Pacific

   325,907     32,116     9,183     367,206  
                    

Total

  $2,556,060    $414,696    $590,212    $3,560,968  
                    

8

(1)

Based on jurisdiction of fund, not underlying client.

BlackRock serves institutional and retail and high net worth investors in more than 100 countries through the efforts of professionals located in 25 countries. We strive to leverage our global expertise and scale, together with our understanding of local requirements and business customs, to most effectively serve our clients. Portfolios may be invested in local, regional or global capital markets. Products may be structured to address location-specific issues, such as regulations, taxation, operational infrastructure, market liquidity, and client-specific issues, such as investment policy, liability structure and ratings.


In order to enhance our ability to best serve our clients and develop our talent, we modified our matrix organizational structure in 2010 to reinforce the teamwork required among global functions and regions. The global functions — Portfolio Management, BRS, Global Clients, and Corporate & Business Operations — are key to driving coordination and consistency, and to achieving the benefits of our scale. The regions — Americas, EMEA, and Asia-Pacific — support local clients, employees, regulators and business strategy. At December 31, 2010, 44% of our AUM was managed for clients outside the U.S., and 41% of employees were based outside the U.S. We expect these figures to approach 50% over the coming years.

Item 1.BUSINESS (continued)

 

Clients (continued)

BlackRock serves a diverse client base of institutional and retail investors globally. Products are offered both directly and through financial intermediaries. BlackRock seeks to distinguish itselfGlobal Clientele

Reported AUM by using its enhanced global perspective and scale to benefit clients and help them creatively solve problems. Asset Class & Client Region

December 31, 2010

   Americas     EMEA     
 
Asia-
Pacific
 
  
   Total  
                    

Equity

  $1,045,713    $483,129    $165,625    $1,694,467  

Fixed income

   609,412     374,410     157,502     1,141,324  

Multi-asset class

   109,306     59,773     16,508     185,587  

Alternatives

   60,120     26,469     23,149     109,738  
                    

Long-term

   1,824,551     943,781     362,784     3,131,116  

Cash management

   209,595     68,370     1,210     279,175  

Advisory

   142,801     4,664     3,212     150,677  
                    

Total

  $2,176,947    $1,016,815    $367,206    $3,560,968  
                    

Reported AUM by Style & Client Region

December 31, 2010

   Americas   EMEA   Asia-
Pacific
   Total 

Active

  $711,179    $345,593    $133,708    $1,190,480  

Institutional index

   633,027     497,504     219,893     1,350,424  

iShares/ETPs

   480,345     100,684     9,183     590,212  
                    

Long-term

   1,824,551     943,781     362,784     3,131,116  

Cash management

   209,595     68,370     1,210     279,175  

Advisory

   142,801     4,664     3,212     150,677  
                    

Total

  $2,176,947    $1,016,815    $367,206    $3,560,968  
                    

Americas

At year-end the Company’s AUM had grown to $1.357 trillion, up $232.0 billion over year-end 2006, including $21.9 billion2010, assets managed on behalf of AUM acquiredclients domiciled in the Quellos Transaction. In 2007, BlackRockAmericas (defined as the U.S., Caribbean, Canada, Latin America and Iberia), totaled $2.177 trillion or 61% of total AUM, an increase of $118.8 billion or 6% in 2010. Growth was also retained on six net newBlackRock Solutions assignments, for a total of 115 distinct assignments for 98 clients. Increasingly, clients are turning to BlackRock for a variety of services. As of December 31, 2007, over 500 clients turned to BlackRock for investment solutionsdriven by $78.4 billion in more than one asset class or business.

During the year, the Company was awarded $37.5 billion of net new business from non-U.S. investors in over 36 countries, bringinglong-term products and $177.3 billion in investment performance and market appreciation. Clients are served through offices in Brazil, Canada, Chile, Mexico, Spain and throughout the total managedU.S.

Offerings include closed-end funds andiShares traded on domestic stock exchanges, a full range of open-end mutual funds, collective investment funds, common trusts, private funds and separate accounts. The long-term product mix is well diversified and proportional to the firm’s mix: 57% in equities, 34% in fixed income, 6% in multi-asset class and 3% in alternatives. By comparison, cash management offerings predominantly serve clients in the Americas. We also have a wide variety of BRS assignments for international clients to $483.3 billion at December 31, 2007. New business efforts encompass direct contact with institutional investors and their consultants, as well as wholesale distribution of fundsgovernmental entities in the U.S. and unit trusts through broker-dealers and other financial intermediaries. International clients are served by offices in over 29 cities outside the U.S.Canada.

BlackRock also serves a large and growing base of U.S. investors. In 2007, net new business from U.S. clients totaled $100.1 billion across a wide range of products, increasing total assets managed for U.S. investors to $873.3 billion at year-end. Client channels served include pension and other tax exempt clients, insurance and other taxable investors, institutional cash management and institutional and retail fund investors.

BlackRock’s asset base is also diversified by the types of clients served. At December 31, 2007, BlackRock managed $935.6 billion, or 69% of total AUM, on behalf of institutional investors and $421.0 billion, or 31% of total AUM, on behalf of retail and high net worth clients globally. During the year, institutional investor AUM grew $168.6 billion with $100.4 billion from net new business across client segments, including $9.4 billion from a single client. Institutional clients include pension funds, official institutions, foundations, endowments and charities, insurance companies, banks, sub-advisory relationships and private banks in more than 60 countries.

Assets managed for tax-exempt institutions, including defined benefit and defined contribution pension plans, foundations, endowments and other non-profit organizations, increased 21% to $423.3 billion at December 31, 2007. For the year, net new business from these investors totaled $25.3 billion. BlackRock works with pension plan sponsors and their consultants to address changing asset allocation strategies and to consider appropriate investment opportunities. Management believes that these clients increasingly demonstrate a preference for more services from fewer managers and that BlackRock can benefit from this trend. In addition, management believes a more robust mutual fund family should be of interest to defined contribution plans and smaller institutional investors, while expanded alternative investment offerings should appeal to foundations and endowments.

AUM for taxable institutions worldwide increased 13% during the year to $255.0 billion at year-end 2007.

The Company’s insurance business encompasses customized investment management, specialized risk management and accounting services. BlackRock is one of the largest managers of insurance assets worldwide, benefiting from an ongoing trend toward investment outsourcing. This business is, however, subject to event risk arising from insurance company mergers as well as client decisions to internalize asset management.

9


Item 1.BUSINESS (continued)

 

Clients (continued)

The mix by investment style is also balanced, with 39% of long-term AUM managed in active products, 35% in institutional index accounts and 26% iniShares and other ETPs at year-end. Note that theiShares figures are based on the jurisdiction of the fund, rather than the underlying investor. Non-U.S. investors often prefer U.S.iShares, primarily due to the depth of the markets and liquidity of the products.

EMEA

AUM for clients based in EMEA ended the year at $1.017 trillion or 29% of total AUM, an increase of $79.7 billion from 2009. During the year, clients awarded us net new business of $28.0 billion, including inflows from investors in 24 countries across the region. Our offerings include fund families in the U.K., Luxembourg and Dublin, andiShares listed on stock exchanges throughout Europe, as well as separate accounts and pooled investment products.

Clients invested across the entire product spectrum with 51% of long-term AUM in equities, 40% in fixed income, 6% in multi-asset class and 3% in alternatives. EMEA clients constitute the remaining 25% of our cash management AUM, and represent just 3% of our advisory AUM. BRS has steadily built its presence in EMEA, includingAladdinrelationships with a variety of institutional investors and FMA engagements for financial services companies and official institutions, including the valuation assignment announced in January 2011 for the Central Bank of Ireland.

The mix by investment style is slightly more concentrated than in the Americas, with 36% invested in active products, 53% in institutional index accounts and 11% iniShares and other ETPs. The relatively higher percentage in institutional index is driven by low fee institutional liability hedging portfolios which account for approximately 25% of total institutional index assets. The relatively lower percentage iniShares primarily reflects the fact that the European ETP market is at an earlier stage of development.

Asia-Pacific

Clients in the Asia-Pacific region are served through offices in Japan, Australia, Hong Kong, Singapore, Taiwan and Korea, and joint ventures in China and India. At December 31, 2010, we managed $367.2 billion of AUM for clients in the region, an increase of 5% or $16.2 billion from 2009. Net new business contributed $15.4 billion, and the remainder of the increase was attributable to investment performance and favorable market movements. We also acquired the Taiwan-based asset manager Primasia Investment Trust Co. Ltd, strengthening our onshore investment capabilities by offering locally managed investment solutions.

At year-end, 2007,the mix of long-term products managed for these clients consisted of 46% equities, 43% fixed income, 5% multi-asset class and 6% alternative investments. Asia-Pacific clients represented 2% of our advisory AUM and less than 1% of our cash management AUM. BRS served a select number of the largest and most sophisticated investors in the region.

The mix among investment styles was more tilted toward institutional index accounts than in the other regions, with $219.9 billion or 61% of long-term AUM in institutional cash management products was $248.4 billion, up 36% from December 31, 2006, including $64.2 billion of net new business. BlackRock continually seeks ways to provide innovative cash management solutions to clients. In 2007, these efforts focused on helping clients identify opportunities to successfully manage around the highly unsettled market conditions while maintaining competitive yields. BlackRock also focuses on providing flexible and responsive client service, which is conducted through its call center and online account management tools. Management believes that these efforts will continue to enable BlackRock to better withstand volatility in asset flows, build its client base and increase market share over time.

The investment and risk management expertise that BlackRock bringsproducts. This bias can be traced to the managementpresence of very large governmental institutions and pensions that are heavy users of index products. Asia-Pacific institutional investors also useiSharesfor tactical allocation, but often favor the liquidity of the U.S. products is also available globally through separate accounts, open-end and closed-end funds, offshore funds, unit trusts and alternative investment vehicles(which are counted in AmericasiShares). Active mandates represented 36% of AUM managed for individual investors. As of December 31, 2007, BlackRock managed $421.1 billion on behalf of retail and high net worth investors worldwide, including $273.1 billion for U.S. and $148.0 billion for international investors, up 18% from year-end 2006. In 2007, $37.3 billion of net new business from retail and high net worth clients was largely driven by $23.3 billion of net inflows from U.S. investors and $14.0 billion from investors internationally. These results reflect the growing strength of BlackRock’s retail platform globally. The Company sustained the strength of its Merrill Lynch distribution and is seeing increased traction in the U.S. outside of Merrill Lynch, recording over 30 new wins on broker-dealer mutual fund and Separately Managed Account (“SMA”) platforms. The $14.0 billion of net new business in international retail represents an annualized organic growth rate of 13% and includes $9.6 billion of net inflows into equity and balanced mandates.region at year-end.

10


Item 1.BUSINESS (continued)

 

Clients (continued)

Clients Served

Reported AUM by Asset Class & Client Type

December 31, 2010

   Institutional   Retail /
HNW
   iShares /
ETPs(1)
   Total 

Equity

  $1,070,622    $175,685    $448,160    $1,694,467  

Fixed income

   910,422     107,811     123,091     1,141,324  

Multi-asset class

   104,076     81,141     370     185,587  

Alternatives

   81,803     9,344     18,591     109,738  
                    

Long-term

   2,166,923     373,981     590,212     3,131,116  

Cash management

   238,478     40,697     —       279,175  

Advisory

   150,659     18     —       150,677  
                    

Total

  $2,556,060    $414,696    $590,212    $3,560,968  
                    

Reported AUM by Style & Client Type

December 31, 2010

   Institutional   Retail /
HNW
   iShares /
ETPs(1)
   Total 

Active

  $824,447    $366,033    $—      $1,190,480  

Institutional Index

   1,342,476     7,948     —       1,350,424  

iShares/ETPs

   —       —       590,212     590,212  
                    

Long-term

   2,166,923     373,981     590,212     3,131,116  

Cash management

   238,478     40,697     —       279,175  

Advisory

   150,659     18     —       150,677  
                    

Total

  $2,556,060    $414,696    $590,212    $3,560,968  
                    

(1)

Based on jurisdiction of fund, not underlying client.

We serve a diverse mix of institutional and retail investors worldwide. Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third party fund sponsors; and retail and high net worth investors. We also serve both institutional and retail and high net worth investors who acquireiShares on exchanges worldwide (iShares is discussed under “Products,” above).

Institutional Investors

Assets managed for institutional investors totaled $2.556 trillion or 72% of total AUM at year-end 2010. During the year, net new business, excluding merger-related outflows, in long-term products totaled $60.3 billion, which was partially offset by $38.4 billion of net outflows in cash management and $12.0 billion of net distributions in advisory assignments. Investment performance and market appreciation contributed $201.2 billion of additional AUM growth.

Item 1.BUSINESS (continued)

Clients (continued)

BlackRock’s institutional AUM is well diversified by both product and region. Long-term AUM was $2.167 trillion at year-end, 49% of which was in equities, 42% fixed income, 5% multi-asset class and 4% alternatives. The mix by investment style was 38% active and 62% passive (excluding institutional investors iniShares). As noted earlier, institutional index accounts tend to be very large mandates managed for relatively low fee rates and subject to higher turnover.

We serve institutional investors on six continents, with 55% of AUM managed on behalf of investors in the Americas, 32% in EMEA and 13% in Asia-Pacific. Institutional clients are further diversified by sub-segments: tax-exempt, official institutions, taxable and cash investors, as described below.

BlackRock is among the largest managers of pension plan assets in the world, with $1.487 trillion, or 58%, of institutional AUM managed for defined benefit, defined contribution and other pension plans for corporations, governments and unions at December 31, 2010. An additional $57.0 billion was managed for other tax-exempt investors, including charities, foundations and endowments. Assets managed for these clients grew $90.4 billion during 2010, including $18.4 billion of net inflows from defined contribution plans, which represent an important and growing component of the retirement market.

We also managed $245.4 billion or 10% of institutional AUM for official institutions, including central banks, sovereign wealth funds, supranationals, multilateral entities and government ministries and agencies. These clients often require specialized investment policy advice, the use of customized benchmarks and training support. In addition, BRS has been selected by a number of official institutions to provide a range of services, includingAladdin, risk management and financial markets advisory assignments.

BlackRock is the top independent manager of assets for insurance companies, which accounted for $218.6 billion or 9% of institutional AUM at year-end. These clients awarded us $4.6 billion of net new business, driven by a trend toward outsourcing, particularly in Europe last year. Assets managed for other taxable institutions, including corporations, banks and third party fund sponsors for which we provide sub-advisory services, totaled $326.6 billion or 13% of institutional AUM at year-end.

The remaining $221.7 billion or 9% of institutional AUM was managed on behalf of taxable and tax-exempt institutions invested in our cash management products at December 31, 2010. See the Product section above for additional information on our cash management AUM.

Retail and High Net Worth Investors

BlackRock serves retail and high net worth investors globally through separate accounts, open-end and closed-end funds, unit trusts and private investment funds. At December 31, 2010, assets managed for retail and high net worth investors totaled $414.7 billion, up 8%, or $31.3 billion, versus year-end 2009 AUM. During the year, net inflows of $26.9 billion in long-term products were partially offset by $21.9 billion of net outflows in money market funds. Investment performance and market appreciation contributed $31.1 billion of additional AUM growth.

Retail and high net worth investors are served principally through intermediaries, including broker-dealers, banks, trust companies, insurance companies and independent financial advisors. Clients invest primarily in mutual funds, which totaled $318.2 billion or 77% of retail and high net worth AUM at year-end, with the remainder invested in private investment funds and separately managed accounts. The product mix is well diversified, with 47% of long-term AUM in equities, 29% in fixed income, 22% in multi-asset class and 2% in alternatives. The vast majority (98%) of long-term AUM is invested in active products, although this is partially inflated by the fact thatiShares is shown independently, since we cannot identify all of the underlying investors.

The client base is also diversified geographically, with 68% of long-term AUM managed for investors based in the Americas, 23% in EMEA, and 9% in Asia-Pacific. The remaining $40.7 billion, or 10%, of retail and high net worth AUM is invested in cash management products, principally money market funds offered in the U.S. Our success in each of these regions reflects strong relationships with intermediaries and an established ability to deliver our global investment expertise in funds and other products tailored to local regulations and requirements.

Item 1.BUSINESS (continued)

Clients (continued)

Our retail and high net worth offerings include theBlackRock Funds in the U.S., our Luxembourg cross-border fund families,BlackRock Global Funds(“BGF”),BlackRock Strategic Funds and a range of retail funds in the U.K. BGF is comprised of 61 funds and is registered in 35 countries. Over 60% of the funds are rated by S&P. In 2010, we were ranked as the second largest cross border fund provider4. In the U.K., we ranked among the six largest fund managers4, and are known for our innovative product offerings, including the absolute alpha products we introduced in 2005. In the U.S., we had over 50 product placements on broker-dealer platforms during the year and have grown our market position from tenth to fourth largest fund manager since we acquired MLIM in late-20065. In 2010, BlackRock won the Dalbar award for customer service in financial services, the eleventh occasion on which we have been recognized for outstanding achievement in this area.

Competition

BlackRock competes with investment management firms, mutual fund complexes, insurance companies, banks, brokerage firms and other financial institutions that offer products that are similar to, or alternatives to, those offered by BlackRock. In order to grow its business, BlackRock must be able to compete effectively for AUM. Key competitive factors include investment performance track records, the efficient delivery of beta for passively managed products, investment style and discipline, client service and brand name recognition. Historically, the Company has competed principally on the basis of its long-term investment performance track record, its investment process, its risk management and analytic capabilities and the quality of its client service. BlackRock has historically grown aggregate AUM and management believes that the Company will continue to do so by focusing on strong investment performance and client service and by developing new products and new distribution capabilities. ManyCertain of the Company’s competitors, however, have greater marketing resources and better brand name recognition than BlackRock, particularly in retail channels and outside the United States.channels. These factors may place BlackRock at a competitive disadvantage and there can be no assurance that the Company’s strategies and efforts to maintain its existing AUM and to attract new business will be successful.

4

Lipper Feri

5

Simfund

Item 1.BUSINESS (continued)

Geographic Information

BlackRock has clients in over 60100 countries across the globe, including the United States, the United Kingdom, and Japan.

The following chart showstable illustrates the Company’s revenues and long-lived assets, which includes goodwill and property and equipmenttotal revenue for the years ended December 2007, 20062010, 2009 and 2005.2008 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect in all cases, where the customer is sourced orresides.

(Dollar amounts in millions)      % of      % of      % of 

Revenue

  2010   Total  2009   Total  2008   Total 

Americas

  $5,824     67 $3,309     70 $3,438     68

Europe

   2,300     27  1,179     25  1,360     27

Asia-Pacific

   488     6  212     5  266     5
                            

Total revenue

  $8,612     100 $4,700     100 $5,064     100
                            

The following table illustrates the Company’s long-lived assets, including goodwill and property and equipment at December 31, 2010, 2009 and 2008 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.

 

Revenues (in millions)

  2007  % of
total
 2006  % of
total
 2005  % of
total
 

North America

  $3,069.3  63.4% $1,715.2  81.7% $1,157.7  97.2%

Europe

   1,536.9  31.7%  320.9  15.3%  24.4  2.0%

Asia-Pacific

   238.5  4.9%  61.9  3.0%  9.3  0.8%
                   

Total revenues

  $4,844.7  100% $2,098.0  100.0% $1,191.4  100%
                   

Long-Lived Assets (in millions)

              

North America

  $5,695.2  98.4% $5,408.1  98.8% $316.6  99.2%
(Dollar amounts in millions)      % of     % of     % of 

Long-lived Assets

  2010   Total 2009   Total 2008   Total 

Americas

  $13,092     99 $12,983     99 $5,714     99

Europe

   34.6  0.6%  30.1  0.6%  2.1  0.7%   42     —    46     —    27     —  

Asia-Pacific

   56.4  1.0%  33.6  0.6%  0.6  0.1%   99     1  94     1  52     1
                                         

Total long-lived assets

  $5,786.2  100.0% $5,471.8  100.0% $319.3  100.0%  $13,233     100 $13,123     100 $5,793     100
                                         

Revenues and long-lived assets in North America areAmericas primarily is comprised of the United States, Canada, Brazil and Mexico, while Europe and Asia-Pacific are primarily is comprised of the United Kingdom and Asia-Pacific primarily is comprised of Japan, respectively.Australia and Hong Kong.

Employees

At December 31, 2007,2010, BlackRock had a total of 5,952 full-time9,127 employees, including 435 Metric Property Management, Inc. (“Metric”) employees whose salaries are fully reimbursed by certain real estate funds. Of all full-time employees, 1,795 are3,797 located in offices outside the United States. At December 31, 2009, BlackRock had a total of 8,629 employees.

11


Item 1.Item 1. BUSINESS (continued)

 

Regulation

Virtually all aspects of BlackRock’s business are subject to various laws and regulations both in and outside the United States, some of which are summarized below. These laws and regulations are primarily intended to protect investment advisory clients, stockholders ofinvestors in registered and unregistered investment companies, trust customers of BlackRock Institutional Trust Company, N.A. (“BTC”) and PNC’sthe bank subsidiaries of Bank of America and PNC and their customers. Under these laws and regulations, agencies that regulate investment advisers, investment funds and financial and bank holding companies and their subsidiaries, such as BlackRock and its subsidiaries, have broad administrative powers, including the power to limit, restrict or prohibit the regulated entity from carrying on business if it fails to comply with such laws and regulations. Possible sanctions for significant compliance failures include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines. The rules governing the regulation of financial institutions and their holding companies and subsidiaries are very detailed and technical. Accordingly, the discussion below is general in nature and does not purport to be complete.

Regulatory Reform

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) was signed into law in the United States. The DFA is expansive in scope and requires the adoption of extensive regulations and numerous regulatory decisions in order to be implemented. The adoption of these regulations and decisions will in large measure determine the impact of the DFA on BlackRock. The DFA may significantly change BlackRock’s operating environment in unpredictable ways. It is not possible to predict the ultimate effects that the DFA, or subsequent implementing regulations and decisions, will have upon BlackRock’s business and results of operations. Among the potential impacts of the DFA, provisions of the DFA referred to as the Volcker Rule could affect the method by which BlackRock invests in and operates its private equity funds, hedge funds and fund of funds platforms. In addition, BlackRock could become designated as a systemically important financial institution (“SIFI”) and become subject to direct supervision by the Federal Reserve System (the “Federal Reserve”). If BlackRock were designated as a SIFI, it could be subject to enhanced prudential, supervisory and other requirements, such as risk-based capital requirements; leverage limits; liquidity requirements; resolution plan and credit exposure report requirements; concentration limits; a contingent capital requirement; enhanced public disclosures; short-term debt limits; and overall risk management requirements. Further, proposed regulations under the DFA, relating to regulation of swaps and derivatives, could impact the manner by which BlackRock and BlackRock advised funds use and trade swaps and other derivatives, and could expose BlackRock to increased costs as the derivatives market moves toward central clearing and increased position reporting. Other jurisdictions outside the United States in which BlackRock operates are also in the process of devising or considering more pervasive regulation of many elements of the financial services industry, which could have a similar impact on BlackRock.

The DFA and its regulations, and other new laws or regulations, or changes in enforcement of existing laws or regulations, could materially and adversely impact the scope or profitability of BlackRock’s business activities; require BlackRock to change certain business practices; and expose BlackRock to additional costs (including compliance and tax costs) and liabilities, as well as reputational harm. For example, in addition to regulatory changes mandated by the DFA, the Securities and Exchange Commission (the “SEC”) has adopted new regulations related to, and continues to review the role and risks related to, money market funds and have indicated that it may adopt additional regulations. Some of the proposed changes, if adopted, could significantly alter money market fund products and the entire money market fund industry. Similarly, the SEC continues to review the distribution fees paid to mutual fund distributors in accordance with Rule 12b-1 under the Investment Company Act of 1940, which are important to a number of the mutual funds we manage. Any changes to 12b-1 fees would alter the way our distribution partners distribute our products. Regulatory changes could also lead to business disruptions, could materially and adversely impact the value of assets in which BlackRock has invested directly and/or on behalf of clients, and, to the extent the regulations strictly control the activities of financial services firms, could make it more difficult for BlackRock to conduct certain businesses or distinguish itself from competitors.

Additional legislation, changes in rules promulgated by regulators and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and regulations may directly affect the method of operation and profitability of BlackRock. BlackRock’s profitability also could be materially and adversely affected by modification of the rules and regulations that impact the business and financial communities in general, including changes to the laws governing taxation, antitrust regulation and electronic commerce.

Item 1.BUSINESS (continued)

Regulation (continued)

U.S. Regulation

CertainBlackRock and certain of BlackRock’sits U.S. subsidiaries are subject to regulation, primarily at the federal level, by the Securities and Exchange Commission (the “SEC”),SEC, the Department of Labor (the “DOL”), the Board of Governors of the Federal Reserve, Bankthe Office of the Comptroller of the Currency of the United States (the “FRB”“OCC”), the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (the “NFA”), the Commodity Futures Trading Commission (the “CFTC”) and other government agencies and regulatory bodies. Certain BlackRockof BlackRock’s U.S. subsidiaries are also subject to various anti-terrorist financing, privacy, anti-money laundering regulations including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “PATRIOT Act”), the Bank Secrecy Acteconomic sanctions, laws and regulations promulgatedestablished by the Office of Foreign Assets Control of the U.S. Treasury Department.various agencies.

The Investment Advisers Act of 1940, as amended (the “Advisers Act”), imposes numerous obligations on registered investment advisers such as BlackRock, including record-keeping, operational and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act of 1940, as amended (the “Investment Company Act”), imposes stringent governance, compliance, operational, disclosure and related obligations on registered investment companies and ontheir investment advisers to those companies and distributors, such as BlackRock. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the Investment Company Act, ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are subject to certain state securities laws and regulations. Non-compliance with certain provisions of the Advisers Act, the Investment Company Act or other federal and state securities laws and regulations could result in investigations, sanctions, disgorgement, fines and reputational damage.

BlackRock’s trading and investment activities for client accounts are regulated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as the rules of various U.S. and non-U.S. securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical trading requirements (e.g., volume limitations, reporting obligations) and market regulation policies in the United States and globally. Depending on the scope of the rules to be adopted by the SEC, provisions of the DFA added to the Exchange Act may require certain BlackRock subsidiaries to register as municipal advisers in relation to their services for state and local governments, pension plans and other investment programs, such as college savings plans. In addition, BlackRock manages a variety of investment funds listed on U.S. and non-U.S. exchanges, which are subject to the rules of such exchanges. Violation of these laws and regulations could result in restrictions on the Company’s activities and in damage to its reputation. BlackRock manages a variety of private pools of capital, including hedge funds, funds of hedge funds, private equity funds, real estate funds, collective investment trusts, managed futures funds and hybrid funds. Congress, regulators, tax authorities and others continue to explore, on their own and in response to demands from the investment community and the public, increased regulation related to private pools of capital, including changes with respect to investor eligibility, certain limitations on trading activities, record-keeping and reporting, the scope of anti-fraud protections, safekeeping of client assets and a variety of other matters. BlackRock may be materially and adversely affected by new legislation, or rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various regulators.

12


Item 1.BUSINESS (continued)

Regulation (continued)

U.S. Regulation (continued)

Certain BlackRock subsidiaries are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated thereunder by the DOL, insofar as they act as a “fiduciary” under ERISA with respect to benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and impose excise taxes for violations of these prohibitions, mandate certain required periodic reporting and disclosures and require BlackRock to carry bonds ensuring against losses caused by fraud or dishonesty. ERISA also imposes additional compliance, reporting and operational requirements on BlackRock that otherwise are not applicable to non-benefit plan clients.

Item 1.BUSINESS (continued)

Regulation (continued)

BlackRock has two subsidiaries that are registered as commodity pool operators and commodity trading advisers, and one additional subsidiarytwo other subsidiaries that are registered as commodity trading advisers and three additional subsidiaries only aregistered as commodity pool operator,operators with the CFTC. All threeseven of these subsidiaries are members of the National Futures Association (the “NFA”).NFA. The CFTC and NFA each administer a comparable regulatory system covering futures contracts and various other financial instruments, including swaps as a result of the DFA, in which certain BlackRock clients may invest. OneFour of BlackRock’s other subsidiaries, BlackRock Investments, Inc.LLC (“BII”BRIL”), isBlackRock Capital Markets, LLC, BlackRock Execution Services, and BlackRock Fund Distribution Company (“BFDC”) are registered with the SEC as a broker-dealerbroker-dealers and is a member-firmare member-firms of FINRA. BII’s FINRAEach broker-dealer has a membership agreement with FINRA that limits itsthe scope of such broker-dealer’s permitted activities to the sale of investment company securities, certain private placements of securities, and certain investment banking and financial consulting activities. Although BII has limited business activities, it is subject to the customer dealing, reporting and other requirements of FINRA, as well as the net capital and other requirements of the SEC. BIIBRIL is also an approved person with the New York Stock Exchange (“NYSE”), which subjects its operations. BRIL and BFDC are members of the Municipal Securities Rulemaking Board (“MSRB”) and are subject to NYSE regulation.MSRB rules.

U.S. Banking Regulation

Each of Bank of America and PNC is a bank holding company and a “financial holding company” regulated by the FRBFederal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). SinceBased on Bank of America’s and PNC’s current and/or prior ownership interestinterests in BlackRock, exceeds 25%, BlackRock is deemed to be a non-bank subsidiary of Bank of America and PNC and is therefore subject to the supervision and regulation of the Federal Reserve and to most banking laws, regulations and orders that are applicableapply to PNCBank of America and consequently to the supervision, regulation, and examination of the FRB.PNC. The supervision and regulation of Bank of America, PNC and itstheir respective subsidiaries under the applicable banking laws is intended primarily for the protection of PNC’stheir respective banking subsidiaries, their depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation, and the banking system as a whole, rather than for the protection of stockholders, creditors or clients of Bank of America, PNC or BlackRock. Bank of America’s and PNC’s relationships and good standing with itstheir regulators are important to the conduct of BlackRock’s business. BlackRock may also be subject to foreign banking laws and supervision that could affect its business.

BTC is a national trust company that does not accept deposits and is a member of the Federal Reserve System. Accordingly, BTC is examined and supervised by the OCC and is subject to various banking laws and regulations enforced by the OCC, such as capital adequacy, regulations governing fiduciaries, conflicts of interest, self-dealing, and anti-money laundering laws and regulations. BTC is also subject to various Federal Reserve regulations applicable to member institutions, such as regulations restricting transactions with affiliates. Many of these laws and regulations are meant for the protection of BTC’s customers, and not BTC, BlackRock and its affiliates or BlackRock’s shareholders.

BlackRock generally may conduct only activities that are authorized for a “financial holding company” under the BHC Act. Investment management is an authorized activity, but must be conducted within applicable regulatory requirements, which in some cases are more restrictive than those BlackRock faces under applicable securities laws. BlackRock may also invest in investment companies and private investment funds to which it provides advisory, administrative or other services, to the extent consistent with applicable law and regulatory interpretations. The FRBFederal Reserve has broad powers to approve, deny or refuse to act upon applications or notices for BlackRock to conduct new activities, acquire or divest businesses or assets, or reconfigure existing operations. There are limits on the ability of bank subsidiaries of Bank of America and PNC to extend credit to or conduct other transactions with BlackRock. Bank of America, PNC and itstheir subsidiaries are also subject to examination by various banking regulators, which results in examination reports and ratings that may adversely impact the conduct and growth of BlackRock’s businesses.

13


Item 1.BUSINESS (continued)

Regulation (continued)

U.S. Banking Regulation (continued)

The FRBFederal Reserve has broad enforcement authority over BlackRock, including the power to prohibit BlackRock from conducting any activity that, in the FRB’sFederal Reserve’s opinion, is unauthorized or constitutes an unsafe or unsound practice in conducting its business, and toBlackRock’s business. The Federal Reserve may also impose substantial fines and other penalties.penalties for violations of applicable banking laws, regulations and orders. The DFA strengthened the Federal Reserve’s supervisory and enforcement authority over a bank holding company’s non-bank affiliates, such as BlackRock.

Item 1.BUSINESS (continued)

Regulation (continued)

Any failure of either Bank of America or PNC to maintain its status as a financial holding company could result in the imposition of substantial limitations on certain BlackRock activities and its growth. Such a change of status could be caused by any failure of one of Bank of America’s or PNC’s bank subsidiaries to remain “well capitalized,” by anany examination downgrade of PNCone of Bank of America’s or itsPNC’s bank subsidiaries, or by any failure of one of Bank of America’s or PNC’s bank subsidiaries to maintain a satisfactory rating under the Community Reinvestment Act. In addition, the DFA broadened the requirements for maintaining financial holding company status by now also requiring the holding company to remain “well capitalized” and “well managed.”

Non-U.S. Regulation

BlackRock’s international operations are subject to the laws and regulations of non-U.S. jurisdictions and non-U.S. regulatory agencies and bodies. As BlackRock continues to expand its international business,presence, a number of its subsidiaries and international operations have become subject to regulatory systems comparable to those affecting its operations in the United States.

The Financial Services Authority (the “FSA”) currently regulates BlackRock’scertain BlackRock subsidiaries in the United Kingdom. Authorization by the FSA is required to conduct any financial services related business in the United Kingdom pursuant to the Financial Services and Markets Act 2000. The FSA’s rules govern a firm’s capital resources requirements, senior management arrangements, conduct of business, interaction with clients and systems and controls. Breaches of these rules may result in a wide range of disciplinary actions against the Company’s U.K.-regulated subsidiaries. The U.K. government has announced that it intends to abolish the FSA and to establish three new regulatory bodies, the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority in its place. More detailed proposals, including draft legislation, are expected early in 2011 with the aim being for the new regulatory structure to be in place by the end of 2012.

In addition theseto the above, the Company’s U.K.-regulated subsidiaries and other European subsidiaries orand branches, must comply with the pan-European regime established by the Markets in Financial Instruments Directive (“MiFID”), which came into effect on November 1, 2007 and regulates the provision of investment services throughout the European Economic Area, as well as the Capital Requirements Directive, which delineates regulatory capital requirements. MiFID replaced and expanded upon the Investment Services Directive (the “ISD”), which had been in place since 1995. MiFID sets out more detailed requirements governing the organization and conduct of business of investment firms and regulated markets. It also includes new pre- and post-trade transparency requirements for equity markets and more extensive transaction reporting requirements.

MiFID seeks to further harmonize the provision of financial services across Europe by implementing requirements for key areas such as senior management systems and controls. MiFID also attempts to clarify jurisdictional uncertainties that arose under the ISD to facilitate cross border services. The United Kingdom has adopted the newMiFID rules into national legislation. Implementationlegislation, as have those other European jurisdictions (excluding Switzerland which is not part of the directive throughoutEU) in which BlackRock has a presence. A review of MiFID by the European UnionCommission is ongoing, however,in process and is likely to result in further regulation including changes to pre- and post-trade reporting obligations and an expansion of the types of instruments subject to these requirements. It may also result in changes to other areas, such as firms’ conduct of business requirements. In addition, the new EU Alternative Investment Fund Managers Directive has been approved by the European Parliament in final form and is likely to be implemented by the summer of 2013. This directive will regulate managers of, and service providers to, alternative investment funds domiciled within Europe and the introductionmarketing of furtherall alternative investment funds into Europe. There are also ongoing plans to reform the framework to which regulated firms are subject, including in relation to regulatory capital and the protection of client assets.

Item 1.BUSINESS (continued)

Regulation (continued)

In the aftermath of the financial crisis, the European Commission set out a detailed plan for EU financial reform, outlining a number of initiatives to be reflected in new or updated directives, regulations and recommendations. UCITS IV, the next iteration of the Undertakings for Collective Investment in Transferable Securities (“UCITS”) directive, is required to be adopted in the national law of each EU member state by July 1, 2011. This directive will introduce a requirement for UCITS funds to provide a key investor information document. There are also European Commission consultations in process that are intended to improve retail investor protection and create a consistent framework and approach for certain insurance wrap products (referred to in the United Kingdom as packaged retail investment products), and regarding UCITS V, which is addressing, among other items, custodial liability. In the United Kingdom, the Bribery Act 2010, which is not yet in effect, will applyimpose additional burdens on the Company’s U.K.-regulated subsidiaries. In addition, a retail distribution review has been initiated by the FSA, and is expected to BlackRock’s European activities remains a possibility.change how investment advice is paid for in the United Kingdom for all investment products. Final retail distribution rules are expected in early 2011, with implementation to occur by the end of 2012.

In addition to the FSA, the activities of certain BlackRock subsidiaries, branches, and investment fundsrepresentative offices are regulatedoverseen by among othercomparable regulators the Irish Financial Services Regulatory Authority, the Cayman Islands Monetary Authority, the Commission de Surveillance du Secteur Financier in Germany, The Netherlands, Ireland, Luxembourg, Switzerland, Isle of Man, Jersey, Guernsey, France, Belgium, Italy, Poland, Spain and the Financial Services Commission in Jersey.Sweden. Regulators in these jurisdictions have authority with respect to financial services including, among other things, the authority to grant or cancel required licenses or registrations. In addition, these regulators may also subject certain BlackRock subsidiaries to net capital requirements.

14


Item 1.BUSINESS (continued)

Regulation (continued)

Non-U.S. Regulation (continued)

Other BlackRock subsidiaries, branches, and representative offices are regulated in China, Hong Kong, Singapore, Taiwan, South Korea, India, Dubai, Brazil, Chile, Mexico and Canada.

In Japan, certain BlackRock subsidiaries are subject to the Financial Instruments and Exchange Law (the “FIEL”) and the Law Concerning Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency (the “JFSA”), which establishes standards for compliance, with these laws including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules. The JFSA is empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease and desist orders or the suspension or revocation of registrations and licenses granted under the FIEL.

In Australia, BlackRock’s Australian-based subsidiary issubsidiaries are subject to various Australian federal and state laws and iscertain subsidiaries are regulated primarily by the Australian Securities and Investments Commission (the “ASIC”) and the Australian Prudential Regulatory Authority (the “APRA”). The ASIC regulates companies and financial services in Australia and is responsible for promoting investor, creditor and consumer protection. The APRA is the prudential regulator of the Australian financial services industry and oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation (pension) industry. Failure to comply with applicable law and regulations could result in the cancellation, suspension or variation of this subsidiary’s licensethe regulated subsidiaries licenses in Australia.

The activities of certain BlackRock subsidiaries in Hong Kong are subject to the Securities and Futures Ordinance (the “SFO”) which governs the securities and futures markets and the non-bank retail leveraged foreign exchange market in Hong Kong. The SFO is administered by the Securities and Futures Commission (the “SFC”), an independent non-governmental body. The relevant subsidiaries, and certain individuals representing them, which conduct business in any of the regulated activities specified in the SFO are generally required to be registered or licensed with the SFC, and are subject to the rules, codes and guidelines issued by the SFC from time to time.

There are parallel legal and regulatory arrangements in force in many other non-U.S. jurisdictions where BlackRock’s subsidiaries are authorized to conduct business, including Taiwan, Hong Kong, Singapore, Germany and The Netherlands.business.

Other Regulation

Additional legislation, changes in rules promulgated by our regulators and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules may directly affect the method of operation and profitability of BlackRock. The profitability of BlackRock also could be affected by rules and regulations that impact the business and financial communities in general, including changes to the laws governing taxation, antitrust regulation and electronic commerce.

The rules governing the regulation of financial institutions and their holding companies and subsidiaries are very detailed and technical. Accordingly, the above discussion is general in nature and does not purport to be complete.

15


Item 1.BUSINESS (continued)

 

Available Information

BlackRock files annual, quarterly and current reports, proxy statements and all amendments to these reports and other information with the SEC. BlackRock makes available free-of–charge, on or through its website athttp://www.blackrock.com,, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The Company also makes available on its website the charters for the Audit Committee, Management Development and Compensation Committee and Nominating and Governance Committee of the Board of Directors, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Further, BlackRock will provide, without charge, upon written request, a copy of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings as well as the committee charters, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Requests for copies should be addressed to Investor Relations, BlackRock, Inc., 55 East 52nd Street, New York, New York 10055. Investors may read and copy any document BlackRock files at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including BlackRock’s filings, are also available to the public from the SEC’s website athttp://www.sec.gov.www.sec.gov.

 

16


Item 1A.RISK FACTORS

As a leading investment management firm, risk is an inherent part of BlackRock’s business. Global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. While BlackRock devotes significant resources across all of its operations to identify, measure, monitor, manage and analyze market and operating risks, BlackRock’s business, financial condition, operating results or non-operating results of operations could be materially adversely affected, however,or our stock price could decline by any of the following risks.

Risks Related to BlackRock’s Business and Competition

Changes in the securitiesvalue levels of the capital, commodities or currency markets or other marketsasset classes could lead to a decline in revenues.revenues and earnings.

BlackRock’s investment management revenues are primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns earned on AUM. Movements in equity, debt or commodity market prices, interest rates or foreign exchange rates or all three could cause the following, which would result in lower investment advisory and administration fees:cause:

 

the value of AUM to decrease;

 

the returns realized on AUM to decrease;

 

clients to withdraw funds in favor of products in markets that they perceive offer greater opportunity and that BlackRock doesmay not serve;

 

clients to rebalance assets away from products that BlackRock manages into products that it doesmay not manage; and

 

clients to rebalance assets away from products that earn higher fees into products with lower fees.fees; and

an impairment to the value of intangible assets and goodwill.

The occurrence of any of these events could result in lower investment advisory, administration and performance fees or earnings and cause our stock price to decline.

Item 1A.RISK FACTORS (continued)

Poor investment performance could lead to the loss of clients and a decline in revenues.revenues and earnings.

The Company’s management believes that investment performance, including the efficient delivery of beta for passively managed products, is one of the most important factors for the growth and retention of AUM. Poor investment performance relative to applicable portfolio benchmarks andor to competitors could reduce revenues and growth because:cause earnings to decline as a result of:

 

existing clients might withdrawwithdrawing funds in favor of better performing products, which could result in lower investment managementadvisory and administration fees;

 

the diminishing ability to attract funds from existing and new clients might diminish; orclients;

 

the Company might earnearning minimal or no performance fees.fees; and

an impairment to the value of intangible assets and goodwill.

BlackRock may electThe determination to invest in or provide other support to itsparticular products from time to time.time may reduce earnings or other investments in the business.

BlackRock may, at its option, from time to time support investment products through seed or follow-on investments, warehouse lending facilities or other forms of capital or credit support. See, for example, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Other Operating Items” and “—Operations—Liquidity and Capital Resources.” Such investments or support utilizeutilizes capital that would otherwise be available for other corporate purposes. Losses on such investments or support, or failure to have or devote sufficient capital to support products, could have an adverse impact on revenues and earnings.

Changes in the securitiesvalue levels of the capital markets or other marketsasset classes could lead to a decline in the value of investments that BlackRock owns.

At December 31, 2007, BlackRock held2010, BlackRock’s net economic investment exposure of approximately $2.0$1.0 billion ofin these investments that are reflected on its statement of financial condition. Approximately $1.1 billion of this amount(see Item 7A, Quantitative and Qualitative Disclosures About Market Risk) is primarily the result of consolidation of certain sponsored investment funds. BlackRock’s economic interest in these investments is the result ofco-investments and seed investments in its sponsored investment funds. A decline in the prices of stocks or bonds, or the value of real estate or other alternative investments within or outside the United States could lower the value of these investments and result in a decline of non-operating income.income and an increase in the volatility of our earnings.

Continued capital losses on investments could have adverse income tax consequences.

17

The Company may generate realized and unrealized capital losses on seed investments and co-investments. Realized capital losses may be carried back three years and carried forward five years and offset against realized capital gains for federal income tax purposes. The Company has unrealized capital losses for which a deferred tax asset has been established. In the event such unrealized losses are realized, the Company may not be able to offset such losses within the carryback or carryforward period or from future realized capital gains, in which case the deferred tax asset will not be realized. The failure to utilize the deferred tax asset could materially increase BlackRock’s income tax expense.


The soundness of other financial institutions could adversely affect BlackRock.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. BlackRock, and the products and accounts that it manages, have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose BlackRock or the funds and accounts that it manages to credit risk in the event of default of its counterparty or client. There is no assurance that any such losses would not materially and adversely impact BlackRock’s revenues and earnings.

Item 1A.RISK FACTORS (continued)

 

The failure or negative performance of products of other financial institutions could lead to reduced AUM in similar products of BlackRock without regard to the performance of BlackRock’s products.

The failure or negative performance of products of other financial institutions could lead to a loss of confidence in similar products of BlackRock without regard to the performance of BlackRock’s products. Such a negative contagion could lead to withdrawals, redemptions and liquidity issues in such products and have a material adverse impact on our AUM, revenues and earnings.

Loss of key employees could lead to the loss of clients and a decline in revenues.

The ability to attract and retain quality personnel has contributed significantly to BlackRock’s growth and success and is important to attracting and retaining clients. The market for qualified fund managers, investment analysts, financial advisers and other professionals is competitive. Key employees may depart because of issues relating to the difficulties in integrating the MLIM or Quellos Businesses. There can be no assurance that the Company will be successful in its efforts to recruit and retain required personnel. Loss of key personnel could have ana material adverse effect on the Company.

BlackRock’s investment advisory contracts may be terminated or may not be renewed by clients and the liquidation of certain funds may be accelerated at the option of investors.

Separate account and commingled trust clients may terminate their investment management contracts with BlackRock or withdraw funds on short notice. The Company has, from time to time, lost separate accounts and could, in the future, lose accounts or significant assets under managementAUM under various circumstances such as adverse market conditions or poor performance.

Additionally, BlackRock manages its U.S. mutual funds, pursuant toclosed-end funds and exchanged-traded funds under management contracts with the funds that must be renewed and approved by the funds’ boards of directors annually. A majority of the directors of each mutualsuch fund are independent from BlackRock. Consequently, there can be no assurance that the board of directors of each fund thatmanaged by the Company manages will approve the fund’s management contract each year, or will not condition its approval on the terms of the management contract being revised in a way that is adverse to the Company.Company.

Further, the governing agreements of many of the Company’s private investment funds generally provide that, subject to certain conditions, investors in those funds, and in some cases independent directors of those funds, may remove the investment adviser, general partner or the equivalent of the fund or liquidate the fund without cause by a simple majority vote, resulting in a reduction in the management or incentiveperformance fees as well as the total carried interest we wouldBlackRock could earn.

Failure to comply with client contractual requirements and/or guidelines could result in damage awards against BlackRock and loss of revenues due to client terminations.

When clients retain BlackRock to manage assets or provide products or services on their behalf, they specify guidelines or contractual requirements that the Company is required to observe in the provision of its services. A failure to comply with these guidelines or contractual requirements could result in damage to BlackRock’s reputation or in its clients seeking to recover losses, withdrawing their AUM or terminating their contracts, any of which could cause the Company’s revenues and earnings or stock price to decline.

Competitive fee pressures could reduce revenues and profit margins.

The investment management businessindustry, including the offering of exchange-traded funds, is highly competitive and has relatively low barriers to entry. To the extent that the Company is forced to compete on the basis of price, it may not be able to maintain its current fee structure. Fee reductions on existing or future new business could cause revenues and profit margins to decline.

Item 1A.RISK FACTORS (continued)

Performance fees may increase revenue and earnings volatility, which could decrease BlackRock’s stock price.volatility.

A portion of the Company’s revenues is derived from performance fees on investment and risk management advisory assignments. Performance fees represented $540 million, or 6%, of total revenue for the year ended December 31, 2010. In most cases, performance fees are based on relative or absolute investment returns, although in some cases they are based on achieving specific service standards. Generally, the Company is entitled to performance fees only if the returns on the related portfolios exceed agreed-upon periodic or cumulative return targets. If these targets are not exceeded, performance fees for that period will not be earned and, if targets are based on cumulative returns, the Company may not earn performance fees in future periods. Performance fees will vary from period to period in relation to volatility in investment returns and the timing of revenue recognition, causing earnings to be more volatile than if assets were not managed on a performance fee basis. The volatility in earnings may decrease BlackRock’s stock price. Performance fees represented $350.2 million, or 7.2%, of total revenue for the year ended December 31, 2007.

18


Item 1A.RISK FACTORS (continued)

volatile.

Additional acquisitions may decrease earnings and harm the Company’s competitive position.

BlackRock employs a variety of strategies intended to enhance earnings and expand product offerings in order to improve profit margins. These strategies have included smaller-sized lift-outs of investment teams and acquisitions of investment management businesses, such as the MLIM, Quellos and QuellosBGI Transactions. In general, theseThese strategies may not be effective, and failure to successfully develop and implement these strategies may decrease earnings and harm the Company’s competitive position in the investment management industry. In the event BlackRock pursues additional sizeable acquisitions, it may not be able to find suitable businesses to acquire at acceptable prices, and it may not be able to successfully integrate or realize the intended benefits from thesesuch acquisitions.

Risks Related to BlackRock’s Operations

Failure to maintain adequate infrastructure could impede the ability to support businessBlackRock’s productivity and growth.

BlackRock has experienced significant growth inThe Company’s infrastructure, including its business activities as a result of the MLIM and Quellos Transactions and other efforts. The Company is in the process of building out its infrastructure to integrate the MLIM and Quellos Businesses and to support continued growth, including technological capacity, data centers, backup facilities and sufficientoffice space, for expanding staff levels.is vital to the competitiveness of its business. The failure to maintain an adequate infrastructure commensurate with the size and scope of its business, including any expansion, could impede the Company’s productivity and growth, which could cause the Company’s earnings or stock price to decline.

Expansion intoFailure to maintain adequate business continuity plans could have a material adverse impact on BlackRock and its products.

A significant portion of BlackRock’s critical business operations are concentrated in a few geographic areas, including San Francisco, California, New York, New York and London, England. A major earthquake, fire, terrorist or other catastrophic event could result in disruption to the business. The failure of the Company to maintain updated adequate business continuity plans, including backup facilities, could impede the Company’s ability to operate upon a disruption, which could cause the Company’s earnings or stock price to decline.

Operating in international markets increases BlackRock’s operational, regulatory and other risks.

BlackRock has increased its international business activities as a result of the MLIM Transaction and other efforts. As a result of such expansion,BlackRock’s extensive international business activities, the Company faces increased operational, regulatory, reputationreputational and foreign exchange rate risks. The failure of the Company’s systems of internal control to properly mitigate such additional risks, or of its operating infrastructure to support such international expansionactivities, could result in operational failures and regulatory fines or sanctions, which could cause the Company’s earnings or stock price to decline.

Item 1A.RISK FACTORS (continued)

Failure to maintain a technological advantage could lead to a loss of clients and a decline in revenues.

A key element to BlackRock’s continued success is the ability to maintain a technological advantage both in terms of operational efficiency and in providing the sophisticated risk analytics incorporated into BlackRock’s operating systemsAladdin technology platform that support investment advisory andBlackRock Solutions clients. Moreover, the Company’s technological and software advantage is dependent on a number of third parties who provide various types of data. The failure of these third parties to provide such data or software could result in operational difficulties and adversely impact BlackRock’s ability to provide services to its investment advisory andBlackRock Solutions clients. There can be no assurance that the Company will be able to maintain this technological advantage or be able to effectively protect and enforce its intellectual property rights in these systems and processes.

19


Item 1A.RISK FACTORS (continued)

Failure to implement effective information security policies, procedures and capabilities could disrupt operations and cause financial losses that could result in a decrease in BlackRock’s earnings or stock price.

BlackRock is dependent on the effectiveness of its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that reside on or are transmitted through them. An externally caused information security incident, such as a hacker attack, or a virus or worm, or an internally caused issue, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential information and could result in material financial loss, regulatory actions, breach of client contracts, reputational harm or legal liability, which, in turn, could cause a decline in the Company’s earnings or stock price.

The continuingfailure of a key vendor to BlackRock to fulfill its obligations could have a material adverse effect on BlackRock and its products.

BlackRock depends on a number of key vendors for various fund administration, custody and transfer agent roles and other operational needs. The failure or inability of BlackRock to diversify its sources for key services or the failure of any key vendors to fulfill their obligations could lead to operational issues for the company and in certain products, which could result in financial losses for the Company and its clients.

The remaining integration of the MLIM and Quellos businessesBGI business creates numerous risks and uncertainties that could adversely affect profitability.

The MLIM and Quellos businessesA portion of the BGI business and personnel areremain in the process of being integrated with BlackRock’s previously existing business and personnel. These transition activities are complex and the Company may encounter unexpected difficulties or incur unexpected costs including:

 

the diversion of management’s attention to integration matters;

 

difficulties in achieving expected synergies associated with the respective transactions;

difficulties in the integration of operations and systems;

 

difficulties in the assimilation of employees; and

 

challenges in keeping existing clients and obtaining new clients, including potential conflicts of interest;interest and

challenges in attracting client imposed concentration limits on the use of an investment manager; and retaining key personnel.

As a result, the Company may not be able to realize all of the expected revenue growth and other benefits that it hopeshoped to achieve from the respective transactions.transaction. In addition, BlackRock may be required to spend additional time or money on integration that would otherwise be spent on the development and expansion of its business and services.

Item 1A.RISK FACTORS (continued)

Failure to manage risks in operating BlackRock’s securities lending program for clients could lead to a loss of clients and a decline in revenues and liquidity.

The size of BlackRock’s securities lending programs increased significantly with the completion of the BGI Transaction. As part of these programs, BlackRock must manage risks associated with (i) ensuring that the value of the collateral held against the securities on loan does not decline in value or become illiquid and that its nature and value complies with regulatory requirements and investment requirements, (ii) the potential that a borrower defaults or does not return a loaned security on a timely basis, (iii) the potential that the collateral held may not be sufficient to repurchase the loaned security, and (iv) errors in the settlement of securities, daily mark-to-market valuations and collateral collection. The failure of the Company’s controls to mitigate these risks could result in financial losses for our clients that participate in our securities lending programs as well as for the Company.

Risks Related to Relationships with Bank of America/Merrill Lynch, PNC, Barclays and PNCOther Institutional Investors

Merrill Lynch is an important distributor of BlackRock’s products, and the Company is therefore subject to risks associated with the business of Merrill Lynch.

Under a global distribution agreement entered into with Merrill Lynch, in connection with the MLIM Transaction, Merrill Lynch provides distribution, portfolio administration and servicing for certain BlackRock assetinvestment management products and services through its various distribution channels. The Company may not be successful in distributing products through Merrill Lynch or in distributing its products and services through other third party distributors. If BlackRock is unable to distribute its products and services successfully or if it experiences an increase in distribution-related costs, BlackRock’s business, results of operations or financial condition may be materially and adversely affected.

Loss of market share withwithin Merrill Lynch’s Global Private Client GroupWealth & Investment Management business could harm operating results.

A significant portion of theBlackRock’s revenue of the MLIM business has historically come from AUM generated by Merrill Lynch’s Global Private Client GroupWealth & Investment Management (“GPC”GWIM”). business. BlackRock’s ability to maintain a strong relationship with GPCwithin GWIM is material to the Company’s future performance. If one of the Company’s competitors gains significant additional market share within the GPCGWIM retail channel at the expense of BlackRock, then BlackRock’s business, results of operations or financial condition may be negatively impacted.

The failure of Barclays to fulfill its commitments, or the inadequacy of the support provided, under certain capital support agreements in favor of a number of cash management funds acquired in the BGI Transaction, could negatively impact such funds and BlackRock.

20

Barclays has provided capital support agreements through December 2013, or until certain criteria are met, to support certain cash management products, which were acquired by BlackRock in the BGI Transaction. The failure of Barclays to fulfill its obligations under these agreements, or the inadequacy of the support provided, could cause our clients to suffer losses and BlackRock to suffer reputational and other adverse impacts. For a discussion on the capital support agreements see “Management, Discussion and Analysis – Liquidity and Capital Resources – Barclays Support of Certain Cash Funds.”


Item 1A.RISK FACTORS (continued)

 

For so long as Merrill LynchPNC and PNC maintain certain levels of stock ownership, Merrill Lynch and PNC willBarclays have each agreed to vote as stockholders in accordance with the recommendation of BlackRock’s Board of Directors, and certain actions will require special board approval or the prior approval of Bank of America/Merrill Lynch, PNC and PNC.Barclays.

As a result of the stockholder agreements entered into with PNC and Merrill Lynch in connection with the MLIM Transaction, together with the Company’s ownership structure, stockholders may have no effective power to influence corporate actions. As of December 31, 2007, Merrill Lynch owned approximately 45.1% of BlackRock’s issued and outstanding common stock and approximately 49.0% of total capital stock on a fully-diluted basis, and PNC owned approximately 33.5% of BlackRock’s total capital stock.

Merrill Lynch and PNCBarclays have agreed to vote all of their voting shares in accordance with the recommendation of BlackRock’s Board of Directors to the extent consistentin accordance with the provisions of the Merrill Lynchtheir respective stockholder agreement and the PNC implementation and stockholder agreement.agreements with BlackRock. As a consequence, if the shares held by PNC and Barclays constitute a substantial portion of the outstanding voting shares, matters submitted to a stockholder vote that require a majority or a plurality of votes for approval, including elections of directors, will be approved or disapproved solelyhave a substantial number of shares voted in accordance with the determinations of the BlackRock Board of Directors, so long as the shares held by Merrill Lynch and PNC constitute a majority of the outstanding shares.Directors. This arrangement has the effect of concentrating a significant block of voting control over BlackRock in its Board of Directors, whether or not stockholders agree with any particular determination of the Board. At December 31, 2010, PNC and Barclays owned approximately, 25.3% and 2.3%, respectively, of BlackRock’s voting common stock.

A large portion of our capital stock is held by a small group of significant shareholders. Future sales of our common stock in the public market by us or our large stockholders could adversely affect the trading price of our common stock.

As of December 31, 2010, after giving effect to the dispositions referred to in the following sentence, PNC, Barclays and Bank of America/Merrill Lynch owned 20.3%, 19.6% and 7.1% of our capital stock, respectively. We have entered into registration rights agreements with PNC, Barclays and Bank of America/Merrill Lynch, as well as the institutional investors who purchased shares of BlackRock capital stock in connection with the BGI Transaction, and, pursuant to such agreements, on November 15, 2010, Bank of America/Merrill Lynch and PNC sold approximately 58.7 million shares of our capital stock. The registration rights agreements, which include customary “piggyback” registration provisions, may continue to allow the respective stockholders to cause us to file one or more registration statements for the resale of their respective shares of capital stock and cooperate in certain underwritten offerings. Sales by us or our large stockholders of a substantial number of shares of our common stock in the public market pursuant to registration rights or otherwise, or the perception that these sales might occur, could cause the market price of our common stock to decline.

Legal and Regulatory Risks

BlackRock is subject to extensive regulation in the United States and internationally.

BlackRock’s business is subject to extensive regulation in the United States and around the world. See the discussion under the heading “Business – Regulation.” Violation of applicable laws or regulations could result in fines, temporary or permanent prohibition of the engagement in certain activities, reputational harm, suspensions of personnel or revocation of their licenses, suspension or termination of investment adviser or broker-dealer registrations, or other sanctions, which could have a material adverse effect on BlackRock’s reputation, business, results of operations or financial condition and cause the Company’s earnings or stock price to decline. Additionally, BlackRock’s business

BlackRock may be adversely impacted by legal and regulatory changes in the United States and legislative initiatives imposed by various U.S.internationally.

On July 21, 2010, the Dodd-Frank Wall Street Reform and non-U.S.Consumer Protection Act (the “DFA”) was signed into law in the United States. The DFA is expansive in scope and requires the adoption of extensive regulations and numerous regulatory decisions in order to be implemented. The adoption of these regulations and exchange authorities,decisions will in large measure determine the impact of the DFA on BlackRock.

The DFA and industry participants that continueits regulations, and other new laws or regulations, or changes in enforcement of existing laws or regulations, could adversely impact the scope or profitability of BlackRock’s business activities, could require BlackRock to reviewchange certain business practices and could expose BlackRock to additional costs (including compliance and tax costs) and liabilities, as well as reputational harm. Regulatory changes could also lead to business disruptions, could adversely impact the value of assets in many cases, adopt changeswhich BlackRock has invested on behalf of clients and/or via seed or co-investments, and, to their established rules and policies.the extent the regulations strictly control the activities of financial services firms, could make it more difficult for BlackRock to conduct certain business activities or distinguish itself from competitors.

Item 1A.RISK FACTORS (continued)

Failure to comply with the Advisers Act and the Investment Company Act and related regulations could result in substantial harm to BlackRock’s reputation and results of operations.

Certain BlackRock subsidiaries are registered with the SEC under the Advisers Act and BlackRock’s U.S. mutual funds and exchange-traded funds are registered with the SEC under the Investment Company Act. The Advisers Act imposes numerous obligations and fiduciary duties on registered investment advisers, including record-keeping, operating and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act imposes similar obligations, as well as additional detailed operational requirements, on investment advisers to registered investment companies. The failure of any of BlackRock’s subsidiaries to comply with the Advisers Act or the Investment Company Act could cause the SEC to institute proceedings and impose sanctions for violations of either of these acts, including censure, termination of an investment adviser’s registration or prohibition to serve as adviser to SEC-registered funds, and could lead to litigation by investors in those funds or harm to the Company’s reputation, any of which could cause its earnings or stock price to decline.

21


Item 1A.RISK FACTORS (continued)

Failure to comply with ERISA regulations could result in penalties and cause the Company’s earnings or stock price to decline.

Certain BlackRock subsidiaries are subject to ERISA and to regulations promulgated thereunder, insofar as they act as a “fiduciary” under ERISA with respect to benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose duties on persons who are fiduciaries under ERISA, prohibit specified transactions involving ERISA plan clients and provide monetary penalties for violations of these prohibitions. The failure of any of BlackRock’sthe relevant subsidiaries to comply with these requirements could result in significant penalties that could reduce the Company’s earnings or cause its stock price to decline.

BlackRock is subject to banking regulations that may limit its business activities.

Since PNC’sBecause the total equity ownership interest of each of Bank of America and PNC in BlackRock exceeds 25%,or until recently exceeded certain thresholds, BlackRock is deemed to be a non-bank subsidiary of each of Bank of America and PNC, awhich are both financial holding company, which subjectscompanies under the Bank Holding Company Act of 1956, as amended. As a non-bank subsidiary of each of Bank of America and PNC, BlackRock is subject to general banking regulations that limitregulation, including the supervision and regulation of the Federal Reserve. Such banking regulation limits the activities and the types of businesses that BlackRock may conduct. The Federal Reserve has broad enforcement authority over BlackRock, including the power to prohibit BlackRock from conducting any activity that, in the Federal Reserve’s opinion, is unauthorized or constitutes an unsafe or unsound practice in conducting BlackRock’s business, and to impose substantial fines and other penalties for violations. Any failure of either Bank of America or PNC to maintain its status as a financial holding company could result in substantial limitations on certain BlackRock activities and its growth. In addition, BlackRock’s trust bank subsidiary is subject to regulation by the OCC, which it may engage. Banking regulationsis similar in many respects to that imposed under the Advisers Act and the Investment Company Act as described above and to capital requirements established by the OCC. The OCC has broad enforcement authority over BlackRock’s trust bank subsidiary. Being subject to banking regulation may put BlackRock at a competitive disadvantage because most of its competitors are not subject to these limitations.

Failure to comply with laws and regulations in the United Kingdom, other member states of the European Union, Hong Kong, Japan, Australia and other non-U.S. jurisdictions in which BlackRock operates could result in substantial harm to BlackRock’s reputation and results of operations.

The Financial Services Authority (the “FSA”) regulates BlackRock’s subsidiaries in the United Kingdom. Authorization by the FSA is required to conduct any financial services-related business in the United Kingdom under the Financial Services and Markets Act 2000. The FSA’s rules govern a firm’s capital resources requirements, senior management arrangements, conduct of business, interaction with clients and systems and controls. Breaches of these rules may result in a wide range of disciplinary actions against the Company’s U.K.-regulated subsidiaries.

Item 1A.RISK FACTORS (continued)

In addition, these subsidiaries, and other European subsidiaries, branches or representative offices, must comply with the pan-European regime established by the Markets in Financial Instruments Directive, which regulates the provision of investment services throughout the European Economic Area, as well as the Capital Requirements Directive, which delineates regulatory capital requirements. As discussed under “Business-Regulation,” in the aftermath of the financial crisis the European Commission set out a non-bank subsidiarydetailed plan to complete the EU’s financial reform, outlining a number of PNC,initiatives to be reflected in new or updated directives, regulations and recommendations. There are changes proposed by the Alternative Investment Fund Managers Directive, to be implemented by the summer of 2013, and UCITS IV, which is required to be adopted in the national law of each EU member state by July 1, 2011. There are also European Commission consultations in process regarding certain insurance wrap products (referred to in the United Kingdom as packaged retail investment products), covering pre-contractual information to be provided with respect to such products, and UCITS V, which addresses, among other items, custodial liability. In the United Kingdom, the Bribery Act 2010 was to be implemented in April 2011 but has been put on hold while the U.K. government rewrites guidance for businesses on how to comply with its provisions. When in force it is likely to impose additional procedures on the Company’s U.K.-regulated subsidiaries. In addition, a retail distribution review initiated by the FSA is expected to change how investment advice is paid for in the United Kingdom for all investment products. Final retail distribution rules are expected in early 2011, with implementation to occur by the end of 2012.

In Japan, certain BlackRock issubsidiaries are subject to the supervision, regulationFinancial Instruments and examinationExchange Law (the “FIEL”) and the Law Concerning Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency (the “JFSA”), which establishes standards for compliance, including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules. The JFSA is empowered to conduct administrative proceedings that can result in censure, fines, the issuance of cease and desist orders or the suspension or revocation of registrations and licenses granted under the FIEL.

In Australia, BlackRock’s subsidiaries are subject to various Australian federal and state laws and certain subsidiaries are regulated by the Australian Securities and Investments Commission (the “ASIC”) and the Australian Prudential Regulation Authority. The ASIC regulates companies and financial services in Australia and is responsible for promoting investor, creditor and consumer protection. Failure to comply with applicable law and regulations could result in the cancellation, suspension or variation of the FRB. relevant subsidiaries’ licenses in Australia.

The Company is alsoactivities of certain BlackRock subsidiaries in Hong Kong are subject to the broad enforcement authoritySecurities and Futures Ordinance (the “SFO”) which governs the securities and futures markets and the non-bank retail leveraged foreign exchange market in Hong Kong. The SFO is administered by the Securities and Futures Commission (the “SFC”), an independent non-governmental body. The relevant subsidiaries, and certain individuals representing them, which conduct business in any of the FRB, includingregulated activities specified in the FRB’s powerSFO are generally required to prohibit BlackRockbe registered or licensed with the SFC, and are subject to the rules, codes and guidelines issued by the SFC from engagingtime to time.

There are similar legal and regulatory arrangements in force in many other non-U.S. jurisdictions where BlackRock’s subsidiaries conduct business or where the funds and products it manages are organized. Failure to comply with laws and regulations in any activity that,of these jurisdictions could result in the FRB’s opinion, constitutes an unsafe or unsound practice in conducting the Company’s business. The FRB also may impose substantial finesharm to BlackRock’s reputation and other penalties for violationsresults of applicable banking regulations.operation.

Legal proceedings could adversely affect operating results and financial condition for a particular period.

Many aspects of BlackRock’s business involve substantial risks of legal liability. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with BlackRock’s activities. While Merrill Lynch has agreedFrom time to indemnify the Companytime, BlackRock receives subpoenas or other requests for information from various U.S. and non-U.S. governmental and regulatory authorities in connection with certain industry-wide, company-specific or other investigations or proceedings. Additionally, certain of the pre-closing liabilities related to legal proceedings acquired in the MLIM Transaction, entities that BlackRock now owns may be named as defendants in these matters and the Company’s reputation may be negatively impacted. Liability for legal actions for which no indemnification is available could reduce earnings and cash flows and cause BlackRock’s stock price to decline. Additionally, the investment funds that the Company manages are subject to lawsuits, any of which could potentially harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.

Item 1B.UNRESOLVED STAFF COMMENTS

The Company has no unresolved comments from the SEC staff relating to BlackRock’s periodic or current reports filed with the SEC pursuant to the Exchange Act of 1934.

 

22


Item 2.PROPERTIES

BlackRock’s principal office, which is leased, is located at 4055 East 52nd Street, New York, New York. BlackRock leases additional office space in New York City at 5540 East 52nd Street and throughout the world, including Boston, Chicago, Edinburgh, Florham Park (New Jersey)Gurgaon (India), Hong Kong, London, Melbourne, Munich, Plainsboro (New Jersey), San Francisco, Seattle, Singapore, MelbourneSydney, Taipei and Tokyo. The Company also owns an 84,500 square foot office building in Wilmington (Delaware).

 

Item 3.LEGAL PROCEEDINGS

From time to time, BlackRock has receivedreceives subpoenas or other requests for information from various U.S. federal, and state governmental and regulatory authorities and various information requests from the SEC in connection with certain industry-wide, company-specific or other investigations of U.S. mutual fund matters. BlackRockor proceedings. It is continuingBlackRock’s policy to fully cooperate fully in these matters. From time to time, BlackRock is also subject to other regulatory inquiries and proceedings.

with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations class actions, and other litigation and regulatory proceedings arising in connection with BlackRock’s activities. While Merrill Lynch has agreed to indemnify the Company for certain pre-closing liabilities related to legal and regulatory proceedings acquired in the MLIM Transaction, entities that BlackRock now owns may be named as defendants in these matters and the Company’s reputation may be negatively impacted. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which could potentially harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.

Management, after consultation with legal counsel, currently does not currently anticipate that the aggregate liability, if any, arising out of such regulatory matters or lawsuits will have a material adverse effect on BlackRock’s earnings, financial position, or cash flows, although, at the present time, management is not in a position to determine whether any such pending or threatened matters will have a material adverse effect on BlackRock’s results of operations in any future reporting period.

Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of BlackRock’s security holders during the fourth quarter of the year ended December 31, 2007.

23


Part II

 

Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

BlackRock’s common stock is listed on the NYSE and is traded under the symbol “BLK”. At the close of business on January 31, 2008,2011, there were 582400 common stockholders of record. Common stockholders include institutional or omnibus accounts that hold common stock for multiple underlying investors.

The following table sets forth for the periods indicated the high and low reported sale prices, period-end closing prices for the common stock and dividends declared per share for the common stock as reported on the NYSE:

 

  Stock Price Ranges  Closing
Price
  Dividends
Declared
  Common Stock Price
Ranges
   Closing   Cash
Dividend
 
  High  Low    High   Low   Price   Declared 

2007

        

2010

        

First Quarter

  $180.30  $151.32  $156.31  $0.67  $243.80    $200.56    $217.76    $1.00  

Second Quarter

  $162.83  $143.69  $156.59  $0.67  $212.27    $143.01    $143.40    $1.00  

Third Quarter

  $179.97  $139.20  $173.41  $0.67  $172.87    $138.42    $170.25    $1.00  

Fourth Quarter

  $224.54  $172.18  $216.80  $0.67  $193.74    $161.53    $190.58    $1.00  

2006

        

2009

        

First Quarter

  $161.49  $105.74  $140.00  $0.42  $143.32    $88.91    $130.04    $0.78  

Second Quarter

  $159.36  $120.69  $139.17  $0.42  $183.80    $119.12    $175.42    $0.78  

Third Quarter

  $152.34  $123.04  $149.00  $0.42  $220.17    $159.45    $216.82    $0.78  

Fourth Quarter

  $158.50  $140.72  $151.90  $0.42  $241.66    $206.00    $232.20    $0.78  

BlackRock’s closing common stock price as of February 27, 200825, 2011 was $201.30.$203.92.

Dividends

On February 15, 2008,24, 2011, the Board of Directors approved an increase of BlackRock’s quarterly dividend to $0.78of $1.375 to be paid on March 24, 200823, 2011 to stockholders of record on March 7, 2008.2011.

Barclays, Merrill Lynch, PNC and itstheir respective affiliates as the sole holders of BlackRock’s series Aalong with other institutional investors that hold non-voting participating preferred stock receive dividends on the preferred stockthese shares, which are equivalent to the dividends received by common stockholders and may elect to receive such dividends in cash or BlackRock common stock, subject to the ownership limitations contained within the stockholders agreement with BlackRock.stockholders.

 

24


Item 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)

 

Issuer Purchases of Equity Securities

During the three months ended December 31, 2007,2010, the Company made the following purchases of its common stock, which areis registered pursuant to Section 12(b) of the Exchange Act.

 

   Total
Number of
Shares
Purchased
  Average
Price Paid
per Share
  Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
  Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs1

October 1, 2007 through October 31, 2007

  17,3142 $173.30  —    751,400

November 1, 2007 through November 30, 2007

  2,2552 $172.25  —    751,400

December 1, 2007 through December 31, 2007

  42,4152 $208.96  —    751,400
            

Total

  61,984  $197.67  —    
            
   Total
Number of
Shares
Purchased
  Average
Price Paid
per Share
   Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
   Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs(1)
 

October 1, 2010 through October 31, 2010

   3,525(2)  $170.30     —       4,203,898  

November 1, 2010 through November 30, 2010

   399(2)  $165.85     —       4,203,898  

December 1, 2010 through December 31, 2010

   885(2)  $180.75     —       4,203,898  
             

Total

   4,809   $171.85     —       4,203,898  
             

 

1(1)

On August 2, 2006,In July 2010, the Company announced a 2.15.1 million share repurchase program with no stated expiration date.

2(2)

ReflectsIncludes purchases made by the Company primarily to satisfy income tax withholding obligations of employees and members of our Board of Directors related to the vesting of certain restricted stock or restricted stock unit awards. All such purchases were made outside of the publicly announced share repurchase program.

25


Item 6.SELECTED FINANCIAL DATA

The selected financial data presented below has been derived in part from, and should be read in conjunction with, the consolidated financial statements of BlackRock and Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operationsincluded in this Form 10-K. Prior year data reflects certain reclassifications to conform to the current year presentation.

 

   Year Ended December 31, 
(Dollar amounts in thousands, except per share data)  2007  20061  20052  2004  2003 

Income statement data:

      

Revenue

      

Investment advisory and administration base fees

  $4,010,061  $1,598,741  $850,378  $592,016  $519,817 

Investment advisory performance fees

   350,188   242,282   167,994   41,607   8,875 
                     

Investment advisory and administration fees

   4,360,249   1,841,023   1,018,372   633,623   528,692 

Distribution fees

   123,052   35,903   11,333   —     —   

Other revenue

   361,354   221,050   161,681   91,688   69,520 
                     

Total revenue

   4,844,655   2,097,976   1,191,386   725,311   598,212 
                     

Expenses

      

Employee compensation and benefits

   1,767,063   934,887   587,773   386,158   225,988 

Portfolio administration and servicing costs

   547,620   172,531   64,611   49,816   44,081 

Amortization of deferred sales commissions

   108,091   29,940   9,346   —     —   

General and administration3,4

   870,367   451,303   181,610   122,592   98,940 

Termination of closed-end fund administration and servicing arrangements

   128,114   —     —     —     —   

Amortization of intangible assets

   129,736   37,515   7,505   947   927 
                     

Total expenses

   3,550,991   1,626,176   850,845   559,513   369,936 
                     

Operating income

   1,293,664   471,800   340,541   165,798   228,276 
                     

Non-operating income (expense)

      

Net gain on investments

   504,001   36,930   24,226   20,670   7,955 

Interest and dividend income

   74,466   29,419   18,912   14,805   15,391 

Interest expense

   (49,412)  (9,916)  (7,924)  (835)  (720)
                     

Total non-operating income

   529,055   56,433   35,214   34,640   22,626 
                     

Income before income taxes and non-controlling interest

   1,822,719   528,233   375,755   200,438   250,902 

Income tax expense

   463,832   189,463   138,558   52,264   95,247 
                     

Income before non-controlling interest

   1,358,887   338,770   237,197   148,174   155,655 

Non-controlling interest

   363,615   16,168   3,289   5,033   253 
                     

Net income

  $995,272  $322,602  $233,908  $143,141  $155,402 
                     

Per share data5:

      

Basic earnings

  $7.75  $4.00  $3.64  $2.25  $2.40 

Diluted earnings

  $7.53  $3.87  $3.50  $2.17  $2.36 

Book value 6

  $90.13  $83.57  $14.41  $12.07  $11.13 

Common and preferred cash dividends per share

  $2.68  $1.68  $1.20  $1.00  $0.40 

   Year ended December 31, 
(Dollar amounts in millions, except per share data)  2010(1)  2009  2008  2007(2)   2006 

Income statement data:

       

Total revenue

  $8,612   $4,700   $5,064   $4,845    $2,098  

Expenses

       

Restructuring charges

   —      22    38    —       —    

Termination of closed-end fund administration and servicing arrangements

   —      —      —      128     —    

Fee sharing payment(3)

   —      —      —      —       34  

Other operating expenses

   5,614    3,400    3,433    3,423     1,592  
                      

Total expenses

   5,614    3,422    3,471    3,551     1,626  

Operating income

   2,998    1,278    1,593    1,294     472  

Total non-operating income (expense)

   23    (6  (577  526     53  
                      

Income before income taxes

   3,021    1,272    1,016    1,820     525  

Income tax expense

   971    375    387    463     188  
                      

Net income

   2,050    897    629    1,357     337  

Less: Net income (loss) attributable to non-controlling interests(4)

   (13  22    (155  364     16  
                      

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784   $993    $321  
                      

Per share data:(5)

       

Basic earnings

  $10.67   $6.24   $5.86   $7.53    $3.95  

Diluted earnings

  $10.55   $6.11   $5.78   $7.37    $3.83  

Book value(6)

  $136.09   $128.86   $92.91   $90.16    $83.63  

Common and preferred cash dividends

  $4.00   $3.12   $3.12   $2.68    $1.68  

26


Item 6.SELECTED FINANCIAL DATA (continued)

 

   December 31,
(Dollar amounts in thousands)  2007  20061  20052  2004  2003

Balance sheet data:

          

Cash and cash equivalents

  $1,656,200  $1,160,304  $484,223  $457,673  $315,941

Investments

  $1,999,944  $2,097,574  $298,668  $227,497  $234,923

Goodwill and intangible assets, net

  $12,072,836  $11,139,447  $483,982  $184,110  $192,079

Total assets

  $22,561,515  $20,469,492  $1,848,000  $1,145,235  $967,223

Short-term borrowings

  $300,000  $—    $—    $—    $—  

Long-term borrowings

  $947,021  $253,167  $253,791  $4,810  $5,736

Total liabilities

  $10,386,350  $8,578,520  $916,143  $359,714  $252,676

Non-controlling interest

  $578,210  $1,109,092  $9,614  $17,169  $1,239

Stockholders’ equity

  $11,596,955  $10,781,880  $922,243  $768,352  $713,308
   December 31,
(Dollar amounts in millions)  2007  20061  20052  2004  2003

Assets under management:

          

Fixed income

  $513,020  $448,012  $303,928  $240,709  $214,356

Equity and balanced

   459,182   392,708   37,303   14,792   13,721

Cash management

   313,338   235,768   86,128   78,057   74,345

Alternative investments

   71,104   48,139   25,323   8,202   6,934
                    

Total assets under management

  $1,356,644  $1,124,627  $452,682  $341,760  $309,356
                    
   December 31, 
(Dollar amounts in millions)  2010   2009(1)   2008   2007   2006 

Balance sheet data:

          

Cash and cash equivalents

  $3,367    $4,708    $2,032    $1,656    $1,160  

Goodwill and intangible assets, net

   30,317     30,346     11,974     12,073     11,139  

Total assets(7)

   178,459     178,124     19,924     22,561     20,470  

Less:

          

  Separate account assets(8)

   121,137     119,629     2,623     4,670     4,300  

  Collateral held under securities lending agreements(8)

   17,638     19,335     —       —       —    

  Consolidated investment vehicles(9)

   1,610     282     502     805     1,236  
                         

    Adjusted total assets

   38,074     38,878     16,799     17,086     14,934  

Short-term borrowings

  $100    $2,234    $200    $300    $—    

Convertible debentures

   67     243     245     242     238  

Long-term borrowings

   3,192     3,191     697     697     3  
                         

Total borrowings

  $3,359    $5,668    $1,142    $1,239    $241  

Total stockholders’ equity

  $26,094    $24,329    $12,069    $11,601    $10,789  
   December 31, 
(Dollar amounts in millions)  2010   2009(1)   2008   2007   2006 

Assets under management:(10)

          

Equity:

          

Active

  $334,532    $348,574    $152,216    $291,324    $255,330  

Institutional index

   911,775     806,082     51,076     71,381     61,631  

iShares / Exchange-traded products

   448,160     381,399     —       —       —    

Fixed income:

          

Active

   592,303     595,580     477,492     506,265     441,046  

Institutional index

   425,930     357,557     3,873     3,942     4,274  

iShares / Exchange-traded products

   123,091     102,490     —       —       —    

Multi-asset class

   185,587     142,029     77,516     98,623     78,601  

Alternatives

   109,738     102,101     61,544     71,771     48,292  
                         

Long-term

   3,131,116     2,835,812     823,717     1,043,306     889,174  

Cash management

   279,175     349,277     338,439     313,338     235,453  
                         

Sub-total

   3,410,291     3,185,089     1,162,156     1,356,644     1,124,627  

Advisory(11)

   150,677     161,167     144,995     —       —    
                         

        Total

  $3,560,968    $3,346,256    $1,307,151    $1,356,644    $1,124,627  
                         

 

1(1)

Significant increases in 2009 (for balance sheet data and AUM) and 2010 (for income statement data) were primarily the result of the BGI Transaction which closed on December 1, 2009.

(2)

Significant increases in 2006 are2007 (for income statement data only) were primarily the result of the closing of the MLIM Transaction which closed on September 29, 2006.

2(3)

Significant increases in 2005 are partially due to the result of the closing of the SSR Transaction in January 2005.

3

IncludesRepresents a 2006 fee sharing payment to MetLife, Inc. of $34,450 representing a one-time expense related to a large institutional real estate equity client account acquired in the SSR Transaction.

4(4)

Includes a $6,097 impairment of intangible assets in 2004 which represented the write-off of an intangible management contract related to certain funds in which the portfolio manager resignedboth redeemable and the funds were subsequently liquidated.nonredeemable non-controlling interests.

5(5)

Series A, B, C and D non-voting participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.

6(6)

AtTotal BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at December 31 of the respective year-end.

(7)

Includes separate account assets that are segregated funds held for purposes of funding individual and group pension contracts and collateral held under securities lending agreements related to these assets that have equal and offsetting amounts recorded in liabilities and ultimately do not impact BlackRock’s stockholders’ equity or cash flows.

(8)

Equal and offsetting amounts, related to separate account assets and collateral held under securities lending agreements, are recorded in liabilities.

(9)

Includes assets held by consolidated variable interest entities and consolidated sponsored investments funds.

(10)

Data reflects the reclassification of AUM into the current period presentation.

(11)

Advisory AUM represents long-term portfolio liquidation assignments.

27


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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” or 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 SECSecurities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, including the Risk Factors section of Item 1A. of 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 capital improvement projects; (6) the impact of future acquisitions or divestitures; (7) the unfavorable resolution of legal proceedings; (8) the extent and timing of any share repurchases; (9) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (10) 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, Barclays Bank PLC, Bank of America Corporation, Merrill Lynch & Co., Inc. or PNC;The PNC Financial Services Group, Inc.; (11) terrorist activities, and international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries andor BlackRock; (12) the ability to attract and retain highly talented professionals; (13) fluctuations in the carrying value of BlackRock’s economic investments; (14) fluctuations in foreign currency exchange rates, which may adversely affect the value of advisory and administration fees earned by BlackRock and the carrying value of certain assets and liabilities denominated in foreign currencies; (15) the impact of changes to tax legislation and, generally, the tax position of the Company; (16) BlackRock’s ability to successfully integrate the MLIM and Quellos Businesses with its existing business; (17) the ability of BlackRock to effectively manage the former MLIM and Quellos assets along with its historical assets under management; and (18)(15) BlackRock’s success in maintaining the distribution of its products.products; (16) the impact of BlackRock electing to provide support to its products from time to time; (17) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions; and (18) the ability of BlackRock to complete the integration of the operations of Barclays Global Investors.

 

28


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview

Overview

BlackRock, Inc. (“BlackRock” or the “Company”) is one of the largest publicly traded investment management firms infirm. As of December 31, 2010, the United States with $1.357Company managed $3.561 trillion of assets under management (“AUM”) at December 31, 2007. BlackRock manages assets on behalf of institutional and individual investors worldwide throughworldwide. The Company provides a varietywide array of products including passively and actively managed products including equities, fixed income, multi-asset class, alternative investment and cash management equityproducts, and balanced and alternative investmentoffer clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange-traded funds, hedge funds and funds of funds. In addition,BlackRock Solutions®provides market risk management, strategicfinancial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation of illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

On September 29, 2006, BlackRock and Merrill Lynch & Co., Inc. (“Merrill Lynch”) closed a transaction pursuant to which Merrill Lynch contributed the entities and assets that constituted its investment management business, Merrill Lynch Investment Managers (“MLIM”), to BlackRock in exchange for an aggregate of 65 million shares of newly issued BlackRock common and non-voting participating preferred stock such that immediately after such closing Merrill Lynch held approximately 45% of BlackRock’s common stock outstanding and approximately 49.3% of the Company’s capital stock on a fully diluted basis (the “MLIM Transaction”). On October 1, 2007, BlackRock acquired certain assets and assumed certain liabilities of the fund of funds business of Quellos Group, LLC (“Quellos”) for up to $1.719 billion in a combination of cash and common stock (the “Quellos Transaction”). At December 31, 2007,

On January 1, 2009, Bank of America Corporation (“Bank of America”) acquired Merrill Lynch owned approximately 45.1%Lynch. In connection with this transaction, BlackRock entered into exchange agreements with each of the Company’s voting common stock and approximately 49.0% of the capital stock on a fully diluted basis of the CompanyMerrill Lynch and The PNC Financial Services Group, Inc. (“PNC”) owned approximately 33.5%pursuant to which each agreed to exchange a portion of BlackRock voting common stock they held for non-voting preferred stock.

On December 1, 2009, BlackRock acquired from Barclays Bank PLC (“Barclays”) all of the outstanding equity interests of subsidiaries of Barclays conducting the business of Barclays Global Investors (“BGI”) (the “BGI Transaction”) in exchange for 37.6 million capital shares valued at $8.53 billion, or $227.08 per share, the closing price of BlackRock’s common stock on November 30, 2009 and $6.65 billion in cash, for a total of $15.2 billion. The fair value of the BGI Transaction on June 5, 2009, several days prior to the announcement of the transaction, included the capital shares valued at $6.16 billion, or $163.74 per share, and $6.65 billion in cash, for a total of $12.8 billion. The increase in the fair value of BlackRock’s common stock resulted in $2.4 billion, or 19%, of additional purchase price consideration for accounting purposes as compared to a 16% increase in the S&P 500.

On November 15, 2010, Bank of America and PNC sold 58,737,122 shares of BlackRock’s common stock, which included 56,407,040 shares of common stock that converted from non-voting preferred stock. In connection with this transaction, BlackRock entered into an exchange agreement with PNC pursuant to which PNC agreed to exchange 11,105,000 shares of BlackRock non-voting preferred stock they held for common stock.

The following table summarizes BlackRock’s operating performance for the years endedAs of December 31, 2007, 2006 and 2005:

2010, equity ownership of BlackRock Inc.

Financial Highlights

(Dollar amounts in thousands, except per share data)was as follows:

 

   Year ended December 31,  Variance 
   2007 vs. 2006  2006 vs. 2005 
   2007  2006  2005  Amount  %  Amount  % 

Total revenue

  $4,844,655  $2,097,976  $1,191,386  $2,746,679  130.9% $906,590  76.1%

Total expenses

  $3,550,991  $1,626,176  $850,845  $1,924,815  118.4% $775,331  91.1%

Operating income

  $1,293,664  $471,800  $340,541  $821,864  174.2% $131,259  38.5%

Operating income, as adjusted(a)

  $1,559,423  $688,108  $425,812  $871,315  126.6% $262,296  61.6%

Net income

  $995,272  $322,602  $233,908  $672,670  208.5% $88,694  37.9%

Net income, as adjusted(b)

  $1,079,694  $444,703  $269,622  $634,991  142.8% $175,081  64.9%

Diluted earnings per share (c)

  $7.53  $3.87  $3.50  $3.66  94.6% $0.37  10.6%

Diluted earnings per share, as adjusted(b) (c)

  $8.17  $5.33  $4.03  $2.84  53.3% $1.30  32.3%

Weighted average diluted shares outstanding(c)

   132,088,810   83,358,394   66,875,149   48,730,416  58.5%  16,483,245  24.6%

Operating margin, GAAP basis

   26.7%  22.5%  28.6%      

Operating margin, as adjusted(a)

   37.5%  36.7%  38.9%      
   Voting
Common
Stock
  Capital  Stock(1) 

PNC

   25.3  20.3

Barclays

   2.3  19.6

Bank of America/Merrill Lynch

   0.0  7.1

Other

   72.4  53.0
         
   100.0  100.0
         

 

29
(1)

Includes outstanding common and non-voting preferred stock only.


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Overview (continued)

 

(a)BlackRock reports its financial results on a GAAP basis, however management believes that evaluating the Company’s ongoing operating results may not be as useful if investors are limited to reviewing only 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, ofThe following table summarizes 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.

Operating margin, as adjusted, equals operating income, as adjusted,performance for the years ended December 31, 2010, 2009 and 2008:

Financial Highlights

(Dollar amounts in millions, except per share data)

      Variance 
   Year ended December 31,  2010 vs. 2009  2009 vs. 2008 
   2010  2009  2008  Amount  %  Amount  % 

GAAP basis:

        

Total revenue

  $8,612   $4,700   $5,064   $3,912    83 $(364  (7%) 

Total expenses

  $5,614   $3,422   $3,471   $2,192    64 $(49  (1%) 

Operating income

  $2,998   $1,278   $1,593   $1,720    135 $(315  (20%) 

Operating margin

   34.8  27.2  31.5  7.6  28  (4.3%)   (14%) 

Non-operating income (expense), less net income (loss) attributable to non-controlling interests

  $36   $(28 $(422 $64    *   $394    93

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784   $1,188    136 $91    12

Diluted earnings per common share (e)

  $10.55   $6.11   $5.78   $4.44    73 $0.33    6

Effective tax rate

   32.0  30.0  33.0  2.0  7  (3.0%)   (9%) 

As adjusted:

        

Operating income (a)

  $3,167   $1,570   $1,662   $1,597    102 $(92  6

Operating margin (a)

   39.3  38.2  38.7  1.1  3  (0.5%)   (1%) 

Non-operating income (expense), less net income (loss) attributable to non-controlling interests (b)

  $25   $(46 $(384 $71    *   $338    88

Net income attributable to BlackRock, Inc.(c), (d)

  $2,139   $1,021   $856   $1,118    110 $165    19

Diluted earnings per common share (c), (d), (e)

  $10.94   $7.13   $6.30   $3.81    53 $0.83    13

Effective tax rate

   33.0  33.0  33.0  —    —    —    —  

Other:

        

Assets under management (end of period)

  $3,560,968   $3,346,256   $1,307,151   $214,712    6 $2,039,105    156

Diluted weighted-average common shares outstanding (e)

   192,692,047    139,481,449    131,376,517    53,210,598    38  8,104,932    6

Shares outstanding (end of period)

   191,191,553    188,806,296    129,896,028    2,385,257    1  58,910,268    45

Book value per share **

  $136.09   $128.86   $92.91   $7.23    6 $35.95    39

Cash dividends declared and paid per share

  $4.00   $3.12   $3.12   $0.88    28 $—      —  

* – Not applicable or the percentage is in excess of +/- 1,000%.

** – Total BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by revenue used for operating margin measurement, as indicated intotal common and preferred shares outstanding at December 31 of the table below. As a result of recent changes in BlackRock’s business, management has altered the way it views its operating margin, as adjusted. As such, the calculation of operating income, as adjusted, and operating margin, as adjusted, were modified in the second quarter 2007 primarily to adjust for costs associated with closed-end fund issuances and amortization of deferred sales costs, as shown below. Revenue used for operating margin, as adjusted, for all periods presented includes affiliated and unaffiliated portfolio administration and servicing costs. Certain prior period non-GAAP data has been reclassified to conform to current presentation. Computations for all years are derived from the Company’s consolidated statements of income as follows:respective year-end.

 

   Year ended 
   2007  2006  2005 

Operating income, GAAP basis

  $1,293,664  $471,800  $340,541 

Non-GAAP adjustments:

    

Termination of closed-end fund administration and servicing arrangements

   128,114   —     —   

PNC LTIP funding obligation

   53,517   50,031   48,587 

Merrill Lynch compensation contribution

   10,000   1,848   —   

MLIM integration costs

   20,201   141,932   —   

Quellos integration costs

   460   —     —   

SSR integration costs

   —     —     8,873 

Closed-end fund launch costs

   35,594   11,586   13,259 

Closed-end fund launch commissions

   6,029   3,374   4,105 

Compensation expense related to appreciation on deferred compensation plans

   11,844   7,537   10,447 
             

Operating income, as adjusted

  $1,559,423  $688,108  $425,812 
             

Revenue, GAAP basis

  $4,844,655  $2,097,976  $1,191,386 

Non-GAAP adjustments:

    

Portfolio administration and servicing costs

   (547,620)  (172,531)  (64,611)

Amortization of deferred sales costs

   (108,091)  (29,940)  (9,346)

Reimbursable property management compensation

   (26,811)  (22,618)  (23,376)
             

Revenue used for operating margin measurement, as adjusted

  $4,162,133  $1,872,887  $1,094,053 
             

Operating margin, GAAP basis

   26.7%  22.5%  28.6%
             

Operating margin, as adjusted

   37.5%  36.7%  38.9%
             

30


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

 

BlackRock, Inc.Overview (continued)

Financial Highlights

(continued)

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes that 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.

Certain prior period non-GAAP data has been reclassified to conform to the current presentation. Computations for all periods are derived from the Company’s 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 deemed non-recurring by management 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 used for operating margin measurement, as indicated in the table below.

   Year ended December 31, 
(Dollar amounts in millions)  2010  2009  2008 

Operating income, GAAP basis

  $2,998   $1,278   $1,593  

Non-GAAP expense adjustments:

    

BGI transaction/integration costs

    

Employee compensation and benefits

   25    60    —    

General and administration

   65    123    —    
             

Total BGI transaction/integration costs

   90    183    —    

PNC LTIP funding obligation

   58    59    59  

Merrill Lynch compensation contribution

   10    10    10  

Restructuring charges

   —      22    38  

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

   11    18    (38
             

Operating income, as adjusted

   3,167    1,570    1,662  

Closed-end fund launch costs

   15    2    9  

Closed-end fund launch commissions

   2    1    —    
             

Operating income used for operating margin measurement

  $3,184   $1,573   $1,671  
             

Revenue, GAAP basis

  $8,612   $4,700   $5,064  

Non-GAAP adjustments:

    

Distribution and servicing costs

   (408  (477  (591

Amortization of deferred sales commissions

   (102  (100  (130

Reimbursable property management compensation

   —      —      (21
             

Revenue used for operating margin measurement

  $8,102   $4,123   $4,322  
             

Operating margin, GAAP basis

   34.8  27.2  31.5
             

Operating margin, as adjusted

   39.3  38.2  38.7
             

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

Financial Highlights

(continued)

 

(a)(continued)

 

Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of management’s ability to effectively employ BlackRock’s resources.financial performance over time. As such, management believes that operating income, as adjusted, and operating margin, as adjusted, provide useful disclosure to investors.

Non-GAAP Operating Income Adjustments:income, as adjusted:

The expense related to the termination of the closed-end fund administrationBGI transaction and servicing arrangements with Merrill Lynch has been excluded from operating income, as adjusted, as the termination of the arrangements is deemed non-recurring by management. The portion of the Long-Term Incentive Plan (“LTIP”) expense associated with awards funded through the distribution to participants of shares of BlackRock common stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded because, exclusive of the impact related to LTIP participants’ put options, these charges do not impact BlackRock’s book value. MLIM and Quellos integration costs as well as SSR acquisition costsrecorded in 2010 and 2009 consist principally of certain professionaladvisory payments, compensation expense, legal fees, rebrandingmarketing and promotional, occupancy and consulting expenses incurred in conjunction with the BGI Transaction. Restructuring charges recorded in 2009 and 2008 consist of compensation costs, occupancy costs and compensation costs related to theprofessional fees. The expenses associated with restructuring and BGI transaction and integration which were reflected in GAAP operating income. Integration and acquisition costs have been deemed non-recurring by management and have been excluded from operating income, as adjusted, to help ensureenhance the comparability of this information to prior periods. Closed-end fund launch costs and commissions have been excluded from operating income, as adjusted, because such costs can fluctuate considerably and revenues associated with the expenditure of such costs will not fully impact the Company’s results until futurecurrent reporting periods. As such, management believes that operating margins exclusive of these costs are more representative of theuseful measures in evaluating BlackRock’s operating performance for the respective periods.

The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) that will be funded through the distribution to participants of shares of BlackRock stock held by PNC and a Merrill Lynch cash compensation contribution, a portion of which has been received, have been excluded because these charges ultimately do not impact BlackRock’s book value.

Compensation expense associated with appreciation appreciation/(depreciation) on assetsinvestments 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 non-operating income.income (expense).

Non-GAAP Revenue Adjustments:Operating margin, as adjusted:

Portfolio administrationOperating 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 servicingcommissions. Management believes that excluding such costs have been excludedand commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company’s results until future periods.

Operating margin, as adjusted, allows the Company to compare performance from revenueperiod-to-period by adjusting for items that may not recur, recur infrequently or may fluctuate based on market movements, such as restructuring charges, transaction and integration costs, closed-end fund launch costs, commissions paid to certain employees as compensation and fluctuations in compensation expense based on mark-to-market movements in investments held to fund certain compensation plans. The Company also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance to other companies. Management uses both the GAAP and non-GAAP financial measures in evaluating the financial performance of BlackRock. The non-GAAP measure by itself may pose limitations because it does not include all of the Company’s revenues and expenses.

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes that excluding such costs is useful to BlackRock because it creates consistency in the Company receives offsetting revenuetreatment 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 expense for these services.securities lending revenue. Amortization of deferred sales costs arecommissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, offset distribution fee revenue earned by the Company. Reimbursable property management compensation representsrepresented compensation and benefits paid to certainpersonnel of Metric Property Management, Inc. (“Metric”), a subsidiary of BlackRock Realty Advisors, Inc. (“Realty”) personnel. These. Prior to the transfer in 2008, these employees arewere retained on Realty’sMetric’s payroll when certain properties arewere acquired by Realty’s clients. The related compensation and benefits arewere fully reimbursed by Realty’s clients and have been excluded from revenue used for operating margin, as adjusted, because they did not bear noan economic cost to BlackRock. 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 revenues.

 

31


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Overview (continued)

Financial Highlights

(continued)

 

(b)BlackRock reports its financial results on a GAAP basis, however management believes that evaluating the Company’s ongoing operating results may not beNon-operating income (expense), less net income (loss) attributable to non-controlling interests, as useful if investors are limited to reviewing only 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.adjusted:

Non-operating income (expense), less net income (loss) attributable to non-controlling interests (“NCI”), as adjusted, equals non-operating income (expense), GAAP basis, less net income (loss) attributable to NCI, GAAP basis, adjusted for compensation expense associated with depreciation/(appreciation) 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 non-operating 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 non-operating income (expense), GAAP basis.

   Year ended 
   December 31, 
   2007  2006  2005 

Net income, GAAP basis

  $995,272  $322,602  $233,908 

Non-GAAP adjustments, net of tax:

     

Termination of closed-end fund administration and servicing arrangements

   81,993   —     —   

PNC’s LTIP funding obligation

   34,251   31,520   30,610 

Merrill Lynch compensation contribution

   6,400   1,164   —   

MLIM integration costs

   12,929   89,417   —   

Quellos integration costs

   294   —     —   

SSR integration costs

   —     —     5,590 

Corporate deferred income tax rate changes

   (51,445)  —     —   

Impact of Trepp sale

   —     —     (486)
             

Net income, as adjusted

  $1,079,694  $444,703  $269,622 
             

Diluted weighted average shares outstanding(c)

   132,088,810   83,358,394   66,875,149 
             

Diluted earnings per share, GAAP basis (c)

  $7.53  $3.87  $3.50 
             

Diluted earnings per share, as adjusted(c)

  $8.17  $5.33  $4.03 
             

   Year ended
December 31,
 
(Dollar amounts in millions)  2010  2009  2008 

Non-operating income (expense), GAAP basis

  $23   $(6 $(577

Less: Net income (loss) attributable to NCI

   (13  22    (155
             

Non-operating income (expense) (1)

   36    (28  (422

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

   (11  (18  38  
             

Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted

  $25   $(46 $(384
             

(1)

Net of net income (loss) attributable to non-controlling interests.

Management believes that non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, and diluted earnings per share, as adjusted, are effective measurements of BlackRock’s profitability and financial performance. The termination of the closed-end fund administration and servicing arrangements with Merrill Lynch has been excluded from net income, as adjusted, as the termination of the arrangements is deemed non-recurring by management. The portion of the LTIP expense associated with awards funded through the distribution to participants of shares of BlackRock common stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, because, exclusive of the impact related to LTIP participants’ put options, these charges do not impact BlackRock’s book value. MLIM, Quellos and SSR integration costs, reflected in GAAP net income have been deemed non-recurring by management and have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, to help ensure theprovides for comparability of this information to prior reporting periods. Integration costs consist principally ofperiods and is an effective measure for reviewing BlackRock’s non-operating contribution to its results. As compensation costs, professional fees and rebranding costs incurred in conjunctionexpense associated with the integrations. The United Kingdom and Germany, during third quarter 2007, enacted legislation reducing corporate income taxes, effective in April and January of 2008, respectively, which resulted in a revaluation of(appreciation)/depreciation on investments related to certain deferred tax liabilities. The resulting decreasecompensation plans, which is included in deferredoperating income, taxes has been excluded fromoffsets the gain/(loss) on the investments set aside for these plans, management believes that non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, as it is non-recurring and to ensure comparability to prior reporting periods. The gain on the sale of the Company’s equity interest in Trepp, LLC reflected in GAAP net income, has been deemed non-recurring byprovides a useful measure, for both management and has been excluded from net income, as adjusted, to help ensure the comparabilityinvestors, of this information to subsequent reporting periods.BlackRock’s non-operating results that impact book value.

 

(c)Series A non-voting participating preferred stock is considered to be common stock for purposes of earnings per share calculations.

32


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Overview (continued)

Financial Highlights

(continued)

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

Management believes that 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 non-recurring items as well as charges that ultimately will not impact BlackRock’s book value or benefits that do not impact cash flow.

   Year ended
December 31,
 
(Dollar amounts in millions, except per share data)  2010  2009  2008 

Net income attributable to BlackRock, Inc., GAAP basis

  $2,063   $875   $784  

Non-GAAP adjustments, net of tax: (d)

    

BGI transaction/integration costs

   59    129    —    

PNC LTIP funding obligation

   40    41    39  

Merrill Lynch compensation contribution

   7    7    7  

Restructuring charges

   —      14    26  

Income tax law changes

   (30  (45  —    
             

Net income attributable to BlackRock, Inc., as adjusted

  $2,139   $1,021   $856  
             

Allocation of net income attributable to BlackRock, Inc., as adjusted: (f)

    

Common shares (e)

  $2,109   $995   $828  

Participating restricted stock units

   30    26    28  
             

Net income attributable to BlackRock, Inc., as adjusted

  $2,139   $1,021   $856  
             

Diluted weighted-average common shares outstanding (e)

   192,692,047    139,481,449    131,376,517  

Diluted earnings per common share, GAAP basis (e)

  $10.55   $6.11   $5.78  
             

Diluted earnings per common share, as adjusted (e)

  $10.94   $7.13   $6.30  
             

The restructuring charges and BGI transaction and integration costs reflected in GAAP net income attributable to BlackRock, Inc. have been deemed non-recurring by management and have been excluded from net income attributable to BlackRock, Inc., as adjusted, to help enhance the comparability of this information to the reporting periods.

The portion of the compensation expense associated with certain LTIP awards that will be funded through the distribution to participants of shares of BlackRock stock held by PNC and the Merrill Lynch cash compensation contribution, a portion of which has been received, has been excluded from net income attributable to BlackRock, Inc., as adjusted, because these charges ultimately do not impact BlackRock’s book value.

During third quarter 2010 and third quarter 2009, the United Kingdom and New York City, respectively, enacted legislation reducing corporate income tax rates, which resulted in a revaluation of certain net deferred tax liabilities primarily related to acquired intangible assets. The resulting decrease in income taxes has been excluded from net income attributable to BlackRock, Inc., as adjusted, as these were non-recurring enacted tax legislation changes that do not have a cash flow impact and to ensure comparability of this information to the reporting periods.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

Financial Highlights

(continued)

(d)For the years ended December 31, 2010, 2009 and 2008 non-GAAP adjustments were tax effected at 33%, 30% and 33%, respectively, which reflects the blended rate applicable to the adjustments.
(e)Series A, B, C and D non-voting participating preferred stock are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations. Certain unvested restricted stock units (“RSUs”) are not included in this number as they are deemed participating securities in accordance with required provisions of Accounting Standards Codification (“ASC”) 260-10,Earnings per Share(“ASC 260-10”).
(f)Allocation of net income attributable to BlackRock, Inc., as adjusted, to common shares and participating RSUs is calculated pursuant to the two-class method as defined in ASC 260-10.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

 

BlackRock has portfolio managers located around the world, including the United States, the United Kingdom, Thethe Netherlands, Japan, Hong Kong, Australia and Australia.Germany. The Company provides a wide array of taxableproducts including passively and tax-exemptactively managed equities, fixed income, equitymulti-asset class, cash management and balancedalternatives and offers clients diversified access to global markets through separate accounts, collective trusts, open-end and closed-end mutual funds, exchange-traded funds, hedge funds, and separate accounts, as well as a wide assortmentfunds of index-based equity and alternative investment productsfunds to aits diverse global clientele. BlackRock provides global advisory services for mutualinvestment funds and other non-U.S. equivalent retail products. The Company’s non-U.S. mutualinvestment funds are based in a number of domiciles and cover a range of asset classes, including cash management, fixed income, equities and equities.alternatives.

In the United States, the primary retail offerings include various open-end and closed-end funds, includingiShares®, the global product leader in exchange-traded funds for institutional, retail and high net worth investors. There are over 475iShares globally across equities, fixed income and commodities, which trade like common stocks on 19 exchanges worldwide. The BlackRock Global Funds, the Company’s primary retail fund group offered outside the United States, is the Merrill Lynch International Investment Funds (“MLIIF”), which isare authorized for distribution in more than 35 jurisdictions worldwide. In the United States, the primary retail offerings include a wide variety of open-end and closed-end funds. 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 funds. These products are sold to both U.S. and non-U.S. high net worth, 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, high net worth 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 retail and institutional investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships. BlackRock also distributes certain of its products and services through Merrill Lynch.Lynch under a global distribution agreement, which following Bank of America’s acquisition of Merrill Lynch, runs until January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met.

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 pre-determined percentages of the market value of AUM, percentages of committed capital during investment periods of certain alternative products, or, in the case of certain real estate equity separate accounts,clients, net operating income generated by the underlying properties, and are affected by changes in AUM, including market appreciation or depreciation, foreign exchange gains or lossestranslation and net subscriptions or redemptions. Net subscriptions or redemptions represent the sum of new client assets, additional fundings from existing clients (including dividend reinvestment), withdrawals of assets from, and termination of, client accounts, and purchases and redemptions of mutualinvestment fund shares.shares and distributions to investors representing return of capital and return on investments to investors. Market appreciation or depreciation includes current income earned on, and changes in the fair value of, securities held in client accounts. Foreign exchange translation reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

BlackRock also earns revenue by lending securities on behalf of clients, primarily to brokerage institutions. The securities loaned are secured by collateral in the form of cash or securities, with minimums generally ranging from approximately 102% to 112% of the value of the loaned securities. The revenue earned is shared between BlackRock and the funds or other third-party accounts managed by the Company from which the securities are borrowed.

Investment advisory agreements for certain separate accounts and BlackRock’s alternative investment products provide for performance fees, based upon relative and/or absolute investment performance, in addition to base fees based on AUM. PerformanceInvestment advisory performance fees generally are earned after a given period of time orand when investment performance exceeds a contractual threshold. As such, the timing of recognition of performance fees may increase the volatility of BlackRock’s revenue and earnings. Historically, the magnitude of performance fees in the fourth quarter generally exceeds the first three calendar quarters in a year due to the higher number of products with performance measurement periods that end on December 31.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

BlackRock provides a variety of risk management, investment analytic and investment system and advisory services to financial institutions, pension funds, asset managers, foundations, consultants, mutual fund sponsors, real estate investment trusts and government agencies. These services are provided under the brand nameBlackRock Solutions and include a wide array of risk management services, valuation services related to illiquid securities, disposition and workout assignments (including long-term portfolio liquidation assignments), strategic planning and execution, and enterprise investment system outsourcing to clients. Over $10 trillion of positions are processed on ourAladdin® operating platform, which serves as the investment system for BlackRock and other institutional investors. Fees earned forBlackRock Solutions and advisory services are baseddetermined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of various attributes of advisory assets under management and (iii) performance fees if contractual thresholds are met.

BlackRock also builds upon its leadership position to meet the growing need for investment and risk management solutions. Through its scale and diversity of products, it is able to provide its clients with customized solutions including fiduciary outsourcing for liability-driven investments and overlay strategies for pension plan sponsors, balance sheet management and related services for insurance companies and target date and target return funds, as well as asset allocation portfolios, for retail investors. BlackRock is also able to service these clients via itsAladdin platform to provide risk management and other outsourcing services for institutional investors and custom and tailored solutions to address complex risk exposures.

The Company also earns fees for transition management services comprised of referral fees or agency commissions from acting as an introducing broker-dealer in buying and selling securities on behalf of its customers. Commissions related to transition management services are recorded on a trade-date basis as securities transactions occur.

Operating expenses reflect employee compensation and benefits, distribution and servicing costs, amortization of deferred sales commissions, direct fund expenses, general and administration expenses and amortization of finite-lived intangible assets.

Employee compensation and benefits expense includes salaries, commissions, temporary help, severance, deferred and incentive compensation, employer payroll taxes and related benefit costs.

Distribution and servicing costs include payments made to Merrill Lynch-affiliated entities under a global distribution agreement, to PNC-affiliated entities and Barclays, as well as other third parties, primarily associated with obtaining and retaining client investments in certain BlackRock products.

Direct fund expenses primarily consist of third party non-advisory expenses incurred by BlackRock related to certain funds for the use of index trademarks, reference data for indices, custodial services, fund administration, fund accounting, transfer agent services, shareholder reporting services, legal expenses, audit and tax services as well as other fund related expenses directly attributable to the non-advisory operations of the fund. These expenses may vary over time with fluctuations in AUM, number of factors including pre-determined percentages of the market value of assets subject to the services and the number of individual investmentshareholder accounts, or fixed fees. Fees earnedother attributes directly related to volume of business.

General and administration expenses includes marketing and promotional, occupancy and office related costs, portfolio services (including clearing expenses related to transition management services), technology, professional services, communications, closed-end fund launch costs and other general and administration expenses.

Non-operating income (expense) includes the effect of changes in the valuations on risk management,investments (excluding available-for-sale investments) and earnings on equity method investments, as well as interest and dividend income and interest expense. Other comprehensive income includes changes in valuations related to available-for-sale investments. BlackRock primarily holds investments in sponsored investment analyticproducts that invest in a variety of asset classes, including private equity, distressed credit/mortgage debt securities, hedge funds and real estate. Investments generally are made for co-investment purposes, to establish a performance track record, to hedge exposure to certain deferred compensation plans, or for regulatory purposes, including Federal Reserve Bank stock. BlackRock does not engage in proprietary trading or other investment system assignments are recorded as other revenueactivities that could conflict with the interests of its clients.

In addition, non-operating income (expense) includes the impact of changes in the valuations of consolidated sponsored investment funds and consolidated collateralized loan obligations. The portion of non-operating income (expense) not attributable to BlackRock is allocated to non-controlling interests on the consolidated statements of income.

 

33


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Overview (continued)Assets Under Management

 

Operating expenses consist of employee compensation and benefits, portfolio administration and servicing costs, amortization of deferred mutual fund sales commissions, generalAUM for reporting purposes is generally based upon how investment advisory and administration expense and amortization of intangible assets. Employee compensation and benefits expense reflects salaries, deferred and incentive compensation, stock-based compensation and related benefit costs. Portfolio administration and servicing costs reflect payments madefees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to Merrill Lynch-affiliated entities and PNC-affiliated entities, as well as third parties, primarily associated with the administration and servicing of client investments in certain BlackRock products.determine portfolio AUM.

Assets Under Management

by Asset Class(1)

   December 31,   Variance 
(Dollar amounts in millions)  2010   2009   2008   2010 vs. 2009  2009 vs. 2008 

Equity:

         

Active

  $334,532    $348,574    $152,216     (4%)   129

Institutional index

   911,775     806,082     51,076     13  *  

iShares / Exchange-traded products

   448,160     381,399     —       18  *  

Fixed income:

         

Active

   592,303     595,580     477,492     (1%)   25

Institutional index

   425,930     357,557     3,873     19  *  

iShares / Exchange-traded products

   123,091     102,490     —       20  *  

Multi-asset class

   185,587     142,029     77,516     31  83

Alternatives

   109,738     102,101     61,544     7  66
                  

Long-term

   3,131,116     2,835,812     823,717     10  244

Cash management

   279,175     349,277     338,439     (20%)   3
                  

Sub-total

   3,410,291     3,185,089     1,162,156     7  174

Advisory (2)

   150,677     161,167     144,995     (7%)   11
                  

Total

  $3,560,968    $3,346,256    $1,307,151     6  156
                  

* – Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Data reflects the reclassification of AUM into the current period presentation.

(2)

Advisory AUM represents long-term portfolio liquidation assignments.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Assets Under Management (continued)

Mix of Assets Under Management

by Asset Class(1)

   December 31, 
   2010  2009  2008 

Equity:

    

Active

   9  10  12

Institutional index

   26  25  4

iShares / Exchange-traded products

   13  11  —  

Fixed income:

    

Active

   17  18  36

Institutional index

   12  11  —  

iShares / Exchange-traded products

   3  3  —  

Multi-asset class

   5  4  6

Alternatives

   3  3  5
             

Long-term

   88  85  63

Cash management

   8  10  26
             

Sub-total

   96  95  89

Advisory(2)

   4  5  11
             

Total

   100  100  100
             

(1)

Data reflects the reclassification of AUM into the current period presentation.

(2)

Advisory AUM represents long-term portfolio liquidation assignments.

AUM increased approximately $232.0$215 billion, or 20.6%6%, to $1.357$3.561 trillion at December 31, 2007,2010, compared with $1.125to $3.346 trillion at December 31, 2006.2009. The growth in AUM was primarily attributable to $137.6 billion in net subscriptions, $60.1$267 billion in net market appreciation, $21.9$131 billion of net subscriptions in long-term mandates and $17 billion increase due to foreign exchange movements, partially offset by $127 billion of BGI merger-related outflows (due to manager concentration considerations and active equity quantitative performance) and acquisition adjustments, $61 billion of net outflows in cash management products and $12 billion of net client distributions in advisory assignments.

Net market appreciation of $267 billion included $191 billion of net appreciation in equity products due to an increase in global equity markets, $55 billion in fixed income products due to current income and changes in interest rate spreads, $14 billion in multi-asset class products, and $7 billion in alternatives, primarily due to appreciation in precious metals, including silver and gold.

The $17 billion net increase in AUM from converting non-U.S. dollar denominated AUM into U.S. dollars was primarily due to the weakening of the U.S. dollar against the Japanese yen, Canadian dollar and Australian dollar, partially offset by the strengthening of the U.S. dollar against the euro and pound sterling.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Assets Under Management (continued)

The following table presents the component changes in BlackRock’s AUM for the years ended December 31, 2010, 2009 and 2008.

   Year ended
December 31,
 
(Dollar amounts in millions)  2010  2009  2008 

Beginning assets under management

  $3,346,256   $1,307,151   $1,356,644  

Net subscriptions/(redemptions) (1)

    

Long-term

   131,206    84,436    (2,822

Cash management

   (61,424  (49,122  25,670  

Advisory (2)

   (12,021  11,642    144,756  
             

Total net subscriptions/(redemptions)

   57,761    46,956    167,604  

BGI merger-related outflows (3)

   (120,969  (2,894  —    

Acquisitions/reclassifications (4)

   (6,160  1,850,252    —    

Market appreciation/(depreciation)

   266,981    143,706    (188,950

Foreign exchange (5)

   17,099    1,085    (28,147
             

Total change

   214,712    2,039,105    (49,493
             

Ending assets under management

  $3,560,968   $3,346,256   $1,307,151  
             

(1)

Includes distributions representing return of capital and return on investment to investors.

(2)

Advisory AUM represents long-term portfolio liquidation assignments.

(3)

Includes outflows due to manager concentration considerations and active equity quantitative performance.

(4)

Includes AUM acquired from Barclays in December 2009 and R3 Capital Management, LLC in April 2009 and Barclays acquisition adjustments and reclassifications to conform to current period combined AUM policy.

(5)

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

BlackRock has historically grown aggregate AUM through organic growth and acquisitions. Management believes that the Company will be able to continue to grow AUM by focusing on strong investment performance, the efficient delivery of beta for index products, client service and by developing new products and new distribution capabilities.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Assets Under Management (continued)

The following table presents the component changes in BlackRock’s AUM(1) for the year ended December 31, 2010.

(Dollar amounts in millions)  December 31,
2009
   Net
subscriptions
(redemptions)(2)
  BGI merger-
related
outflows(3)
  Acquisition/
reclassifications(4)
  Market
appreciation/
(depreciation)
  Foreign
exchange(5)
  December 31,
2010
 

Equity:

         

Active

  $348,574    $2,632   $(54,490 $(3,920 $40,670   $1,066   $334,532  

Institutional index

   806,082     44,570    (44,907  (4,390  104,152    6,268    911,775  

iShares/ETPs(6)

   381,399     21,865    —      —      45,830    (934  448,160  

Fixed income:

         

Active

   595,580     (22,143  (9,474  (3,922  31,945    317    592,303  

Institutional index

   357,557     39,148    (10,408  7,374    21,220    11,039    425,930  

iShares/ETPs

   102,490     19,008    —      —      2,195    (602  123,091  

Multi-asset class

   142,029     26,262    (127  3,550    13,917    (44  185,587  

Alternatives

   102,101     (136  (490  —      7,170    1,093    109,738  
                              

Long-term

   2,835,812     131,206    (119,896  (1,308  267,099    18,203    3,131,116  

Cash management

   349,277     (61,424  (1,063  (4,852  (38  (2,725  279,175  
                              

Sub-total

   3,185,089     69,782    (120,959  (6,160  267,061    15,478    3,410,291  

Advisory(7)

   161,167     (12,021  (10  —      (80  1,621    150,677  
                              

Total

  $3,346,256    $57,761   $(120,969 $(6,160 $266,981   $17,099   $3,560,968  
                              

(1)

Data reflects the reclassification of prior period AUM into the current period presentation.

(2)

Includes distributions representing return of capital and return on investment to investors.

(3)

Includes outflows due to manager concentration considerations and active equity quantitative performance.

(4)

Includes acquisition adjustments and reclasses of AUM acquired from Barclays in December 2009 and other reclassifications to conform to current period combined AUM policy.

(5)

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

(6)

Exchange-traded products (“ETPs”)

(7)

Advisory AUM represents long-term portfolio liquidation assignments.

Business Outlook

The Company began 2011 with a substantially increased AUM base as compared with 2010 average AUM as a result of strong markets in second half of 2010 and 2010 organic growth in long-term products. BlackRock believes we are in an environment of economic growth and believes that equities in the United States could post double digit returns in 2011 for the third straight year. BlackRock will continue to actively monitor global corporate earnings growth, bank lending policies, changes in the labor markets, inflation expectations, and monetary policies.

The Company offers a broad range of equity, fixed income and alternative products which are designed to track various indices and products that target returns in excess of specified benchmarks or absolute returns. BlackRock’s broad set of product offerings and risk skills and tools allow us to work with clients to meet their investment objectives. While investing in fixed income and cash continue to be core to many clients portfolios, we are also seeing trends of re-risking into equities, implementation of barbell strategies comprised of beta, alpha and alternatives, and clients seeking investment solutions which we can help to meet by combining multi-asset class solutions with risk management.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Business Outlook (continued)

The following items could impact the Company’s results in 2011 and beyond:

AUM and Flows

As investors shift their preferences between asset classes and between active and passive investment styles, the Company’s broad product profile should enable it to retain and capture revenue as it has a wide array of offerings in multiple asset types and product styles. As equity markets continue to improve and as clients re-risk into beta and alpha equity products, which have higher yielding fee structures, BlackRock’s revenue and margin could benefit.

BlackRock’s unique combination of index and active capabilities positions it well to assist companies in narrowing the gap on underfunded pension plans by implementing barbell strategies using a combination of index, alpha and alternative products. In addition, as retirement money moves away from defined benefit plans into defined contributions plans and ultimately to individuals, BlackRock is well positioned to offer individual investment options with itsLifePath® target date portfolios and wide array of ETFs and other mutual fund products.

Exchange-traded funds are playing an increasingly important role in asset allocation and advisory portfolios for institutional and retail investors. The overall size of the global exchange-traded funds market is expected to continue to grow at a significant rate for several years. BlackRock has a leading market share due to its large array of products and assets under management in this market. As additional asset managers enter the marketplace to offer exchange traded funds they may offer similar products at a lower fee structures. We believe that many factors beyond pricing influence investor preferences. As a first mover in several products, manyiSharesproducts have achieved a critical mass, providing both liquidity to investors and minimizing additional costs to investors in the form of bid-ask spreads and lower discounts/premiums on the ETFs traded market prices as compared with the underlying unit net asset values. Investors also value an ETF’s ability to closely track its benchmark and the information, tools and education provided byiShares.

The levels of cash management assets may continue to decline from year-end levels as we expect rates to remain low and if clients continue to re-risk their portfolios. The Company’s diversified global product offerings, client service and independent advice may enable it to retain a portion of these assets.

Outflows related to manager concentration considerations as a result of the BGI Transaction, many of which were low basis point assignments, are expected to be largely behind us by the end of first quarter 2011. Outflows as a result of the historical performance of the legacy BGI active quantitative equity strategies are expected to abate as performance improves under the new leadership of the strategy.

Regulatory Reform

The regulatory environment is continuing to evolve for financial institutions as well as money market funds with the intent of the reform supported by BlackRock, to protect the industry and our clients. The specific details of regulatory reform may effect the competitive environment and may provide BlackRock with risks as well as opportunities. For example, BlackRock is continuing to explore the creation of an internal trading platform on its enterprise systems to cross trades within its AUM and potentially among other client transactions, which would result in a reduction of transaction costs and ultimately increased performance returns for our clients.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Business Outlook (continued)

Performance fees and BRS/advisory fees

A continued return to higher market levels may enable the Company’s alternative investment products with absolute return objectives to contribute additional performance fee revenue. While most of the absolute return AUM eligible for performance fees is above “high water marks”, certain products are still dependent upon achieving high water marks to be performance fee eligible.

The on-going aftermath of the global liquidity crunch and the associated market disruption gave rise to greater demand for our risk tools and advisory services, combining our extensive capital markets and structuring expertise with rigorous modeling and analytical capabilities. In 2011, we expect to continue to see strong demand for ourAladdin operating platform and our comprehensive risk reporting from sophisticated institutional investors and governmental agencies investing in longer term risk management solutions as well as strong demand for financial market advisory services.

Future opportunities

The Company plans to continue to focus on increasing the recognition of its global brand to position itself for globalization while reinvesting in the business for future growth opportunities where the cost in the current period will precede the expected future revenue.

As BlackRock seeks to grow its alternative product offerings, BlackRock may choose to seed or co-invest in additional products to establish track records and to align with clients’ interests. BlackRock acts as an independent asset manager and does not engage in proprietary trading or deposit taking activities.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009

Operating Income and Operating Margin Overview

GAAP

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2010  2009  Amount  % Change 

Revenue

  $8,612   $4,700   $3,912    83

Expenses

   5,614    3,422    2,192    64
              

Operating income

  $2,998   $1,278   $1,720    135
              

Operating margin

   34.8  27.2  7.6  28

Operating income

Operating income totaled $3.0 billion for the year ended December 31, 2010, an increase of $1.7 billion compared with operating income for the year ended December 31, 2009. Operating income for the year ended December 31, 2010 included the full year effect of revenue and expenses related to the December 1, 2009 acquisition of BGI and $90 million of BGI integration costs as compared to $183 million of BGI transaction/integration costs for the year ended December 31, 2009. The transaction/integration expenses are not part of BlackRock’s on-going business and are principally comprised of compensation expense, legal fees, advisory payments, occupancy costs, marketing and promotional and consulting expenses.

The increase in operating income for the year ended December 31, 2010 is attributable to the $3.9 billion increase in revenue primarily related to an increase in base and performance fees associated with the AUM acquired in the QuellosBGI Transaction and $12.4growth in long-term AUM, which included market appreciation and net new business, partially offset by a $2.2 billion net increase in net foreign exchange gains.operating expenses related to increases in employee compensation and benefits, general and administration expenses and direct fund expenses due to the BGI Transaction.

BlackRock, Inc.Operating margin

Assets Under ManagementThe Company’s operating margin was 34.8% for the year ended December 31, 2010, compared with 27.2% for the year ended December 31, 2009.

The increase in operating margin for year ended December 31, 2010 included the positive effects of synergies related to the BGI Transaction, growth in long-term AUM driven by market appreciation, a $93 million decrease in BGI transaction/integration costs, a decline of $22 million in restructuring charges and a $17 million change in foreign currency remeasurement costs/benefits, which more than offset decreases to margin related to a $131 million increase in stock-based compensation expense related to additional grants to a larger number of employees at the end of January 2010, $20 million in costs for a U.K. regulatory assessment, a $20 million expense related to a contribution to a donor-advised charitable fund, a $16 million increase in occupancy costs due to the commencement of rent for Drapers Gardens, a $14 million increase of closed-end fund launch costs/commissions and a $13 million increase in amortization of intangible assets related to the finite-lived management contracts acquired in the BGI Transaction, as well as increased investments to grow the business.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

   Year ended December 31,  Variance 
(Dollar amounts in millions)  2007  2006  2005  2007 vs. 2006  2006 vs. 2005 

Fixed income

  $513,020  $448,012  $303,928  14.5% 47.4%

Equity and balanced

   459,182   392,708   37,303  16.9% NM 

Cash management

   313,338   235,768   86,128  32.9% 173.7%

Alternative investments

   71,104   48,139   25,323  47.7% 90.1%
               

Total

  $1,356,644  $1,124,627  $452,682  20.6% 148.4%
               

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

 

NM – Not MeaningfulOperating Income and Operating Margin Overview (continued)

 

34

As Adjusted


   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2010  2009  Amount  % Change 

Revenue

  $8,612   $4,700   $3,912    83

Expenses

   5,445    3,130    2,315    74
              

Operating income (1)

  $3,167   $1,570   $1,597    102
              

Operating margin (1)

   39.3  38.2  1.1  3

(1)

Operating income, as adjusted, and operating margin, as adjusted, are described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Operating income

Operating income, as adjusted, totaled $3.2 billion for the year ended December 31, 2010, which was an increase of $1.6 billion compared to operating income for the year ended December 31, 2009.

The increase in operating income, as adjusted, for the year ended December 31, 2010 is attributable to the $3.9 billion increase in revenue primarily related to an increase in base and performance fees associated with the AUM acquired in the BGI Transaction and growth in long-term AUM, which included market appreciation and net new business, partially offset by a $2.3 billion net increase in operating expenses primarily related to increases in employee compensation and benefits, general and administration expenses and direct fund expenses due to the BGI Transaction.

Operating margin

Operating margin, as adjusted, was 39.3% and 38.2% for the years ended December 31, 2010 and 2009, respectively.

The increase in operating margin, as adjusted, for year ended December 31, 2010 included the positive effects of synergies related to the BGI Transaction, growth in long-term AUM driven by market appreciation, which more than offset decreases to margin related to a $132 million increase in stock-based compensation expense related to additional grants to a larger number of employees at the end of January 2010, $20 million in costs for a U.K. regulatory assessment, a $20 million expense related to a contribution to a donor-advised charitable fund, a $16 million increase in occupancy costs due to the commencement of rent for Drapers Gardens and a $13 million increase in amortization of intangible assets related to the finite-lived management contracts acquired in the BGI Transaction, as well as increased investments to grow the business.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Revenue

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

Investment advisory, administration fees and securities lending revenue:

       

Equity:

       

Active

  $1,848    $1,230    $618    50

Institutional index

   424     56     368    657

iShares / Exchange-traded products

   1,660     136     1,524    *  

Fixed income:

       

Active

   1,047     865     182    21

Institutional index

   166     16     150    938

iShares / Exchange-traded products

   263     19     244    *  

Multi-asset class

   740     479     261    54

Alternatives

   632     400     232    58

Cash management

   510     625     (115  (18%) 
                

Total

   7,290     3,826     3,464    91

Investment advisory performance fees:

       

Equity

   123     46     77    167

Fixed income

   55     21     34    162

Multi-asset class

   33     20     13    65

Alternatives

   329     115     214    186
                

Total

   540     202     338    167

BlackRock Solutionsand advisory

   460     477     (17  (4%) 

Distribution fees

   116     100     16    16

Other revenue

   206     95     111    117
                

Total revenue

  $8,612    $4,700    $3,912    83
                

* – Not applicable or the percentage is in excess of +/- 1,000%.

Total revenue for the year ended December 31, 2010 increased $3,912 million, or 83%, to $8,612 million, compared with $4,700 million for the year ended December 31, 2009. The $3,912 million increase was the result of a $3,464 million increase in total investment advisory, administration fees and securities lending revenue, a $338 million increase in performance fees, a $111 million increase in other revenue and a $16 million increase in distribution fees, partially offset by a $17 million decrease inBlackRock Solutions and advisory revenue.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Revenue (continued)

Investment Advisory, Administration Fees and Securities Lending Revenue

Investment advisory, administration fees and securities lending revenues increased $3,464 million to $7,290 million for the year ended December 31, 2010, compared to $3,826 million for the year ended December 31, 2009 primarily related to fees earned on products acquired in the BGI acquisition as well as organic growth in long-term AUM due to market appreciation and net new business, which included securities lending revenue of $325 million for the year ended December 31, 2010, compared to $36 million for the year ended December 31, 2009.

The $3,464 million net increase in investment advisory, administration fees and securities lending revenues consisted of $1,524 million in equityiShares / Exchange-traded products, $618 million in active equity products and $368 million in institutional index equity products, $244 million in fixed incomeiShares / exchange-traded products, $182 million in active fixed income products and $150 million in institutional index fixed income products, $261 million in multi-asset class products and $232 million in alternatives investment products, partially offset by a $115 million decrease in cash management products, due to lower average AUM.

Performance Fees

Investment advisory performance fees increased $338 million, or 167%, to $540 million for the year ended December 31, 2010, as compared to $202 million for the year ended December 31, 2009, primarily due to an increase in performance fees earned upon exceeding absolute investment or relative investment return thresholds on alternative multi-strategy, fixed income and equity hedge funds and separate accounts across regional/country equity strategies, fixed income and multi-asset class products.

BlackRock Solutions and Advisory

BlackRock Solutions and advisory revenue for the year ended December 31, 2010 decreased $17 million, or 4%, compared with the year ended December 31, 2009. The decrease inBlackRock Solutions and advisory revenue was primarily due to a decline in non-recurring advisory assignments, as well as the effect of a decline in advisory AUM due to distributions in portfolio liquidation assignments, which have AUM based fees, partially offset by additionalAladdin, risk management solutions and investment accounting mandates. Revenue earned on advisory assignments was comprised of advisory and portfolio structuring assignment fees and ongoing fees based on AUM of the respective portfolio assignments.

Distribution Fees

Distribution fees of $116 million for the year ended December 31, 2010 increased $16 million, as compared to $100 million for the year ended December 31, 2009. The increase primarily is the result of higher AUM in certain share classes ofBlackRock Funds.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Revenue (continued)

Other Revenue

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

Other revenue:

       

Transition management service fees

  $74    $22    $52    236

Commissions revenue

   35     28     7    25

iPath marketing fees (1)

   27     2     25    *  

Equity method investment earnings (2)

   22     15     7    47

Custody fees

   13     1     12    *  

Fund accounting

   5     9     (4  (44%) 

Other miscellaneous revenue

   30     18     12    67
                

Total other revenue

  $206    $95    $111    117
                

* –Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Related to exchange-traded notes issued by Barclays.

(2)

Related to operating advisory company investments.

Other revenue of $206 million for the year ended December 31, 2010 increased $111 million, or 117%, compared with $95 million for the year ended December 31, 2009. The increase in other revenue was primarily the result of a $52 million increase in fees, which excludes related portfolio service costs, earned for transition management services due to an increase in transactions to execute transitions of equity and fixed income mandates, a $25 million increase in marketing fees earned from Barclays for services to distribute Barclays iPath products, $12 million increase for custody fees earned onLifePath products (a portion of which is paid to a third party sub-custodian and reflected within direct fund expenses), a $7 million increase in BlackRock’s share of underlying earnings from certain operating advisory company investments and a $7 million increase in commissions revenue as a result of unit trust and open-end mutual fund class A sales commissions.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Expenses

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

Expenses:

       

Employee compensation and benefits

  $3,097    $1,802    $1,295    72

Distribution and servicing costs

��  408     477     (69  (14%) 

Amortization of deferred sales commissions

   102     100     2    2

Direct fund expenses

   493     95     398    419

General and administration

   1,354     779     575    74

Restructuring charges

   —       22     (22  (100%) 

Amortization of intangible assets

   160     147     13    9
                

Total expenses, GAAP

  $5,614    $3,422    $2,192    64
                

Total expenses, GAAP

  $5,614    $3,422    $2,192    64

Less non-GAAP expense adjustments:

       

BGI transaction/integration costs

       

Employee compensation and benefits

   25     60     (35  (58%) 

General and administration

   65     123     (58  (47%) 
                

Total BGI transaction/integration costs

   90     183     (93  (51%) 

PNC LTIP funding obligation

   58     59     (1  (2%) 

Merrill Lynch compensation contribution

   10     10     —      —  

Restructuring charges

   —       22     (22  (100%) 

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

   11     18     (7  (39%) 
                

Total non-GAAP expense adjustments

   169     292     (123  (42%) 
                

Total expenses, as adjusted

  $5,445    $3,130    $2,315    74
                

Total GAAP expenses increased $2,192 million, or 64%, to $5,614 million for the year ended December 31, 2010, compared to $3,422 million for the year ended December 31, 2009. Excluding certain items deemed non-recurring by management or transactions that ultimately will not affect the Company’s book value, total expenses, as adjusted, increased $2,315 million, or 74%. The increase in total expenses, as adjusted, is primarily attributable to the BGI Transaction including increases in employee compensation and benefits, general and administration expenses and direct fund expenses, partially offset by a reduction of distribution and servicing costs.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Expenses (continued)

Employee Compensation and Benefits

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

Employee compensation and benefits, GAAP

  $3,097    $1,802    $1,295    72

Less non-GAAP expense adjustments:

       

BGI transaction/integration costs

   25     60     (35  (58%) 

PNC LTIP funding obligation

   58     59     (1  (2%) 

Merrill Lynch compensation contribution

   10     10     —      —  

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

   11     18     (7  (39%) 
                

Total non-GAAP expense adjustments

   104     147     (43  (29%) 
                

Employee compensation and benefits, as adjusted

  $2,993    $1,655    $1,338    81
                

Employee compensation and benefits expense increased $1,295 million, or 72%, to $3,097 million, for the year ended December 31, 2010, compared to $1,802 million for the year ended December 31, 2009.

Employee compensation and benefits, as adjusted, increased by $1,338 million after excluding the decrease of $43 million of non-GAAP adjustments primarily related to a decrease in BGI integration costs. The $1,338 million increase in employee compensation and benefits expense for the year ended December 31, 2010 was attributable to a $721 million increase in incentive compensation and a $617 million increase in salaries, benefits, payroll taxes, temporary help and commissions. The increase in incentive compensation is primarily associated with the increase in operating income after excluding the BGI integration costs, a $132 million increase in stock-based compensation expense related to the effect of additional grants to a larger number of employees at the end of January 2010, offset by an $8 million decrease in other deferred compensation. The $617 million increase in salaries, benefits and payroll taxes reflects an increase in the number of employees primarily resulting from the BGI Transaction as well as growth in number of employees subsequent to the BGI Transaction. Employees at December 31, 2010 totaled approximately 9,100 as compared to approximately 8,600 at December 31, 2009.

Distribution and Servicing Costs

Distribution and servicing costs decreased $69 million to $408 million for the year ended December 31, 2010, compared to $477 million for the year ended December 31, 2009. These costs include payments to Bank of America/Merrill Lynch under a global distribution agreement, PNC and Barclays, as well as other third parties, primarily associated with the distribution and servicing of client investments in certain BlackRock products. The $69 million decrease primarily related to lower levels of distribution payments due to lower levels of average cash management AUM and a decrease of costs due to an increase in advisory fee waivers for certain cash management funds serviced by Merrill Lynch.

Distribution and servicing costs for the year ended December 31, 2010 included $246 million of costs attributable to Bank of America/Merrill Lynch and affiliates, and $10 million of costs attributable to PNC and affiliates as compared to $349 million and $19 million, respectively, in the year ended December 31, 2009. Distribution and servicing costs related to other third parties, including Barclays, increased $43 million to $152 million for the year ended December 31, 2010, as compared to $109 million for the year ended December 31, 2009 due to an expansion of distribution platforms and higher long-term AUM.

Amortization of Deferred Sales Commissions

Amortization of deferred sales commissions increased $2 million to $102 million for the year ended December 31, 2010, as compared to $100 million for the year ended December 31, 2009. The increase in amortization of deferred sales commissions was primarily the result of higher sales and redemptions in certain share classes of U.S. open-end mutual funds.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Expenses (continued)

Direct Fund Expenses

Direct fund expenses increased $398 million primarily related to the addition of legacy BGI funds subject to these arrangements under which BlackRock pays certain fund expenses.

General and Administration Expenses

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

General and administration expenses(1), GAAP:

       

Marketing and promotional

  $328    $85    $243    286

Occupancy and office related

   317     182     135    74

Portfolio services

   177     100     77    77

Technology

   152     114     38    33

Professional services

   115     162     (47  (29%) 

Communications

   49     26     23    88

Regulatory, filing and license fees

   34     5     29    580

Charitable contribution

   20     —       20    *  

Closed-end fund launch costs

   15     2     13    650

Other general and administration

   147     103     44    43
                

Total general and administration expenses, GAAP

  $1,354    $779    $575    74
                

Less BGI transaction and integration costs:

       

Marketing and promotional

  $33    $11    $22    200

Occupancy and office related

   12     1     11    *  

Technology

   2     7     (5  (71%) 

Professional services

   12     91     (79  (87%) 

Other general and administration

   6     13     (7  (54%) 
                

Total BGI transaction and integration costs

  $65    $123    ($58  (47%) 
                

General and administration expenses, as adjusted:

       

Marketing and promotional

  $295    $74    $221    299

Occupancy and office related

   305     181     124    69

Portfolio services

   177     100     77    77

Technology

   150     107     43    40

Professional services

   103     71     32    45

Communications

   49     26     23    88

Regulatory, filing and license fees

   34     5     29    580

Charitable contribution

   20     —       20    *  

Closed-end fund launch costs

   15     2     13    650

Other general and administration

   141     90     51    57
                

Total general and administration expenses, as adjusted

  $1,289    $656    $633    96
                

* – Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Prior year data reflects certain reclassifications to conform to the current year presentation.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Expenses (continued)

General and Administration Expenses (continued)

General and Administration Expenses, GAAP

General and administration expenses increased $575 million, or 74%, to $1,354 million, for the year ended December 31, 2010 compared with $779 million for the year ended December 31, 2009, primarily due to the BGI Transaction.

BGI Transaction and Integration Costs

BGI integration costs of $65 million for the year ended December 31, 2010 decreased $58 million as compared with $123 million for the year ended December 31, 2009 primarily due to advisory and legal costs incurred for the year ended December 31, 2009, partially offset by higher re-branding costs in 2010.

General and Administration Expenses, as Adjusted

Excluding the BGI transaction and integration expenses, general and administration expenses, as adjusted, of $1,289 million, increased $633 million, or 96%, for the year ended December 31, 2010 compared with $656 million for the year ended December 31, 2009.

Marketing and promotional expenses increased $221 million, primarily due to an increase in global and exchange-traded fund marketing expenses, which included travel, promotional and rebranding and advertising expenses.

Occupancy and office related expenses increased $124 million primarily related to the expansion of the Company due to the BGI Transaction, including expenses related to Drapers Gardens and an increase in lease impairments as a result of vacating certain locations in the year ended December 31, 2010.

Portfolio service costs increased $77 million, or 77%, to $177 million, due to an increase in market data and research expenses as well as transition management execution and clearing expenses.

Technology expenses increased $43 million, or 40%, to $150 million, primarily due to an increase in software licensing and maintenance and hardware depreciation expenses.

Professional services increased $32 million, or 45%, to $103 million compared with $71 million for the year ended December 31, 2009 primarily related to consulting, accounting/tax and legal costs.

Communications increased $23 million, primarily related to the expansion of the Company due to the BGI Transaction.

Regulatory, filing and license fees increased $29 million, primarily due to a $20 million U.K. regulatory assessment.

Charitable contribution increased $20 million, which is related to a contribution to a donor advised charitable fund.

Closed-end fund launch costs (excluding compensation costs) increased $13 million as compared to the year ended December 31, 2009 due to the Build America Bond Trust fund, which launched during the year ended December 31, 2010 and generated approximately $1.2 billion in AUM.

Other general and administration expenses increased $51 million, or 57%, to $141 million compared with $90 million for the year ended December 31, 2009, due to an increase of $86 million related to growth of the Company including recruiting, training and insurance costs, as well as costs for potential operating errors/fines, partially offset by a $17 million change in foreign currency remeasurement costs/benefits from $11 million of costs in the year ended December 31, 2009 to a $6 million benefit in the year ended December 31, 2010, a $9 million decline in an expense for a potentially uncollectible receivable recorded in 2009 and $9 million of lower provisions related to an outstanding loan to Anthracite Capital Inc.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

Expenses (continued)

Restructuring Charges

For the year ended December 31, 2009, BlackRock recorded pre-tax restructuring charges of $22 million, primarily related to severance, outplacement costs, occupancy costs and accelerated amortization of certain previously granted stock awards associated with a reduction in work force and reengineering efforts.

Amortization of Intangible Assets

Amortization of intangible assets increased $13 million to $160 million for the year ended December 31, 2010, as compared to $147 million for the year ended December 31, 2009. The increase in amortization of intangible assets reflects amortization of finite-lived management contracts acquired in the BGI Transaction.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Assets Under Management (continued)

Net subscriptions of $137.6 billionNon-operating results for the year ended December 31, 2007 were primarily the result of net new business of $75.3 billion in cash management products, $27.2 billion in fixed income products, $23.5 billion in equity and balanced products and $11.7 billion in alternative investment products. Market appreciation of $60.1 billion largely reflected appreciation in equity and balanced products of $35.0 billion,2010, as equity markets improved duringcompared with the year ended December 31, 2007 and market appreciation on fixed2009

Non-Operating Income (Expense), Less Net Income (Loss) Attributable to Non-Controlling Interests

Non-operating income products of $20.1 billion due(expense), less net income (loss) attributable to current income and changes in market interest rates. BlackRock acquired $21.9 billion in alternative investment products from the Quellos Transaction.

The following table presents the component changes in BlackRock’s AUMnon-controlling interests for the years ended December 31, 2007, 20062010 and 2005. Prior year data reflects certain reclassifications to conform to the current year presentation.

BlackRock, Inc.

Component Changes in Assets Under Management2009 was as follows:

 

   Year ended 
  December 31, 
(Dollar amounts in millions)  2007  2006  2005 

Beginning assets under management

  $1,124,627  $452,682  $341,760 

Net subscriptions

   137,639   32,814   50,155 

Acquisitions

   21,868   589,158   49,966 

Market appreciation

   60,132   42,196   13,238 

Foreign exchange

   12,378   7,777   (2,437)
             

Ending assets under management

  $1,356,644  $1,124,627  $452,682 
             

Percent change in change in AUM from net subscriptions and acquisitions

   68.7%  92.6%  90.3%

Percent change in total AUM

   20.6%  148.4%  32.5%
   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2010  2009  Amount  % Change 

Non-operating income (expense), GAAP basis

  $23   ($6 $29    *  

Less: Net income (loss) attributable to NCI(1)

   (13  22    (35  *  
              

Non-operating income (expense)(2)

   36    (28  64    *  

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

   (11  (18  7    39
              

Non-operating income (expense), as adjusted(2)

  $25   ($46 $71    *  
              

The following table presents

* –Not applicable or the component changespercentage is in BlackRock’s AUM for 2007.

(Dollar amounts in millions)  December 31,
2006
  Net
subscriptions
(redemptions)
  Acquisitions/
reclassifications 1
  Market
appreciation
(depreciation)
  Foreign
Exchange 2
  December 31,
2007

Fixed income

  $448,012  $27,196  $14,037  $20,091  $3,684  $513,020

Equity and balanced

   392,708   23,489   —     35,016   7,969   459,182

Cash management

   235,768   75,272   —     1,933   365   313,338

Alternative investments

   48,139   11,682   7,831   3,092   360   71,104
                        

Total

  $1,124,627  $137,639  $21,868  $60,132  $12,378  $1,356,644
                        

excess of +/- 1,000%.

1(1)

Data reflects reclassification of $14.0 billion of fixed income oriented absolute return and structured productsIncludes a $35 million loss attributable to fixed income from alternative investments, as well asconsolidated variable interest entities for the $21.9 billion of net assets acquired in the Quellos Transaction on October 1, 2007.year ended December 31, 2010.

2(2)

Foreign exchange reflects the impactNet of converting non-dollar denominated AUM into U.S. dollars for reporting.net income (loss) attributable to non-controlling interests.

The components of non-operating income (expense), less net income (loss) attributable to non-controlling interests, for the years ended December 31, 2010 and 2009 were as follows:

35

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2010  2009  Amount  % Change 

Net gain (loss) on investments(1)

     

Private equity

  $31   $9   $22    244

Real estate

   17    (114  131    *  

Distressed credit/mortgage funds

   66    100    (34  (34%) 

Hedge funds/funds of hedge funds

   18    18    —      —  

Other investments(2)

   14    (11  25    *  
              

Sub-total

   146    2    144    *  

Investments related to deferred compensation plans

   11    18    (7  (39%) 
              

Total net gain (loss) on investments

   157    20    137    685

Interest and dividend income

   29    20    9    45

Interest expense

   (150  (68  (82  121
              

Net interest expense

   (121  (48  (73  152

Total non-operating income (expense)(1)

   36    (28  64    *  

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

   (11  (18  7    39
              

Non-operating income (expense), as adjusted(1)

  $25   ($46 $71    *  
              


* –Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Net of net income (loss) attributable to non-controlling interests.

(2)

Includes net gains / (losses) related to equity and fixed income investments and BlackRock’s seed capital hedging program.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Business OutlookNon-operating results for the year ended December 31, 2010, as compared with the year ended December 31, 2009 (continued)

As fiscal 2008 began, domestic

Non-Operating Income (Expense), Less Net Income (Loss) Attributable to Non-Controlling Interests (continued)

Non-operating income, less net income (loss) attributable to non-controlling interests, increased $64 million to $36 million for the year ended December 31, 2010, as compared to $28 million net non-operating expense for the year ended December 31, 2009. The $36 million non-operating income, net of non-controlling interests for the year ended December 31, 2010 was comprised of $146 million of net gains on co-investments and international markets generally reflected mixed economicseed investments and market performance$11 million of appreciation related to hedges of deferred compensation, partially offset by $121 million of net interest expense.

The $146 million net gain on investments, less non-controlling interests, related to the Company’s co-investments and seed investments, included net gains in distressed credit/mortgage funds of $66 million, private equity investments of $31 million, real estate equity/debt products of $17 million, hedge funds/funds of hedge funds of $18 million and other investments of $14 million.

Net gain on co-investments and seed investments increased $144 million from the year ended December 31, 2009 primarily due to a downturnan increase in real estate valuations as compared with 2009, which included significant valuation declines in real estate equity and debt co-investments.

Net interest expense was $121 million, an increase of $73 million primarily due to an increase in interest expense related to the December 2009 issuances of $2.5 billion of long-term notes, partially offset by higher dividend income related to an investment required for regulatory purposes.

Income Tax Expense

   Year ended
December 31,
     Year ended
December 31,
    
   2010  2009     2010  2009    
(Dollar amounts in millions)  GAAP  GAAP  %
Change
  As adjusted  As adjusted  %
Change
 

Income before income taxes(1)

  $3,034   $1,250    143 $3,192   $1,524    109

Income tax expense

  $971   $375    159 $1,053   $503    109

Effective tax rate

   32.0  30.0   33.0  33.0 

(1)

Net of net income (loss) attributable to non-controlling interests.

Income tax expense increased $596 million in the year ended December 31, 2010 as compared to the year ended December 31, 2009. The effective income tax rates for the years ended December 31, 2010 and 2009 were 32.0% and 30.0%, respectively.

The year ended December 31, 2010 included the effect of third quarter 2010 tax legislation enacted in the United States housing marketKingdom, which resulted in approximately a $30 million tax benefit revaluation of certain net deferred income tax liabilities primarily related to acquired intangible assets, which has been excluded from net income attributable to BlackRock, Inc., as adjusted, as it was a non-recurring enacted tax legislation change that does not have a cash flow impact and ongoing credit market concerns. Low interest rates and a weaker dollar suggest increased allocations outsideto ensure comparability of this information to prior reporting periods. In addition, the United States over time, as well as faster adoptionyear ended December 31, 2010 included the effect of new strategies, including liability driven investing, the increased use of multiple asset class productsfavorable tax rulings and the mainstreamingresolution of alternatives. The timing and direction of market changes, investment performance and new client asset flows will impact the revenue the Company recognizes.certain outstanding tax positions in third quarter 2010.

The Company notes that the liquidity crunch and associated market disruption have impacted our business, which may be affected by further market changes during the remainder of 2008.

 

The build-up of institutional liquidity assets experienced in the fourth quarter of 2007 may be temporary, as these assets are expected to be redeployed to longer-dated strategies as market conditions stabilize. The Company’s strategic focus on performance, globalization and product diversification, client service and independent advice may enable retention of a portion of these assets.

The liquidity crunch and associated market disruption have given rise to greater demand for our advisory services, marrying our extensive capital markets and structuring expertise with rigorous modeling and analytical capabilities. While we anticipate demand for these services to remain high through the volatile markets, demand may return to historical levels should market concerns ease.

In early 2008, returns on many major equity indices have declined from year-end 2007, which may impact the Company’s revenue in future periods.

36


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

OperatingNon-operating results for the year ended December 31, 2007,2010, as compared with the year ended December 31, 20062009 (continued)

Operating results for theIncome Tax Expense (continued)

The year ended December 31, 2007 reflect2009 included the full yeareffect of third quarter 2009 legislation enacted primarily with respect to New York City corporate income taxes, effective January 1, 2009, which resulted in approximately a $45 million tax benefit revaluation of net deferred income tax liabilities primarily related to acquired intangible assets, which has been excluded from net income attributable to BlackRock, Inc., as adjusted, as it was a non-recurring enacted tax legislation change that does not have a cash flow impact and to ensure comparability of the MLIM Transaction, which closed on September 29, 2006. With the exception ofBlackRock Solutions, the magnitude of the acquired business is the primary driver of most line item variances in the analysis below comparing thethis information to prior reporting periods. The year ended December 31, 2009 also included $25 million of tax benefits primarily related to a favorable tax ruling and the final resolution of outstanding tax matters.

The Company succeeded to a $580 million California net operating loss carryforward for fiscal year 2007, 2008 and 2009 in connection with the BGI Transaction, for which it has not recorded a deferred income tax asset because of certain technical matters related to the year ended December 31, 2006. Certain prior year amounts have been reclassifiedpredecessor’s unitary tax returns. The Company will continue to conform to theassess these matters, which may result in future tax benefits which, based on current presentation.factors, could approximate $40 million, if they are resolved favorably.

Revenue

 

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2007  2006  Amount  % 

Investment advisory and administration fees:

        

Fixed income

  $917,390  $590,225  $327,165  55.4%

Equity and balanced

   2,202,076   625,390   1,576,686  252.1%

Cash management

   519,733   202,515   317,218  156.6%

Alternative investments

   370,862   180,611   190,251  105.3%
              

Investment advisory and administration base fees

   4,010,061   1,598,741   2,411,320  150.8%

Investment advisory performance fees

   350,188   242,282   107,906  44.5%
              

Total investment advisory and administration fees

   4,360,249   1,841,023   2,519,226  136.8%

Distribution fees

   123,052   35,903   87,149  242.7%

Other revenue:

        

BlackRock Solutions

   198,262   147,987   50,275  34.0%

Other revenue

   163,092   73,063   90,029  123.2%
              

Total other revenue

   361,354   221,050   140,304  63.5%
              

Total revenue

  $4,844,655  $2,097,976  $2,746,679  130.9%
              

Total revenue for the year ended December 31, 2007 increased $2,746.7 million, or 130.9%, to $4,844.7 million, compared with $2,098.0 million for the year ended December 31, 2006. Total investment advisory and administration fees increased $2,519.2 million to $4,360.2 million for the year ended December 31, 2007, compared with $1,841.0 million for the year ended December 31, 2006. Distribution fees increased by $87.1 million to $123.1 million for the year ended December 31, 2007 compared with $35.9 million for the year ended December 31, 2006. Other revenue increased by $140.3 million, or 63.5%, to $361.4 million for the year ended December 31, 2007 compared with $221.1 million for the year ended December 31, 2006.

Investment advisory and administration fees

The increase in investment advisory and administration fees of $2,519.2 million, or 136.8%, was the result of an increase in investment advisory and administration base fees of $2,411.3 million, or 150.8%, to $4,010.1 million for the year ended December 31, 2007, compared with $1,598.7 million for the year ended December 31, 2006 along with an increase of $107.9 million in performance fees. Investment advisory and administration base fees increased for the year ended December 31, 2007 primarily due to the MLIM Transaction which added $589.2 billion in AUM on September 29, 2006 and additional increased AUM of $232.0 billion during 2007.

37


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2007,2010, as compared with the year ended December 31, 20062009 (continued)

 

Revenue (continued)Net Income Attributable to BlackRock, Inc.

The components of net income attributable to BlackRock, Inc. and net income attributable to BlackRock, Inc., as adjusted, for the years ended December 31, 2010 and 2009 are as follows:

   Year ended
December 31,
  %
Change
  Year ended
December 31,
  %
Change
 
   2010  2009   2010  2009  
(Dollar amounts in millions, except per share data)  GAAP  GAAP   As adjusted  As adjusted  

Operating income

  $2,998   $1,278    135 $3,167   $1,570    102

Non-operating income (expense)(1)

   36    (28  *    25    (46  *  

Income tax expense

   (971  (375  159  (1,053  (503  109
                   

Net income attributable to BlackRock, Inc.

  $2,063   $875    136 $2,139   $1,021    110
                   

% attributable to common shares

   99  97   99  97 

Net income attributable to common shares

  $2,033   $853    138 $2,109   $995    112

Diluted weighted-average common shares outstanding(2)

   192,692,047    139,481,449    38  192,692,047    139,481,449    38
Diluted EPS components:       

Operating income

  $10.28   $5.75    79 $10.85   $7.17    51

Non-operating income (expense)(1)

   0.12    (0.13  *    0.09    (0.21  *  

Income tax benefit

   0.15    0.49    (69%)   —      0.17    (100%) 
                   

Diluted earnings per common share

  $10.55   $6.11    73 $10.94   $7.13    53
                   

 

* –Investment advisory and administration fees (continued)Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Net of net income (loss) attributable to non-controlling interests (redeemable and nonredeemable).

(2)

Unvested RSUs that contain non-forfeitable rights to dividends are not included as they are deemed participating securities in accordance with GAAP. Upon vesting of the participating RSUs the shares are added to the weighted average shares outstanding which results in an increase to the percentage of net income attributable to common shares. In addition, series A, B, C, and D non-voting preferred stock are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations.

GAAP

The increase in investment advisory and administration base fees of $2,411.3 millionNet income attributable to BlackRock, Inc. for the year ended December 31, 2007, compared with the year ended December 31, 2006 consisted2010 includes operating income of increases of $1,576.7 million in equity and balanced products, $327.2 million in fixed income products, $317.2 million in cash management products and $190.3 million in alternative products. The increase in investment advisory and administration fees for equity and balanced, fixed income, cash management and alternative investment products was driven by AUM acquired in the MLIM Transaction on September 29, 2006, as well as increases in AUM of $66.5 billion, $65.0 billion, $77.6 billion and $23.0 billion, respectively, over the past twelve months, which includes the $21.9 billion of alternative investment AUM acquired in the Quellos Transaction.

Performance fees increased by $107.9$2,998 million, or 44.5%,$10.28 per diluted common share, non-operating income, less net income attributable to $350.2non-controlling interests, of $36 million, or $0.12 per diluted common share, and $30 million, or $0.15 per diluted common share, of tax benefits related to a United Kingdom income tax law change. Net income attributable to BlackRock, Inc. totaled $2,063 million, or $10.55 per diluted common share, for the year ended December 31, 2007,2010, which was an increase of $1,188 million, or $4.44 per diluted common share, compared to $242.3 million for the year ended December 31, 2006 primarily due to higher performance fees on equity and fixed income hedge funds, as well as real estate equity products.2009.

Distribution Fees

Distribution fees increased by $87.1 million to $123.1 million for the year ended December 31, 2007, as compared to $35.9 million for the year ended December 31, 2006. The increase in distribution fees is primarily the result of the acquisition of distribution financing arrangements from the MLIM Transaction in third quarter 2006 and from PNC in second quarter 2007.

Other Revenue

Other revenue of $361.4 million for the year ended December 31, 2007 increased $140.3 million compared with the year ended December 31, 2006. Other revenue primarily represents fees earned onBlackRock Solutions products and services of $198.3 million, property management fees of $38.2 million earned on real estate products (primarily related to reimbursement of salaries and benefits of certain Realty employees from certain real estate products), fees for fund accounting of $27.2 million, fees related to securities lending of $27.1 million and $13.9 million for other advisory service fees.

The increase in other revenue of $140.3 million, or 63.5%, for the year ended December 31, 2007 as compared to $221.1 million for the year ended December 31, 2006 was primarily the result of an increase of $50.3 million fromBlackRock Solutionsproducts and services driven by new Aladdin®and advisory valuation assignments, an increase of $24.6 million in unit trust sales commissions, an increase of $20.8 million in fees earned related to securities lending, $14.6 million in fund accounting services, and $13.7 million for other advisory service fees.

 

38


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2007,2010, as compared with the year ended December 31, 20062009 (continued)

 

ExpensesNet Income Attributable to BlackRock, Inc. (continued)

 

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2007  2006  Amount  % 

Expenses:

       

Employee compensation and benefits

  $1,767,063  $934,887  $832,176  89.0%

Portfolio administration and servicing costs

   547,620   172,531   375,089  217.4%

Amortization of deferred sales commissions

   108,091   29,940   78,151  261.0%

General and administration

   870,367   416,853   453,514  108.8%

Termination of closed-end fund administration and servicing arrangements

   128,114   —     128,114  NM 

Fee sharing payment

   —     34,450   (34,450) (100.0)%

Amortization of intangible assets

   129,736   37,515   92,221  245.8%
                

Total expenses

  $3,550,991  $1,626,176  $1,924,815  118.4%
                

NM – Not Meaningful

Total expenses, which reflect the impactNet income attributable to BlackRock, Inc. of the MLIM Transaction on September 29, 2006, increased $1,924.8 million, or 118.4%, to $3,551.0$2,063 million for the year ended December 31, 2007, compared with $1,626.2 million for2010 included the year ended December 31, 2006. Total expense included integration charges related to the MLIM Transaction of $20.2 million and $141.9 million in 2007 and 2006, respectively. The year ended December 31, 2007 included $20.2 million of total MLIM integration charges primarily in general and administration, compared to integration charges of $45.0 million related to employee compensation and benefits and $96.9 million related to general and administration, respectively in the year ended December 31, 2006.

Employee Compensation and Benefits

Employee compensation and benefits increased by $832.2 million, or 89.0%, to $1,767.1 million, at December 31, 2007 compared to $934.9 million for the year ended December 31, 2006. The increase in employee compensation and benefits was primarily attributable to increases in incentive compensation, salaries and benefits and stock-based compensation of $405.7 million, $368.4 million and $66.3 million, respectively. The $405.7 million, increase in incentive compensation is primarily attributable to higher operating income and direct incentives associated with higher performance fees earned on the Company’s alternative investment products. The $368.4 million increase in salaries and benefits was primarily attributable to higher staffing levels associated with the MLIM and Quellos Transactions and business growth. Employees (including employees of Metric Property Management, Inc. (“Metric”) at December 31, 2007 totaled 5,952 as compared to 5,113 at December 31, 2006.

39


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Expenses (continued)

Portfolio Administration and Servicing Costs

Portfolio administration and servicing costs increased $375.1 million to $547.6 million during the year ended December 31, 2007, compared to $172.5 million for the year ended December 31, 2006. These costs include payments to third parties, including Merrill Lynch and PNC, primarily associated with the administration and servicing of client investments in certain BlackRock products. Portfolio administration and servicing costs included $436.9 million of expense for the year ended December 31 2007 payable to Merrill Lynch and affiliates and $23.2 million of expense for the year ended December 31, 2007 payable to PNC and other affiliates.

Amortization of Deferred Sales Commissions

Amortization of deferred sales commissions increased by $78.2 million to $108.1 million for the year ended December 31, 2007, as compared to $29.9 million for the year ended December 31, 2006. The increase in amortization of deferred sales commissions was primarily the resultafter-tax effect of the acquisitionBGI integration costs of distribution financing arrangements from MLIM at the end of third quarter 2006 and from PNC in second quarter 2007.

General and Administration Expense

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2007  2006  Amount  % 

General and administration expense:

        

Portfolio services

  $169,676  $51,694  $117,982  228.2%

Marketing and promotional

   169,206   100,089   69,117  69.1%

Occupancy

   130,089   64,086   66,003  103.0%

Technology

   117,597   61,040   56,557  92.7%

Professional services

   94,282   72,740   21,542  29.6%

Closed-end fund launch costs

   35,594   11,586   24,008  207.2%

Other general and administration

   153,923   55,618   98,305  176.8%
              

Total general and administration expense

  $870,367  $416,853  $453,514  108.8%
              

General and administration expense increased $453.5$59 million, or 108.8%, for the year ended December 31, 2007 to $870.4 million, compared to $416.9 million for the year ended December 31, 2006.

40


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Expenses (continued)

Portfolio services costs increased by $118.0 million to $169.7 million, relating to supporting higher AUM levels and increased trading activities. Marketing and promotional expense increased $69.1 million, or 69.1%, to $169.2 million for the year ended December 31, 2007, compared to $100.1 million for the year ended December 31, 2006 primarily due to increased marketing activities, including $84.8 million related to domestic and international marketing efforts, partially offset by a decrease of $15.7 million related to BlackRock’s advertising and rebranding campaign in 2006. Occupancy costs for the year ended December 31, 2007 totaled $130.1 million, representing a $66.0 million, or 103.0%, increase from $64.1 million for the year ended December 31, 2006. The increase in occupancy costs primarily reflects costs related to the expansion of corporate facilities as a result of the MLIM and Quellos Transactions and business growth. Technology expenses increased $56.6 million, or 92.7%, to $117.6 million compared to $61.0 million for the year ended December 31, 2006 primarily due to a $13.0 million increase in technology consulting expenses, a $19.4 million increase in hardware depreciation expense and a $14.7 million increase in software licensing and maintenance costs. Closed-end fund launch costs totaled $35.6 million for the year ended December 31, 2007 relating to three new closed-end funds launched during the year, generating approximately $3.0 billion in AUM. Closed-end fund launch costs for the year ended December 31, 2006 totaled $11.6 million relating to three new closed-end funds launched during the period, generating $2.2 billion in AUM. Professional services increased $21.5 million, or 29.6%, to $94.3 million compared to $72.7 million for the year ended December 31, 2006 primarily due to increased accounting, tax and legal services necessary to support business growth. Other general and administration costs increased by $98.3 million to $153.9 million from $55.6 million, including $23.9 million of capital contributions to two enhanced cash funds in support of fund net asset values and a $12 million charge reflecting the valuation of capital support agreements covering certain securities remaining in the funds and $32.4 million in office related expenses.

Termination of Closed-end Fund Administration and Servicing Arrangements

For the year ended December 31, 2007, BlackRock recorded an expense of $128.1 million, related to the termination of administration and servicing arrangements with Merrill Lynch on 40 closed-end funds with original terms of 30-40 years.

Fee Sharing Payment

For the year ended December 31, 2006, BlackRock recorded a fee sharing payment of $34.5 million, representing a payment related to a large institutional real estate equity client account acquired in the SSR Transaction in January 2005.

Amortization of Intangible Assets

The $92.2 million increase in the amortization of intangible assets to $129.7 million for the year ended December 31, 2007, compared to $37.5 million for the year ended December 31, 2006, primarily reflects amortization of finite-lived intangible assets acquired in the MLIM and Quellos Transactions.

41


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Non-Operating Income, Net of Non-Controlling Interest

Non-operating income, net of non-controlling interest, for the years ended December 31, 2007 and 2006 was as follows:

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2007  2006  Amount  % 

Total non-operating income

  $529,055  $56,433  $472,622  NM 

Non-controlling interest

   (363,615)  (16,168)  (347,447) NM 
              

Total non-operating income, net of non-controlling interest

  $165,440  $40,265  $125,175  310.9%
              

NM – Not Meaningful

The components of non-operating income, net of non-controlling interest, for the year ended December 31, 2007 and 2006 were as follows:

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2007  2006  Amount  % 

Non-operating income, net of non-controlling interest:

     

Net gain on investments, net of non-controlling interest:

     

Private equity1

  $64,971  $64  $64,907  NM 

Real estate

   36,756   1,030   35,726  NM 

Other alternative products

   30,800   7,369   23,431  NM 

Other2

   9,859   12,353   (2,494) NM 
              

Total net gain on investments, net of non-controlling interest

   142,386   20,816   121,570  NM 

Other non-controlling interest3

   (2,000)  (54)  (1,946) NM 

Interest and dividend income

   74,466   29,419   45,047  153.1%

Interest expense

   (49,412)  (9,916)  (39,496) 398.3%
              

Total non-operating income, net of non-controlling interest

  $165,440  $40,265  $125,175  310.9%
              

NM – Not Meaningful

1

Includes earnings on BlackRock’s limited partnership investments in private equity funds.

2

Includes investment income related to equity and fixed income investments, collateralized debt obligations, deferred compensation arrangements and BlackRock’s seed capital hedging program.

3

Includes non-controlling interest related to non-investment activities.

Non-operating income, net of non-controlling interest, increased $125.2 million to $165.4 million for the year ended December 31, 2007, compared to $40.3 million for the year ended December 31, 2006 as a result of a $121.6 million increase in net gain on investments, net of non-controlling interest, and a $45.0 million increase in interest and dividend income, partially offset by a $39.5 million increase in interest expense primarily related to borrowings under BlackRock’s revolving credit agreement and the $700 million issuance of long-term debt in September 2007. The increase in net gain on investments, net of non-controlling interest, was primarily due to market appreciation and investment gains from seed investments in private equity products, real estate equity products and other alternative products including hedge funds and funds of funds, partially offset by $14.2 million of increased impairments related to seed investments in collateralized debt obligations.

42


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Income Taxes

Income tax expense was $463.8 million and $189.5 million for the years ended December 31, 2007 and 2006, respectively, representing effective income tax rates of 31.8% and 37.0%, respectively. The reduction in the effective tax rate is primarily the result of a one-time deferred income tax benefit of $51.4 million, recognized in the third quarter of 2007, due to tax legislation changes enacted in third quarter 2007 in the United Kingdom and Germany that will reduce corporate income tax rates in those jurisdictions in 2008. Accordingly, BlackRock revalued its deferred tax liabilities in these jurisdictions. Absent this deferred income tax benefit, the 2007 effective tax rate would have been 35.3%.

Net Income

Net income totaled $995.3 million, or $7.53 per diluted share, for the year ended December 31, 2007, which was an increase of $672.7 million, or $3.66 per diluted share, compared to the year ended December 31, 2006. Net income for the year ended December 31, 2007 includes $82.0 million related to the after-tax impacts of the termination of closed-end fund administration and servicing arrangements with Merrill Lynch, $34.3 million related to the portion of certain LTIP awards, towhich will be funded through a capital contribution of BlackRock common stock held by PNC $12.9of $40 million, related to integration costs associated with the MLIM and Quellos Transactions and $6.4 million related to an expected contribution by Merrill Lynch to fund certain compensation of former MLIM employees. In addition, the United Kingdom and Germany enacted legislation reducing corporate income tax rates resultingemployees of $7 million to be funded through a cash contribution by Merrill Lynch, a portion of which was received by BlackRock in a one-time decrease of $51.4 million in income tax expense which is included in net income. MLIM and Quellos integration costs primarily include compensation costs, professional fees and rebranding costs.2010.

Net income attributable to BlackRock, Inc. of $322.6$875 million duringfor the year ended December 31, 20062009 included the after-tax impactseffect of the portion of certain LTIP awards, towhich will be funded through a capital contribution of $31.5 million of BlackRock common stock held by PNC MLIM of $41 million, BGI transaction/integration costs of $89.4$129 million, and an expected contribution by Merrill Lynchrestructuring charges of $1.2$14 million to fundand certain compensation of former MLIM employees. employees of $7 million to be funded through a cash contribution by Merrill Lynch, a portion of which was received by BlackRock in 2009.

As Adjusted

Exclusive of thesethe items fullydiscussed above, diluted earnings per common share, as adjusted, of $10.94 for the year ended December 31, 2010 increased $3.81, or 53%, compared to the year ended December 31, 2009.

Net income attributable to BlackRock, Inc., as adjusted, for the year ended December 31, 2007 increased $2.84,2010 included operating income of $3,167 million, or 53.3%$10.85 per diluted common share, non-operating income, less net income attributable to non-controlling interests, of $25 million, or $0.09 per diluted common share. Net income of $1,021 million or $7.13 per diluted common share attributable to BlackRock, Inc., to $8.17 compared to $5.33as adjusted, for the year ended December 31, 2006.

Operating Margin

The Company’s operating margin was 26.7% for2009 included the effect of $25 million of tax benefits primarily related to a favorable tax ruling and the final resolution of an outstanding tax matter received during the year ended December 31, 2007 compared to 22.5% for the year ended December 31, 2006. Operating margin for the year ended December 31, 2007 includes the impacts of $128.1 million for the termination of closed-end fund administration and servicing arrangements with Merrill Lynch, $41.6 million of closed-end fund launch costs and commissions and $20.7 million of integration costs. Operating margin for the year ended December 31, 2006 includes the impact of $15.0 million of closed-end fund launch costs and commissions and $141.9 million of integration costs. Including the impact of a $92 million increase in amortization of intangible assets associated with the MLIM and Quellos acquisitions, operating margin improved 4.2% primarily due to the reduction of integration costs as well as operating leverage associated with the growth in revenue, partially offset by the impact of the termination of certain closed-end fund administration and servicing agreements.

Operating margin, as adjusted, was 37.5% and 36.7% for the years ended December 31, 2007 and 2006, respectively. Operating margin,2009. Diluted earnings per common share, as adjusted, is described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

43


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008

The following table presents the component changes in BlackRock’s AUM(1) for 2006.the year ended December 31, 2009.

 

(Dollar amounts in millions)  December 31,
2005
  Net
subscriptions
(redemptions)
  Acquisition 1  Foreign
Exchange 2
  Market
appreciation
(depreciation)
  December 31,
2006
  December 31,
2008
   Net
subscriptions

(redemptions)(2)
 BGI
merger-
related

outflows(3)
 Acquisition/
reclassifications(4)
   Market
appreciation/
(depreciation)
 Foreign
exchange(5)
 December 31,
2009
 

Fixed income

  $303,928  $3,157  $124,886  $2,184  $13,857  $448,012

Equity and balanced

   37,303   10,675   314,419   5,166   25,145   392,708

Equity:

          

Active

  $152,216    $10,849   ($1,549 $128,063    $55,147   $3,848   $348,574  

Institutional index

   51,076     24,528    (492  695,658     39,365    (4,053  806,082  

iShares / ETPs(6)

   —       8,716    —      363,940     9,715    (972  381,399  

Fixed income:

          

Active

   477,492     27,835    (784  49,270     38,626    3,141    595,580  

Institutional index

   3,873     2,275    (23  366,702     (9,168  (6,102  357,557  

iShares / ETPs

   —       3,669    —      101,286     (1,973  (492  102,490  

Multi-asset class

   77,516     10,959    —      36,408     16,703    443    142,029  

Alternatives

   61,544     (4,395  (46  49,395     (4,717  320    102,101  
                        

Long-term

   823,717     84,436    (2,894  1,790,722     143,698    (3,867  2,835,812  

Cash management

   86,128   12,224   135,630   169   1,617   235.768   338,439     (49,122  —      59,530     (161  591    349,277  

Alternative investments

   25,323   6,758   14,223   258   1,577   48,139
                        

Sub-total

   1,162,156     35,314    (2,894  1,850,252     143,537    (3,276  3,185,089  

Advisory(7)

   144,995     11,642    —      —       169    4,361    161,167  
                                          

Total

  $452,682  $32,814  $589,158  $7,777  $42,196  $1,124,627  $1,307,151    $46,956   ($2,894 $1,850,252    $143,706   $1,085   $3,346,256  
                                          

 

1(1)

Data reflects the reclassification of prior period AUM into the current period presentation.

(2)

Includes distributions representing return of capital and return on investment to investors.

(3)

Includes outflows due to manager concentration considerations and active equity quantitative performance.

(4)

Reflects net assetsIncludes AUM acquired from Barclays in the MLIM Transaction on September 29, 2006. Amount includes $27.7 billion of net new business relatedDecember 2009 and R3 Capital Management, LLC in April 2009 and Barclays acquisition adjustments and reclassifications to MLIM in the first nine months of 2006, priorconform to the MLIM Transaction.current period combined AUM policy.

2(5)

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

(6)

Exchange-traded products (“ETPs”)

(7)

Advisory AUM represents long-term portfolio liquidation assignments.

Operating results for the year endedAUM increased approximately $2.039 trillion, or 156%, to $3.346 trillion at December 31, 2006 reflect the impact of the MLIM Transaction, subsequent2009, compared to closing on September 29, 2006. With the exception ofBlackRock Solutions, the magnitude of the$1.307 trillion at December 31, 2008. The growth in AUM was primarily attributable to $1.849 trillion acquired business is the primary driver of most line item variances in the analysis below comparing the year ended December 31, 2006BGI Transaction, $1 billion acquired from R3 Capital Management, LLC, $145 billion in net market appreciation and foreign exchange movements, $84 billion of net subscriptions in long-term mandates, $12 billion of net new business in advisory assignments offset by $49 billion of outflows in cash management products. Net market appreciation of $144 billion included $104 billion of net appreciation in equity products due to the year ended December 31, 2005. Certain prior year amounts have been reclassifiedan increase in global equity markets, $27 billion in fixed income products due to conform to the current presentation.income and changes in interest rate spreads and $17 billion in multi-asset class products, offset by $5 billion market depreciation in alternative products, primarily in real estate products.

Revenue

 

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2006  2005  Amount  % 

Investment advisory and administration fees:

        

Fixed income

  $590,225  $453,742  $136,483  30.1%

Equity and balanced

   625,390   176,278   449,112  254.8%

Cash management

   202,515   105,406   97,109  92.1%

Alternative investments

   180,611   114,952   65,659  57.1%
              

Investment advisory and administration base fees

   1,598,741   850,378   748,363  88.0%

Investment advisory performance fees

   242,282   167,994   74,288  44.2%
              

Total investment advisory and administration fees

   1,841,023   1,018,372   822,651  80.8%

Distribution fees

   35,903   11,333   24,570  216.8%

Other revenues:

        

BlackRock Solutions

   147,987   123,623   24,364  19.7%

Other revenue

   73,063   38,058   35,005  92.0%
              

Total other revenues

   221,050   161,681   59,369  36.7%
              

Total revenue

  $2,097,976  $1,191,386  $906,590  76.1%
              

44


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008 (continued)

 

Revenue (continued)Operating Income and Operating Margin Overview

GAAP

 

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2009  2008  Amount  % Change 

Revenue

  $4,700   $5,064   ($364  (7%) 

Expenses

   3,422    3,471    (49  (1%) 
              

Operating income

  $1,278   $1,593   ($315  (20%) 
              

Operating margin

   27.2  31.5  (4.3%)   (14%) 

Total revenue for the year ended December 31, 2006 increased $906.6 million, or 76.1%, to $2,098.0 million, compared with $1,191.4Operating Income

Operating income totaled $1,278 million for the year ended December 31, 2005. Total Investment advisory and administration fees increased $822.72009, which was a decrease of $315 million compared to $1,841.0 millionthe year ended December 31, 2008. Operating income for the year ended December 31, 2006, compared with $1,018.42009 included $141 million resulting from incremental revenue and expenses related to the operations of BGI and $183 million of BGI transaction and integration costs. The transaction and integration expenses are not part of the on-going business and are principally comprised of advisory fees, compensation expense, legal fees and consulting expenses.

Operating income for the year ended December 31, 2005. Distribution2009 included the effect of a $431 million decrease in investment advisory, administration fees increased by $24.6 million to $35.9 millionand securities lending revenue, associated with a market driven reduction in average AUM for all asset classes for the year ended December 31, 20062009 as compared with $11.3to the year ended December 31, 2008, and a $42 million reduction in distribution fees and other revenue, offset by an $84 million increase inBlackRock Solutions and advisory revenue, a $25 million increase in performance fees revenue and a $49 million net decrease in operating expenses primarily due to declines in employee compensation and benefits, distribution and servicing costs, amortization of deferred sales commissions and restructuring expenses, offset by increases in direct fund expenses and general and administration expenses.

Operating Margin

The Company’s operating margin was 27.2% for the year ended December 31, 2005. Other revenue increased by $59.4 million, or 36.7%,2009, compared to $221.1 million31.5% for the year ended December 31, 2006, compared with $161.7 million for the year ended December 31, 2005.

Investment advisory and administration fees

2008. The increasereduction in total investment advisory and administration fees of $822.7 million, or 80.8%, was the result of an increaseoperating margin in investment advisory and administration base fees of $748.4 million, or 88.0%, to $1,598.7 million for the year ended December 31, 2006, compared with $850.4 million for the year ended December 31, 2005 along with an increase of $74.3 million in performance fees. Investment advisory and administration base fees increased in the year ended December 31, 2006 primarily due to increased AUM of $671.9 billion, including $589.2 billion of AUM acquired in the MLIM Transaction.

The increase in investment advisory and administration base fees of $748.4 million for the year ended December 31, 2006 compared with the year ended December 31, 2005 consisted of increases of $449.1 million in equity and balanced products, $136.5 million in fixed income products, $97.1 million in cash management products and $65.7 million in alternative investment products. The increase in investment advisory and administration fees for equity and balanced, fixed income, cash management and alternative investment products was driven by increases in AUM of $355.4 billion, $149.6 billion, $144.1 billion and $22.8 billion, respectively, over the past twelve months, which included the AUM acquired in the MLIM Transaction on September 29, 2006.

Performance fees increased by $74.3 million, or 44.2%, to $242.3 million for the year ended December 31, 2006 compared to $168.0 million for the year ended December 31, 2005 primarily due to fees earned on a large institutional real estate client account and the Company’s other alternative products.

Distribution Fees

Distribution fees increased by $24.6 million to $35.9 million for the year ended December 31, 2006,2009 as compared to $11.32008 included the effect of $183 million for the year ended December 31, 2005. The increaseof BGI transaction and integration costs and a change from $50 million of foreign currency remeasurement benefits in distribution fees was primarily the result2008 to $11 million of the acquisition of distribution financing arrangements from the MLIM Transactionforeign currency remeasurement costs in the third quarter 2006.2009.

Other Revenue

Other revenue of $221.1 million for the year ended December 31, 2006 increased $59.4 million compared with the year ended December 31, 2005 and primarily represents fees earned onBlackRock Solutions’ products and services of $148.0 million, property management fees of $32.1 million earned on real estate products (primarily related to reimbursement of salaries and benefits of certain Realty employees from certain real estate products), fees for fund accounting of $12.6 million and fees related to securities lending of $6.3 million.

The increase in other revenue of $59.4 million, for the year ended December 31, 2006 as compared to $161.7 million for the year ended December 31, 2005 was primarily the result of an increase of $24.4 million fromBlackRock Solutions’products and services primarily driven by new Aladdin assignments, and increases of $12.6 million in fund accounting services and $6.3 million in fees earned related to securities lending.

 

45


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008 (continued)

 

ExpensesOperating Income and Operating Margin Overview (continued)

 

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2006  2005  Amount  % 

Expenses:

        

Employee compensation and benefits

  $934,887  $587,773  $347,114  59.1%

Portfolio administration and servicing costs

   172,531   64,611   107,920  167.0%

Amortization of deferred sales commissions

   29,940   9,346   20,594  220.3%

General and administration

   416,853   181,610   235,243  129.5%

Fee sharing payment

   34,450   —     34,450  NM 

Amortization of intangible assets

   37,515   7,505   30,010  399.9%
              

Total expenses

  $1,626,176  $850,845  $775,331  91.1%
              

As Adjusted

 

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2009  2008  Amount  % Change 

Revenue

  $4,700   $5,064   ($364  (7%) 

Expenses

   3,130    3,402    (272  (8%) 
              

Operating income(1)

  $1,570   $1,662   ($92  (6%) 
              

Operating margin(1)

   38.2  38.7  (0.5%)   (1%) 

NM – Not Meaningful

(1)

Operating income, as adjusted, and operating margin, as adjusted, are described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Total expenses, which reflects the impact of the MLIM Transaction on September 29, 2006 and includes $141.9 million of integration charges, increased $775.3 million, or 91.1%, to $1,626.2Operating income, as adjusted, totaled $1,570 million for the year ended December 31, 2006,2009, which was a decrease of $92 million compared with $850.8 millionto the year ended December 31, 2008. The decline of operating income, as adjusted, for the year ended December 31, 2005. The increase was attributable2009 as compared to increasesthe year ended December 31, 2008 is related to the effect of the $364 million decrease in total revenue offset by a $272 million decrease in operating expenses due to decreases in employee compensation and benefits, portfolio administrationdistribution and servicing costs and general and administration expense, a fee sharing payment,expenses.

Operating margin, as adjusted, was 38.2% and amortization38.7% for the years ended December 31, 2009 and 2008, respectively. The reduction in margin includes the effect of intangible assets. Integration chargesthe $61 million increase in expenses related to the MLIM Transaction included $45.0 millionchange in employee compensation and benefits and $96.9 millionforeign currency remeasurement offset by a reduction of certain expenses as a result of additional cost controls in general and administration expense.2009.

Employee Compensation and Benefits

Employee compensation and benefits expense increased by $347.1 million, or 59.1%, to $934.9 million, at December 31, 2006 compared to $587.8 million for the year ended December 31, 2005. The increase in employee compensation and benefits was primarily attributable to increases in salaries and benefits and incentive compensation of $193.6 million and $142.8 million, respectively. The $193.6 million, increase in salaries and benefits was primarily attributable to higher staffing levels associated with business growth and the MLIM Transaction. Employees (including employees of Metric) at December 31, 2006 totaled 5,113 as compared to 2,148 at December 31, 2005. The $142.8 million, increase in incentive compensation is primarily attributable to growth in operating income and higher incentive compensation associated with performance fees earned on the Company’s alternative investment products and $45.0 million of MLIM integration costs.

Portfolio Administration and Servicing Costs

Portfolio administration and servicing costs increased $107.9 million to $172.5 million during the year ended December 31, 2006. These costs include payments to third parties, including Merrill Lynch and PNC, primarily associated with the administration and servicing of client investments in certain BlackRock products. Portfolio administration and servicing costs included $96.4 million of expense in the fourth quarter 2006 payable to Merrill Lynch and affiliates and $24.1 million of expense for the year ended December 31, 2006 payable to PNC and affiliates.

 

46


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 2005 (continued)

Expenses (continued)2008

 

Amortization of Deferred Sales CommissionsRevenue

Amortization

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2009   2008   Amount  % Change 

Investment advisory, administration fees and securities lending revenue:

       

Equity:

       

Active

  $1,230    $1,587    ($357  (22%) 

Institutional index

   56     28     28    100

iShares / Exchange-traded products

   136     —       136    *  

Fixed income:

       

Active

   865     872     (7  (1%) 

Institutional index

   16     2     14    700

iShares / Exchange-traded products

   19     —       19    *  

Multi-asset class

   479     519     (40  (8%) 

Alternatives

   400     541     (141  (26%) 

Cash management

   625     708     (83  (12%) 
                

Total

   3,826     4,257     (431  (10%) 

Investment advisory performance fees:

       

Equity

   46     86     (40  (47%) 

Fixed income

   21     5     16    320

Multi-asset class

   20     8     12    150

Alternatives

   115     78     37    47
                

Total

   202     177     25    14

BlackRock Solutionsand advisory

   477     393     84    21

Distribution fees

   100     139     (39  (28%) 

Other revenue

   95     98     (3  (3%) 
                

Total revenue

  $4,700    $5,064    ($364  (7%) 
                

* – Not applicable or the percentage is in excess of deferred sales commissions increased by $20.6+/- 1,000%.

Total revenue for the year ended December 31, 2009 decreased $364 million, or 7%, to $29.9$4,700 million, compared with $5,064 million for the year ended December 31, 2006 as compared to $9.3 million2008. Total revenue for the year ended December 31, 2005.2009 includes $312 million of incremental revenue related to the BGI acquisition. The increase in amortization of deferred sales commissions is primarily$364 million decrease was the result of the acquisition ofa $431 million decrease in total investment advisory, administration fees and securities lending revenue, a $39 million decrease in distribution financing arrangements from MLIM.

Generalfees and Administration Expensea $3 million decrease in other revenue, offset by an $84 million increase inBlackRock Solutions

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2006  2005  Amount  % 

General and administration expense:

       

Portfolio services

  $51,694  $14,046  $37,648  268.0%

Marketing and promotional

   100,089   37,565   62,524  166.4%

Occupancy

   64,086   36,190   27,896  77.1%

Technology

   61,040   22,662   38,378  169.3%

Professional services

   72,740   18,360   54,380  296.2%

Closed-end fund launch costs

   11,586   13,259   (1,673) (12.6)%

Other general and administration

   55,618   39,528   16,090  40.7%
              

Total general and administration expense

  $416,853  $181,610  $235,243  129.5%
              

General and administration expense increased $235.2advisory revenue and a $25 million or 129.5%, for the year ended December 31, 2006 to $416.9 million, compared to $181.6 million for the year ended December 31, 2005. The increase in general and administration expense was primarily due to increases in marketing and promotional expense of $62.5 million, professional services of $54.4 million, technology expense of $38.4 million, portfolio services expense of $37.6 million, occupancy expense of $27.9 million and other general and administration expense of $16.1 million, partially offset by a reduction in closed-end fund launch costs of $1.7 million. The increase in general and administration expense included $96.9 million of integration costs primarily related to marketing and promotional and professional services in connection with the MLIM Transaction.performance fees.

 

47


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008 (continued)

 

General and AdministrationRevenue (continued)

 

MarketingInvestment Advisory, Administration Fees and promotional expense increased $62.5Securities Lending Revenue

Investment advisory, administration fees and securities lending revenue for the year ended December 31, 2009 included approximately $278 million or 166.4%,of fees related to $100.1the BGI acquisition. The decrease in investment advisory, administration fees and securities lending revenues of $431 million for the year ended December 31, 2006,2009, compared with the year ended December 31, 2008 consisted of decreases of $357 million in active equity products, $40 million in multi-asset class products, $141 million in alternative investment products, $7 million in active fixed income products and $83 million in cash management products primarily associated with a market driven reduction in average AUM for equity, multi-asset class and alternative products and net redemptions in cash management products. The decrease was offset by a $136 million increase in equityiShares / Exchange-traded products, a $28 million increase in institutional index equity products, a $19 million increase in fixed incomeiShares / Exchange-traded products and a $14 million increase in institutional index fixed income products, primarily related to $37.6products acquired in the BGI acquisition.

Performance Fees

Investment advisory performance fees increased $25 million, or 14%, to $202 million for the year ended December 31, 2005 primarily due to increased marketing activities, including $29.6 million related to domestic and international marketing efforts and $32.9 million related to BlackRock’s advertising and rebranding campaign. Professional services expenses increased $54.4 million, or 296.2%, to $72.7 million2009, as compared to $18.4$177 million for the year ended December 31, 20052008, primarily due to an increase in performance fees in alternative equity hedge funds, fixed income and multi-asset class separate accounts, offset by a decrease in international equity separate accounts. The year ended December 31, 2009 included $24 million of performance fees related to products acquired in the MLIM Transaction. Technology expensesBGI acquisition.

BlackRock Solutions and Advisory

BlackRock Solutions and advisory revenue for the year ended December 31, 2009 increased $38.4$84 million, or 21%, compared with the year ended December 31, 2008. The increase inBlackRock Solutions and advisory revenue was primarily the result of additional advisory assignments during the period, as well as additional Aladdin and risk management mandates. Revenue earned on advisory assignments was comprised of advisory and portfolio structuring assignment fees and ongoing fees based on AUM of the respective portfolio assignments.

Distribution Fees

Distribution fees decreased $39 million to $61.0 million compared to $22.7$100 million for the year ended December 31, 2005 primarily related2009, as compared to the integration of the MLIM business. Portfolio services increased by $37.6 million to $51.7 million, relating to supporting higher AUM levels and increased trading activities of the combined Company. Occupancy costs for the year ended December 31, 2006 totaled $64.1 million, representing a $27.9 million, increase from $36.2$139 million for the year ended December 31, 2005.2008. The increasedecrease in occupancy costsdistribution fees was primarily reflects costs related to the expansion of corporate facilities as a result of the MLIM Transactionlower sales, redemptions and business growth. Closed-end fund launch costs totaled $11.6 million for the year ended December 31, 2006 related to three new closed-end funds launched during the period, generating approximately $2.2 billionAUM in AUM. Closed-end fund launch costs for the year ended December 31, 2005 totaled $13.3 million relating to four new closed-end funds launched during the period, generating $2.1 billion in AUM. Other general and administration costs increased by $16.1 million to $55.6 million from $39.5 million, as a resultcertain share classes of increased operating growth and the MLIM Transaction.open-end mutual funds.

Fee Sharing Payment

For the year ended December 31, 2006, BlackRock recorded a fee sharing payment of $34.5 million, representing a payment related to a large institutional real estate equity client account acquired in the SSRM Holdings, Inc. acquisition in January 2005.

Amortization of Intangible Assets

The $30.0 million increase in amortization of intangible assets to $37.5 million for the year ended December 31, 2006, compared to $7.5 million for the year ended December 31, 2005, primarily reflects amortization of finite-lived intangible assets acquired in the MLIM Transaction.

Non-Operating Income, Net of Non-Controlling Interest

Non-operating income, net of non-controlling interest, for the years ended December 31, 2006 and 2005 was as follows:

 

   Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2006  2005  Amount  % 

Total non-operating income

  $56,433  $35,214  $21,219  60.3%

Non-controlling interest

   (16,168)  (3,289)  (12,879) 391.6%
              

Total non-operating income, net of non-controlling interest

  $40,265  $31,925  $8,340  26.1%
              

 

NM – Not Meaningful

     

48


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008 (continued)

 

Non-Operating Income, Net of Non-Controlling InterestRevenue (continued)

 

The components of non-operating income, net of non-controlling interest, for the years ended December 31, 2006 and 2005 were as follows:Other Revenue

 

    Year ended
December 31,
  Variance 
(Dollar amounts in thousands)  2006  2005  Amount  % 

Non-operating income, net of non-controlling interest:

     

Net gain (loss) on investments, net of non-controlling interest:

     

Private equity1

  $64  $—    $64  NM 

Real estate

   1,030   2,303   (1,273) (55.3)%

Other alternative products

   7,369   13,904   (6,535) (47.0)%

Other2

   12,353   7,515   4,838  64.4%
              

Total net gain on investments, net of non-controlling interest

   20,816   23,722   (2,906) (12.3)%

Other non-controlling interest3

   (54)  (2,785)  2,731  (98.1)%

Interest and dividend income

   29,419   18,912   10,507  55.6%

Interest expense

   (9,916)  (7,924)  (1,992) 25.1%
              

Total non-operating income, net of non-controlling interest

  $40,265  $31,925  $8,340  26.1%
              

 

NM – Not Meaningful

1        Includes earnings on BlackRock’s limited partnership investments in private equity funds.

2        Includes investment income related to equity and fixed income investments, collateralized debt obligations, deferred compensation arrangements and BlackRock’s seed capital hedging program.

3        Includes non-controlling interest related to non-investment activities.

 

          

           

          

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2009   2008   Amount  % Change 

Other revenue:

       

Commissions revenue

  $28    $26    $2    8

Transition management service fees

   22     13     9    69

Equity method investment earnings(1)

   15     1     14    *  

Fund accounting

   9     11     (2  (18%) 

Property management fees

   1     32     (31  (97%) 

Other miscellaneous revenue

   20     15     5    33
                

Total other revenue

  $95    $98    ($3  (3%) 
                

Non-operating income, net

* – Not applicable or the percentage is in excess of non-controlling interest, increased $8.3 million to $40.3+/- 1,000%.

(1)

Related to operating advisory company investments.

Other revenue of $95 million for the year ended December 31, 20062009 decreased $3 million, or 3%, compared to $31.9 millionwith the year ended December 31, 2008. Other revenue for the year ended December 31, 2005 as a2009 included $10 million of incremental revenue related to the operations of BGI.

The decrease in other revenue was primarily the result of a $10.5$31 million increasedecline in interest and dividend income,property management fees primarily related to the outsourcing in the fourth quarter of 2008 of Metric contracts with BlackRock real estate clients, partially offset by a $2.0$14 million increase in interest expense primarily related to interest owed to Merrill Lynch onBlackRock’s share of underlying earnings from certain liabilities assumed in the MLIM Transactionoperating advisory company investments and a $2.9$9 million decreaseincrease in net gain on investments, net of non-controlling interest. The decrease in the net gain on investments, net of non-controlling interest, was primarily due to a decrease in net investment gains on seed investments in real estate and other alternative products, partially offset by significant growth of the Company’s investments in sponsored investment products.fees earned for transition management services.

Income Taxes

Income tax expense was $189.5 million and $138.6 million for the years ended December 31, 2006 and 2005, representing effective tax rates of 37.0% and 37.2%, respectively.

 

49


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Operating results for the year ended December 31, 2006,2009, as compared with the year ended December 31, 20052008 (continued)

 

Net IncomeExpenses

Net income totaled $322.6

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2009   2008  Amount  % Change 

Expenses:

      

Employee compensation and benefits

  $1,802    $1,815   ($13  (1%) 

Distribution and servicing costs

   477     591    (114  (19%) 

Amortization of deferred sales commissions

   100     130    (30  (23%) 

Direct fund expenses

   95     86    9    10

General and administration

   779     665    114    17

Restructuring charges

   22     38    (16  (42%) 

Amortization of intangible assets

   147     146    1    1
               

Total expenses, GAAP

  $3,422    $3,471   ($49  (1%) 
               

Total expenses, GAAP

  $3,422    $3,471   ($49  (1%) 

Less: Non-GAAP adjustments:

      

BGI transaction/integration costs

      

Employee compensation and benefits

   60     —      60    *  

General and administration

   123     —      123    *  
               

Total BGI transaction/integration costs

   183     —      183    *  

PNC LTIP funding obligation

   59     59    —      —  

Merrill Lynch compensation contribution

   10     10    —      —  

Restructuring charges

   22     38    (16  (42%) 

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

   18     (38  56    *  
               

Total non-GAAP adjustments

   292     69    223    323
               

Total expenses, as adjusted

  $3,130    $3,402   ($272  (8%) 
               

* – Not applicable or the percentage is in excess of +/- 1,000%.

Total GAAP expenses decreased $49 million, or $3.87 per diluted share,1%, to $3,422 million for the year ended December 31, 2006 an increase of $88.7 million, or $0.37 per diluted share,2009, compared to the year ended December 31, 2005. Net income$3,471 million for the year ended December 31, 2006 included2008. Excluding certain items deemed non-recurring by management or transactions that ultimately will not affect the after-tax impacts of integration costs related to the MLIM Transaction, the portion of certain LTIP awards to be funded through a capital contribution of BlackRock common stock held by PNC, and an expected contribution by Merrill Lynch to fund certain compensation of former MLIM employees, of $89.4 million, $31.5 million and $1.2 million, respectively. MLIM integration costs primarily include compensation costs, professional fees and rebranding costs.

Net income of $233.9 million during the year ended December 31, 2005 included the after-tax impacts of the portion of LTIP awards funded by a capital contribution of BlackRock stock held by PNC and SSR integration costs of $30.6 million and $5.6 million, respectively. SSR integration costs included acquisition-related payments to continuing employees of BlackRock and professional fees. Exclusive of these items, fully diluted earnings per share,Company’s book value, total expenses, as adjusted, for the year ended December 31, 2006 increased $1.30,decreased $272 million, or 32.3%, compared8%. The decrease in total expenses, as adjusted, is primarily attributable to the year ended December 31, 2005.decreases in employee compensation and benefits, distribution and servicing costs and amortization of deferred sales commissions.

Other Operating Items

Support of Two Enhanced Cash Funds

At December 31, 2007, BlackRock managed approximately $313 billion in cash management assets. Of this amount, approximately $1.7 billion was held by two private placement enhanced cash funds. During the third and fourth quarters, market events reduced the liquidity of certain securities, including those issued by asset-backed structured investment vehicles, held by these two funds.

During 2007 BlackRock made investments in the funds to enhance fund liquidity and to facilitate redemptions. At December 31, 2007, BlackRock’s total net investment in these two funds was approximately $89 million. BlackRock also provided capital contributions totaling $24 million during 2007 to help preserve a one dollar net asset value per share for these two funds. The capital contributions resulted in an increase to general and administration expense of $24 million for 2007.

In December 2007, BlackRock entered into capital support agreements with the two funds, backed by letters of credit drawn under BlackRock’s existing credit facility. Pursuant to the capital support agreements, BlackRock has agreed to make subsequent capital contributions to the funds to cover realized losses, up to $100 million, related to specified securities held by the funds. The terms of the capital support agreements expire in December 2008 unless renewed by BlackRock. In addition, due to continuing market illiquidity, BlackRock suspended cash redemptions from these two funds in December 2007. As of February 2008, subsequent to the suspension of cash redemptions, the funds distributed approximately $930 million in aggregate to investors as a result of security sales and maturities.

In addition, BlackRock recorded $12 million in general and administration expense in the fourth quarter and a corresponding liability at December 31, 2007 related to the fair value of the capital support agreements with the two funds. The fair value of the potential liability related to the capital support agreements will fluctuate in subsequent periods based principally on projected cash flows of the specified securities covered by the capital support agreements and market liquidity.

In addition, BlackRock may, at its option, from time to time, purchase securities from the funds at the greater of the funds’ amortized cost or fair value. In the event securities are purchased at amortized cost, a loss would be recorded based on its difference from fair value.

 

50


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Other Operating Itemsresults for the year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

 

Support of Two Enhanced Cash FundsExpenses (continued)

 

Under FASB Interpretation No. 46(R) (“FIN 46(R)”) these two funds meetEmployee Compensation and Benefits

   Year Ended
December 31,
  Variance 
(Dollar amounts in millions)  2009   2008  Amount  % Change 

Employee compensation and benefits, GAAP

  $1,802    $1,815   ($13  (1%) 

Less non-GAAP expense adjustments:

      

BGI integration costs

   60     —      60    *  

PNC LTIP funding obligation

   59     59    —      —  

Merrill Lynch compensation contribution

   10     10    —      —  

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

   18     (38  56    *  
               

Total non-GAAP expense adjustments

   147     31    116    374
               

Employee compensation and benefits, as adjusted

  $1,655    $1,784   ($129  (7%) 
               

* –Not applicable or the definitionpercentage is in excess of variable interest entities. In applying+/- 1,000%.

Employee compensation and benefits expense decreased $13 million, or 1%, to $1,802 million, for the provisionsyear ended December 31, 2009, compared to $1,815 million for the year ended December 31, 2008. Employee compensation and benefits expense for the year ended December 31, 2009 included $89 million of FIN 46(R)incremental expense related to an increase in the Company applies an expected loss modelnumber of employees related to BGI.

The decrease in employee compensation and benefits expense was attributable to a $118 million decrease in salaries, benefits and commissions, a $12 million decrease in incentive compensation associated with lower operating income, partially offset by a $60 million increase related to the fundsBGI integration costs and a $57 million increase in deferred compensation, which is offset primarily by an increase in non-operating income related to determine the primary beneficiary of the funds. Asappreciation on assets associated with certain deferred compensation plans. The $118 million decrease in salaries, benefits and commissions is due to lower employment levels as a result of the applicationCompany’s cost control efforts and outsourcing of Metric services, partially offset by a one month impact of the model,increase in employees related to the BGI Transaction. Employees at December 31, 2009 totaled approximately 8,600 as compared to approximately 5,300 at December 31, 2008.

Distribution and Servicing Costs

Distribution and servicing costs decreased $114 million to $477 million for the year ended December 31, 2009, compared to $591 million for the year ended December 31, 2008. These costs include payments to Bank of America/Merrill Lynch under a global distribution agreement, and payments to PNC as well as other third parties, primarily associated with the distribution and servicing of client investments in certain BlackRock has concluded that it is notproducts. The $114 million decrease primarily related to lower levels of average AUM serviced by related parties across all asset classes and an increase in waivers within certain cash management funds, resulting in lower distribution payments.

Distribution and servicing costs for the primary beneficiaryyear ended December 31, 2009 included $349 million of either fund.costs attributable to Bank of America/Merrill Lynch and affiliates and $19 million of costs attributable to PNC and affiliates as compared to $464 million and $30 million, respectively, in the year ended December 31, 2008. Distribution and servicing costs related to other third parties increased $12 million to $109 million for the year ended December 31, 2009, as compared to $97 million for the year ended December 31, 2008 due to an expansion of distribution platforms.

Amortization of Deferred Sales Commissions

Amortization of deferred sales commissions decreased $30 million to $100 million for the year ended December 31, 2009, as compared to $130 million for the year ended December 31, 2008. The Company will performdecrease in amortization of deferred sales commissions was primarily the expected loss model calculation quarterly to determine whether BlackRock isresult of lower sales and redemptions in certain share classes of U.S. open-end mutual funds.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the primary beneficiary.year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

Exposure to Collateralized Debt ObligationsExpenses (continued)

In

Direct Fund Expenses

Direct fund expenses incurred by BlackRock related to non-advisory operating expenses of certain funds increased $9 million primarily related to the normal courseaddition of business,legacy BGI funds subject to these arrangements under which BlackRock managespays certain fund expenses.

General and Administration Expenses

   Year ended
December 31,
   Variance 
(Dollar amounts in millions)  2009   2008   Amount  % Change 

General and administration expenses(1), GAAP:

       

Occupancy and office related

  $182    $162    $20    12

Professional services

   162     76     86    113

Technology

   114     116     (2  (2%) 

Portfolio services

   100     88     12    14

Marketing and promotional

   85     154     (69  (45%) 

Communications

   26     27     (1  (4%) 

Closed-end fund launch costs

   2     9     (7  (78%) 

Other general and administration

   108     33     75    227
                

Total general and administration expenses, GAAP

  $779    $665    $114    17
                

Less BGI transaction and integration costs:

       

Occupancy and office related

  $1    $—      $1    *  

Professional services

   91     —       91    *  

Technology

   7     —       7    *  

Marketing and promotional

   11     —       11    *  

Other general and administration

   13     —       13    *  
                

Total BGI transaction and integration costs

  $123    $—      $123    *  
                

General and administration expenses, as adjusted:

       

Occupancy and office related

  $181    $162    $19    12

Professional services

   71     76     (5  (7%) 

Technology

   107     116     (9  (8%) 

Portfolio services

   100     88     12    14

Marketing and promotional

   74     154     (80  (52%) 

Communications

   26     27     (1  (4%) 

Closed-end fund launch costs

   2     9     (7  (78%) 

Other general and administration

   95     33     62    188
                

Total general and administration expenses, as adjusted

  $656    $665    ($9  (1%) 
                

* –Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Prior year data reflects certain reclassifications to conform to the current year presentation.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

Expenses (continued)

General and Administration Expenses (continued)

General and Administration Expenses, GAAP

General and administration expenses increased $114 million, or 17%, for the year ended December 31, 2009 compared with the year ended December 31, 2008.

BGI Transaction and Integration Costs

BGI transaction and integration costs of $123 million for the year ended December 31, 2009 included professional services of $91 million primarily related to legal, advisory and consulting costs.

General and Administration Expenses, as Adjusted

Excluding the BGI transaction and integration expenses, general and administration expenses, as adjusted, of $656 million, decreased $9 million, or 1%, for the year ended December 31, 2009 compared with $665 million for the year ended December 31, 2008.

Marketing and promotional expenses decreased $80 million, or 52%, primarily due to a decline in travel and promotional expenses.

Occupancy and office related expenses increased $19 million, which included an $11 million expense related to the write-off of certain leasehold improvements.

Portfolio service costs increased $12 million, or 14%, to $100 million, due to fund expense reimbursements.

Professional services decreased $5 million, or 7%, to $71 million compared with $76 million for the year ended December 31, 2008 primarily due to lower consulting fees.

Other general and administration expenses increased $62 million, or 188%, to $95 million from $33 million, primarily related to a $61 million change in foreign currency remeasurement costs/benefits from a $50 million benefit in the year ended December 31, 2008 to $11 million of costs in the year ended December 31, 2009, a $21 million increase to a provision related to an outstanding loan to Anthracite Capital Inc., and a $10 million expense for potentially uncollectible fee receivables, partially offset by a reduction of various collateralized debt obligations (“CDOs”). A CDOexpenses primarily the result of cost control efforts.

Restructuring Charges

For the year ended December 31, 2009 BlackRock recorded pre-tax restructuring charges of $22 million, primarily related to severance, outplacement costs, occupancy costs and accelerated amortization of certain previously granted stock awards associated with a reduction in work force and reengineering efforts. For the year ended December 31, 2008, BlackRock recorded pre-tax restructuring charges of $38 million, primarily related to severance, outplacement costs and accelerated amortization of certain previously granted stock awards associated with a 9% reduction in work force. See restructuring charges discussion in Note 20 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Amortization of Intangible Assets

Amortization of intangible assets increased $1 million to $147 million for the year ended December 31, 2009, as compared to $146 million for the year ended December 31, 2008. The increase in amortization of intangible assets reflects amortization of finite-lived management contracts acquired in the BGI Transaction.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Non-operating results for the year ended December 31, 2009, as compared with the year ended December 31, 2008

Non-Operating Income (Expense), Less Net Income (Loss) Attributable to Non-Controlling Interests

Non-operating income (expense), less net income (loss) attributable to non-controlling interests for the years ended December 31, 2009 and 2008 was as follows:

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2009  2008  Amount  % Change 

Non-operating income (expense), GAAP basis

  ($6 ($577 $571    99

Less: Net income (loss) attributable to NCI

   22    (155  177    *  
              

Non-operating income (expense)(1)

   (28  (422  394    93

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

   (18  38    (56  *  
              

Non-operating income (expense), as adjusted(2)

  ($46 ($384 $338    88
              

* –Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Net of net income (loss) attributable to non-controlling interests.

The components of non-operating income (expense), less net income (loss) attributable to non-controlling interests, for the years ended December 31, 2009 and 2008 were as follows:

   Year ended
December 31,
  Variance 
(Dollar amounts in millions)  2009  2008  Amount  %
Change
 

Net gain (loss) on investments(1)

     

Private equity

  $9   ($28 $37    *  

Real estate

   (114  (127  13    10

Distressed credit/mortgage funds

   100    (141  241    *  

Hedge funds/funds of hedge funds

   18    (53  71    *  

Other investments(2)

   (11  (30  19    63
              

Sub-total

   2    (379  381    *  

Investments related to deferred compensation plans

   18    (38  56    *  
              

Total net gain (loss) on investments

   20    (417  437    *  

Net income (loss) attributable to other non-controlling interests(3)

   —      (1  1    100

Interest and dividend income

   20    65    (45  (69%) 

Interest expense

   (68  (69  1    (1%) 
              

Net interest expense

   (48  (4  (44  *  

Total non-operating income (expense)(1)

   (28  (422  394    93

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

   (18  38    (56  *  
              

Non-operating income (expense), as adjusted(1)

  ($46 ($384 $338    88
              

* –Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Net of net income (loss) attributable to non-controlling interests.

(2)

Includes net gains / (losses) related to equity and fixed income investments and BlackRock’s seed capital hedging program.

(3)

Includes non-controlling interests related to operating entities (non-investment activities).

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Non-operating results for the year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

Non-Operating Income (Expense), Less Net Income (Loss) Attributable to Non-Controlling Interests (continued)

Non-operating expense, less net income (loss) attributable to non-controlling interests, decreased $394 million to $28 million for the year ended December 31, 2009, as compared to $422 million for the year ended December 31, 2008.

The $20 million net gain on investments, less non-controlling interests, related to the Company’s co-investment and seed investments, included valuation gains in distressed credit/mortgage funds of $100 million, investments related to deferred compensation plans of $18 million, hedge funds/funds of hedge funds of $18 million and private equity products of $9 million offset by net losses in real estate products of $114 million and other investments of $11 million.

Net interest expense was $48 million, an increase of $44 million primarily due to a managed investment vehicledecline in interest rates earned on cash equivalents and interest rates paid on its line of credit, offset by an $8 million increase in interest expense related to $2.5 billion in issuances of long-term notes in December 2009.

Income Tax Expense

   Year ended
December 31,
  %
Change
  Year ended
December 31,
  %
Change
 
   2009  2008   2009  2008  
(Dollar amounts in millions)  GAAP  GAAP   As
adjusted
  As
adjusted
  

Income before income taxes(1)

  $1,250   $1,171    7 $1,524   $1,278    19

Income tax expense

  $375   $387    (3%)  $503   $422    19

Effective tax rate

   30.0  33.0   33.0  33.0 

(1)

Net of net income (loss) attributable to non-controlling interests.

Income tax expense decreased $12 million in the year ended December 31, 2009 as compared to the year ended December 31, 2008. The effective income tax rates for the years ended December 31, 2009 and 2008 were 30.0% and 33.0%, respectively.

The year ended December 31, 2009 included the effect of third quarter 2009 legislation enacted primarily with respect to New York City corporate income taxes, effective January 1, 2009, which resulted in approximately a $45 million tax benefit revaluation of net deferred income tax liabilities primarily related to acquired intangible assets, which has been excluded from net income attributable to BlackRock, Inc., as adjusted, as it was a non-recurring enacted tax legislation change that purchasesdoes not have a portfoliocash flow impact and to ensure comparability of assetsthis information to prior reporting periods. The year ended December 31, 2009 also included $25 million of tax benefits primarily related to a favorable tax ruling and the final resolution of outstanding tax matters.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

Net Income Attributable to BlackRock, Inc.

The components of net income attributable to BlackRock, Inc. and net income attributable to BlackRock, Inc., as adjusted, for the years ended December 31, 2009 and 2008 are as follows:

   Year ended
December 31,
  %
Change
  Year ended
December 31,
  %
Change
 
   2009  2008   2009  2008  
(Dollar amounts in millions, except per share data)  GAAP  GAAP   As adjusted  As adjusted  

Operating income

  $1,278   $1,593    (20%)  $1,570   $1,662    (6%) 

Non-operating (expense)(1)

   (28  (422  93  (46  (384  88

Income tax expense

   (375  (387  (3%)   (503  (422  19
                   

Net income attributable to BlackRock, Inc.

  $875   $784    12 $1,021   $856    19
                   

% attributable to common shares

   97  97   97  97 

Net income attributable to common shares

  $853   $759    12 $995   $828    20
                   

Diluted weighted-average common shares outstanding(2)

   139,481,449    131,376,517    6  139,481,449    131,376,517    6

Diluted EPS components:

       

Operating income

  $5.75   $7.86    (27%)  $7.17   $8.20    (13%) 

Non-operating (expense)(1)

   (0.13  (2.08  94  (0.21  (1.90  89

Income tax benefit

   0.49    —      *    0.17    —      *  
                   

Diluted earnings per common share

  $6.11   $5.78    6 $7.13   $6.30    13
                   

* – Not applicable or enters into swaps. A CDO funds its activities,the percentage is in excess of +/- 1,000%.

(1)

Net of net income (loss) attributable to non-controlling interests (redeemable and nonredeemable).

(2)

Unvested RSUs that contain non-forfeitable rights to dividends are not included as they are deemed participating securities in accordance with GAAP. Upon vesting of the participating RSUs, the shares are added to the weighted average shares outstanding which results in an increase to the percentage of net income attributable to common shares. In addition, series A, B, C, and D non-voting preferred stock are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations.

GAAP

Net income attributable to BlackRock, Inc. for the year ended December 31, 2009 includes operating income of $1,278 million, or $5.75 per diluted common share, non-operating expenses, less net income attributable to non-controlling interests, of $28 million, or $0.13 per diluted common share and $70 million, or $0.49 per diluted common share, of tax benefits related to local income tax law changes, a favorable tax ruling and the final resolution of outstanding tax matters. Net income attributable to BlackRock, Inc. totaled $875 million, or $6.11 per diluted common share, for the year ended December 31, 2009, which was an increase of $91 million, or $0.33 per diluted common share, compared to the year ended December 31, 2008.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2009, as compared with the year ended December 31, 2008 (continued)

Net Income Attributable to BlackRock, Inc. (continued)

Net income attributable to BlackRock, Inc. for the year ended December 31, 2009 included the after-tax effect of the portion of LTIP awards, which will be funded through the issuancea capital contribution of several tranchesBlackRock stock held by PNC of debt$41 million, BGI transaction/integration costs of $129 million, restructuring charges of $14 million, and equity, the repayment and returnan expected cash contribution, a portion of which are linkedhas been paid by Merrill Lynch in third quarter 2009 of $7 million to fund certain compensation of former MLIM employees. In addition, net income for the performance of the assetsyear ended December 31, 2009 included a $45 million one-time reduction in the CDO. Typically, BlackRock’s role is as collateral manager. The Company also may invest in a percentage of the debt or equity issued. These entities meet the definition of a variable interest entity under FIN 46(R). BlackRock has concluded that it is not the primary beneficiary of these CDOs, andincome tax expense as a result it does not consolidate these CDOsof enacted legislation primarily with respect to New York City corporate income taxes, which resulted in its consolidated financial statements. Ata revaluation of certain deferred income tax assets and liabilities.

Net income attributable to BlackRock, Inc. of $784 million for the year ended December 31, 2007, BlackRock’s carrying value on2008 included the after-tax effect of the portion of certain LTIP awards, which will be funded through a capital contribution of BlackRock stock held by PNC of $39 million, restructuring charges of $26 million and an expected contribution by Merrill Lynch of $7 million to fund certain compensation of former MLIM employees, a portion of which was received by BlackRock in third quarter 2009.

As Adjusted

Exclusive of the items discussed above, diluted earnings per common share, as adjusted, of $7.13 for the year ended December 31, 2009 increased $0.83, or 13%, compared to the year ended December 31, 2008.

Net income attributable to BlackRock, Inc., as adjusted, for the year ended December 31, 2009 includes operating income of $1,570 million, or $7.17 per diluted common share, non-operating expenses, less net income attributable to non-controlling interests, of $46 million, or $0.21 per diluted common share and $25 million of income tax benefits, or $0.17 per diluted common share primarily related to a favorable tax ruling and the final resolution of an outstanding tax matter received during 2009.

Diluted earnings per common share, as adjusted, is described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview

The following table presents a reconciliation of the Company’s condensed consolidated statement of financial condition of investments in these CDOs was approximately $10.5 million, of which approximately $9.3 million was in CDOs backed by leveraged finance assets and approximately $1.2 million backed by structured finance securities.

In addition, BlackRock managespresented on a series of credit default swap transactions, referredGAAP basis to collectively as the Pillars synthetic CDO transaction, which is backed by a portfolio of both investment grade corporate and structured finance exposures. In connection with the transaction, BlackRock has entered into a credit default swap with a counterparty to provide credit protection of $16.7 million, which represents the Company’s maximum risk of loss with respect to the provision of credit protection. Under the terms of its credit default swap, the Company is entitled to an annual coupon of 4% of the swap’s notional balance of $16.7 million and 25% of the structure’s residual balance at its expected termination date of December 23, 2009. Management has performed an assessment of the Company’s variable interest under FIN 46(R) and has concluded the Company is not the primary beneficiary of the CDO transaction. At December 31, 2007, the fair value of the credit default swap was approximately $4.9 million and was included on the Company’s consolidated statement of financial condition, excluding the impact of consolidated VIEs, consolidated sponsored investment funds, separate account assets and collateral held under securities lending agreements and separate account liabilities and collateral liabilities under securities lending agreements:

   December 31, 2010 
(Dollar amounts in millions)  GAAP
Basis
   Separate
Account
Assets/
Collateral
   Consolidated
VIEs
   Consolidated
Sponsored
Investment
Funds
   As
Adjusted
 

Assets

          

Cash and cash equivalents

  $3,367    $—      $—      $65    $3,302  

Accounts receivable

   2,095     —       —       —       2,095  

Investments

   1,540     —       —       137     1,403  

Assets of consolidated variable interest entities

   1,405     —       1,405     —       —    

Separate account assets and collateral held under securities lending agreements

   138,775     138,775     —       —       —    

Other assets(1)

   960     —       —       3     957  
                         

Sub-total

   148,142     138,775     1,405     205     7,757  

Goodwill and intangible assets, net

   30,317     —       —       —       30,317  
                         

Total assets

  $178,459    $138,775    $1,405    $205    $38,074  
                         

Liabilities

          

Accrued compensation and benefits

  $1,520    $—      $—      $—      $1,520  

Accounts payable and accrued liabilities

   1,068     —       —       —       1,068  

Borrowings(2)

   3,359     —       —       —       3,359  

Liabilities of consolidated variable interest entities

   1,285     —       1,285     —       —    

Separate account liabilities and collateral liability under securities lending agreements

   138,775     138,775     —       —       —    

Deferred income tax liabilities

   5,477     —       —       —       5,477  

Other liabilities(3)

   641     —       —       10     631  
                         

Total liabilities

   152,125     138,775     1,285     10     12,055  
                         

Equity

          

Total stockholders’ equity

   26,094     —       75     —       26,019  

Non-controlling interests

   240     —       45     195     —    
                         

Total equity

   26,334     —       120     195     26,019  
                         

Total liabilities and equity

  $178,459    $138,775    $1,405    $205    $38,074  
                         

(1)

Includes due from related parties, deferred sales commissions, property and equipment and other assets.

(2)

Includes short-term borrowings, convertible debentures and long-term borrowings.

(3)

Includes due to related parties and other liabilities.

Management reviews its as adjusted balance sheet, a non-GAAP financial measure, for the reasons described below. BlackRock’s management does not advocate that investors consider such non-GAAP financial measure in other assets.isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company presents the as adjusted balance sheet to enable investors to eliminate gross presentation of certain assets that have equal and offsetting liabilities and ultimately do not have an impact on stockholders’ equity (excluding appropriated retained earnings related to consolidated CLOs) or cash flows. The recognition of the as adjusted assets and liabilities generally result in net income (loss) attributable to BlackRock, Inc.

At

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview (continued)

The following table presents selected significant components of BlackRock’s GAAP consolidated statements of financial condition at December 31, 2007,2010 and 2009:

(Dollar amounts in millions)

  December  31,
2010
   December  31,
2009
   Variance 
      Amount  % Change 

Cash and cash equivalents

  $3,367    $4,708    ($1,341  (28%) 

Accounts receivable

   2,095     1,718     377    22

Investments

   1,540     1,049     491    47

Goodwill and Intangible assets, net

   30,317     30,346     (29  —  

Other assets(1)

   960     1,339     (379  (28%) 

Accrued compensation and benefits

   1,520     1,482     38    3

Accounts payable and accrued liabilities

   1,068     840     228    27

Borrowings(2)

   3,359     5,668     (2,309  (41%) 

Deferred income tax liabilities

   5,477     5,571     (94  (2%) 

Other liabilities(3)

   641     997     (356  (36%) 

Stockholders’ equity

   26,094     24,329     1,765    7

(1)

Includes due from related parties, deferred sales commissions, property and equipment and other assets.

(2)

Includes short-term borrowings, convertible debentures and long-term borrowings.

(3)

Includes due to related parties and other liabilities.

The following discussion summarizes the significant changes in assets and liabilities. These changes do not include assets and liabilities that are equal and offsetting and have no impact on BlackRock’s maximum riskstockholders’ equity.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview (continued)

Cash and Cash Equivalents

Cash and cash equivalents at December 31, 2010 and 2009 included $65 million and $75 million of loss related to CDOs was approximately $32.1 million.

cash held by consolidated sponsored investment funds, respectively. See Liquidity and Capital Resources for further details on the change in cash and cash equivalents during 2010.

Accounts Receivable

Accounts receivable at December 31, 2010 increased $377 million from December 31, 2009, resulting from increase in base fees related to AUM growth and higher performance fees.

Investments

The Company presents total net “economic” investments to enable investors to understand the portion of its investments that are owned by the Company, net of non-controlling interests, as a gauge to measure the impact of changes in net non-operating gain (loss) on investments to net income (loss) attributable to BlackRock, Inc.

(Dollar amounts in millions)

  December  31,
2010
  December  31,
2009
  Variance 
    Amount   % Change 

Total investments, GAAP

  $1,540   $1,049   $491     47

Investments held by consolidated sponsored investment funds(1)

   (397  (463  66     14

Net exposure to consolidated investment funds

   260    258    2     1
               

Total net “economic” investments

  $1,403   $844   $559     66
               

(1)

At December 31, 2010 and 2009, approximately $397 million and $463 million, respectively, of BlackRock’s total investments were maintained in sponsored investment funds that are deemed to be controlled by BlackRock in accordance with GAAP and therefore are consolidated even though BlackRock may not own a majority of such funds.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview (continued)

Investments (continued)

The Company further presents the total net “economic” investment exposure, net of deferred compensation investments and hedged investments, to reflect another gauge for investors as the economic impact of investments held pursuant to deferred compensation arrangements is substantially offset by a change in compensation expense and the impact of hedged investments is substantially mitigated by total return swap hedges. Carried interest is excluded as generally there is no impact to BlackRock’s stockholders equity as the balance fluctuates. Finally, the Company’s regulatory investment in Federal Reserve Bank stock which is not subject to market or interest rate risk is excluded from the Company’s net economic investment exposure.

The following table represents the carrying value of investments, by asset type, at December 31, 2010 and 2009:

   Year ended        
   December 31,   Variance 
(Dollar amounts in millions)  2010   2009   Amount  % Change 

Private equity

  $277    $232    $45    19

Real estate

   54     44     10    23

Distressed credit/mortgage funds

   267     197     70    36

Hedge funds/funds of hedge funds

   97     108     (11  (10%) 

Other investments(1)

   269     142     127    89
                

Total net “economic” investment exposure

   964     723     241    33

Federal Reserve Bank stock

   325     10     315    *  

Carried interest

   13     4     9    225

Deferred compensation investments

   76     71     5    7

Hedged investments

   25     36     (11  (31%) 
                

Total net “economic” investments

  $1,403    $844    $559    66
                

* – Not applicable or the percentage is in excess of +/- 1,000%.

(1)

Other investments primarily include seed investments in fixed income and equity funds/strategies as well as U.K. government securities held for regulatory purposes.

Total net “economic” investments at December 31, 2010 increased $559 million from December 31, 2009, resulting from changes in the investment portfolio due to purchases (including $315 million of Federal Reserve Bank stock), sales, maturities and distributions as well as market valuations and earnings from equity method investments.

BlackRock reports its investments on a GAAP basis, which includes investments that are owned by sponsored investment funds that are deemed to be controlled by BlackRock in accordance with GAAP and therefore consolidated even though BlackRock may not own the majority of any such funds. As a result, management reviews its investments on an “economic” basis, which eliminates the portion of investments that do not impact BlackRock’s book value. 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.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview (continued)

The following table represents investments measured at fair value on a recurring basis at December 31, 2010:

(Dollar amounts in millions)  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs

(Level 3)
  Other
Investments Not
Held at Fair
Value(1)
   Investments at
December 31,
2010
 

Total investments, GAAP

  $249   $133   $650   $508    $1,540  

Net assets for which the Company does not bear “economic” exposure(2)

   (8  (7  (122  —       (137
                      

Net “economic” investments(3)

  $241   $126   $528   $508    $1,403  
                      

(1)

Comprised of investments held at cost, amortized cost, carried interest and equity method investments, which include investment companies, and other assets which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and financial liabilities under fair value measures, therefore, the Company’s investment in such equity method investees may not represent fair value.

(2)

Consists of net assets attributable to non-controlling investors of consolidated non-VIE sponsored investment funds.

(3)

Includes BlackRock’s portion of cash and cash equivalents, other assets, accounts payable and accrued liabilities, and other liabilities that are consolidated from non-VIE sponsored investment funds.

Goodwill and Intangible Assets

Goodwill and intangible assets at December 31, 2010 decreased $29 million from December 31, 2009, resulting from $160 million amortization expense related to finite-lived intangibles and a decline in goodwill related to tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos Transaction, partially offset by $136 million related to the release of common shares held in escrow in connection with the Quellos Transaction, and increases in intangibles and goodwill from the purchases of Primasia Investment Trust Co., LTD. and Helix Financial Group LLC.

Other Assets

Other assets at December 31, 2010 decreased $379 million from December 31, 2009, resulting from decreases in current taxes receivable, sales of held for sale assets, deferred sales commissions due to redemptions in certain share classes of U.S. open-end mutual funds and receivables from related parties.

Accrued Compensation and Benefits

Accrued compensation and benefits at December 31, 2010 increased $38 million from December 31, 2009, primarily related to an increase in 2010 incentive compensation offset by the effect of cash payments related to 2009 year end incentive compensation and other compensation accruals assumed in the BGI Transaction.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at December 31, 2010 increased $228 million from December 31, 2009, resulting from increases in unit trust payable, retrocessions, current taxes payable and other accruals payable to Merrill Lynch.

Borrowings

Borrowings at December 31, 2010 decreased $2,309 million from December 31, 2009, resulting from repayments of short-term borrowings and convertible debt of $2,134 million and $176 million, respectively.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Balance Sheet Overview (continued)

Deferred Income Tax Liabilities

Deferred tax liabilities at December 31, 2010 decreased $94 million from December 31, 2009, primarily related to intangible assets. The decrease included revaluation of certain deferred income tax liabilities due to the 2010 tax legislation enacted in the United Kingdom.

Other Liabilities

Other liabilities at December 31, 2010 decreased $356 million from December 31, 2009, primarily resulting from a decrease related to repayments to Barclays of approximately $320 million to settle certain non-interest bearing notes assumed in the BGI Transaction and settlement of liabilities related to the sales of held for sale assets, partially offset by increases in various other liabilities.

Stockholders’ Equity

Total stockholders’ equity at December 31, 2010 increased $1,765 from December 31, 2009, principally resulting from $2,063 million of net income attributable to BlackRock, $445 million of stock-based compensation expense, $136 million related to the release of common shares held in escrow in connection with the Quellos Transaction, $44 million excess tax benefits from vested stock-based compensation and a $10 million Merrill Lynch cash capital contribution in 2010, partially offset by $776 million of payments for cash dividends, $109 million of net issuances of common shares related to employee stock transactions and $140 million of stock repurchases under the repurchase plan approved in July 2010.

Liquidity and Capital Resources

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds and VIEs

In accordance with GAAP, certain BlackRock sponsored investment funds and collateralized loan obligations (“CLOs”) are consolidated into the financial statements of BlackRock, notwithstanding the fact that BlackRock may only have a minority interest, if any, in these funds or CLOs. As a result, BlackRock’s consolidated statements of cash flows include the cash flows of consolidated sponsored investment funds and CLOs. The Company uses an adjusted cash flow statement, which excludes the impact of consolidated sponsored investment funds and CLOs, as a supplemental non-GAAP measure to assess liquidity and capital requirements. The Company believes that its cash flows, excluding the impact of the consolidated sponsored investment funds and CLOs, provide investors with useful information on the cash flows of BlackRock relating to its ability to fund additional operating, investing and financing activities. BlackRock’s management does not advocate that investors consider such non-GAAP measures in isolation from, or as a substitute for its cash flow presented in accordance with GAAP.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds and VIEs (continued)

The following table presents a reconciliation of the Company’s consolidated statements of cash flows presented on a GAAP basis to the Company’s consolidated statements of cash flows, excluding the impact of the cash flows of consolidated sponsored investment funds and consolidated VIEs:

   Year ended  Year ended       
   December 31,  December 31,       
   2010  2009  Variance 
(Dollar amounts in millions)  GAAP
Basis
  Impact on
Cash Flows

of
Consolidated
Sponsored
Investment
Funds
  Impact on
Cash Flows
of
Consolidated
VIEs
  Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds and VIEs
  Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds and VIEs
  Amount  % 

Cash flows from:

        

Operating

  $2,488   ($76 ($1 $2,565   $1,231   $1,334    108

Investing

   (627  (52  —      (575  (5,550  4,975    *  

Financing

   (3,170  118    (8  (3,280  6,934    (10,214  *  

Effect of exchange rate changes

   (32  —      —      (32  47    (79  *  
                          

Net change in cash and cash equivalents

   (1,341  (10  (9  (1,322  2,662    (3,984  *  

Cash and cash equivalents, beginning of year

   4,708    75    9    4,624    1,971    2,653    135
                          

Cash and cash equivalents, end of year

  $3,367   $65   $—     $3,302   $4,633   ($1,331  (29%) 
                          

* – Not applicable or the percentage is in excess of +/- 1,000%.

Cash and cash equivalents, excluding cash held by consolidated sponsored investment funds and VIEs at December 31, 2010 decreased $1,322 million from December 31, 2009, resulting from $2,565 million of cash inflows from operating activities, $3,280 million of cash outflows from financing activities, $575 million of cash outflows from investing activities and a $32 million decrease due to the effect of foreign exchange rate changes on cash and cash equivalents.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds and VIEs (continued)

Operating Activities

Sources of BlackRock’s operating cash primarily include investment advisory, administration fees and securities lending revenue, performance fees, revenues fromBlackRock Solutions and advisory products and services, other revenue and distribution fees. BlackRock uses its cash to pay compensation and benefits, distribution and servicing costs, direct fund expenses, general and administration expenses, interest and principal on the Company’s borrowings, income taxes, dividends on BlackRock’s capital stock, capital expenditures and to purchase co-investments and seed investments.

Net cash inflows from operating activities, excluding the impact of consolidated sponsored investment funds and VIEs, for the year ended December 31, 2010 primarily include the receipt of investment advisory and administration fees, securities lending revenue and other revenue offset by the payment of operating expenses incurred in the normal course of business. Net cash inflows for the year ended December 31, 2010 included the effect of cash payments related to 2009 incentive compensation, including the payments for BGI employee compensation accruals assumed in the BGI Transaction and repayments to Barclays of approximately $320 million to settle certain non-interest bearing notes assumed in the BGI Transaction.

Investing Activities

Cash outflows from investing activities, excluding the impact of consolidated sponsored investment funds and VIEs, for the year ended December 31, 2010 were $575 million and primarily included $656 million of purchases of investments, including $315 million of Federal Reserve Bank stock, $131 million of purchases of property and equipment, and $23 million of acquisition related payments, partially offset by $181 million of net proceeds from sales and maturities of investments and $53 million of return of capital from equity method investees.

Financing Activities

Cash outflows from financing activities, excluding the impact of consolidated sponsored investment funds and VIEs, for the year ended December 31, 2010 were $3,280 million primarily included repayments of short-term borrowings and convertible debt of $2,134 million and $176 million, respectively, $776 million of payments for cash dividends and $264 million related to repurchases of common stock, including $140 million of stock repurchases under the repurchase plan approved in July 2010 and $124 million to satisfy tax withholding obligations of employees related to vesting of certain restricted stock awards. Cash outflows from financing activities were partially offset by cash inflows related to $44 million of excess tax benefits from vested stock-based compensation and a $10 million Merrill Lynch cash capital contribution.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

Capital Resources

The Company manages its consolidated financial condition and funding to maintain appropriate liquidity for the business. At December 31, 2007, the Company had total cash and cash equivalents on its consolidated statements of financial condition of $1,656.2 million. Cash and cash equivalents, net of amounts in consolidated sponsored investment funds of $67.0 million and net of regulatory capital requirements ($217.4 million, partially met with cash and cash equivalents) was $1,371.8 million. In addition,Capital resources at December 31, 2010 and 2009 were as follows:

   December 31,  Variance 
(Dollar amounts in millions)  2010  2009  Amount  % Change 

Cash and cash equivalents

  $3,367   $4,708   ($1,341  (28%) 

Cash and cash equivalents held by consolidated sponsored investment funds(1)

   (65  (75  10    13
              

Subtotal

   3,302    4,633    (1,331  (29%) 

2007 credit facility – undrawn(2)

   2,266    2,171    95    4

Commercial paper(3)

   —      (2,034  2,034    100
              

Total liquidity

  $5,568   $4,770   $798    17
              

Required regulatory capital(4)

  $897   $857   $40    5

(1)

The Company may not be able to access such cash to use in its operating activities.

(2)

Excludes $134 million and $129 million of undrawn amounts at December 31, 2010 and 2009, respectively related to Lehman Commercial Paper, Inc.

(3)

The outstanding commercial paper notes that are supported by the 2007 credit facility reduce the availability of the facility.

(4)

A portion of the required regulatory capital is partially met with cash and cash equivalents.

The $798 million increase in total liquidity during the Company had committed access to $2,100year ended December 31, 2010 included the effects on liquidity of the following: positive operating cash flows which were partially offset by (i) cash payments of 2009 year end incentive awards, including the payments for BGI employee compensation accrual assumed in the BGI Transaction, (ii) the purchase of $315 million of undrawn cash via its 2007 five-year credit facility, resulting in cash, netFederal Reserve Bank stock, (iii) the settlement of cash in consolidated sponsored investment funds and regulatory capital requirements, plus credit capacityapproximately $320 million of $3,471.8 million.

Approximately $67.0 million in cash and cash equivalents and $1,054.2 million in investments includedcertain non-interest bearing notes assumed in the Company’s consolidated statementBGI Transaction and (iv) $176 million of financial condition at December 31, 2007 are held by sponsored investment funds that are consolidated by BlackRock in accordance with GAAP. The Company may not be ablerepayments related to access such cash or investments to use in its operating activities. In addition, aconvertible debt.

A significant portion of the Company’s $1,403 million of net economic investments are illiquid in nature and, as such, aremay not be readily convertible to cash.

Short-term Borrowings:

51

The following describes the Company’s short-term borrowing arrangements, which the Company has access to utilize.


2007 Credit Facility

In August 2007, the Company entered into a five-year, $2.5 billion unsecured revolving credit facility (the “2007 facility”) to provide back-up liquidity, fund ongoing working capital for general corporate purposes and to fund investment opportunities. The 2007 facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less domestic unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at December 31, 2010. At December 31, 2010, the Company had $100 million outstanding under the 2007 facility with an interest rate of 0.47% and a maturity date of February 28, 2011. The Company had a daily average of $100 million outstanding during the fourth quarter 2010 and a daily average of $115 million outstanding for the full year 2010.

Lehman Commercial Paper, Inc. has a $140 million participation under the 2007 facility; however, BlackRock does not expect that Lehman Commercial Paper, Inc. will honor its commitment to fund additional amounts. Bank of America, a related party prior to November 2010, has a $140 million participation under the 2007 facility.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

 

Operating ActivitiesShort-term Borrowings (continued)

SourcesCommercial Paper Program

On October 14, 2009, BlackRock established a commercial paper program (the “CP Program”) under which the Company may issue unsecured commercial paper notes (the “CP Notes”) on a private placement basis up to a maximum aggregate amount outstanding at any time of BlackRock’s operating cash include investment advisory and administration fees, revenues fromBlackRock Solutions’ products and services, property management fees, mutual fund distribution fees and realized earnings and distributions on certain$3 billion. The initial proceeds of the Company’s investments. BlackRock primarily uses its operating cashcommercial paper issuances were used to pay compensationfinance a portion of the BGI Transaction. Subsidiaries of Bank of America and benefits, portfolio administration and servicing costs, general and administration expenses, interest onBarclays, as well as other third parties, act as dealers under the Company’s borrowings, purchases of investments, capital expenditures, income taxes and dividends on BlackRock’s capital stock.

Investment Activities

CP Program. At December 31, 2010 the CP Program was supported by the 2007 facility.

The Company began to issue CP Notes under the CP Program on November 4, 2009. As of December 31, 2010, BlackRock did not have any outstanding CP Notes. The Company did not have any CP Notes outstanding subsequent to September 2010 and had a daily average of $404 million CP Notes outstanding for the full year 2010.

Japan Commitment-line

In September 2010, BlackRock Japan Co., Ltd., a wholly-owned subsidiary of the Company, renewed its five billion Japanese yen commitment-line agreement (the “Japan Commitment-line”) for a term of one year. The Japan Commitment-line is intended to provide liquidity and flexibility for operating requirements in Japan. At December 31, 2010, the Company had $513.9no borrowings outstanding under the Japan Commitment-line.

Other Significant 2010 Cash Uses

Settlement of Acquisition Related Liabilities with Barclays

In general, as certain acquired BGI receivables are collected, the Company is required to pay Barclays approximately $342 million, which was recorded as of December 31, 2009 in due to related parties on the consolidated statement of financial condition, to settle certain non-interest bearing notes assumed in the BGI Transaction. As of December 31, 2010, the Company had repaid approximately $320 million.

Federal Reserve Bank stock

BlackRock Institutional Trust Company, N.A. (“BTC”), a wholly-owned subsidiary of the Company, purchased $315 million of various capital commitmentsadditional Federal Reserve Bank stock during the year ended December 31, 2010 pursuant to fund sponsored investment fundsits regulatory requirements. Additional purchases of Federal Reserve Bank stock, pursuant to BTC’s regulatory requirements, may be required; however, such amounts currently are not expected to be material.

Approval to Repurchase up to 5,100,000 shares

In July 2010, BlackRock announced that its Board of Directors approved the repurchase of up to 5,100,000 shares to neutralize the dilutive effects of restricted stock units and unfunded commitments relatedoptions that have been granted to one private equity warehouse facility. Generally,employees and which will become dilutive over the next several years. The shares are to be repurchased with management discretion on the timing of the fundingrepurchases. BlackRock’s pre-existing repurchase program established in 2006 was terminated effective with the new authorization. As of capital commitments is uncertain and such commitments could expire before funding. The Company intends to make additional capital commitments from time to time to seed additional investment products for and with clients.

At December 31, 2007,2010, the Company had loanedrepurchased 896,102 shares in open market transactions for approximately $79.5 million to certain funds of funds managed by the Company and warehouse entities established for such funds. At December 31, 2007, the Company had committed to make additional loans of approximately $89.6 million under the agreements. The Company anticipates making additional commitments under these facilities from time to time, but is not obligated to do so.

Borrowings

In December 2006, the Company entered into an unsecured revolving credit facility with a syndicate of banking institutions. This facility, as amended in February 2007 (the “2006 facility”), permitted the Company to borrow up to $800$140 million.

In August 2007, the Company terminated the 2006 facility and entered into a new five year $2.5 billion unsecured revolving credit facility (the “2007 facility”), which permits the Company to request an additional $500 million of borrowing capacity, subject to lender credit approval, up to a maximum of $3.0 billion. The 2007 facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to EBITDA, where net debt equals total debt less domestic unrestricted cash) of 3 to 1, which was satisfied at December 31, 2007.

The 2007 facility was used to refinance the 2006 facility and will provide back-up liquidity, fund ongoing working capital for general corporate purposes and fund investment opportunities. At December 31, 2007, the Company had $300 million outstanding under the 2007 facility with interest rates between 5.105% to 5.315% and maturity dates between March 2008 and September 2008 in addition to the $100 million of letters of credit outstanding related to the capital support agreements for the two enhanced cash funds.

In September 2007, the Company issued $700 million in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017 (the “Notes”). The Notes were issued at a discount of $5.6 million, which is being amortized over the ten-year term. A portion of the net proceeds of the Notes was used to fund the initial cash payment for the acquisition of the fund of funds business of Quellos and the remainder was used for general corporate purposes.

At December 31, 2007, long-term borrowings were $947.0 million. Debt service and repayment requirements, assuming the convertible debentures (discussed later) are repaid at BlackRock’s option in 2010, are $51.0 million in 2008 and 2009, $297.7 million in 2010 and $43.8 million in 2011 and 2012.

 

52


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

 

Capital ActivitiesBarclays Support of Certain Cash Funds

In June 2007, the Company announced that it had entered into an asset purchase agreement under which it would acquireBarclays has provided capital support agreements to support certain assets of the fund of funds business of Quellos for up to $1.719 billion. This transaction closed on October 1, 2007, andcash management products acquired by BlackRock paid Quellos $562.5 million in cash and $187.5 million in BlackRock common stock. The common stock will be held in escrow for up to three years and is available to satisfy certain indemnification obligations of Quellos under the asset purchase agreement. In addition, Quellos may receive up to an additional $969 million in a combination of cash and stock contingent upon achieving certain operating measures through December 31, 2010.

On August 2, 2006, BlackRock announced that its Board of Directors had authorized a share repurchase program to purchase an additional 2.1 million shares of BlackRock common stock. Pursuant to this repurchase program, BlackRock may make repurchases from time to time, as market conditions warrant, in the open market or in privately negotiated transactions at the discretion of management. The Company repurchased 1,348,600 shares under the program in open market transactions for approximately $200.9 million through December 31, 2007. As a result, the Company is currently authorizedBGI Transaction. Pursuant to repurchase an additional 751,400 shares under its share repurchase program.

In 2007, under the terms of the 2002 LTIP Awards, employees electedcapital support agreements, Barclays agreed to put approximately 95%cover losses on covered securities within the products in the aggregate of up to $2.2 billion from December 1, 2009 through December 1, 2013 or until certain criteria are met. BlackRock and Barclays have procedures in place to determine loss events on covered securities within the stock portionproducts and to ensure support payments from Barclays. At December 31, 2010, Barclays’ remaining maximum potential obligation in the aggregate under the capital support agreements was $1.7 billion. At December 31, 2010, BlackRock concluded that although these funds were variable interest entities, it was not the primary beneficiary of the awards back to BlackRock at a total fair market value of approximately $166 million.

During 2007, BlackRock paid cash dividends of $353.5 million, or 35.5% of its net income. BlackRock announced an increase to the quarterly dividend rate, effective with the March 24, 2008 payment, to $0.78 per share from $0.67 per share paid in 2007.these funds.

Net Capital Requirements

The Company is required to maintain net capital in certain internationalregulated subsidiaries within a number of jurisdictions, which is met in partpartially maintained by retaining cash and cash equivalent investmentsequivalents in those jurisdictions. As a result, such subsidiaries of the Company may be restricted in itstheir ability to transfer cash between different jurisdictions.jurisdictions and to their parents. Additionally, transfertransfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.

BTC is chartered as a national bank that does not accept client deposits and whose powers are limited to trust activities. BTC provides investment management services, including investment advisory and securities lending agency services to institutional investors and other clients. BTC is subject to various regulatory capital and liquid asset requirements administered by Federal banking agencies.

At December 31, 2007,2010, the Company was required to maintain approximately $217.4$897 million in net capital at thesein certain regulated subsidiaries, including BTC and isentities regulated by the FSA in the United Kingdom, and were in compliance with all applicable regulatory minimum net capital requirements.requirements.

During 2011, the Company’s net capital requirements increased approximately $157 million due to increases related to certain of its European regulated legal entities.

 

53


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies

The following table sets forth contractual obligations, commitments and contingencies by year of payment as ofat December 31, 2007:2010:

 

(Dollar amounts in thousands)  2008  2009  2010  2011  2012  Thereafter  Total

Contractual obligations and commitments:

              

Long-term borrowings1

              

Long-term notes

  $43,750  $43,750  $43,750  $43,750  $43,750  $918,750  $1,137,500

Convertible debentures

   6,563   6,563   253,278   —     —     —     266,404

Other

   684   684   684   —     —     —     2,052

Short-term borrowings1

   309,086   —     —     —     —     —     309,086

Operating leases

   71,696   65,463   62,919   60,576   54,944   216,982   532,580

Purchase obligations

   48,310   32,270   14,180   9,537   6,164   —     110,461

Investment / loan commitments

   98,795   89,642   49,548   643   —     364,927   603,555
                            

Total contractual obligations and commitments

   578,884   238,372   424,359   114,506   104,858   1,500,659   2,961,638
                            

Contingent obligations:

              

Contingent distribution obligations

   409,363   307,022   —     —     —     —     716,385

Contingent payments related to business acquisitions

   —     295,000   10,000   595,000   —     —     900,000
                            

Total contractual obligations, commitments and contingent obligations2

  $988,247  $840,394  $434,359  $709,506  $104,858  $1,500,659  $4,578,023
                            
(Dollar amounts in millions)  2011   2012   2013   2014   2015   Thereafter   Total 

Contractual obligations and commitments:

              

Short-term borrowings:

              

Principal

  $100    $—      $—      $—      $—      $—      $100  

Convertible debentures:

              

Principal

   67     —       —       —       —       —       67  

Interest

   2     —       —       —       —       —       2  

Long-term borrowings:

              

Principal

   —       500     —       1,000     —       1,700     3,200  

Interest

   140     140     129     129     94     288     920  

Operating leases

   131     117     130     115     106     903     1,502  

Purchase obligations

   121     30     16     5     2     —       174  

Investment commitments

   183     —       —       —       —       —       183  
                                   

Total contractual obligations and commitments

   744     787     275     1,249     202     2,891     6,148  

Contingent obligations:

              

Contingent distribution obligations

   226     226     226     —       —       —       678  
                                   

Total contractual obligations, commitments and contingent obligations(1)

  $970    $1,013    $501    $1,249    $202    $2,891    $6,826  
                                   

 

1(1)

Amounts include principal repayments and interest payments.

2

The table above does not include: (a) approximately $61.8As of December 31, 2010, the Company had $246 million of uncertainnet unrecognized tax positionsbenefits. Due to the uncertainty of timing and potential interest on such positions in accordance with FIN No. 48 and (b) $100 million related to capital support agreements foramounts that will ultimately be paid, this amount has been excluded from the two enhanced cash funds as the Company is unable to estimate the timing of the ultimate outcome.table above.

 

54


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies (continued)

 

Long-term Notes

In September 2007, the Company issued $700.0 million in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017. Interest is payable semi-annually on March 15 and September 15 of each year. The Notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” premium. The Notes were issued at a discount of $5.6 million, which is being amortized over their ten-year term.

Convertible Debentures

In February 2005, the Company issued $250.0 million aggregate principal amount of convertible debentures due in 2035 and bearing interest at a rate of 2.625% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, or approximately $6.6 million per year. The convertible debentures are callable by the Company at any time on or after February 20, 2010. In addition, the convertible debentures contain certain put and conversion provisions. On the contractual obligations table above, the principal balance of the convertible debentures is assumed to be repaid at BlackRock’s option in 2010, and the related interest has been included through the call date. However, beginning in February 2009 the convertible debentures may be converted at the option of the holders.

Short-term Borrowings

At December 31, 2007,2010, the Company had $300.0$100 million outstanding under the 2007 facility with an interest rates between 5.105%rate of 0.47% and a maturity date of February 28, 2011.

Convertible Debentures

In February 2005, the Company issued $250 million aggregate principal amount of convertible debentures due in 2035 and bearing interest at a rate of 2.625% per annum. Beginning in February 2009, the convertible debentures became convertible at the option of the holders at any time and on and after, February 20, 2010 the convertible debentures became callable by the Company at any time following not more than 60, but not less than, 30 days notice. On the contractual obligations table above, the remaining $67 million principal balance of the convertible debentures is assumed, although not determined, to 5.315%be fully repaid in 2011.

Long-term Borrowings

At December 31, 2010, the principal amount of long-term borrowings was $3.2 billion. Debt service and maturity dates betweenrepayment requirements are $140 million in 2011, $640 million in 2012, $129 million in 2013, $1,129 million in 2014 and $94 million in 2015.

2017 Notes

In September 2007, the Company issued $700 million in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017 (the “2017 Notes”). A portion of the net proceeds of the 2017 Notes was used to fund the initial cash payment for the acquisition of the fund of funds business of Quellos and the remainder was used for general corporate purposes. Interest is payable semi-annually in arrears on March 200815 and September 2008.15 of each year, or approximately $44 million per year. The 2017 Notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” redemption price. The 2017 Notes were issued at a discount of $6 million, which is being amortized over their ten-year term.

2012, 2014 and 2019 Notes

In December 2009, the Company issued $2.5 billion in aggregate principal amount of unsecured and unsubordinated obligations. These notes were issued as three separate series of senior debt securities including $0.5 billion of 2.25% notes, $1.0 billion of 3.50% notes and $1.0 billion of 5.0% notes maturing in December 2012, 2014 and 2019, respectively. Net proceeds of this offering were used to repay borrowings under our CP program, which was used to finance a portion of the BGI Transaction, and for general corporate purposes. Interest on these notes of approximately $96 million per year is payable semi-annually in arrears on June 10 and December 10 of each year. These notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” redemption price. These notes were issued collectively at a discount of $5 million, which is being amortized over approximately a weighted 6.6 year term.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies (continued)

Operating Leases

The Company leases its primary office space and certain office equipment under agreements that currently expire through 2023.2035. In connection with certain lease agreements, the Company is responsible for escalation payments. The contractual obligations table above includes only guaranteed minimum lease payments for such leases and does not project potential escalation or other lease-related payments. These leases are classified as operating leases and, as such, are not recorded as liabilities on the consolidated statements of financial condition.

In January 2010, the Company entered into an agreement with Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers Gardens Unit Trust, for the lease of approximately 292,418 square feet of office and ancillary (including retail) space located at Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United Kingdom. The lease began on February 17, 2010 (the “Effective Date”) and will continue for 25 years, with the option to renew for an additional five-year term. The lease provides for total annual base rental payments of approximately $22 million, which is subject to increase on each fifth anniversary of the beginning of the lease. The lease included an initial rent free period for 36 months and 22 days following the Effective Date.

Purchase Obligations

In the ordinary course of business, BlackRock enters into contracts or purchase obligations with third parties whereby the third parties provide services to or on behalf of BlackRock. Purchase obligations included in the contractual obligations table above represent executory contracts, which are either non-cancelable or cancelable with a penalty. At December 31, 2007,2010, the Company’s obligations primarily reflect standard service contracts for portfolio, market data, and office related services and third party marketing and promotional services. Purchase obligations are recorded on the Company’s financial statements only after the goods orwhen services have been receivedare provided and, as such, obligations for services not received are not included in the Company’s consolidated statement of financial condition at December 31, 2007.2010.

In connection with the Drapers Gardens lease described above, the Company entered into a purchase obligation for construction services of approximately $67 million. The Company incurred $4 million of construction services during the year ended December 31, 2010. Substantially all of the remaining obligation of $63 million is expected to be incurred during 2011.

 

55


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies (continued)

 

Investment /LoanInvestment/Loan Commitments

TheAt December 31, 2010, the Company hashad $183 million of various capital commitments to fund companies orsponsored investment funds, in which it has an ownership stake as well as loanincluding funds of private equity funds, real estate funds and distressed credit funds. This amount excludes additional commitments to certainmade by consolidated funds of funds managed byto underlying third party funds as third party non-controlling interest holders have the Company and warehouse entities established forlegal obligation to fund the respective commitments of such funds of funds. Generally, the timing of the funding of these commitments is unknown. Therefore, amountsunknown and the commitments are shown to be paid upon the expiration date of the commitment. Actual payments could be madecallable on demand at any time prior to such datethe expiration of the commitment and ifare therefore presented in 2011. These unfunded commitments are not called by that date, such commitments would expire. These commitments have not been recorded on the Company’s consolidated statements of financial condition at December 31, 2007.condition. The above schedule does not include potential future commitments approved by the Company’s Capital Committee, but which are not yet legally binding commitments.

BlackRock is also obligatedbinding. The Company intends to maintain specified ownership levels in certainmake additional capital commitments from time to time to fund additional investment products for, and with, its clients.

Prior to March 31, 2010, the Company was committed to provide financing of up to $60 million to Anthracite Capital, Inc. (“Anthracite”), a specialty commercial real estate finance company that was managed by a subsidiary of BlackRock. The financing is collateralized by a pledge by Anthracite of its ownership interest in a real estate debt investment fund, which may resultis managed by a subsidiary of BlackRock. At December 31, 2010, $33.5 million of financing was outstanding and remains outstanding as of February 2011, which is past its final maturity date of March 5, 2010. At December 31, 2010, the carrying value of the collateral was estimated to be zero, which resulted in an additional required contributions or distributions$12.5 million reduction in amounts due from related parties on the Company’s consolidated statement of capital. Thesefinancial condition and an equal amount recorded in general and administrative expenses on the Company’s consolidated statements of income for the year ended December 31, 2010. The Company has no obligation to loan additional amounts are inherently uncertain and have been excluded fromto Anthracite under this facility. Anthracite filed a voluntary petition for relief under Chapter 7 of Title 11 of the contractual obligations schedule above. In addition, asU.S. Code in the U.S. Bankruptcy Court for the Southern District of New York on March 15, 2010. Recovery of any amount of the financing provided by the Company in excess of the value of the collateral is not anticipated. The Company continues to evaluate the collectability of the outstanding borrowings.

Carried Interest Claw-back

As a general partner in certain investment funds, including private equity partnerships and certain hedge funds, the Company receivesmay receive certain carried interest cash distributions from the partnerships according to thein accordance with distribution provisions of the partnership agreements. The Company may, from time to time, be required to return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve a certain return as specified in the various partnership agreements. At December 31, 2010, the Company has received less than $10 million in cash that was not recorded as revenue and is subject to claw-back.

Contingent Distribution Obligations

In November 2010, BlackRock has entered into a second amended and restated global distribution agreement with Merrill Lynch, which requires the Company to make payments to Merrill Lynch contingent upon sales of products and level of assets under management maintained in certain BlackRock products. The economic terms of the agreement will remain in effect until September 30, 2009.January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are satisfied. The above schedule reflects the Company’s estimated payments for 2011, which due to uncertainty of asset levels and future additional one-year terms, subject to certain conditions.sales, has been held constant for 2011 through 2013.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies (continued)

Contingent Payments Related to Business Acquisitions

Amounts included in the table above are additional contingent payments to be paid in cash related to its acquisitions of: (i) SSRM Holdings, Inc., and (ii) certain assets of Quellos. As the remaining contingent obligations are primarily dependent upon achievement of certain operating measures, the ultimate liabilities are not certain as of December 31, 2007 and have not been recorded on the Company’s consolidated statements of financial condition. The amount of contingent payments reflected for any year represents the maximum amount of cash that could be payable at the earliest possible date under the terms of the business purchase agreements.

In January 2005, the Company closed its acquisition of SSRM Holdings, Inc. from MetLife for adjusted consideration of approximately $265.1 million in cash and 550,000 restricted shares of BlackRock common stock and certain additional contingent payments. On the fifth anniversary of the closing of the SSR Transaction, MetLife may be entitled to receive an additional payment of up to a maximum of $10.0 million based on the Company’s retained AUM associated with the MetLife defined benefit and defined contribution plans.

In connection with the Quellos Transaction, Quellos may bewas entitled to receive two contingent payments, uponsubject to achieving certain investment advisory revenuebase and performance fee measures through December 31, 2010, totaling up to an additional $969 million in a combination of cash and stock. The

During second quarter 2009, the Company determined the amount of the first contingent payment to be $219 million, of up to $374which $11 million is payable up to 25%was previously paid in BlackRockcash during 2008. Of the remaining $208 million, during second quarter 2009, $156 million was paid in cash and $52 million was paid in common stock, and the remainder in cash. or approximately 330,000 shares based on a price of $157.33 per share.

The second contingent payment, of up to $595 million, iswould have been payable in cash. At December 31, 2007,cash in 2011. Quellos also was entitled to a “catch-up” payment in 2011 if certain investment advisory base fee measures were met through 2010 as the Company believes it is likely thatvalue of the first contingent payment was less than $374 million. A portion of the second contingent payment, not to exceed $90 million, would have been paid to Quellos based on factors including the continued employment of certain employees with BlackRock.

The base and performance fee measures through December 31, 2010 were not achieved, therefore, the remaining contingent payments will be paid in full, however the ultimate outcome is not certain.occur.

 

56


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Liquidity and Capital Resources (continued)

Contractual Obligations, Commitments and Contingencies (continued)

 

The following items have not been included in the contractual obligations, commitments and contingencies table:

Compensation and benefit obligationsBenefit Obligations

The Company has various compensation and benefit obligations, including bonuses, commissions and incentive payments payable, defined contribution plan matching contribution obligations, and deferred compensation arrangements, that are excluded from the table above primarily due to uncertainties in their payout periods. These arrangements are discussed in more detail in Notes 1215, Stock-Based Compensation, and 1316, Employee Benefit Plans, to the consolidated financial statements contained herein.beginning on page F-1 of this Form 10-K. Accrued compensation and benefits at December 31, 20072010 totaled $1,086.6$1,520 million and included incentive compensation of $834.6$1,220 million, deferred compensation of $133.0$89 million and other compensation and benefits related obligations of $119.0$211 million. IncentiveSubstantially all of the incentive compensation liability was primarily paid in the first quarter of 2008,2011, while the deferred compensation obligations are generally payable over periods up to five years.

Separate Account Liabilities

The Company’s two wholly-owned registered life insurance companycompanies in the United Kingdom maintainsmaintain separate account assets representing segregated funds held for purposes of funding individual and group pension contracts. The net investment income and net realized and unrealized gains and losses attributable to these separate account assets accrue to the contract ownerowners and, as such, an offsetting separate account liability is recorded. At December 31, 2007,2010, the Company had $4.7$121.1 billion of assets and offsetting liabilities on the consolidated statement of financial condition. The payment of these contractual obligations is inherently uncertain and varies by customer. As such, these liabilities have been excluded from the contractual obligations table above.

Indemnifications

In many of the Company’s contracts, including the BGI, MLIM and Quellos Transaction agreements, BlackRock agrees to indemnify third parties under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in the Company’s consolidated statement of financial condition at December 31, 2007.2010. See further discussion in Note 1114, Commitments and Contingencies, to the consolidated financial statements beginning on page F-1 of this Form 10-K.

 

57


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. Management considers the following critical accounting policies important to understanding ourthe consolidated financial statements. For a summary of these and additional accounting policies as well as recent accounting developments see Note 2, Significant Accounting Policies, to the consolidated financial statements beginning on page F-1 of this Form 10-K.

InvestmentsConsolidation of Sponsored Investment Funds and Securitization Products

Consolidation of Investmentssponsored investment funds and securitization products (collectively “investment products”) is determined pursuant to ASC 810,Consolidation

. The accounting method used forby the Company’s investments generallyCompany is dependent upon the influence the Company has onover its investee. For investments whereinvestee, the investment product. To the extent that BlackRock can exert control over the financial and operating policies of the investee,investment product, which generally exists if BlackRock hasthere is a 50% or greater voting interest or if partners or members of certain products do not have substantive rights, the investeeinvestment product is consolidated into BlackRock’s financial statements.

For investment products in which BlackRock’s voting interest is less than 50%, an analysis is performed to determine if the investment product is a variable interest entity (“VIE”) or a voting rights entity. Upon the determination that the investment product is a VIE further analysis, as discussed below, is performed to determine if BlackRock is the primary beneficiary (“PB”) of the investment product, which would result in consolidation.

Consolidation of Variable Interest Entities

Pursuant to ASC 810-10, certain investments whereinvestment products for which the risks and rewards of ownership are not directly linked to voting interests (“variable interest entities” or “VIEs”), an investee may be consolidateddeemed VIEs. BlackRock reviews factors, including the rights of the equity holders and obligations of equity holders to absorb losses or receive expected residual returns to determine if the investment product is a VIE. BlackRock is consideredrequired to consolidate a VIE when it is deemed to be the primary beneficiaryPB, which is evaluated continuously as facts and circumstances change.

In June 2009, the FASB issued ASU 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities(“ASU 2009-17”), which became effective for BlackRock on January 1, 2010. In February 2010 the FASB issued ASU 2010-10,Amendments to Statement 167 for Certain Investment Funds(“ASU 2010-10”).This ASU deferred the application of Statement of Financial Accounting Standards (“SFAS”) No. 167,Amendments to FASB Interpretation No. 46(R), to a reporting enterprise’s interest in VIEs if certain conditions are met.

The PB of a VIE that is an investment fund meeting the conditions of ASU 2010-10 is the enterprise that absorbs the majority of the investee.entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of holding variable interests (including those of related parties). Effective January 1, 2010, the PB of a VIE that does not meet the conditions for deferral in ASU 2010-10 is the enterprise that has the power to direct activities of the entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Consolidation of Variable Interest Entities (continued)

Significant judgment is required in the determination of whether the Company is the primary beneficiaryPB of a VIE. If the Company, together with its related parties, is determined to be the primary beneficiaryPB of a VIE, the entity will be consolidated within BlackRock’s consolidated financial statements. In order to determine whether the Company is the primary beneficiaryPB of a VIE for entities that do meet the conditions of ASU 2010-10, management must make significant estimates and assumptions of probable future cash flows and assign probabilities to different cash flow scenarios. Assumptions made in such analyses include, but are not limited to, market prices of securities, market interest rates, potential credit defaults on individual securities or default rates on a portfolio of securities, gain realization, liquidity or marketability of certain securities, discount rates and the probability of certain other outcomes.

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including collateralized debt/loan obligations (“CDOs” or “CLOs”) that do not meet the conditions of ASU 2010-10 and sponsored investment funds, which may be considered VIEs. At December 31, 2010, the Company consolidated four VIEs, including three CLOs and one sponsored private equity fund. At December 31, 2010, the following balances related to these four VIEs were consolidated on the Company’s consolidated statement of financial condition:

(Dollar amounts in millions)  CLOs  Sponsored
Private
Equity Fund
  Total
Consolidated
VIEs
 

Assets of consolidated VIEs:

    

Cash and cash equivalents

  $82   $11   $93  

Bank loans, bonds and other investments

   1,278    34    1,312  

Liabilities of consolidated VIEs:

    

Borrowings

   (1,278  —      (1,278

Other liabilities

   (7  —      (7

Appropriated retained earnings

   (75  —      (75

Non-controlling interests of consolidated VIEs

   —      (45  (45
             

Total net interests in consolidated VIEs

  $—     $—     $—    
             

As of December 31, 2010, BlackRock was the manager of over 20 CLOs/CDOs and other securitization entities, including the three aforementioned CLOs in which BlackRock, in accordance with ASU 2009-17, was determined to be the PB, which resulted in consolidation of these VIEs in the Company’s consolidated financial statements. BlackRock was deemed to be the PB because it has the power to direct the activities of the CLO that most significantly impact the entity’s economic performance and has the right to receive benefits that potentially could be significant to the VIE. At December 31, 2010, the Company had $1,360 million and $1,285 million in assets and liabilities, respectively, on its consolidated statement of financial condition related to these consolidated CLOs. In addition, the Company recorded appropriated retained earnings for the difference, as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLO’s assets and liabilities. Therefore, the changes in the assets and liabilities of these CLOs have no impact on net income attributable to BlackRock, Inc. or its cash flows.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Consolidation of Variable Interest Entities (continued)

At of December 31, 2010, BlackRock was determined to be the PB of one sponsored private equity investment fund of funds in which it had a non-substantive investment and was deemed to absorb the majority of the variability due to its de-facto third party relationships with other partners in the fund, which limits the ability of the partners to transfer or sell their interests without BlackRock’s consent as the general partner of the fund. At December 31, 2010, the Company had recorded $11 million, $34 million and $45 million in cash and cash equivalents, private equity investments and nonredeemable non-controlling interests of consolidated VIEs, respectively, on its consolidated statement of financial condition related to this VIE. The Company has no risk of loss with its involvement with this VIE. Therefore, the changes in the assets and liabilities of this VIE have no impact on net income attributable to BlackRock, Inc.

Consolidation of Voting Rights Entities

To the extent that BlackRock maintains 50% or greater voting interest of an investment product, BlackRock is deemed to have control of the product, which results in consolidation of the product into BlackRock’s financial statements.

The Company, as general partner or managing member of itscertain sponsored investment funds, generally is generally presumed to control funds that are limited partnerships or limited liability companies. ThePursuant to ASC 810-20, Control of Partnerships and Similar Entities (“ASC 810-20”), the Company reviews such investment vehicles to determine if such a presumption can be overcome by determining if other non-related partynon-affiliated partners or members of the limited partnership or limited liability company have the substantive ability to dissolve (liquidate) the investment vehicle, or otherwise to remove BlackRock as the general partner or managing member without cause based on a simple unaffiliated majority vote, or have other substantive participating rights. If the investment vehicle is not a VIE and the presumption of control is not overcome, the investment vehicle will be consolidated into BlackRock’s financial statements.

BlackRock acts as general partner or managing member for consolidated private equity funds of funds. In December 2007, BlackRock took necessary steps to grant additional rights to the third party investors in approximately 14 funds with net assets at December 31, 2007 of approximately $1 billion. The granting of these rights resulted in the deconsolidation of such investment funds from the consolidated financial statements as of December 31, 2007.

 

58


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Critical Accounting Policies (continued)

 

Fair ValueConsolidation of InvestmentsVoting Rights Entities (continued)

At December 31, 2010 and 2009, as a result of consolidation of various investment products deemed to be voting rights entities, including products where BlackRock records substantially all investmentsowns 50% of greater of the voting rights of the product, under the consolidation policies described above, the Company had the following balances on its consolidated statements of financial condition at fair value or amounts that approximate fair value. For certain investments, including investments classified as trading investments andcondition:

(Dollar amounts in millions)  December 31,
2010
  December 31,
2009
 

Cash and cash equivalents

  $65   $75  

Investments:

   

Trading investments

   60    103  

Other investments

   337    360  

Other assets

   3    2  

Other liabilities

   (10  (9

Non-controlling interests

   (195  (273
         

BlackRock’s net interests in consolidated investment funds

  $260   $258  
         

The Company has retained the specialized accounting of these investment funds pursuant to ASC 810-10. At December 31, 2009, the above balances included a consolidated sponsored investment funds, changes in fair value affect net income in the period of the change. For other investments classified as available-for-sale securities, changes in fair value are recorded asfund that also was deemed a component of stockholders’ equity and generally do not directly impact BlackRock’s net income until such investments are sold or are considered impaired (see below). Marketable securities are priced using publicly available market data. Non-marketable securities, however, generally are priced using a variety of methods and resources, including the most currently available net asset values or capital accounts of the investment, internal valuation models which utilize available market data and management assumptions or in the absence of other methods and resources the fair value for an investment is estimated in good faith by the Company’s management based on a number of factors including the liquidity, financial condition and current and projected operating performance of the investment.

AtVIE at December 31, 2007, BlackRock had approximately $2.0 billion in investments. Changes in fair value on approximately $1.736 billion2010 and is currently reported within assets and liabilities of such investments will impact the Company’s consolidated statements of income and approximately $264 million will impact accumulated other comprehensive income. As of December 31, 2007, approximately $1.054 billion of such investments related to investments within consolidated funds whereby changes in fair value of such investments will impact BlackRock’s investment income and non-controlling interest expenseVIEs on the consolidated statementsstatement of income. BlackRock’s net exposure to changesfinancial condition. This VIE, as well as three CLOs which are also VIEs, was excluded from the December 31, 2010 balances above as commencing in fair value2010 these balances are reported separately on the consolidated statement of such consolidated investment funds is $325 million.financial condition.

Investments

Equity Method Investments

For equity investments where BlackRock does not control the investee, and where the Company is not the primary beneficiaryPB of a VIE, but can exert significant influence over the financial and operating policies of the investee, the Company uses the equity method of accounting. The evaluation of whether the Company exerts control or significant influence over the financial and operational policies of its investees requires significant judgment based on the facts and circumstances surrounding each individual investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms and structure of the investment agreement including investor voting or other rights, the terms of BlackRock’s advisory agreement or other agreements with the investee, any influence BlackRock may have on the governing board of the investee, the legal rights of other investors in the entity pursuant to the fund’s operating documents and the relationship between BlackRock and other investors in the entity.

Under the equity method of accounting, BlackRock’s share of the investee’s underlying net income, based upon the most currently available information, is recorded as non-operating income.

At December 31, 2007 and 2006 the Company had $554.0 million and $326.5 million, respectively, of equity method investees reflected within investments.

 

59


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Critical Accounting Policies (continued)

Investments (continued)

 

Equity Method Investments (continued)

Substantially all of BlackRock’s equity method investees are investment companies which record their underlying investments at fair value. Therefore, under the equity method of accounting, BlackRock’s share of the investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity method investees. BlackRock’s share of the investee’s underlying net income or loss is based upon the most currently available information and is recorded as non-operating income (expense) for investments in investment companies, or as other revenue for operating or advisory company investments, which are recorded in other assets, since such operating or advisory companies are considered to be connected to BlackRock’s core business.

At December 31, 2010, the Company had $583 million and $58 million of equity method investments, including equity method investments held for deferred compensation, reflected within investments and other assets, respectively, and at December 31, 2009 the Company had $401 million and $36 million of equity method investees reflected in investments and other assets, respectively.

Impairment of Investments

The Company’s management periodically assesses impairment on its investments.equity method, available-for-sale, held-to-maturity and cost investments for impairment. If circumstances indicate that impairment may exist, investments are evaluated using market values, where available, or the expected future cash flows of the investment. If the undiscounted expected future cash flows are lower than the Company’s carrying value of the investment, an impairment charge is recorded to the consolidated statementsstatement of income.

When the fair value of an available-for-sale security is lower than its cost or amortized cost value, the Company evaluates the security to determine whether the impairment is considered “other-than-temporary”.

In making this determination for equity securities, the Company considers, among other factors, the length of time the security has been in a loss position, the extent to which the security’s market value is less than its cost, the financial condition and near-term prospects of the security’s issuer and the Company’s ability and intent to hold the security for a lengthperiod of time sufficient to allow for recovery.recovery of such unrealized losses. If the impairment is considered other-than-temporary, a charge is recorded to the consolidated statementsstatement of income. There were no impairments

In making this determination for debt securities, the Company considers whether: (1) the Company has the intent to sell the security, (2) it is more likely than not that the Company will be required to sell the security before recovery, or (3) the Company does not expect to recover the entire amortized cost basis of investments,the security. If the Company does not intend to sell a security and it is not more likely than not that the entity will be required to sell the security, but the security has suffered a credit loss, the credit loss will be bifurcated from the total impairment and recorded in earnings with the remaining portion recorded in other than CDOs (see below), forcomprehensive income.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Impairment of Investments (continued)

For the years ended December 31, 2007, 2006 or 2005.2010, 2009 and 2008, the Company recorded other-than-temporary impairments of less than $1 million, $5 million, and $8 million, respectively, related to debt securities and CDO available-for-sale investments, which were recorded in non-operating income (expense) on the consolidated statements of income.

The Company evaluates its CDO investments for$5 million of impairments in 2009 included $2 million related to credit loss impairments on debt securities. The $2 million credit loss impairment quarterly throughout the term of the investment. The Company reviews cash flow estimates throughout the life of each CDO investment. If the net present value ofin 2009 was determined by comparing the estimated futurediscounted cash flows is lower thanversus the carrying valueamortized cost for each individual security. The other-than-temporary impairments related to debt securities were due to adverse credit conditions for a debt instrument that was purchased from an enhanced cash management fund in which the Company determined that it did not have the ability to hold the securities for a period of the investment and also is lower than the net present valuetime sufficient to allow for recovery of the previous estimate of cash flows, an impairment is considered other-than-temporary. The impairment loss is then recognized based on the excess of the carrying amount of the investment over its estimated fair value. CDO impairments were $16.4 million, $2.3 million and $0.8 million for the years ended December 31, 2007, 2006 and 2005, respectively.such unrealized losses.

Evaluations of impairmentsEvaluation of securities involveimpairments involves significant assumptions and management judgments, which could differ from actual results, and these differences could have a material impact on the Company’s consolidated statements of income.

GoodwillFair Value Measurements

BlackRock adopted the applicable provisions of ASC 820-10,Fair Value Measurements and Intangible AssetsDisclosures (“ASC 820-10”), as of January 1, 2008, which require, among other things, enhanced disclosures about assets and liabilities that are measured and reported at fair value.

Hierarchy of Fair Value Inputs

At December 31, 2007,The provisions of ASC 820-10 establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the carrying amountsfair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Additionally, companies are required to provide enhanced disclosure regarding instruments in the Level 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the Company’s goodwillbeginning and intangibleending balances separately for each major category of assets were as follows:and liabilities.

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

 

(Dollar amounts in thousands)  December 31,
2007

Goodwill

  $5,519,714

Intangible assets

  

Indefinite–lived

   5,351,132

Finite–lived, net of accumulated amortization

   1,201,990
    

Total goodwill and intangible assets

  $12,072,836
    

Level 1 assets may include listed mutual funds (including those accounted for under the equity method of accounting as these mutual funds are investment companies, that have publicly available NAVs which in accordance with GAAP are calculated under fair value measures and are equal to the earnings of such funds), ETFs, and listed equities and certain derivatives.

 

60


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Critical Accounting Policies (continued)

 

Fair Value Measurements (continued)

Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers, for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price were observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies.

Level 2 assets in this category may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, securities held within consolidated hedge funds, certain equity method limited partnership interests in hedge funds and mutual funds valued based on net asset values where the Company has the ability to redeem at the measurement date or in the near term without redemption restrictions, restricted public securities valued at a discount, as well as over–the-counter derivatives, including interest and inflation rate swaps and foreign exchange currency contracts that have inputs to the valuations that can be generally corroborated by observable market data.

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include non-binding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using net asset values and that are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

Level 3 assets in this category generally include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds, funds of hedge funds, direct private equity investments held within consolidated funds and certain held for sale real estate disposal assets.

Level 3 liabilities included in this category include borrowings of consolidated collateralized loan obligations valued based upon non-binding broker quotes.

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments. BlackRock’s $650 million of Level 3 investments at December 31, 2010 primarily include co-investments in private equity fund of funds and private equity funds, funds of hedge funds as well as funds that invest in distressed credit and mortgage securities and real estate equity products. Many of these investees are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund, which could include BlackRock employees. Fair value policies at the underlying fund generally utilize pricing/valuation information, including independent appraisals from third party sources; however, in some instances current valuation information for illiquid securities or securities in markets that are not active may not be available from any third party source or fund management may conclude that the valuations that are available from third party sources are not reliable. In these instances fund management may perform model-based analytical valuations that may be used to value these investments.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Fair Value Measurements (continued)

Significance of Inputs

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Pricing Services and Broker Quotes

A significant amount of inputs used to value equity and debt securities are sourced from well-recognized third party pricing vendors. Generally, prices obtained from pricing vendors are categorized as Level 1 inputs for securities that are traded in active markets and as Level 2 for other securities if the vendor uses observable inputs in determining the price. Annually, BlackRock reviews both the valuation methodology, including the general assumptions and methods used to value various asset classes, and operational process with these vendors. In addition, on a quarterly basis meetings are held with the vendors to identify any significant changes to the vendors’ process.

In addition, quotes obtained from brokers generally are non-binding and categorized as Level 3 inputs. However, if the Company is able to determine that market participants have transacted for the asset in an orderly manner near the quoted price or if the Company can determine that the inputs used by the broker are observable, the quote is classified as a Level 2 input.

Significant Transfers Into and Out of Levels 1, 2, and 3

During the year ended December 31, 2010, the Company reclassified approximately $47 million of net investments out of Level 3 predominantly to Level 2. The majority of the net reclassifications were related to investments that Company values using a NAV (or a capital account) and it currently has the ability to redeem in the near term.

Changes in Valuation

Changes in value on $1,051 million of investments will impact the Company’s non-operating income (expense), $45 million will impact accumulated other comprehensive income, $431 million are held at cost or amortized cost and the remaining $13 million related to carried interest has no impact on non-operating income (expense). As of December 31, 2010, changes in fair value of approximately $397 million of such investments within consolidated sponsored investment funds will impact BlackRock’s net income (loss) attributable to non-controlling interests expense on the consolidated statements of income. BlackRock’s net exposure to changes in fair value of such consolidated sponsored investment funds is $260 million.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Goodwill and Intangible Assets

At December 31, 2010, the carrying amounts of the Company’s goodwill and intangible assets were as follows:

(Dollar amounts in millions)  December 31,
2010
 

Goodwill

  $12,805  

Intangible assets

  

Indefinite–lived

  

Management contracts

  

Mutual funds/Exchange-traded products

   10,661  

Other collective investment funds

   3,610  

Alternative investment funds

   917  

Trade names/trademarks

   1,403  

License

   6  

Finite–lived, net of accumulated amortization

  

Management contracts

  

Institutional/Retail separate accounts

   807  

Alternative investment accounts and funds

   104  

Other

   4  
     

Total goodwill and intangible assets

  $30,317  
     

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Goodwill and Intangible Assets (continued)

 

The value of contracts acquired in a business acquisition to manage assets in proprietary open-endopen- and closed-end investment funds and closed-endas well as collective trust funds without a specified termination date is classified as an indefinite-lived intangible asset. The assignment of indefinite lives to such mutualinvestment fund contracts is based upon the assumption that there is no foreseeable limit on the contract period to manage these funds due to the likelihood of continued renewal at little or no cost. Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. In accordance with SFAS No. 142,the applicable provisions of ASC 350,Intangibles – Goodwill and Other Intangible Assets (“ASC 350”), indefinite-lived intangible assets and goodwill are not amortized. Finite-lived management contracts are amortized over their remaining expected useful lives, which, at December 31, 2007,2010, ranged from less than 1 year3 years to 2014 years with a weighted average remaining estimated useful life of 8.76.3 years.

Goodwill

The Company assesses its goodwill for impairment at least annually, considering such factors as the book value and the market capitalization of the Company. The impairment test performed as of July 31, 2010 indicated no impairment charge was required. The Company continues to monitor its book value per share as compared to closing prices of its common stock for potential indicators of impairment. At December 31, 2010 the Company’s common stock closed at $190.58, which exceeded its book value per share of approximately $136.09 after excluding appropriated retained earnings.

Indefinite-lived and finite-lived intangibles

The Company assesses its indefinite-lived management contracts, trade names and goodwilllicenses for impairment at least annually, considering various factors, such asincluding AUM growth rates, product mix, product margins, tax rates, discount rates and projected cash flows average base fees by product and revenue multiples to determine whether the values of each intangible asset are impaired and whether the indefinite-life classification is still appropriate. The fair value of indefinite-lived intangible assets and goodwill is determined based on the discounted value of expected future cash flows. The fair value of finite-lived intangible assets is reviewed at least annually to determine whether circumstances exist which indicate there may be a potential impairment. IfIn addition, if such circumstances are considered to exist, the Company will perform an impairment test, using an undiscounted cash flow analysis. If the asset is determined to be impaired, the difference between the book value of the asset and its current fair value is recognized as an expense in the period in which the impairment is determined.

Expected future cash flows are estimated using many variables which require significant management judgment, including market interest rates, equity prices, credit default ratings, discount rates, revenue multiples, inflation rates and AUM growth rates.occurs. Actual results could differ from these estimates, which could materially impact the impairment conclusion. No such impairments

In 2010, 2009 and 2008, the Company performed impairment tests that indicated no impairment charges were recorded in 2007, 2006 or 2005. required, the classification of indefinite-lived versus finite-lived intangibles was still appropriate and no changes to the expected lives of the finite-lived intangibles were required. The Company continuously monitors various factors, including AUM, for potential indicators of impairment.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Goodwill and Intangible Assets (continued)

Indefinite-lived and finite-lived intangibles (continued)

In addition, management judgment is required to estimate the period over which finite-lived intangible assets will contribute to the Company’s cash flows and the pattern in which these assets will be consumed. A change in the remaining useful life of any of these assets, or the reclassification of an indefinite-lived intangible asset to a finite-lived intangible asset, could have a significant impact on the Company’s amortization expense, which was $129.7$160 million, $37.5$147 million and 7.5$146 million for the years ended December 31, 2007, 20062010, 2009 and 2005,2008, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method prescribed by SFAS No. 109,ASC 740,Accounting for Income Taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases using currently enacted tax rates. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includesof the enactment date.

BlackRock adopted the applicable provisions of FASB Interpretation (“FIN”) No. 48,Accounting for Uncertainty in Income Taxes,ASC 740 on January 1, 2007. FIN No. 482007 related to uncertainties in income taxes which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109. FIN No. 48statements. ASC 740 prescribes a threshold andfor measurement attribute forand recognition in the financial statements of an asset or liability resulting from a tax position taken or expected to be taken in an income tax return. FIN No. 48ASC 740 also provides guidance on, among other things, de-recognition of deferred tax assets and liabilities and interest and penalties on uncertain tax positions.

61


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Income Taxes (continued)

The application of SFAS No. 109 and FIN No. 48ASC 740 requires management to make estimates of the ranges of possible outcomes, the probability of favorable or unfavorable tax outcomes and potential interest and penalties related to such unfavorable outcomes, which require significant management judgment. Actual future tax consequences ofrelating to uncertain tax positions may be materially different than the Company’s current estimates. At December 31, 2007,2010, BlackRock had $66.3$307 million of gross unrecognized tax benefits, of which $40.6$194 million, if recognized, would affect the effective tax rate.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Income Taxes (continued)

In accordance with SFAS No. 109,ASC 740, management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred income tax assets and assessesassess deferred income tax liabilities based on enacted tax rates for the appropriate tax jurisdictions to determine the amount of such deferred income tax assets and liabilities. At December 31, 2010, the Company had net deferred tax assets of $10 million and net deferred tax liabilities of approximately $5,477 million on the consolidated statement of financial condition. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, changes in the anticipated timing of recognition of deferred tax assets and liabilities or changes in the structure or tax status of the Company. SuchASC 740 requires the Company to assess whether a valuation allowance should be established against its deferred income tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of statutory carry back and carry forward periods, the Company’s experience with tax attributes expiring unused, and tax planning alternatives.

At December 31, 2010, the Company has recorded a deferred tax asset of $108 million for unrealized investment losses however no valuation allowance has been established because the Company expects to be able to carry back a portion of its unrealized capital losses when realized, hold certain equity method investments which include fixed income securities over a period sufficient for them to recover their unrealized losses, and generate future capital gains sufficient to offset the unrealized capital losses. Based on the weight of available evidence, it is more likely than not that the deferred tax asset will be realized. However, changes in circumstance wouldcould cause the Company to revalue its deferred tax balances with the resulting change impacting the income statement in the period of the change. Such changes may be material to the Company’s consolidated financial statements. At December 31, 2007,See Note 21, Income Taxes, to the Company had deferred tax assetsconsolidated financial statements beginning on page F-1 of $9.1 million and deferred tax liabilities of approximately $2.1 billion.this Form 10-K for further details.

Further, theThe Company records its income taxes based upon its estimated income tax liability or benefit. The Company’s actual tax liability or benefit may differ from the estimated income tax liability or benefit. The Company had current income taxes receivable of approximately $47.1$57 million and current income taxes payable of $228.4$157 million at December 31, 2007.2010.

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies (continued)

Revenue Recognition

Investment advisory and administration fees are recognized as the services are performed. Such fees are primarily based on pre-determined percentages of the market value of AUM or, in the case of certain real estate separate accounts, net operating income generated by the underlying properties, and are affected by changes in AUM, including market appreciation or depreciation and net subscriptions or redemptions. Investment advisory and administration fees for mutualinvestment funds are shown net of fees waived pursuant to contractual expense limitations of the funds or voluntary waivers. Certain real estate fees are earned upon the acquisition or disposition of properties in accordance with applicable investment management agreements and are generally recognized at the closing of the respective real estate transactions.

The Company contracts with third parties, as well asincluding related parties, for various mutual fund administrationdistribution and shareholder servicing to be performed on behalf of certain non-U.S. funds managed by the Company. Such arrangements generally are priced as a portion of the Company’s management fee paid by the fund. In certain cases, the fund takes on the primary responsibility for payment for services such that BlackRock bears no credit risk to the third party. The Company accounts for such retrocession arrangements in accordance with Emerging Issues Task ForceASC 605-45,Revenue Recognition – Principle Agent Considerations (“EITF”ASC 605-45”) No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, and records its investment advisory and administration fees net of retrocessions. Retrocessions for the yearyears ended December 31, 20072010, 2009 and 20062008 were $780.4$831 million, $611 million and $156.0$762 million, respectively. The Company has additional contracts for similar services with third parties, which due to the terms of the contracts, are recorded as distribution and servicing costs and thus not netted on the consolidated statements of income.

The Company earns revenue by lending securities on behalf of clients, primarily to brokerage institutions. Such revenues are accounted for on an accrual basis. The securities loaned are secured by collateral in the form of cash and securities, generally ranging from 102% to 112% of the value of the loaned securities. The revenue earned is shared between the Company and the funds or other third-party accounts managed by the Company from which the securities are borrowed. For the years ended December 31, 2010, 2009 and 2008, securities lending revenue totaled $325 million, $36 million and $25 million, respectively, and is recorded in investment advisory, administration fees and securities lending revenue on the consolidated statements of income.

Investment advisory, administration fees and securities lending revenue are reported together as the fees for these services often are agreed upon with clients as a bundled fee.

The Company also receivesmay receive performance fees or incentive allocations from alternativecertain actively managed investment productsfunds and certain separate accounts.separately managed accounts which are primarily alternative, equity or multi-asset class products. These performance fees generally are earned upon exceeding specified relative or absolute investment return thresholds. Such fees are recorded upon completion of the measurement period.periods, which vary by product or account and could be monthly, quarterly, annually or longer. For the years ended December 31, 2007, 20062010, 2009 and 2005,2008, performance fee revenue totaled $350.2$540 million, $242.3$202 million and $168.0$177 million, respectively.

 

62


Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

 

Revenue RecognitionCritical Accounting Policies (continued)

 

TheRevenue Recognition (continued)

In addition, the Company receivesmay receive carried interest in the form of an investment capital allocation or cash from certain alternative investment funds upon exceeding performance thresholds. However, BlackRock may be required to return all, or part, of such carried interest depending upon future performance of these investments.investment products in future periods. Therefore, BlackRock records carried interest subject to such claw-back provisions as revenuein investments or cash to the extent that it is distributed, on its consolidated statements of incomefinancial condition. Carried interest is realized upon the earlier of the termination of the alternative investment fund or when the likelihood of claw-back is mathematically improbable. The Company records realized carried interest as performance fees on its consolidated statements of income. The Company records a deferred carried interest liability to the extent it receives cash or capital allocations prior to meeting the revenue recognition criteria. At December 31, 20072010 and 20062009, the Company had $28.6$23 million and $0,$13 million, respectively, of deferred carried interest recorded in other liabilities on the consolidated statements of financial condition. The ultimate recognition of revenue, if any, for these products is unknown.

Fees earned forBlackRock Solutions, which include advisory services, are recorded as services are performed and are determined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of various attributes of advisory assets under management and (iii) performance fees if contractual thresholds are met. Revenue earned on advisory assignments was comprised of one-time advisory and portfolio structuring fees and ongoing fees based on AUM of the respective portfolio assignment. For the years ended December 31, 2010, 2009 and 2008,BlackRock Solutions and advisory revenue totaled $460 million, $477 million and $393 million, respectively.

Adjustments to revenue arising from initial estimates historically have been immaterial since the majority of BlackRock’s investment advisory and administration revenue is calculated based on the fair value of AUM and since the Company does not record performance revenues until performance thresholds have been exceeded and the likelihood of claw-back of carried interest is mathematically improbable. Management can give no assurance, however, that these estimates would not result in a material adjustment in the future.

Related Party Transactions

See related party transactions discussion in Note 14 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Recent Accounting Developments

Recent accounting developments are discussed in Note 2 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

63


Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AUM Market Price Risk

BlackRock’s investment advisory and administration fees are primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. At December 31, 2010, the majority of our investment advisory and administration fees were based on average or period end AUM of the applicable investment funds or separate accounts. Movements in equity market prices, interest rates/credit spreads, foreign exchange rates, or all three could cause the value of AUM to decline, which would result in lower investment advisory and administration fees.

Corporate Investments Portfolio Risks

As a leading investment management firm, BlackRock devotes significant resources across all of its operations to identifying, measuring, monitoring, managing and analyzing market and operating risks, including the management and oversight of its own investment portfolio. The Board of Directors of the Company has adopted guidelines for the review of investments to be made by the Company, requiring, among other things, that all investments be reviewed by the Company’s Capital Committee, which consists of senior officers of the Company, and that certain investments over prescribed thresholds receive prior approval frommay be referred to the Audit Committee or the Board of Directors, depending on the circumstances.

AUM Market Price Risk

BlackRock’s investment management revenues are primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. At December 31, 2007, the majority of our investment advisory and administration fees were based on AUM of the applicable mutual funds or separate accounts. Movements in equity market prices, interest rates, foreign exchange rates, or all three could cause the following, which would result in lower investment advisory and administration fees:

the value of AUM to decrease;

the returns realized on AUM to decrease;

clients to withdraw funds in favor of products in markets that they perceive to offer greater opportunity and that BlackRock does not serve;

clients to rebalance assets away from products that BlackRock manages into products that BlackRock does not manage; and

clients to reallocate assets away from products that earn higher fees into products with lower fees.

Corporate Investments Portfolio Riskscircumstances, for approval.

In the normal course of its business, BlackRock is exposed to equity market price risk, interest raterate/credit spread risk and foreign exchange rate risk associated with its corporate investments.

BlackRock has investments primarily in sponsored investment products that invest in a variety of asset classes.classes including real estate, private equity and hedge funds. Investments generally are made for co-investment purposes, to establish a performance track record, for co-investment purposes or to hedge exposure to certain deferred compensation plans.plans or for regulatory purposes. Currently, the Company has a seed capital hedging program in which it enters into total return swaps to hedge exposure to certain equity investments. At December 31, 2007,2010, the outstanding total return swaps had an aggregate notional value of approximately $94$25 million.

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

Corporate Investments Portfolio Risks

At December 31, 2007,2010, approximately $1,054$397 million of BlackRock’s total investments were maintained in sponsored investment funds that are deemed to be controlled by BlackRock in accordance with GAAP and therefore are consolidated even though BlackRock may not own a majority of such funds. TheExcluding the impact of the Federal Reserve Bank stock, carried interest, investments made to hedge exposure to certain deferred compensation plans and certain equity investments that are hedged via the seed capital hedging program, the Company’s net economic exposure to its investment portfolio is as follows:

 

(Dollar amounts in millions)  December 31,
2007
  December 31,
2006
 

Total investments

  $2,000  $2,098 

Consolidated sponsored investments funds

   (1,054)  (1,470)

Net exposure to consolidated investment funds

   325   325 
         

Total net “economic” investment exposure

  $1,271  $953 
         

64


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

(Dollar amounts in millions)

  December 31,
2010
  December 31,
2009
  Variance 
    Amount  % Change 

Total investments, GAAP

  $1,540   $1,049   $491    47

Investments held by consolidated sponsored investment funds

   (397  (463  66    14

Net exposure to consolidated investment funds

   260    258    2    1
              

Total net “economic” investments

   1,403    844    559    66

Federal Reserve Bank stock

   (325  (10  (315  *  

Carried interest

   (13  (4  (9  225

Deferred compensation investments

   (76  (71  (5  7

Hedged investments

   (25  (36  11    (31%) 
              

Total net “economic” investment exposure

  $964   $723   $241    33
              

 

* – Not applicable or the percentage is in excess of +/- 1,000%.

The net “economic” investment exposure of the portfolio is presented in either the equity market price or the interest rate/credit spread risk disclosures below:

Equity Market Price Risk

At December 31, 2007,2010, the Company’s net exposure to equitymarket price risk isin its investment portfolio was approximately $835$544 million (net of $94 million of certain equity investments that are hedged via total return swaps) of the Company’s net economic investment exposure. Investments that are subject to market price risk include private equity and real estate investments, hedge funds and fund of funds, as well as mutual funds. The Company estimates that a 10% adverse change in equitymarket prices would result in a decrease of approximately $83.5$54.4 million in the carrying value of such investments.investments.

Interest RateRate/Credit Spread Risk

At December 31, 2007,2010, the Company was exposed to interest-rate risk and credit spread risk as a result of approximately $342$420 million of investments in debt securities and sponsored investment products that invest primarily in debt securities. Management considered a hypothetical 100 basis point fluctuation in interest rates or credit spreads and estimates that the impact of such a fluctuation on these investments, in the aggregate, would result in a decrease, or increase, of approximately $5.1$7 million in the carrying value of such investments.

Foreign Exchange Rate Risk

As discussed above, the Company invests in sponsored investment products that invest in a variety of asset classes. The carrying value of the net economic investment exposure denominated in foreign currencies, primarily the British pound sterling, euro, South Korean won and the Euro,Taiwan dollars, was $93$118 million. A 10% adverse change in foreign exchange rates would result in approximately a $9.3an $11.8 million decline in the carrying value of such investments.

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The report of the independent registered public accounting firm and financial statements listed in the accompanying index are included in Item 15 of this report. See Index to the consolidated financial statements on page F-1 of this Form 10-K.

 

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements on accounting and financial disclosure matters. BlackRock has not changed accountants in the two most recent fiscal years.

 

Item 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the direction of BlackRock’s Chief Executive Officer and Chief Financial Officer, BlackRock evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)15d - 15(e) under the Exchange Act) as of December 31, 2007.the end of the period covered by this annual report on Form 10-K. Based on this evaluation, BlackRock’s Chief Executive Officer and Chief Financial Officer have concluded that BlackRock’s disclosure controls and procedures were effective as of December 31, 2007.effective.

Internal Control and Financial Reporting

Other than system conversion activities relatedthe integration of certain information technology systems and processes of the acquired BGI business to the transitionthose of support from Merrill Lynch to BlackRock, there have been no changes in internal control over financial reporting during the latest fiscal quarter ended December 31, 2007 that have materially affected or are reasonably likely to materially affect, such internal control over financial reporting. The Company has completed an evaluation of its internal control over financial reporting in light of the MLIM Transaction and expects to make additional integration related modifications.

 

65


Item 9A.CONTROLS AND PROCEDURES (continued)

 

Management’s Report on Internal Control Over Financial Reporting

Management of BlackRock, Inc. (the “Company”) is responsible for establishing and maintaining adequateeffective internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effectedaffected by the Company’s Boardboard of Directors,directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted accounting principles. Our internal controls over financial reporting includein the United States of America and includes those policies and procedures that:

 

pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted accounting principles,in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with the authorizationauthorizations of management and directors of the Company; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. ProjectionsAlso, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007.2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control-Integrated Framework.Framework

. Based on this assessment, management concluded that, as of December 31, 2007,2010, the Company’s internal control over financial reporting is effective.

The Company’s independent registered public accounting firm has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting. This report begins on page 67.

February 28, 20082011

 

66


Item 9A.CONTROLS AND PROCEDURES (continued)

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of BlackRock, Inc.:

We have audited the internal control over financial reporting of BlackRock, Inc. and subsidiaries (the “Company”) as of December 31, 2007,2010, based on criteria established inInternal Control Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2010, based on the criteria established inInternal Control Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition as of December 31, 20072010 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the year then ended of the Company and our report dated February 28, 20082011 expressed an unqualified opinion on those consolidated financial statements.

/s/ Deloitte & Touche LLP

New York, New York

February 28, 2008

67

New York, New York


February 28, 2011

Item 9B.OTHER INFORMATION

The Company is furnishing no other information in this Form 10-K.

Part III

 

Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding directors and executive officers set forth under the captions “Item 1: Election of Directors – Information Concerning the Nominees and Directors” and “Item 1: Election of Directors – Other Executive Officers” of the Proxy Statement in connection with the 2008 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

The information regarding compliance with Section 16(a) of the Exchange Act set forth under the caption “Item 1: Section 16(a) Beneficial Ownership Reporting Compliance” inof the Proxy Statement is incorporated herein by reference.

The information regarding BlackRock’s Code of Ethics for Chief Executive and Senior Financial Officers under the caption “Item 1: Corporate Governance Guidelines and Code of Business Conduct and Ethics” inof the Proxy Statement is incorporated herein by reference.

 

Item 11.EXECUTIVE COMPENSATION

The information contained in the sections captioned “Item 1: Compensation of Executive Officers” and “Item 1: 20072010 Director Compensation” of the Proxy Statement is incorporated herein by reference.

 

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the sections captioned “Item 1: Ownership of BlackRock Common and Preferred Stock” and “Equity Compensation Plan Information” of the Proxy Statement is incorporated herein by reference.

 

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained in the sections captioned “Item 1: Certain Relationships and Related Transactions” and “Item 1: Director Independence” of the Proxy Statement is incorporated herein by reference.

 

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding BlackRock’s independent auditor fees and services in the section captioned “Item 2:4: Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement is incorporated herein by reference.

68


Part IV

 

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

1.Financial Statements

The Company’s consolidated financial statements are included hereinbeginning on pages F-1 through F-73.F-1.

2. Financial Statement Schedules

2.Financial Statement Schedules

Ratio of Earnings to Fixed Charges has been included as Exhibit 12.1. All other schedules have been omitted because they are not applicable, not required or the information required is included in the Company’s consolidated financial statements or notes thereto.

69


Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

3. Exhibit Index

3.Exhibits

As used in this exhibit list, “BlackRock” refers to BlackRock, Inc. (formerly named New BlackRock, Inc. and previously, New Boise, Inc.) (Commission File No. 001-15305) and “Old BlackRock” refers to BlackRock Holdco 2, Inc. (formerly named BlackRock, Inc.) (Commission File No. 001-33099), which is the predecessor of BlackRock. The following exhibits are filed as part of this Annual Report on Form 10-K:

Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about BlackRock or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.

 

Exhibit No.

 

Description

  2.1(1)Transaction Agreement and Plan of Merger, dated as of February 15, 2006, by and among Merrill Lynch & Co., Inc., BlackRock, Boise Merger Sub, Inc. and Old BlackRock.
    3.1(2)3.1(1) Amended and Restated Certificate of Incorporation of BlackRock.
    3.2(2)3.2(1) Amended and Restated Bylaws of BlackRock.
    3.3(2)3.3(1) Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.
    4.1(3)3.4(2)Certificate of Designations of Series B Convertible Participating Preferred Stock of BlackRock.
    3.5(2)Certificate of Designations of Series C Convertible Participating Preferred Stock of BlackRock.
    3.6(3)Certificate of Designations of Series D Convertible Participating Preferred Stock of BlackRock.
    4.1(4) Specimen of Common Stock Certificate.
    4.2(4)4.2(5) Indenture, dated as of February 23, 2005, between Old BlackRock and The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as trustee, relating to the 2.625% Convertible Debentures due 2035.
    4.3(4)4.3(5) Form of 2.625% Convertible DebentureDebentures due 2035 (included as Exhibit A in Exhibit 4.2).
    4.4(2)4.4(1) First Supplemental Indenture, dated September 29, 2006, relating to the 2.625% Convertible Debentures due 2035.
    4.5(5)4.5(6) Indenture, dated September 17, 2007, between BlackRock and The Bank of New York, as trustee, relating to senior debt securities.
    4.6(6)4.6(7) Form of 6.25% Notes due 2017.
10.1(7)    4.7(8)Form of 2.25% Notes due 2012.
    4.8(8)Form of 3.50% Notes due 2014.
    4.9(8)Form of 5.00% Notes due 2019.
  10.1(9) Tax Disaffiliation Agreement, dated October 6, 1999, among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc., formerly PNC Bank Corp.
10.2(3)  10.2(10) BlackRock, Inc. Amended and Restated 1999 Stock Award and Incentive Plan.+
10.3(3)  10.3(11)Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan. +
  10.4(12) Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Stock Award andAnnual Incentive Performance Plan.+
10.4(3)Amendment No. 2 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.5(3)Amendment No. 3 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.6(3)Amendment No. 4 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.7(3)BlackRock, Inc. 2002 Long-Term Retention and Incentive Program.+
10.8(3)Amendment No. 1 to 2002 Long-Term Retention and Incentive Program.+
10.9(3)Amendment No. 2 to 2002 Long-Term Retention and Incentive Program.+
10.10(3)BlackRock, Inc. Nonemployee Directors Stock Compensation Plan.+
10.11(3)  10.5(4) BlackRock, Inc. Voluntary Deferred Compensation Plan.Plan, as amended and restated as of January 1, 2005.+

70


Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

 

3. ExhibitsExhibit Index (continued)

 

Exhibit No.

 

Description

10.12(3)BlackRock, Inc. Involuntary Deferred Compensation Plan.+
10.13(2)  10.6(1) Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.14(2)  10.7(1) Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted Stock under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.15(2)  10.8(13) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.16(2)  10.9(13)Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units for long-term incentive awards under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
  10.10(1) Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.17(8)BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan.+
10.18(9)Amendment No. 1 to the BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan.+
10.19(2)  10.11(1) Registration Rights Agreement, dated as of September 29, 2006, among BlackRock, Merrill Lynch & Co., Inc. and the PNC Financial Service Group, Inc.
10.20(10)Agreement of Lease, dated May 3, 2000, between 40 East 52nd Street L.P. and Old BlackRock.
10.21(11)Agreement of Lease, dated September 4, 2001, between 40 East 52nd Street L.P. and Old BlackRock.
10.22(12)  10.12(14) Share Surrender Agreement, dated October 10, 2002 (the “Share Surrender Agreement”), among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.+
10.23(1)  10.13(15) First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement, dated as of October 10, 2002, among PNC Bancorp, Inc., The PNC Financial Services Group, Inc. and Old BlackRock.Agreement.+
10.24(13)  10.14(16) Second Amendment, dated as of June 11, 2007, to the Share Surrender Agreement, dated October 10, 2002, among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.Agreement.+
10.25(14)  10.15(2) Amended and Restated, BlackRock, Inc. 1999 Annual Incentive Performance Plan. Third Amendment, dated as of February 27, 2009, to the Share Surrender Agreement.+
10.26(15)Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Annual Incentive Performance Plan+
10.27(16)Agreement of Lease, dated July 29, 2004, between Park Avenue Plaza Company L.P. and Old BlackRock.
10.28(16)Letter Agreement, dated July 29, 2004, amending the Agreement of Lease between Park Avenue Plaza Company L.P. and Old BlackRock.

71


Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

3.Exhibits (continued)

Exhibit No.

Description

10.29(17)Stock Purchase Agreement among MetLife, Inc., Metropolitan Life Insurance Company, SSRM Holdings, Inc. Old BlackRock and BlackRock Financial Management, Inc., dated August 25, 2004.
10.30(4)Registration Rights Agreement, dated as of February 23, 2005, between Old BlackRock and Morgan Stanley & Co. Incorporated, as representative of the initial purchasers named therein, relating to the 2.625% Convertible Debentures due 2035.
10.31(1)Implementation and Stockholder Agreement, dated as of February 15, 2006, among The PNC Financial Services Group, Inc., BlackRock and Old BlackRock.
10.32(1)Stockholder Agreement, dated as of February 15, 2006, between Merrill Lynch & Co., Inc. and BlackRock.
10.33(18)Global Distribution Agreement, dated as of September 29, 2006, by and between BlackRock and Merrill Lynch & Co., Inc.
10.34(18)  10.16(17) Transition Services Agreement, dated as of September 29, 2006, by and between Merrill Lynch & Co., Inc. and BlackRock.
10.35(19)  10.17(18) Asset Purchase Agreement, dated as of June 26, 2007, by and among BlackRock, Inc., BAA Holdings, LLC and Quellos Holdings, LLC.
10.36(20)  10.18(19) Five-Year Revolving Credit Agreement, dated as of August 22, 2007, by and among BlackRock, Inc., Wachovia Bank, National Association, as administrative agent, swingline lender and issuing lender, Sumitomo Mitsui Banking Corporation, as Japanese Yen lender, a group of lenders, Wachovia Capital Markets, LLC and Citigroup Global Markets Inc., as joint lead arrangers and joint book managers, Citigroup Global Markets Inc., as syndication agent, and HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., and Morgan Stanley Bank, as documentation agents.
  10.19(20)Second Amended and Restated Global Distribution Agreement, dated as of November 15, 2010, among BlackRock, Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
  10.20(2)Amended and Restated Implementation and Stockholder Agreement, dated as of February 27, 2009, between The PNC Financial Services Group, Inc. and BlackRock.
  10.21(21)Amendment No. 1, dated as of June 11, 2009, to the Amended and Restated Implementation and Stockholder Agreement between The PNC Financial Services Group, Inc. and BlackRock.

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

3. Exhibit Index (continued)

Exhibit No.

Description

  10.22Third Amended and Restated Stockholder Agreement, dated as of November 15, 2010, among BlackRock, Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
  10.23(22)Stock Purchase Agreement, dated as of June 11, 2009, between The PNC Financial Services Group, Inc. and BlackRock.
  10.24(23)Commercial Paper Dealer Agreement between BlackRock and Barclays Capital Inc., dated as of October 14, 2009.
  10.25(3)Amended and Restated Stock Purchase Agreement, dated as of June 16, 2009, by and among Barclays Bank PLC, Barclays PLC (solely for the purposes of Section 6.16, Section 6.18 and Section 6.24) and BlackRock.
  10.26(3)Stockholder Agreement, dated as of December 1, 2009, by and among BlackRock, Barclays Bank PLC and Barclays BRHoldings S.à.r.l.
  10.27(3)Registration Rights Agreement, dated as of December 1, 2009, by and among BlackRock, Barclays Bank PLC and Barclays BRHoldings S.à.r.l.
  10.28(24)Lease Agreement, dated as of February 17, 2010, among BlackRock Investment Management (UK) Limited and Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers Gardens Unit Trust for the lease of Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United Kingdom.
12.1 Computation of Ratio of Earnings to Fixed Charges.
  21.1Subsidiaries of Registrant.
23.1 Deloitte & Touche LLP ConsentConsent.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

 

(1)Incorporated by Referencereference to OldBlackRock’s Current Report on Form 8-K filed on October 5, 2006.
(2)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 22, 200627, 2009.
(2)(3)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2006.December 3, 2009.
(3)(4)Incorporated by Referencereference to BlackRock’s Registration Statement on Form S-8 (Registration No. 333-137708) filed with the Securities and Exchange Commission on September 29, 20062006.
(4)(5)Incorporated by Referencereference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2004.
(5)(6)Filed herewith.Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2007.

(6)Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

3. Exhibit Index (continued)

(7)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on September 17, 2007.
(7)(8)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed on December 10, 2009.
(9)Incorporated by reference to Old BlackRock’s Registration Statement on Form S-1 (Registration No. 333-78367), as amended, originally filed with the Securities and Exchange Commission on May 13, 1999.
(8)(10)Incorporated by Referencereference to Old BlackRock’s Registration Statement on Form S-8 (Registration No. 333-32406), originally filed with the Securities and Exchange Commission on March 14, 2000.

72


Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

3.Exhibits (continued)

(9)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q filed for the quarter ended SeptemberJune 30, 2000.
(10)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended March 31, 2000.2010.
(11)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001.
(12)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2002.
(13)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(14)Incorporated by Reference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2002.
(15)(12)Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on May 24, 2006.
(16)(13)Incorporated by Referencereference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2008.
(14)Incorporated by reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended JuneSeptember 30, 2004.2002.
(17)(15)Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on August 30, 2004.February 22, 2006.
(18)(16)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(17)Incorporated by reference to BlackRock’s Registration Statement on Form S-4, as amended, originally filed with the Securities and Exchange Commission on June 9, 2006.
(19)(18)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on July 2, 2007.
(20)(19)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on August 27, 2007.
(20)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 17, 2010.
(21)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 17, 2009.
(22)Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2009.
(23)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 20, 2009.
(24)Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2009.
+Denotes compensatory plans or arrangements

73


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By:

 

/s/ LaurenceS/    LAURENCE D. FinkFINK        

 Laurence D. Fink
 Chairman, Chief Executive Officer and Director
February 28, 2008

February 28, 2011

Each of the officers and directors of BlackRock, Inc. whose signature appears below, in so signing, also makes, constitutes and appoints Laurence D. Fink, Paul L. AudetAnn Marie Petach and Robert P. Connolly, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ LaurenceS/    LAURENCE D. FinkFINK        

  

Chairman, Chief Executive Officer and Director (Principal Executive Officer)

 February 28, 20082011
Laurence D. Fink  Director (Principal Executive Officer) 

/s/ Paul L. AudetS/    ANN MARIE PETACH        

  

Managing Director and Acting Chief Financial Officer (Principal Financial Officer)

 February 28, 20082011
Paul L. AudetAnn Marie Petach  Officer (Principal Financial Officer) 

/s/ Joseph Feliciani, Jr.S/    JOSEPH FELICIANI, JR.        

  

Managing Director and Chief Accounting Officer (Principal Accounting Officer)

 February 28, 20082011
Joseph Feliciani, Jr.  Officer (Principal Accounting Officer) 

/s/ William O. AlbertiniS/    ABDLATIF Y. AL-HAMAD        

  Director February 28, 20082011
William O. AlbertiniAbdlatif Y. Al-Hamad   

/s/ Mathis CabiallavettaS/    MATHIS CABIALLAVETTA        

  Director February 28, 20082011
Mathis Cabiallavetta   

/s/ DennisS/    DENNIS D. DammermanDAMMERMAN        

  Director February 28, 20082011
Dennis D. Dammerman   

/s/ WilliamS/    WILLIAM S. DemchakDEMCHAK        

  Director February 28, 20082011
William S. Demchak   

/s/ Robert C. DollS/    ROBERT E. DIAMOND, JR.        

  Director February 28, 20082011
Robert C. DollE. Diamond, Jr.   

/s/ KennethS/    KENNETH B. DunnDUNN        

  Director February 28, 20082011
Kenneth B. Dunn   

/s/ Gregory J. FlemingS/    MURRY S. GERBER        

  Director February 28, 20082011
Gregory J. FlemingMurry S. Gerber   

/s/ Murry S. GerberS/    JAMES GROSFELD        

  Director February 28, 20082011
Murry S. GerberJames Grosfeld   

/s/ James GrosfeldS/    ROBERT S. KAPITO        

  Director February 28, 20082011
James GrosfeldRobert S. Kapito   

/s/ Robert S. KapitoS/    DAVID H. KOMANSKY      

  Director February 28, 20082011
Robert S. Kapito

74


SIGNATURES (continued)

/s/ David H. Komansky

DirectorFebruary 28, 2008
David H. Komansky   

/s/ Sir Deryck MaughanS/    SALLIE L. KRAWCHECK        

  Director February 28, 20082011
Sir Deryck MaughanSallie L. Krawcheck   

SIGNATURES (continued)

/S/    MARK D. LINSZ        

DirectorFebruary 28, 2011
Mark D. Linsz   

/s/ Thomas H. O’BrienS/    SIR DERYCK MAUGHAN        

  Director February 28, 20082011
Thomas H. O’BrienSir Deryck Maughan   

/s/ Linda Gosden RobinsonS/    THOMAS H. O’BRIEN        

  Director February 28, 20082011
Linda Gosden RobinsonThomas H. O’Brien   

/s/ James E. RohrS/    LINDA GOSDEN ROBINSON        

  Director February 28, 20082011
James E. RohrLinda Gosden Robinson   

/S/    JAMES E. ROHR        

Director��February 28, 2011
James E. Rohr

/s/ John A. ThainS/    IVAN G. SEIDENBERG        

  Director February 28, 20082011
John A. ThainIvan G. Seidenberg   

/S/    JOHN S. VARLEY        

DirectorFebruary 28, 2011
John S. Varley   

75


TABLE OF CONTENTS

FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Statements of Financial Condition

  F-3

Consolidated Statements of Income

  F-4F-5

Consolidated Statements of Comprehensive Income

  F-5F-6

Consolidated Statements of Changes in Stockholders’ Equity

  F-6F-7

Consolidated Statements of Cash Flows

  F-7F-10

Notes to the Consolidated Financial Statements

  F-10F-12

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of BlackRock, Inc.:

We have audited the accompanying consolidated statements of financial condition of BlackRock, Inc. and subsidiaries (the “Company”) as of December 31, 20072010 and 2006,2009, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007.2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BlackRock, Inc. and subsidiaries at December 31, 20072010 and 2006,2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007,2010, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007,2010, based on the criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 20082011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

New York, New York

February 28, 2008

F-22011


BlackRock, Inc.

Consolidated Statements of Financial Condition

(Dollar amounts in thousands,millions, except per share data)

 

  December 31,   December 31,   December 31, 
  2007 2006   2010   2009 

Assets

       

Cash and cash equivalents

  $1,656,200  $1,160,304   $3,367    $4,708  

Accounts receivable

   1,235,940   964,366    2,095     1,718  

Due from related parties

   174,853   113,184    150     189  

Investments

   1,999,944   2,097,574    1,540     1,049  

Assets of consolidated variable interest entities

    

Cash and cash equivalents

   93     —    

Bank loans and other investments

   1,312     —    

Separate account assets

   4,669,874   4,299,879    121,137     119,629  

Deferred mutual fund sales commissions

   174,849   177,242 

Property and equipment, net

   266,460   214,784 

Intangible assets, net

   6,553,122   5,882,430 

Collateral held under securities lending agreements

   17,638     19,335  

Deferred sales commissions, net

   66     103  

Property and equipment (net of accumulated depreciation of $426 and $303 at December 31, 2010 and 2009, respectively)

   428     443  

Intangible assets (net of accumulated amortization of $615 and $466 at December 31, 2010 and 2009, respectively)

   17,512     17,666  

Goodwill

   5,519,714   5,257,017    12,805     12,680  

Other assets

   310,559   302,712    316     604  
               

Total assets

  $22,561,515  $20,469,492   $178,459    $178,124  
               

Liabilities

       

Accrued compensation and benefits

  $1,086,590  $1,051,273   $1,520    $1,482  

Accounts payable and accrued liabilities

   788,968   753,839    1,068     840  

Due to related parties

   114,347   243,836    57     505  

Short-term borrowings

   300,000   —      100     2,234  

Liabilities of consolidated variable interest entities

    

Borrowings

   1,278     —    

Other liabilities

   7     —    

Convertible debentures

   67     243  

Long-term borrowings

   947,021   253,167    3,192     3,191  

Separate account liabilities

   4,669,874   4,299,879    121,137     119,629  

Deferred tax liabilities

   2,059,980   1,738,670 

Collateral liability under securities lending agreements

   17,638     19,335  

Deferred income tax liabilities

   5,477     5,571  

Other liabilities

   419,570   237,856    584     492  
               

Total liabilities

   10,386,350   8,578,520    152,125     153,522  
               

Non-controlling interest

   578,210   1,109,092 

Commitments and contingencies (Note 14)

    
       

Commitments and Contingencies (Note 11)

   

Stockholders’ equity

   

Common stock ($0.01 par value, 500,000,000 shares authorized, 118,573,367 and 117,381,582 shares issued and 116,059,560 and 116,408,897 shares outstanding at December 31, 2007 and 2006, respectively)

   1,186   1,174 

Series A participating preferred stock ($0.01 par value, 500,000,000 shares authorized and 12,604,918 shares issued and outstanding at December 31, 2007 and 2006)

   126   126 

Additional paid-in capital

   10,274,096   9,799,447 

Retained earnings

   1,622,041   993,821 

Accumulated other comprehensive income, net

   71,020   44,666 

Escrow shares, common, at cost (1,191,785 and 0 shares held at December 31, 2007 and 2006, respectively)

   (187,500)  —   

Treasury stock, common, at cost (1,322,022 and 972,685 shares held at December 31, 2007 and 2006, respectively)

   (184,014)  (57,354)
       

Total stockholders’ equity

   11,596,955   10,781,880 
       

Total liabilities, non-controlling interest and stockholders’ equity

  $22,561,515  $20,469,492 
       

Temporary equity

    

Redeemable non-controlling interests

   6     49  

BlackRock, Inc.

Consolidated Statements of Financial Condition (continued)

(Dollar amounts in millions, except per share data)

   December 31,  December 31, 
   2010  2009 

Permanent Equity

   

BlackRock, Inc. stockholders’ equity

   

Common stock, $ 0.01 par value;

   1    1  

Shares authorized: 500,000,000 at December 31, 2010 and 2009; Shares issued: 131,923,624 and 62,776,777 at December 31, 2010 and 2009, respectively; Shares outstanding: 131,216,561 and 61,896,236 at December 31, 2010 and 2009, respectively;

   

Series B non-voting participating preferred stock, $0.01 par value;

   1    1  

Shares authorized: 150,000,000 at December 31, 2010 and 2009; Shares issued and outstanding: 57,108,553 and 112,817,151 at December 31, 2010 and 2009, respectively;

   

Series C non-voting participating preferred stock, $0.01 par value;

   —      —    

Shares authorized: 6,000,000 at December 31, 2010 and 2009; Shares issued and outstanding: 2,866,439 and 2,889,467 at December 31, 2010 and 2009, respectively;

   

Series D non-voting participating preferred stock, $0.01 par value;

   —      —    

Shares authorized: 20,000,000 at December 31, 2010 and 2009; Shares issued and outstanding: 0 and 11,203,442 at December 31, 2010 and 2009, respectively;

   

Additional paid-in capital

   22,502    22,127  

Retained earnings

   3,723    2,436  

Appropriated retained earnings

   75    —    

Accumulated other comprehensive loss

   (96  (96

Escrow shares, common, at cost (3,603 and 868,940 shares held at December 31, 2010 and 2009, respectively)

   (1  (137

Treasury stock, common, at cost (703,460 and 11,601 shares held at December 31, 2010 and 2009, respectively)

   (111  (3
         

Total BlackRock, Inc. stockholders’ equity

   26,094    24,329  

Nonredeemable non-controlling interests

   189    224  

Nonredeemable non-controlling interests of consolidated variable interest entities

   45    —    
         

Total permanent equity

   26,328    24,553  
         

Total liabilities, temporary equity and permanent equity

  $178,459   $178,124  
         

See accompanying notes to consolidated financial statements.

F-3


BlackRock, Inc.

Consolidated Statements of Income

(Dollar amounts in thousands,millions, except per share data)

 

  Year ended   Year ended 
  December 31,   December 31, 
  2007 2006 2005   2010 2009 2008 

Revenue

        

Investment advisory and administration base fees

    

Investment advisory, administration fees and securities lending revenue

    

Related parties

  $2,640,275  $864,998  $344,943   $4,893   $2,616   $2,962  

Other

   1,369,786   733,743   505,435 

Other third parties

   2,397    1,210    1,295  
          

Total investment advisory, administration fees and securities lending revenue

   7,290    3,826    4,257  

Investment advisory performance fees

   350,188   242,282   167,994    540    202    177  
          

Investment advisory and administration fees

   4,360,249   1,841,023   1,018,372 

BlackRock Solutions and advisory

   460    477    393  

Distribution fees

   123,052   35,903   11,333    116    100    139  

Other revenue

       206    95    98  

Other

   338,278   212,450   156,111 

Related parties

   23,076   8,600   5,570 
                    

Total revenue

   4,844,655   2,097,976   1,191,386    8,612    4,700    5,064  
                    

Expenses

        

Employee compensation and benefits

   1,767,063   934,887   587,773    3,097    1,802    1,815  

Portfolio administration and servicing costs

    

Other

   77,879   46,358   41,552 

Distribution and servicing costs

    

Related parties

   469,741   126,173   23,059    226    368    495  

Other third parties

   182    109    96  

Amortization of deferred sales commissions

   108,091   29,940   9,346    102    100    130  

Direct fund expenses

   493    95    86  

General and administration

       1,354    779    665  

Other

   777,697   399,103   179,130 

Related parties

   92,670   17,750   2,480 

Termination of closed-end fund administration and servicing arrangements

   128,114   —     —   

Fee sharing payment

   —     34,450   —   

Restructuring charges

   —      22    38  

Amortization of intangible assets

   129,736   37,515   7,505    160    147    146  
                    

Total expenses

   3,550,991   1,626,176   850,845    5,614    3,422    3,471  
                    

Operating income

   1,293,664   471,800   340,541    2,998    1,278    1,593  
          

Non-operating income (expense)

        

Net gain on investments

   504,001   36,930   24,226 

Net gain (loss) on investments

   179    42    (573

Net gain (loss) on consolidated variable interest entities

   (35  —      —    

Interest and dividend income

   74,466   29,419   18,912    29    20    65  

Interest expense

   (49,412)  (9,916)  (7,924)   (150  (68  (69
                    

Total non-operating income

   529,055   56,433   35,214 

Total non-operating income (expense)

   23    (6  (577
                    

Income before income taxes and non-controlling interest

   1,822,719   528,233   375,755 

Income before income taxes

   3,021    1,272    1,016  

Income tax expense

   463,832   189,463   138,558    971    375    387  
                    

Income before non-controlling interest

   1,358,887   338,770   237,197 

Non-controlling interest

   363,615   16,168   3,289 

Net income

   2,050    897    629  

Less:

    

Net income (loss) attributable to redeemable non-controlling interests

   3    2    (1

Net income (loss) attributable to nonredeemable non-controlling interests

   (16  20    (154
                    

Net income

  $995,272  $322,602  $233,908 

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784  
                    

Earnings per share

    

Earnings per share attributable to BlackRock, Inc. common stockholders:

    

Basic

  $7.75  $4.00  $3.64   $10.67   $6.24   $5.86  

Diluted

  $7.53  $3.87  $3.50   $10.55   $6.11   $5.78  

Cash dividends declared and paid per share

  $4.00   $3.12   $3.12  

Dividends declared and paid per share

  $2.68  $1.68  $1.20 

Weighted-average shares outstanding

    

Weighted-average common shares outstanding:

    

Basic

   128,488,561   80,638,167   64,182,766    190,554,510    136,669,164    129,543,443  

Diluted

   132,088,810   83,358,394   66,875,149    192,692,047    139,481,449    131,376,517  

See accompanying notes to consolidated financial statements.

F-4


BlackRock, Inc.

Consolidated Statements of Comprehensive Income

(Dollar amounts in thousands)millions)

 

  Year ended   Year ended 
  December 31,   December 31, 
  2007 2006  2005   2010 2009 2008 

Net income

  $995,272  $322,602  $233,908   $2,050   $897   $629  

Other comprehensive income:

         

Net unrealized gain (loss) from available-for-sale investments, net of tax

   (2,784)  5,081   (1,046)

Change in net unrealized gains (losses) from available-for-sale investments, net of tax

    

Unrealized holding gains (losses), net of tax

   3    (4  (14

Less: reclassification adjustment included in net income

   1    (19  5  
          

Net change from available-for-sale investments, net of tax (1)

   2    15    (19

Minimum pension liability adjustment

   —     379   (202)   (1  1    (1

Foreign currency translation adjustments

   29,138   36,533   (4,333)   (1  74    (237
                    

Comprehensive income

  $1,021,626  $364,595  $228,327    2,050    987    372  

Less: Comprehensive income (loss) attributable to non-controlling interests

   (13  22    (155
                    

Comprehensive income attributable to BlackRock, Inc.

  $2,063   $965   $527  
          

(1)

The tax benefit (expense) on unrealized holding gains (losses) was ($2), ($8) and $8 in 2010, 2009 and 2008, respectively.

See accompanying notes to consolidated financial statements.

F-5


BlackRock, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollar amounts in thousands)millions)

 

  Common
Stock
 Common
Stock Class
A&B
  Participating
Preferred
Stock
 Additional
Paid-in
Capital
  Retained
Earnings
  Accumulated
Other
Comprehensive
Income
  Common
Shares held
in Escrow
  Treasury Stock  Total
Equity
 
        Common  Class A & B  

December 31, 2004

 $—   $647  $—   $160,789  $650,016  $8,254  $—    $—    ($51,354) $768,352 

Net income

  —    —     —    —     233,908   —     —     —     —     233,908 

Dividends paid

  —    —     —    —     (77,040)  —     —     —     —     (77,040)

Conversion of class B common stock to class A common stock

  —    (2)  —    (27,393)  —     —     —     —     27,395   —   

Issuance of class A common stock

  —    8   —    24,812   —     —     —     —     17,618   42,438 

Amortization of discount on issuance of class B common stock

  —    —     —    12,052   —     —     —     —     —     12,052 

Stock based compensation

  —    —     —    1,597   —     —     —     —     —     1,597 

Treasury stock transactions

  —    —     —    (5,734)  —     —     —     —     (52,716)  (58,450)

Tax benefits from stock-based awards

  —    —     —    4,967   —     —     —     —     —     4,967 

Minimum pension liability adjustment

  —    —     —    —     —     (202)  —     —     —     (202)

Foreign currency translation loss

  —    —     —    —     —     (4,333)  —     —     —     (4,333)

Unrealized loss on investments, net of tax

  —    —     —    —     —     (1,046)  —     —     —     (1,046)
                                      

December 31, 2005

  —    653   —    171,090   806,884   2,673     (59,057)  922,243 

Net income

  —    —     —    —     322,602   —       —     322,602 

Dividends paid

  —    —     —    —     (135,665)  —       —     (135,665)

Conversion of class B common stock to class A common stock

  —    (2)  —    (14,337)  —     —       14,339   —   

Issuance of common stock to Merrill Lynch

  523  —     —    7,719,366   —     —     —     —     —     7,719,889 

Issuance of series A participating preferred shares to Merrill Lynch

  —    —     126  1,857,082   —     —     —     —     —     1,857,208 

Conversion of class A and B stock to common stock in connection with MLIM Transaction

  651  (651)  —    —     —     —     —     —     —     —   

Conversion of treasury stock in connection with MLIM Transaction

  —    —     —    —     —     —     —     (52,035)  52,035   —   

Stock based compensation

  —    —     —    61,361   —     —     —     —     —     61,361 

Treasury stock transactions

  —    —     —    33   —     —     —     (5,319)  (7,317)  (12,603)

Tax benefits from stock-based awards

  —    —     —    4,852   —     —     —     —     —     4,852 

Minimum pension liability adjustment

  —    —     —    —     —     379   —     —     —     379 

Foreign currency translation gain

  —    —     —    —     —     36,533   —     —     —     36,533 

Unrealized gain on investments, net of tax

  —    —     —    —     —     5,081     —     5,081 
                                      

December 31, 2006

  1,174  —     126  9,799,447   993,821   44,666   —     (57,354)  —     10,781,880 

January 1, 2007 Adjustment to initially apply FIN No. 48

  —    —     —    —     (13,589)  —     —     —     —     (13,589)

Net income

  —    —     —    —     995,272   —     —     —     —     995,272 

Dividends paid

  —    —     —    —     (353,463)  —     —     —     —     (353,463)

Issuance of common stock to escrow agent in connection with Quellos Transaction

  12  —     —    187,488   —     —     (187,500)  —     —     —   

Stock based compensation

  —    —     —    182,168   —     —     —     570   —     182,738 

PNC capital contribution

  —    —     —    174,932   —     —     —     —     —     174,932 

Treasury stock transactions

  —    —     —    (186,259)  —     —     —     (127,230)  —     (313,489)

Tax benefits from stock-based awards

  —    —     —    118,574   —     —     —     —     —     118,574 

Other costs associated with common stock

  —    —     —    (2,254)  —     —     —     —     —     (2,254)

Foreign currency translation gain

  —    —     —    —     —     29,138   —     —     —     29,138 

Unrealized loss on investments, net of tax

  —    —     —    —     —     (2,784)  —     —     —     (2,784)
                                      

December 31, 2007

 $1,186 $—    $126 $10,274,096  $1,622,041  $71,020  ($187,500) ($184,014) $—    $11,596,955 
                                      
  Additional
Paid-in
Capital(1)
  Retained
Earnings
  Appropriated
Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Common
Shares
Held in
Escrow
  Treasury
Stock
Common
  Total
Stockholders’
Equity
  Nonredeemable
Non-controlling
Interests
  Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
  Total
Permanent
Equity
  Redeemable
Non-
controlling
Interests /
Temporary
Equity
 

December 31, 2007

 $10,287   $1,615   $—     $71   ($188 ($184 $11,601   $549   $—     $12,150   $29  

Net income

  —      784    —      —      —      —      784    (154  —      630    (1

Dividends paid, net of dividend expense for unvested RSUs

  —      (417  —      —      —      —      (417  —      —      (417  —    

Release of common stock from escrow agent in connection with Quellos Transaction

  —      —      —      —      45    —      45    —      —      45    —    

Stock-based compensation

  278    —      —      —      —      1    279    —      —      279    —    

PNC LTIP capital contribution

  4    —      —      —      —      —      4    —      —      4    —    

Net issuance of common shares related to employee stock transactions

  (140  —      —      —      —      125    (15  —      —      (15  —    

Net tax benefit (shortfall) from stock-based compensation

  55    —      —      —      —      —      55    —      —      55    —    

Minimum pension liability adjustment

  —      —      —      (1  —      —      (1  —      —      (1  —    

Subscriptions/(redemptions/distributions)—non-controlling interest holders

  —      —      —      —      —      —      —      36    —      36    (243

Net consolidations (deconsolidations) of sponsored investment funds

  —      —      —      —      —      —      —      (203  —      (203  481  

Other change in non-controlling interests

  —      —      —      —      —      —      —      (3  —      (3  —    

Foreign currency translation adjustments

  (10  —      —      (237  —      —      (247  —      —      (247  —    

Change in net unrealized gain (loss) from available-for-sale investments, net of tax

  —      —      —      (19  —      —      (19  —      —      (19  —    
                                            

December 31, 2008

 $10,474   $1,982   $—     ($186 ($143 ($58 $12,069   $225   $—     $12,294   $266  
                                            

See accompanying notes to consolidated financial statements.

 

F-6
(1)

Includes $1 of common stock at December 31, 2008.


BlackRock, Inc.

Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

  Additional
Paid-in
Capital(1)
  Retained
Earnings
  Appropriated
Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Common
Shares
Held in
Escrow
  Treasury
Stock
Common
  Total
Stockholders’
Equity
  Nonredeemable
Non-controlling
Interests
  Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
  Total
Permanent
Equity
  Redeemable
Non-
controlling
Interests /
Temporary
Equity
 

December 31, 2008

 $10,474   $1,982   $—     ($186 ($143 ($58 $12,069   $225   $—     $12,294   $266  

Net income

  —      875    —      —      —      —      875    20    —      895    2  

Dividends paid, net of dividend expense for unvested RSUs

  —      (421  —      —      —      —      (421  —      —      (421  —    

Release of common stock from escrow agent in connection with Quellos Transaction

  —      —      —      —      6    —      6    —      —      6    —    

Stock-based compensation

  316    —      —      —      —      1    317    —      —      317    —    

Issuance of shares to Barclays

  8,529    —      —      —      —      —      8,529    —      —      8,529    —    

Issuance of shares to institutional investors

  2,800    —      —      —      —      —      2,800    —      —      2,800    —    

Issuance of common shares for contingent consideration

  43    —      —      —      —      —      43    —      —      43    —    

PNC LTIP capital contribution

  6    —      —      —      —      —      6    —      —      6    —    

Merrill Lynch capital contribution

  25    —      —      —      —      —      25    —      —      25    —    

Net issuance of common shares related to employee stock transactions

  (78  —      —      —      —      54    (24  —      —      (24  —    

Net tax benefit (shortfall) from stock-based compensation

  14    —      —      —      —      —      14    —      —      14    —    

Minimum pension liability adjustment

  —      —      —      1    —      —      1    —      —      1    —    

Subscriptions/(redemptions/distributions)—non-controlling interest holders

  —      —      —      —      —      —      —      (8  —      (8  (247

Net consolidations (deconsolidations) of sponsored investment
funds
(2)

  —      —      —      —      —      —      —      (9  —      (9  28  

Other change in non-controlling interests

  —      —      —      —      —      —      —      (4  —      (4  —    

Foreign currency translation adjustments

  —      —      —      74    —      —      74    —      —      74    —    

Change in net unrealized gain (loss) from available-for-sale investments, net of tax

  —      —      —      15    —      —      15    —      —      15    —    
                                            

December 31, 2009

 $22,129   $2,436   $—     ($96 ($137 ($3 $24,329   $224   $—     $24,553   $49  
                                            

See accompanying notes to consolidated financial statements.

(1)

Includes $1 of common stock at December 31, 2009 and 2008, respectively and $1 of preferred stock at December 31, 2009.

(2)

Includes $12 of redeemable non-controlling interests acquired in the BGI Transaction on December 1, 2009.

BlackRock, Inc.

Consolidated Statements of Changes in Equity

(Dollar amounts in millions)

  Additional
Paid-in
Capital(1)
  Retained
Earnings
  Appropriated
Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
  Common
Shares
Held in
Escrow
  Treasury
Stock
Common
  Total
Stockholders’
Equity
  Nonredeemable
Non-controlling
Interests
  Nonredeemable
Non-controlling
Interests of
Consolidated
VIEs
  Total
Permanent
Equity
  Redeemable
Non-
controlling
Interests /
Temporary
Equity
 

December 31, 2009

 $22,129   $2,436   $—     ($96 ($137 ($3 $24,329   $224   $—     $24,553   $49  

January 1, 2010 initial recognition of ASU 2009-17

  —      —      114    —      —      —      114    (49  49    114    —    

Net income

  —      2,063    —      —      —      —      2,063    19    (35  2,047    3  

Allocation of losses of consolidated collateralized loan obligations

  —      —      (39  —      —      —      (39  —      39    —      —    

Dividends paid, net of dividend expense for unvested RSUs

  —      (776  —      —      —      —      (776  —      —      (776  —    

Release of common stock from escrow agent in connection with Quellos Transaction

  —      —      —      —      136    —      136    —      —      136    —    

Stock-based compensation

  444    —      —      —      —      1    445    —      —      445    —    

PNC LTIP capital contribution

  5    —      —      —      —      —      5    —      —      5    —    

Merrill Lynch capital contribution

  10    —      —      —      —      —      10    —      —      10    —    

Exchange of common stock for preferred shares series B

  128    —      —      —      —      (128  —      —      —      —      —    

Net issuance of common shares related to employee stock transactions

  (202  —      —      —      —      93    (109  —      —      (109  —    

Other stock repurchases

  —      —      —      —      —      (140  (140  —      —      (140  —    

Convertible debt conversions, net of tax

  (54  —      —      —      —      66    12    —      —      12    —    

Net tax benefit (shortfall) from stock-based compensation

  44    —      —      —      —      —      44    —      —      44    —    

Minimum pension liability adjustment

  —      —      —      (1  —      —      (1  —      —      (1  —    

Subscriptions/(redemptions/distributions)—non-controlling interest holders

  —      —      —      —      —      —      —      (6  (8  (14  124  

Net consolidations (deconsolidations) of sponsored investment funds

  —      —      —      —      —      —      —      —      —      —      (170

Other changes in non-controlling interests

  —      —      —      —      —      —      —      1    —      1    —    

Foreign currency translation adjustments

  —      —      —      (1  —      —      (1  —      —      (1  —    

Change in net unrealized gains (losses) from available-for-sale investments, net of tax

  —      —      —      2    —      —      2    —      —      2    —    
                                            

December 31, 2010

 $22,504   $3,723   $75   ($96 ($1 ($111 $26,094   $189   $45   $26,328   $6  
                                            

See accompanying notes to consolidated financial statements.

(1)

Includes $1 of common stock and $1 of preferred stock at December 31, 2010 and 2009, respectively.

BlackRock, Inc.

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)millions)

 

  Year ended December 31,   Year ended
December 31,
 
  2007 2006 2005   2010 2009 2008 

Cash flows from operating activities

        

Net income

  $995,272  $322,602  $233,908   $2,050   $897   $629  

Adjustments to reconcile net income to cash from operating activities:

        

Depreciation and amortization

   198,824   72,809   30,902    310    239    236  

Amortization of deferred mutual fund sales commissions

   108,091   29,940   9,346 

Non-controlling interest

   363,615   16,168   3,289 

Amortization of deferred sales commissions

   102    100    130  

Stock-based compensation

   188,256   120,436   69,450    445    317    278  

Deferred income tax expense

   (104,654)  (42,509)  18,895 

Tax benefit from stock-based compensation

   —     —     4,967 

Net gains on non-trading investments

   (442,082)  (3,730)  (3,965)

Deferred income tax expense (benefit)

   3    (89  (234

Net (gains) losses on non-trading investments

   (62  (20  216  

Purchases of investments within consolidated funds

   (870,310)  —     —      (26  (41  (127

Proceeds from sale of investments within consolidated funds

   596,898   —     —   

Earnings from equity method investees

   (83,894)  (5,659)  (11,526)

Proceeds from sales and maturities of investments within consolidated funds

   54    285    342  

Assets and liabilities of consolidated VIEs:

    

Change in cash and cash equivalents

   (45  —      —    

Net (gains) losses within consolidated VIEs

   35    —      —    

Net (purchases)/proceeds within consolidated VIEs

   44    —      —    

(Earnings) losses from equity method investees

   (141  (30  294  

Distributions of earnings from equity method investees

   16,443   1,939   2,620    14    18    28  

Other adjustments

   1,334   (4,233)  3,842    (1  3    13  

Changes in operating assets and liabilities:

        

Accounts receivable

   (273,199)  (8,670)  (138,868)   (364  (223  339  

Due from related parties

   (3,699)  (75,436)  (6,614)   45    159    (112

Deferred mutual fund sales commissions

   (71,702)  (2,666)  —   

Deferred sales commissions

   (65  (68  (90

Investments, trading

   (44,713)  (86,637)  (6,188)   (118  (53  265  

Other assets

   (80,172)  (15,066)  (52,907)   236    (50  115  

Accrued compensation and benefits

   171,828   226,373   51,579    52    (218  (237

Accounts payable and accrued liabilities

   (33,273)  754   28,010    164    165    (227

Due to related parties

   (137,524)  174,785   8,261    (356  (10  7  

Other liabilities

   92,110   (316)  9,936    112    18    51  
                    

Cash flows from operating activities

   587,449   720,884   254,937    2,488    1,399    1,916  
                    

Cash flows from investing activities

        

Purchases of investments

   (521,226)  (212,629)  (51,579)   (656  (73  (417

Proceeds from sale of investments

   265,561   25,662   57,681 

Escrow deposits

   —     —     (7,700)

Sales of real estate held for sale

   —     —     112,184 

Purchases of assets held for sale

   (1  (2  (59

Proceeds from sale of disposal group

   2    —      41  

Proceeds from sales and maturities of investments

   181    260    122  

Distributions of capital from equity method investees

   7,017   —     —      53    89    15  

Net consolidations (deconsolidations) of sponsored investment funds

   (117,102)  2,172   —      (52  27    (3

Acquisitions, net of cash acquired and purchase price contingencies

   (591,765)  272,353   (275,218)

Acquisitions, net of cash acquired, and contingent payments

   (23  (5,755  (16

Purchases of property and equipment

   (111,317)  (83,993)  (55,154)   (131  (65  (77
                    

Cash flows from investing activities

   (1,068,832)  3,565   (219,786)   (627  (5,519  (394
                    

F-7


BlackRock, Inc.

Consolidated Statements of Cash Flows (continued)

(Dollar amounts in thousands)millions)

 

  Year ended December 31,   Year ended
December 31,
 
  2007 2006 2005   2010 2009 2008 

Cash flows from financing activities

        

Long-term borrowings, net

   693,854   (624)  (1,019)

Short-term borrowings, net

   300,000   —     133,160 

Repayments of short-term borrowings

   (2,134  —      (400

Proceeds from short-term borrowings

   —      2,034    300  

Repayments of long-term borrowings

   —      —      (1

Repayments of convertible debt

   (176  (7  —    

Proceeds from long-term borrowings

   —      2,495    —    

Cash dividends paid

   (353,463)  (135,665)  (76,606)   (776  (422  (419

Reissuance of treasury stock

   76,842   8,140   15,141 

Purchases of treasury stock

   (383,310)  (30,973)  (77,466)

Subscriptions received from non-controlling interest holders, net of distributions

   399,534   68,490   7,871 

Issuance of common stock

   —     1,192   706 

Proceeds from stock options exercised

   10    18    24  

Proceeds from issuance of common stock

   6    2,804    6  

Repurchases of common stock

   (264  (46  (46

Merrill Lynch capital contribution

   10    25    —    

Net (redemptions/distributions paid)/subscriptions received from non-controlling interests holders

   110    (255  (207

Excess tax benefit from stock-based compensation

   118,574   4,852   —      44    33    59  

Borrowings by consolidated sponsored investment funds

   113,914   

Other financing activities

   (7,084)  (313)  (6,055)

Net borrowings/(repayment of borrowings) by consolidated sponsored investment funds

   —      70    (203
                    

Cash flows from financing activities

   958,861   (84,901)  (4,268)   (3,170  6,749    (887
                    

Effect of exchange rate changes on cash and cash equivalents

   18,418   36,533   (4,333)   (32  47    (259
                    

Net increase in cash and cash equivalents

   495,896   676,081   26,550    (1,341  2,676    376  

Cash and cash equivalents, beginning of year

   1,160,304   484,223   457,673    4,708    2,032    1,656  
                    

Cash and cash equivalents, end of year

  $1,656,200  $1,160,304  $484,223   $3,367   $4,708   $2,032  
                    

Supplemental disclosure of cash flow information is as follows:

    

Cash paid for:

    

Interest

  $146   $52   $63  

Interest on borrowings of consolidated VIEs

  $53   $—     $—    

Income taxes

  $583   $503   $644  

Supplemental schedule of non-cash investing and financing transactions is as follows:

    

Issuance of common stock

  $266   $767   $136  

Issuance of preferred stock

  $—     $7,842   $—    

Increase (decrease) in non-controlling interests due to net consolidation/(deconsolidation) of sponsored investment funds

  ($170 $7   $280  

Contingent common stock payment related to Quellos transaction

  $—     $43   $—    

Increase (decrease) in borrowings due to consolidation of VIEs

  $1,157   $—     $—    

Common stock released from escrow agent in connection with Quellos transaction

  $136   $6   $45  

See accompanying notes to consolidated financial statements.

Supplemental disclosure of cash flow information is as follows:

   Year ended December 31,
   2007  2006  2005

Cash paid for interest

  $29,979  $7,618  $3,940
            

Cash paid for income taxes

  $375,731  $154,497  $134,764
            

F-8


Supplemental schedule of non-cash investing and financing transactions is as follows:

   Year ended
   December 31,
   2007  2006  2005

Common and preferred stock issued in MLIM Transaction

  $—    $9,577,100  $—  

Issuance of treasury stock

  $179,323  $15,373  $29,712

Increase in investments due to net consolidations of sponsored investment funds

  $—    $275,073  $—  

Decrease in investments due to net deconsolidations of sponsored investment funds

  $1,149,517  $—    $13,758

Increase in non-controlling interest due to net consolidations of sponsored investment funds

  $—    $163,045  $—  

Decrease in non-controlling interest due to net deconsolidations of sponsored investment funds

  $1,294,667  $—    $18,170

PNC LTIP capital contribution

  $174,932  $—    $—  

Stock issued in the SSR Transaction

  $—    $—    $37,212

Short term borrowings assumed in the SSR Transaction

  $—    $—    $111,840

F-9


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)1. Introduction and Basis of Presentation

1.Introduction and Basis of Presentation

Business

BlackRock, Inc. (together, with its subsidiaries, and predecessors, unless the context otherwise indicates, “BlackRock” or the “Company”) provides diversified investment management services to institutional clients, intermediary and to individual investors through various investment vehicles. Investment management services primarily consist of the active management of equity, fixed income, multi-asset class, alternative investment and cash management and equity client accounts, the managementproducts. BlackRock offers its investment products in a variety of a number ofvehicles, including open-end and closed-end mutual fund familiesfunds,iShares® exchange-traded funds (“ETFs”), collective investment trusts and other non-U.S. equivalent retail products serving the institutional and retail markets, and the management of alternative funds developed to serve various customer needs.separate accounts. In addition, BlackRock provides market risk management, strategicfinancial 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.

On OctoberJanuary 1, 2007, BlackRock2009, Bank of America Corporation (“Bank of America”) acquired certain assets and assumed certain liabilities of the fund of funds business of Quellos Group, LLC (“Quellos”) for up to $1,719,000 (the “Quellos Transaction”). BlackRock paid Quellos $562,500 in cash and issued 1,191,785 shares of BlackRock common stock valued at $187,500. The common stock will be held in escrow for up to three years and is available to satisfy certain indemnification obligations of Quellos under the asset purchase agreement. The Quellos business was combined with the existing BlackRock fund of funds business and the combined platform comprises one of the largest fund of funds platforms in the world.

On September 29, 2006, pursuant to the Transaction Agreement and Plan of Merger (the “Transaction Agreement”), Merrill Lynch & Co., Inc. (“Merrill Lynch”) contributed the entities and assets that constituted its investment management business (the “MLIM Business”) to. In connection with this transaction, BlackRock via a capital contribution. Inentered into exchange for this contribution, BlackRock issued toagreements with each of Merrill Lynch 52,395,082 shares of common stock and 12,604,918 shares of series A non-voting participating preferred shares, representing a 45% voting interest and approximately 49.3% of the fully-diluted capital stock at such date (such transactions, collectively, referred to as the “MLIM Transaction”). Prior to the MLIM Transaction, the Company was owned approximately 69% by The PNC Financial Services Group, Inc. (“PNC”) pursuant to which on February 27, 2009 Merrill Lynch and PNC each exchanged a portion of its BlackRock common stock it held for an equal number of shares of non-voting preferred stock. See Note 19, Capital Stock, for more details on these transactions.

On December 1, 2009, BlackRock completed its acquisition of Barclays Global Investors (“BGI”) from Barclays Bank PLC (“Barclays”) (the “BGI Transaction”). PNC’s ownership was reduced toIn exchange for BGI, BlackRock paid approximately 34% of the total$6.65 billion in cash and issued capital stock valued at $8.53 billion comprised of 3,031,516 shares of BlackRock common stock and 34,535,255 shares of BlackRock Series B and D non-voting participating preferred stock. See Note 3, Mergers and Acquisitions, for more details on this transaction.

On November 15, 2010, Bank of America and PNC sold 58,737,122 shares of BlackRock’s common stock, which included 56,407,040 shares of common stock that converted from non-voting preferred stock. In connection with this transaction, BlackRock entered into an exchange agreement with PNC pursuant to which PNC agreed to exchange 11,105,000 shares of BlackRock non-voting preferred stock they held for common stock.

On December 31, 2010, equity ownership of BlackRock was as a result of the MLIM Transaction.follows:

   Voting
Common Stock
  Capital Stock (1) 

PNC

   25.3  20.3

Barclays

   2.3  19.6

Bank of America/Merrill Lynch

   0.0  7.1

Other

   72.4  53.0
         
   100.0  100.0
         

(1)

Includes outstanding common and non-voting preferred stock only.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

1. Introduction and Basis of Presentation (continued)

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its controlled subsidiaries as determined by GAAP.subsidiaries. Non-controlling interest includesinterests on the consolidated statements of financial condition include the portion of consolidated sponsored investment funds in which the Company does not have direct equity ownership. All significantSignificant accounts and transactions between consolidated entities have been eliminated.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Reclassifications

F-10

Certain items previously reported have been reclassified to conform to the current year presentation.


BlackRock, Inc.2. Significant Accounting Policies

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents primarily consists of cash, money market funds and short-term, highly liquid investments with original maturities, at date of purchase, of three months or less in which the Company is exposed to market and credit risk. Cash and cash equivalent balances whichthat are legally restricted from use by the Company are recorded in other assets on the consolidated statements of financial condition. Cash balances maintained by consolidated investmentssponsored investment funds are not considered legally restricted and are included in cash and cash equivalents on the consolidated statements of financial condition.

Investments

Consolidation

The accounting method used for the Company’s equity investments is generally dependent upon the influence the Company has over its investee. For investments where BlackRock can exert control over the financial and operating policies of the investee, which generally exists if there is a 50% or greater voting interest, the investee is Effective January 1, 2010, cash balances maintained by consolidated into BlackRock’s financial statements. For certain investments where the risks and rewards of ownership are not directly linked to voting interests (“variable interest entities” or “VIEs”), an investee may beentities are included in assets of consolidated if BlackRock, with its related parties, is consideredvariable interest entities on the primary beneficiary of the investee. The primary beneficiary determination will consider not only BlackRock’s equity interest, but the benefits and risks associated with non-equity components of the Company’s relationship with the investee, including debt, investment advisory and other similar arrangements, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46(R),Consolidation of Variable Interest Entities.

Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 04-5,Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,the Company, as general partner or managing member of its funds, generally is presumed to control funds that are limited partnerships or limited liability companies that are not deemed to be VIEs. The Company reviews such investment vehicles to determine if such a presumption can be overcome by determining if third party partners or members of the limited partnership or limited liability company have the substantive ability to dissolve (liquidate) the investment vehicle, or otherwise to remove BlackRock as the general partner or managing member without cause, or have substantive participating rights.

F-11


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies (continued)

Investments (continued)

Consolidated Sponsored Investment Funds

From time to time, the Company will maintain a controlling interest in a sponsored investment fund. All of the investments held by consolidated sponsored investment funds are carried at fair value, with corresponding changes in the investments’ fair values reflected in non-operating income in the Company’s consolidated statements of income. In the absence of a publicly available market value, fair value for such investments are estimated in good faith by the Company’s management based on such factors as the liquidity, financial condition and current and projected operating performance of the investment and, in the case of private investment fund investments, the fund’s net asset value. When the Company no longer controls these funds due to reduced ownership percentage or other reasons, the funds are deconsolidated and accounted for under another accounting method. In addition, changes in fair value of certain illiquid investments held by these funds, including direct investments in equity or debt securities of privately held companies and certain real estate products, are recorded based upon the most current information available at the time, which may precede the date of the statement of financial position, considering any significant changes in the operations of the investment.condition.

Investments

Investments in Debt and Marketable Equity Securities

BlackRock holds debt and marketable equity investments which, pursuant to Statement of Financial Accounting Standards Codification (“SFAS”ASC”) No. 115,320-10,Accounting for Certain Investments in Debt and Equity Securities, are classified as trading, available-for-sale, or held-to-maturity based on the Company’s intent to sell the security or, for a debt security, the Company’s intent and ability to hold the debt security to maturity.

Trading securities are those investments whichthat are purchased principally for the purpose of selling them in the near term. Trading securities are carried at fair value on the consolidated statements of financial condition with changes in fair value recorded in non-operating income in(expense) on the consolidated statements of income during the period of the change.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Investments (continued)

Available-for-sale securities are those securities whichthat are not classified as trading securities or held-to-maturity.held-to-maturity securities. Available-for-sale securities are carried at fair value on the consolidated statements of financial condition with changes in fair value recorded in the accumulated other comprehensive income component of stockholders’ equity in the period of the change. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income to non-operating income (expense) on the Company’s consolidated statements of income.

Held-to-maturity debt securities are recorded at amortized cost inon the consolidated statements of financial condition. At December 31, 2007 and 2006, BlackRock did not own any held-to-maturity investments.

F-12


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies (continued)

Investments (continued)

Equity Method

For equity investments where BlackRock does not control the investee, and where it is not the primary beneficiary of a VIE,variable interest entity (“VIE”), but can exert significant influence over the financial and operating policies of the investee, the Company usesfollows the equity method of accounting.accounting in accordance with ASC 323,Investments-Equity Method and Joint Ventures. Under the equity method of accounting, BlackRock’s share of the investee’s underlying net income or loss on investment funds is recorded as net gain (loss) on investments within non-operating income for investments in funds(expense) and as other revenue for operating or advisory company investments since such operating or advisory companies are considered to be integral toan extension of BlackRock’s core business. The net income of the investee is recorded based upon the most current information available at the time, which may precede the date of the statement of financial condition. Distributions received from the investment reduce the Company’s investment balance.

Cost Method

For equity investments where BlackRock neither controls nor has significant influence over the investee and which are non-marketable, the investments are accounted for using the cost method of accounting. Under the cost method, dividends received from the investment are recorded as non-operating income.

Collateralized Debt Obligations

The Company’s investments in collateralized debt obligations (“CDOs”) are recorded at fair value and the dividend income from these CDOs is accounted for in accordance with EITF No. 99-20,Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets. Under EITF No. 99-20, dividend income on the Company’s CDOs is recorded based upon projected investment yield. Expected future cash flows for the CDOs are reviewed quarterly and changes in the yield are recorded prospectively. Dividend income for these investments is recorded inwithin non-operating income on the consolidated statements of income.

Realized Gains and Losses

Realized gains and losses on trading, available-for-sale and other non equity method investments are calculated on a specific identification basis and, along with interest and dividend income, are included in non-operating income in the consolidated statements of income.(expense).

Impairments

The Company’s management periodically assesses its equity method, available-for-sale and cost method of accounting investments for impairment. If circumstances indicate that impairment may exist, investments are evaluated using marketfair values, where available, or the expected future cash flows of the investment. If the undiscounteddiscounted expected future cash flows are lower than the Company’s carrying value of the investment, an impairment charge is recorded in non-operating income in(expense) on the consolidated statements of income.

F-13


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies (continued)

Investments (continued)

Impairments (continued)

When the fair value of available-for-sale securities is lower than its cost, the Company evaluates the securities to determine whether the impairment is considered to be “other-than-temporary”. “other-than-temporary.”

In making this determination, for equity securities, the Company considers, among other factors, the length of time the security has been in a loss position, the extent to which the security’s market value is less than its cost, the financial condition and near-term prospects of the security’s issuer and the Company’s ability and intent to hold the security for a length of time sufficient to allow for recovery.recovery of such unrealized losses. If the impairment is considered other-than-temporary, an impairment charge is recorded in non-operating income in(expense) on the consolidated statements of income.

The Company reviews its CDO investments for impairment quarterly throughout the term of the investment. The Company reviews cash flow estimates throughout the life of each CDO investment. If the net present value of the estimated future cash flows is lower than the carrying value of the investment and the estimated future cash flows are lower than the previous estimate of cash flows, an impairment is considered to be other-than-temporary. The impairment loss is recognized based on the excess of the carrying amount of the investment over its estimated fair value.

Goodwill and Intangible Assets

Goodwill includes goodwill and assembled workforce. Intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets. The value of contracts to manage assets in proprietary open-end funds and closed-end funds without a specified termination date is classified as an indefinite-lived intangible asset. The assignment of indefinite lives to such contracts is based upon the assumption that there is no foreseeable limit on the contract period to manage these funds due to the likelihood of continued renewal at little or no cost. Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, indefinite-lived intangible assets and goodwill are not amortized.

The Company assesses its indefinite-lived management contracts and goodwill for impairment at least annually, considering factors such as assets under management, product mix, projected cash flows, average base fees by product and revenue multiples to determine whether the values of each asset are impaired and whether the indefinite-life classification is still appropriate. The fair value of indefinite-lived intangible assets and goodwill is determined based on the discounted value of expected future cash flows. If circumstances exist which indicate there may be a potential impairment the Company will perform an impairment test, using an undiscounted cash flow analysis. If the asset is determined to be impaired, the difference between the book value of the asset and its current fair value is recognized as an expense in the period in which the impairment is determined.

F-14


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

2.

2. Significant Accounting Policies (continued)

Goodwill and Intangible Assets (continued)

 

ChangeInvestments (continued)

Impairments (continued)

In making this determination for debt securities, the Company considers whether: (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery, or (3) the Company does not expect to recover the entire amortized cost basis of the security. If the Company does not intend to sell a security and it is not more likely than not that it will be required to sell the security, but the security has suffered a credit loss, the credit loss will be bifurcated from the total impairment and recorded in Methodearnings with the remaining portion recorded in other comprehensive income.

Consolidation

The accounting method used for the Company’s equity investments is dependent upon the influence the Company has over its investee, the investment product. To the extent that BlackRock can exert control over the financial and operating policies of Applyingthe investee, which generally exists if there is a 50% or greater voting interest or if partners or members of certain products do not have substantive rights, the investee is consolidated into BlackRock’s financial statements.

For investment products in which BlackRock’s voting interest is less than 50%, an Accounting Principlesanalysis is performed to determine if the investment product is a variable interest entity (“VIE”) or a voting rights entity. Upon the determination that the investment product is a VIE further analysis, as discussed below, is performed to determine if BlackRock is the primary beneficiary (“PB”) of the investment product, which would result in consolidation.

Consolidation of Variable Interest Entities

PriorPursuant to 2007,ASC 810-10,Consolidation(“ASC 810-10”), certain investment products for which the risks and rewards of ownership are not directly linked to voting interests, may be deemed VIEs. BlackRock reviews factors, including the rights of the equity holders and obligations of equity holders to absorb losses or receive expected residual returns to determine if the investment product is a VIE. BlackRock is required to consolidate a VIE when it is deemed to be the PB, which is evaluated continuously as facts and circumstances change.

In June 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities(“ASU 2009-17”), which became effective for BlackRock on January 1, 2010. In February 2010 the FASB issued ASU 2010-10,Amendments to Statement 167 for Certain Investment Funds(“ASU 2010-10”).This ASU defers the application of Statement of Financial Accounting Standards (“SFAS”) No. 167 (“SFAS No. 167”),Amendments to FASB Interpretation No. 46(R),to a reporting enterprise’s interest in VIEs if certain conditions are met. See Accounting Policies Adopted in the Year Ended December 31, 2010 below for more information.

The PB of a VIE that does not meet the conditions of ASU 2010-10 is the enterprise that has the power to direct activities of the entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE.

The PB of a VIE that meets the conditions of ASU 2010-10 is the enterprise that has a variable interest (or combination of variable interests, including those of related parties) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Consolidation (continued)

Consolidation of Voting Rights Entities

To the extent that BlackRock maintains 50% or greater voting interest of an investment product, BlackRock is deemed to have control of the product, which results in consolidation of the product into BlackRock’s financial statements.

The Company, as general partner or managing member of certain sponsored investment funds, generally is presumed to control funds that are limited partnerships or limited liability companies. Pursuant to ASC 810-20, Control of Partnerships and Similar Entities (“ASC 810-20”), the Company performed its annual impairment tests for goodwillreviews such investment vehicles to determine if such a presumption can be overcome by determining if other non-affiliated partners or members of the limited partnership or limited liability company have the substantive ability to dissolve (liquidate) the investment vehicle, or otherwise to remove BlackRock as the general partner or managing member without cause based on a simple unaffiliated majority vote, or have other substantive participating rights. If the investment vehicle is not a VIE and indefinite-lived intangible assets, as required by SFAS No. 142, asthe presumption of September 30th. Duringcontrol is not overcome, the quarter ended September 30, 2007,investment vehicle will be consolidated into BlackRock’s financial statements.

From time to time, the Company changed its annual impairment test date to July 31stwill maintain a controlling interest in order to provide additional time for testing due toa sponsored investment fund. All of the significant increase in these assets as a result of recent acquisitions. Impairment tests performed as of July 31, 2007 and September 30, 2006 indicated that no impairment charges were required. The Company’s management believes that this changeunderlying investments held by consolidated sponsored investment funds are carried at fair value, with corresponding changes in the method of applying an accounting principle is preferable under the circumstances and does not resultinvestments’ fair values reflected in adjustments tonon-operating income (expense) on the Company’s consolidated statements of income. In the absence of a publicly available market value, the fair value for such underlying investments is estimated in good faith by the Company’s management based on such factors as the liquidity, financial statements when applied retrospectively, nor would it resultcondition and current and projected operating performance of the investment and, in the delay, accelerationcase of private investment fund investments, the fund’s net asset value. When the Company no longer controls these funds due to reduced ownership percentage or avoidanceother reasons, the funds are deconsolidated and accounted for under another investment accounting method. In addition, changes in fair value of recording a potential future impairment. This changecertain illiquid investments held by these funds, including direct investments in equity or debt securities of privately held companies and certain real estate products, are recorded based upon the most current information available at the time, which may precede the date of the statement of financial condition

Upon consolidation of various sponsored investment funds on the Company’s consolidated statements of financial condition, the Company retains the specialized accounting principles of the underlying funds pursuant to ASC 810-10.

Separate Account Assets and Liabilities

Two wholly-owned subsidiaries of the Company in the methodUnited Kingdom are registered life insurance companies that maintain separate accounts representing segregated funds held for purposes of applying SFAS No. 142 had no impactfunding individual and group pension contracts, and equal and offsetting separate account non-financial liabilities. The separate account assets are not subject to general claims of the creditors of BlackRock. These accounts and the related liabilities are recorded as separate account assets and separate account liabilities on the Company’s consolidated statements of financial condition in accordance with the ASC 944-80,Financial Services – Separate Accounts.

The net investment income and net realized and unrealized gains and losses attributable to separate account assets supporting individual and group pension contracts accrue directly to the contract owner and are not reported as revenue or non-operating income (expense) on the consolidated statements of incomeincome. Policy administration and management fees associated with separate account products are included in investment advisory, administration fees and securities lending revenue on the consolidated statements of income.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Collateral Assets Held and Liabilities Under Securities Lending Agreements

The Company facilitates securities lending arrangements whereby securities held by separate account assets maintained by the life insurance companies are lent to third parties. In exchange, the Company receives collateral, principally cash and securities, with minimums generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. Under the Company’s securities lending arrangements, the Company can resell or re-pledge the collateral and the borrower can re-sell or re-pledge the loaned securities. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore these transactions are not reported as sales under ASC 860,Transfers and Servicing.

As a result of the Company’s ability to resell or re-pledge the collateral, the Company records on its consolidated statements of financial condition the collateral received under these arrangements (both cash and non-cash) as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. At December 31, 2010 and 2009, the fair value of loaned securities held by separate account assets was approximately $16.1 billion and $18.0 billion, respectively, and the collateral held under these securities lending agreements was approximately $17.6 billion and $19.3 billion, respectively. During the years ended December 31, 2007, 20062010 and 2009, the Company had not sold or 2005.re-pledged any of the collateral received under these arrangements.

Deferred Mutual Fund Sales Commissions

The Company holds the rights to receive certain cash flows from sponsored mutual funds sold without a front-end sales charge (“back-end load shares”). The faircarrying value of these deferred mutual fund commissions areis being amortized over periods between one and six years. The Company receives distribution fees from these funds and contingent deferred sales commissions (“CDSCs”) upon shareholder redemption of certain back-end load shares.shares, which are recorded within distribution fees on the consolidated statements of income. Upon receipt of CDSCs, the Company records revenue and the remaining unamortized deferred sales commission is expensed.

In April 2007, the Company acquired from a subsidiary of PNC certain distribution financing arrangements to receive certain cash flows from sponsored open-ended mutual funds sold without a front-end sales charge (“back-end load shares”). The fair value of these assets was capitalized and is being amortized over periods up to six years. The Company also acquired the rights to related distribution fees from these funds and CDSCs upon shareholder redemption of certain back-end load shares prior to the end of the contingent deferred sales period. The Company paid $33,996 in exchange for the above rights, which is reflected on the consolidated statement of cash flows as an acquisition within investing activities.

The Company periodically reviews the carrying value of deferred mutual fund commission assets to determine whether a significant decline in the equity or bond markets or other events or circumstances indicate that an impairment in value may have occurred. If indicators of a potential impairment exist, the Company compares the carrying value of the asset to the estimated future net undiscounted cash flows related to the asset. If such assessments indicate that estimated future net undiscounted cash flows will not be sufficient to recover the recorded carrying value, the assets are adjusted to their estimated fair value. No such impairments were recorded for the years ended December 31, 2007, 20062010, 2009 or 2005.2008.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation generally is recorded using the straight-line method over the estimated useful lives of the various classes of property and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the remaining lease term.

F-15


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)2. Significant Accounting Policies (continued)

 

2.Significant Accounting Policies (continued)

Property and Equipment (continued)

 

Software Costs

BlackRock develops a variety of risk management, investment analytic and investment system services for its customers, as well as internal use, utilizing proprietary software whichthat is hosted and maintained by BlackRock. The Company follows AICPA Statement of PositionASC 350-40,Internal-Use Software (“SOP”ASC 350-40”) 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.. SOP 98-1ASC 350-40 requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. Capitalized software costs are included within property and equipment net on the consolidated statements of financial condition and are amortized beginning when the software project is complete and put into production over theirthe estimated useful life of the software of three years.

Separate Account Goodwill and Intangible Assets

Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. The value of an assembled workforce is subsumed in goodwill as is it not a separable identifiable intangible asset. Intangible assets are comprised of indefinite-lived intangible assets and finite-lived intangible assets. The value of contracts to manage assets in proprietary open-end funds, closed-end funds and collective trust funds without a specified termination date is classified as an indefinite-lived intangible asset. The assignment of indefinite lives to such contracts primarily is based upon the following: a) the assumption that there is no foreseeable limit on the contract period to manage these funds; b) the Company expects to, and has the ability to, continue to operate these products indefinitely; c) the products have multiple investors and are not reliant on a single investor or small group of investors for their continued operation; d) current competitive factors and economic conditions do not indicate a finite life; and e) there is a high likelihood of continued renewal based on historical experience. In addition, trade names/trademarks are considered indefinite-lived intangibles as they are expected to generate cash flows indefinitely.

In accordance with ASC 350,Intangibles – Goodwill and Other(“ASC 350”), indefinite-lived intangible assets and goodwill are not amortized. The value of contracts for separately managed accounts and certain alternative funds which have finite lives are amortized over the expected life of the contracts.

The Company assesses its goodwill, indefinite-lived management contracts, trade names/trademarks and licenses for impairment at least annually. In its assessment of goodwill for impairment, the Company considers such factors as the book value and market capitalization of the Company. In its assessment of indefinite-lived management contracts and trade names/trademarks, the Company considers various factors including assets under management, product mix, operating margins, tax rates, discount rates and projected cash flows to determine whether the values of each asset are impaired and whether the indefinite-life classification is still appropriate. The fair value of indefinite-lived intangible assets is determined based on the discounted value of expected future cash flows.

The fair value of finite-lived management contracts and their remaining useful life is reviewed at least annually to determine if circumstances exist which may indicate a potential impairment. In addition, if circumstances exist, the Company will perform an impairment test, using an undiscounted cash flow analysis. If the asset is determined to be impaired, the difference between the book value of the asset and its current fair value would be recognized as an expense in the period in which the impairment is determined.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Assets and Liabilities to be Disposed of by Sale

A wholly-owned subsidiaryIn the course of the business of establishing real estate and other alternative investment funds, the Company may purchase land, properties and other assets while incurring liabilities directly associated with the assets, together a disposal group, with the intention to sell the disposal group to sponsored investment funds upon their launch. In accordance with the provisions of ASC 360-10,Property, Plant, and Equipment, the Company treats these assets and liabilities as a “disposal group”, measured at the lower of the carrying amount or fair value. Losses are recognized for any initial or subsequent write-down to fair value and gains are recognized for any subsequent increase in fair value, but not in excess of the cumulative loss previously recognized.

During the year ended December 31, 2010, the disposal group assets were sold and the liabilities were settled. At December 31, 2009, the Company held disposal group assets of $46 million which were reported in other assets and related liabilities of $45 million which were reported in other liabilities on its consolidated statements of financial condition. During the year ended December 31, 2009, the Company recorded a net loss of $2 million, within non-operating income (expense) on its consolidated statements of income related to the disposal group and did not record any adjustments in 2010.

Convertible Debt Instruments

In accordance with the provisions within ASC 470-20,Debt (“ASC 470-20”), issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in the United Kingdom is a registered life insurance company that maintains separate accounts representing segregated funds held for purposesstatement of funding individual and group pension contracts.financial condition. The separate account assets are not subject to general claimsexcess of the creditorsinitial proceeds of BlackRock. These accounts and the related liabilities are recordedconvertible debt instrument over the amount allocated to the liability component creates a debt discount, which is amortized as interest expense over the expected life of the liability. See Note 13, Borrowings, for further discussion on the Company’s convertible debentures.

Non-controlling Interests

According to the requirements within ASC 810-10, the Company reports non-controlling interests as equity, separate account assets and separate account liabilitiesfrom the parent’s equity, on the consolidated statements of financial condition in accordance withcondition. In addition, the AICPAAudit and Accounting Guide: Life and Health Insurance Entities.

TheCompany’s consolidated net investment income and net realized and unrealized gains and losses attributable to separate account assets supporting individual and group pension contracts accrue directly to the contract owner and are not reported as revenue inon the consolidated statements of income. Policy administrationincome includes the income/(loss) attributable to non-controlling interest holders of the Company’s consolidated sponsored investment funds and management fees associated with separate account productscollateralized loan obligations (“CLOs”). Income/(loss) attributable to non-controlling interests are includednot adjusted for income taxes for consolidated sponsored investment funds and CLOs that are treated as pass-through entities for tax purposes.

Classification and Measurement of Redeemable Securities

The provisions of ASC 480-10,Distinguishing Liabilities from Equity, require temporary equity classification for instruments that are currently redeemable or convertible for cash or other assets at the option of the holder. The Company includes redeemable non-controlling interests related to certain consolidated sponsored investment funds in investment advisory and administration fees intemporary equity on the Company’s consolidated statements of income.financial condition.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Appropriated Retained Earnings

Upon adoption of ASU 2009-17, BlackRock consolidated three CLOs and recorded a cumulative effect adjustment to appropriated retained earnings on the consolidated statement of financial condition equal to the difference between the fair value of the CLOs’ assets and the fair value of their liabilities. Such amounts are recorded as appropriated retained earnings as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLOs’ assets and liabilities. Subsequent to adoption of ASU 2009-17, the net change in the fair value of the CLOs’ assets and liabilities has been recorded as net income (loss) attributable to nonredeemable non-controlling interests and as an adjustment to appropriated retained earnings. See Accounting Policies Adopted in the Year Ended December 31, 2010 below for more information.

Treasury Stock

The Company records common stock purchased for treasury at cost. At the date of subsequent reissuance, the treasury stock account is reduced by the cost of such stock on the average cost method.

Revenue Recognition

Investment Advisory, Administration Fees and Securities Lending Revenue

Investment advisory and administration fees are recognized as the services are performed. Such fees are primarily based on pre-determined percentages of the market value of the assets under management (“AUM”) or, in the case of certain real estate clients, net operating income generated by the underlying properties. Investment advisory and administration fees are affected by changes in AUM, including market appreciation or depreciation, foreign exchange translation and net subscriptions or redemptions. Investment advisory and administration fees for mutualinvestment funds are shown net of fees waived pursuant to contractual expense limitations or for other reasons. Certain real estate fees are earned upon the acquisition or disposition of properties in accordance with applicable investment management agreements and are generally recognized at the closing of the respective real estate transactions.

F-16


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share datafunds or as otherwise noted)

2.Significant Accounting Policies (continued)

Revenue Recognition (continued)

voluntary waivers.

The Company contracts with third parties and related parties for various mutual fund administrationdistribution and shareholder servicing to be performed on behalf of certain funds managed by the Company. Such arrangements generally are priced as a portion of the Company’s management fee paid by the fund. In certain cases, the fund takes on the primary responsibility for payment for services such that BlackRock bears no credit risk to the third party. The Company accounts for such retrocession arrangements in accordance with EITF No. 99-19,ASC 605-45,Reporting Revenue Gross as aRecognition – Principal versus Net as an Agent Considerations,, and has recorded its management fees net of retrocessions. Retrocessions for the years ended December 31, 20072010, 2009 and 20062008 were $780,416$831 million, $611 million and $156,014,$762 million, respectively, and were reflected net in investment advisory, and administration fees and securities lending revenue on the consolidated statements of income. The Company did not enter into any retrocession arrangements prior to 2006.

The Company also earns revenue by lending securities on behalf of clients, primarily to brokerage institutions. Such revenues are accounted for on an accrual basis. The revenue earned on the collateral is shared between the Company and funds or other third-party accounts managed by the Company from which the securities are borrowed.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Revenue Recognition (continued)

Performance Fees

The Company receives performance fees or an incentive allocation from alternative investment products and certain separateseparately managed accounts. These performance fees generally are earned upon exceeding specified relative and/or absolute investment return thresholds. Such fees are recorded upon completion of the measurement period.period which varies by product or account.

The Company receives carried interest from certain alternative investments upon exceeding performance thresholds. BlackRock may bemaybe required to return all, or part, of such carried interest depending upon future performance of these investments. Therefore, BlackRock records carried interest subject to such claw-back provisions as revenuein investments, or cash to the extent that it is distributed, on its consolidated statements of incomefinancial condition. Carried interest is realized upon the earlier of the termination of the alternative investment fund or when the likelihood of claw-back is mathematically improbable. The Company records realized carried interest as performance fees on its consolidated statements of income. The Company records a deferred carried interest liability to the extent it receives cash or capital allocations prior to meeting the revenue recognition criteria. At December 31, 20072010 and 2006,2009, the Company had $28,567$23 million and $0,$13 million, respectively, of deferred carried interest recorded in other liabilities on the consolidated statements of financial condition.

BlackRock Solutions and Advisory

BlackRock provides a variety of risk management, investment analytic, andenterprise investment system and financial markets advisory services to insurance companies, finance companies,financial institutions, pension funds, asset managers, foundations, consultants, mutual fund sponsors, real estate investment trusts commercial and mortgage banks, savings institutions and government agencies. These services are provided under the brand nameBlackRock Solutions® and include a wide array of risk management services, valuation of illiquid securities, disposition and workout assignments (including long-term portfolio liquidation assignments), strategic planning and execution, and enterprise investment system outsourcing to clients. Fees earned forBlackRock Solutionsand advisory services are based primarily on pre-determinedrecorded as services are performed and are determined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of the market valuevarious attributes of assets subject to the services, on fixed monthly or quarterly payments or upon attainment of certain pre-defined milestones.advisory AUM and (iii) performance fees if contractual thresholds are met. The fees earned for risk management, investment analytic BlackRock Solutionsand investment systemadvisory services are recorded inBlackRock Solutionsand advisory on the consolidated statements of income.

Other Revenue

The Company earns fees for transition management services comprised of referral fees or agency commissions from acting as an introducing broker-dealer in buying and selling securities on behalf of the Company’s customers. Commissions related to transition management services are recorded on a trade-date basis as securities transactions occur and are reflected in other revenue on the consolidated statements of income.

The Company also earns other advisory service fees whichcommissions revenue upon the sale of unit trusts and Class A mutual funds. Revenue is recorded in otherat the time of the sale of the product.

Other revenue on the statement of income whenalso includes equity method investment earnings related to operating advisory company investments and marketing fees earned for services to distribute Barclays iPath products, which are completed.related to exchange-traded notes issued by Barclays.

F-17


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

2.

2. Significant Accounting Policies (continued)

Stock-based Compensation

Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Awards under the Company’s stock-based compensation plans generally vest over periods ranging from one to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for the year ended December 31, 2005 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.

The following table illustrates the effect on full year 2005 net income and earnings per share if the fair value based method in accordance with SFAS No. 123 had been applied to all outstanding and unvested option awards.

   Year ended
December 31,
 
   2005 

Net income, as reported

  $233,908 

Add: Stock-based employee compensation expense included in net income, as reported, net of tax

   8,458 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax

   (16,384)
     

Pro forma net income

  $225,982 
     

Earnings per share:

  

Basic - as reported

  $3.64 

Basic - pro forma

  $3.52 

Diluted - as reported

  $3.50 

Diluted - pro forma

  $3.38 

F-18


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies (continued)

Stock-based Compensation (continued)

 

In December 2004, the FASB issued SFAS No. 123(R),Share-Based PaymentStock-based Compensation. This statement revised SFAS No. 123 and superseded Accounting Principles Board Opinion (“APB”) No. 25,Accounting for Stock Issued to Employees.

The Company adopted SFAS No. 123(R) on January 1, 2006, usingapplies the modified-prospective transition approach, with no cumulative effect on net income. The statement establishesrequirements within ASC 718-10,Compensation – Stock Compensation(“ASC 718-10”), which establish standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Entities are required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. ThatThe cost is recognized over the period during which an employee is required to provide service (usually the vesting period) in exchange for the stock award. The adoption of SFAS No. 123(R) reduced 2006 pre-tax net income and net income by approximately $12,556 and $7,911, respectively, and affected earnings per share by approximately $0.10 per basic share and $0.09 per diluted share. The impact of the adoption of SFAS No. 123(R) was immaterial to the Company’s consolidated statement of cash flows.

The Company measures the grant-date fair value of employee share options and similar instruments using option-pricing models. If an equity award is modified after the grant date, incremental compensation cost is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. The grant-date fair value of restricted sharestock units is calculated using the Company’s share price on the date of grant. Compensation cost is recorded by the Company on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award is, in-substance, multiple awards. Awards under the Company’s stock-based compensation plans vest over periods ranging from one to five years. ExpenseCompensation cost is reduced by the number of awards expected to be forfeited prior to vesting. Forfeiture estimates generally are derived using historical forfeiture information, where available, and are reviewed for reasonableness at least annually.

The Company amortizes the grant-date fair value of stock-based compensation awards made to retirement eligible employees over the required service period. Upon notification of retirement, the Company accelerates the unamortized portion of the award over the contractually-required retirement notification period, if applicable.

The firmCompany pays cash dividend equivalents that are not subject to vesting on outstanding restricted stock units (“RSUs”). Dividend equivalents are charged granted prior to retained earnings. SFAS No. 123(R)2009. ASC 718-10 requires dividend equivalents on RSUs expected to be forfeited to be included in compensation and benefits expense. Dividend equivalents on participating shares expected to vest are recorded in retained earnings.

Portfolio AdministrationDistribution and Servicing Costs

Portfolio administrationDistribution and servicing costs include payments to third parties and affiliates, including Bank of America/Merrill Lynch, PNC and PNC,Barclays, primarily associated with the administrationdistribution and servicing of client investments in certain BlackRock products. Portfolio administrationDistribution and servicing costs are expensed when incurred.

Direct Fund Expenses

Direct fund expenses, which are expensed as incurred, primarily consist of third party non-advisory expenses incurred by BlackRock related to certain funds for the use of certain index trademarks, reference data for certain indices, custodial services, fund administration, fund accounting, transfer agent services, shareholder reporting services, audit and tax services as well as other fund related expenses directly attributable to the non-advisory operations of the fund.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Leases

The Company accounts for its operating leases, which may include escalations, in accordance with SFAS No. 13,ASC 840-10,Accounting for Leases. The Company expenses the lease payments associated with operating leases evenly during the lease term (including rent-free periods), beginning on the commencement of the lease terms.

F-19


BlackRock, Inc.term.

Notes to the Consolidated Financial StatementsForeign Exchange

(Dollar amounts in thousands, except per share data or as otherwise noted)

2.Significant Accounting Policies (continued)

Foreign Exchange

FinancialMonetary assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the date of the consolidated statements of financial condition. Non-financialNon-monetary assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at historical exchange rates. Revenues and expenses are translated at average exchange rates during the period. Gains or losses resulting from translating foreign currency financial statements into U.S. dollars are included in accumulated other comprehensive income, a separate component of stockholders’ equity on the consolidated statements of financial condition. Gains or losses resulting from foreign currency transactions are included in general and administration expense on the consolidated statements of income. For the years ended December 31, 2010, 2009 and 2008, the Company recorded gains/(losses) from foreign currency transactions of $6 million, ($11) million and $50 million, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method prescribed by SFAS No. 109,ASC 740-10,Accounting for Income Taxes(“ASC 740-10”). Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using currently enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in income in the period that includes the enactment date.

Management periodically assesses the recoverability of its deferred income tax assets based upon expected future earnings, taxable income in prior carryback years, future deductibility of the asset, changes in applicable tax laws and other factors. If management determines that it is not more likely than not that the deferred tax asset will be fully recoverable in the future, a valuation allowance maywill be established for the difference between the asset balance and the amount expected to be recoverable in the future. This allowance will result in a charge to income tax expense on the Company’s consolidated statements of income. Further, the Company records its income taxes receivable and payable based upon its estimated income tax liability.

BlackRock adopted the provisions of FIN No. 48,Accounting for Uncertainty in Income Taxes on January 1, 2007. FIN No. 48ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109. FIN No. 48 prescribesby prescribing a threshold andfor measurement attribute forand recognition in the financial statements of an asset or liability resulting from a tax position taken or expected to be taken in an income tax return. FIN No. 48ASC 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Excess tax benefits and shortfalls related to stock-based compensation are recognized as additional paid inpaid-in capital and subsequent to the adoption of SFAS No. 123(R) are reflected as financing cash flows on the consolidated statements of cash flows. If the Company does not have additional paid-in capital credits (cumulative tax benefits recorded to additional paid-in capital), the Company will record an expense for any deficit between the recorded tax benefit and tax return benefit. At December 31, 2007,2010 and 2009, BlackRock had excess additional paid-in capital credits to absorb potential future deficits between recorded tax benefits and tax return benefits.

F-20


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)2. Significant Accounting Policies (continued)

 

2.Significant Accounting Policies (continued)

Earnings per Share (“EPS”)

EPS is calculated pursuant to the two-class method as defined in ASC 260-10,Earnings per Share (“ASC 260-10”), which specifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents are considered participating securities and should be included in the computation of EPS pursuant to the two-class method.

The Company presents both basic and diluted EPS amounts. Basic earnings per common shareEPS is calculated by dividing net income applicabledistributed and undistributed earnings allocated to common stockholdersshareholders, excluding participating securities, by the weighted averageweighted-average number of common shares outstanding. The Company’s participating securities consist of common stockits unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the impact of other potentially dilutive shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the total weighted average number of shares of common stock and common stock equivalents outstanding during the period. Diluted earnings per common share are computedperiod using the treasury stocktwo-class method.

Due to the similarities in terms betweenamong BlackRock series A, B, C and D non-voting participating preferred stock issued to Merrill Lynch in the MLIM Transaction and the Company’s common stock, the Company considers theeach series Aof non-voting participating preferred stock to be common stock equivalents for purposes of earnings per common share calculations.

In accordance with SFAS No. 128,Earnings per Share,ASC 260-10, shares of the Company’s common stock are not included in basic earnings per common share until contingencies are resolved and the shares are released. Shares of the Company’s common stock are not included in diluted earnings per common share unless the contingency has been met assuming that the contingency period ended on the date of the consolidated statement of financial condition.

Business Segments

The Company’s management directs BlackRock’s operations as one business, the asset management business. As such, the Company operates in one business segment as defined in SFAS No. 131,ASC 280-10,Disclosures about Segments of an Enterprise and Related InformationSegment Reporting (“ASC 280-10”).

Disclosure of Fair Value

SFAS No. 107,Disclosure about Fair Value of Financial Instruments, requires disclosure of estimated fair values of certain financial instruments, both on and off the consolidated statements of financial condition. The methods and assumptions are set forth below:

Cash and cash equivalents, receivables, other assets, accounts payable and accrued liabilities are carried at cost which approximates fair value due to their short maturities.

The fair value of marketable investments is based on quoted market prices. If investments are not readily marketable, fair values are primarily determined based on net asset values of investments in partnerships or by the Company based on management’s assumptions or estimates, taking into consideration financial information of the investment and industry. At December 31, 2007, the carrying value of investments approximated fair value.

At December 31, 2007, the estimated fair value of the Company’s $249,997 aggregate principal amount of convertible debentures was $540,000. The fair value was estimated using market prices.

At December 31, 2007, the estimated fair value of the Company’s $700,000 long-term notes was $726,600. The fair value was estimated using an applicable bond index.

F-21


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)2. Significant Accounting Policies (continued)

 

2.Significant Accounting Policies (continued)

Derivative Instruments and Hedging ActivitiesBusiness Combinations

SFAS No. 133,AccountingThe Company accounts for Derivative Instruments and Hedging Activitiesbusiness combinations in accordance with the requirements of ASC 805,Business Combinations, as amended, establishes (“ASC 805”). The fundamental requirement of ASC 805 is that the acquisition method of accounting and reporting standards(the purchase method) be used for derivative instruments, including certain derivatives embedded in other contractsall business combinations and for hedging activities. SFAS No. 133an acquirer to be identified for each business combination. The provisions within ASC 805 further define the acquirer, establish the acquisition date and broaden the scope of transactions that qualify as business combinations.

Additionally, the requirements within ASC 805 change the fair value measurement provisions for assets acquired, liabilities assumed and any non-controlling interest in the acquiree, provide guidance for the measurement of fair value in a step acquisition, change the requirements for recognizing assets acquired and liabilities assumed subject to contingencies, provide guidance on recognition and measurement of contingent consideration and require that acquisition-related costs of the acquirer generally requires an entitybe expensed as incurred. Reversal of valuation allowances related to recognize all derivatives as eitheracquired deferred tax assets and changes to liabilities for unrecognized tax benefits related to tax positions assumed in business combinations that settled prior to the adoption of the new requirements within ASC 805 affected goodwill. If such valuation allowances reverse or liabilities change subsequent to the adoption of the new requirements within ASC 805, such changes will affect the income tax provision in the period of reversal or change.

The Company adopted the requirements within ASC 805 on January 1, 2009. The adoption of the new requirements within ASC 805 impacted the Company’s consolidated financial statements for the year ended December 31, 2009 as the Company completed its acquisition of BGI during 2009 and certain acquisition related costs were expensed as incurred.

In addition, in accordance with the requirements of ASC 805, certain line items on the consolidated statement of financial condition, including goodwill, intangible assets, and deferred tax liabilities, have been retrospectively adjusted as of December 31, 2009 to measure those investmentsreflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date. See Note 3, Mergers and Acquisitions, for a summary of the changes in 2010 to the BGI purchase price allocation.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Fair Value Measurements

ASC 820-10,Fair Value Measurements and Disclosures (“ASC 820-10”), requires among other things, disclosures about assets and liabilities that are measured and reported at fair value.

The Company uses derivative financial instruments primarily for purposesHierarchy of hedging (a) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities and (b) market exposures for certain investments. Derivative financial instruments are not entered into for trading or speculative purposes. The Company may use derivatives in connection with capital support agreements with affiliated investment companies. Certain consolidated funds may invest in derivatives as a part of their investment strategy. Changes in the fair value of the Company’s derivative financial instruments are recognized in current earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities, in the consolidated statements of income.

Reclassifications

Certain items previously reported have been reclassified to conform to the current year presentation.

Recent Accounting Developments

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements.Inputs SFAS No. 157 defines fair value, establishes

The provisions of ASC 820-10 establish a framework for measuringhierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requiresrequire companies to disclose the fair value of their financial instruments according to athe fair value hierarchy (i.e., levelsLevel 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Additionally, companies are required to provide enhancedadditional disclosure regarding instruments in the levelLevel 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the impact of adoption of SFAS No. 157 to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158,Employers’See Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106 and 132. SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit post-retirement plan as an asset or liability in its statement of financial condition and to recognize changesPolicies Adopted in the funded statusYear Ended December 31, 2010 below for more information on additional fair value disclosure requirements adopted in 2010.

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the yearfollowing categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

Level 1 assets may include listed mutual funds (including those accounted for under the equity method of accounting as these mutual funds are investment companies, that have publicly available NAVs which in accordance with GAAP are calculated under fair value measures and are equal to the earnings of such funds), ETFs, equities and certain derivatives.

Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers, for which the changes occur. The statement also requires actuarial valuationsCompany can determine that orderly transactions took place at the quoted price or that the inputs used to be performedarrive at the price were observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. As a practical expedient, the Company relies on the net asset values (“NAVs”) (or its equivalents) of the balance sheet date. The balance sheet recognition provisions of SFAS No. 158 were effective for fiscal years ending after December 15, 2006. The valuation date provisions are effective for fiscal years ending after December 15, 2008. The Company adopted the balance sheet recognition provisions of SFAS No. 158 on December 31, 2006 and the impact of adoption was not material to its consolidated financial statements.certain investments as their fair value.

 

F-22Level 2 assets in this category may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, securities held within consolidated hedge funds, certain equity method limited partnership interests in hedge funds and mutual funds valued based on NAV where the Company has the ability to redeem at the measurement date or within the near term without redemption restrictions, restricted public securities valued at a discount, as well as over the counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

2.

2. Significant Accounting Policies (continued)

Recent Accounting Developments (continued)

 

Fair Value Measurements (continued)

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include non-binding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using a NAV and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

Level 3 assets in this category include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds, and funds of hedge funds, direct private equity investments held within consolidated funds, bank loans and certain held for sale real estate disposal assets.

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, including independent appraisals, from third party sources. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third party source or fund management may conclude that the valuations that are available from third party sources are not reliable. In February 2007,these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.

Level 3 liabilities included in this category include borrowings of consolidated collateralized loan obligations valued based upon non-binding single broker quotes.

Significance of Inputs

The Company’s assessment of the FASB issued SFAS No. 159,significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

The Fair Value Option

ASC 825-10,Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent accounting measurement attribute for Financial Assetscertain financial assets and Financial Liabilities. SFAS No. 159liabilities. ASC 825-10 permits entities to chooseelect to measure eligible financial assets and liabilities at fair value. The unrealizedvalue on an ongoing basis. Unrealized gains and losses on items for which the fair value option has been elected should beare reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis, it shouldmust be applied to an entire instrument and it is irrevocable once elected. Assets and liabilities measured at fair value pursuant to the fair value option shouldASC 825-10 are required to be reported separately in the balance sheet from those instruments measured using another measurement attribute. SFAS No. 159accounting method. In 2010, the Company elected the fair value option for certain assets and liabilities of consolidated CLOs. See Accounting Policies Adopted in the Year Ended December 31, 2010 below for more information.

Disclosure of Fair Value

The disclosure requirements within ASC 825-10 require disclosure of estimated fair values of certain financial instruments, both on and off the consolidated statements of financial condition. For financial instruments recognized at fair value in the statement of financial position, the disclosure requirements of ASC 820-10 also apply.

The methods and assumptions are set forth below:

Cash and cash equivalents are carried at either cost or amortized cost which approximates fair value due to their short term maturities. Money market funds are valued through the use of quoted market prices, or $1.00, which generally is effective asthe net asset value of the beginningfund.

The carrying amounts of receivables, accounts payable and accrued liabilities approximate fair value due to their short maturities.

The fair value of marketable investments is based on quoted market prices or broker quotes. If investments are not readily marketable, fair values primarily are determined based on net asset values (or capital accounts) of investments in limited partnerships/limited liability companies or by the Company based on management’s assumptions or estimates, taking into consideration financial information of the first fiscal year that begins after November 15, 2007. The Company does not expectinvestment, the applicationindustry of SFAS No. 159 to have a material impact on its consolidated financial statements.

In June 2007, the EITF ratified EITF Issue No. 06-11,Accounting for Income Tax Benefitsinvestment, market indices or valuation services from third party service providers. At December 31, 2010, with the exception of Dividends on Share-Based Payment Awards. Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalentscertain equity and cost method investments and carried interest that are charged to retained earnings and paid to employees on equity classified as non-vested equity shares, non-vested equity share units or outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capitalnot accounted for under a fair value measure, the realized income tax benefit from dividends on those awards should be included in the poolcarrying value of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007 and interim periods within those fiscal years. The Company does not expect the application of EITF 06-11 to have a material impact on its consolidated financial statements.

In June 2007, the Accounting Standards Executive Committee of the AICPA issued SOP 07-1,Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investorsinvestments approximated fair value. See Note 7, Fair Value Disclosures, for Investments in Investment Companies. SOP 07-1 provides guidance for determining whether the specialized accounting principles of the AICPAAudit and Accounting Guide for Investment Companies, (the “Guide”) should be applied by an entity and whether those specialized accounting principles should be retained by a parent company in consolidation or by an investor in the application of the equity method of accounting. On February 6, 2008, the FASB indefinitely deferred the effective date of SOP 07-1 to address the implementation issues that have arisen and to possibly revise SOP 07-1.further discussion.

In May 2007, the FASB issued FSP FIN 46(R)-7,Application of FIN 46R to Investment Companies (“FSP FIN 46(R)-7”) which amends FIN 46(R) to make permanent the temporary deferral of the application of FIN 46R to entities within the scope of the revised audit guide under SOP 07-1. FSP FIN 46(R)-7 is effective upon adoption of SOP 07-1. The Company currently is evaluating the impact that the adoption of FSP FIN 46(R)-7 may have on its consolidated financial statements.

F-23


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

2.

2. Significant Accounting Policies (continued)

Recent Accounting Developments (continued)

 

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51Derivative Instruments and Hedging Activities. SFAS No. 160 amends Accounting Research Bulletin No. 51,

ASC 815-10,Consolidated Financial StatementsDerivatives and Hedging(“ASC 815-10”), to establishestablishes accounting and reporting standards for a non-controlling interestderivative instruments, including certain derivatives embedded in a subsidiaryother contracts and for hedging activities. ASC 815-10 generally requires an entity to recognize all derivatives as either assets or liabilities on the deconsolidationconsolidated statements of financial condition and to measure those investments at fair value.

The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging (a) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities and (b) market exposures for certain investments. The Company may also use derivatives within separate account assets and liabilities, which are segregated funds held for purposes of funding individual and group pension contracts, or in connection with capital support agreements with affiliated investment companies. In addition, certain consolidated sponsored investment funds may also invest in derivatives as a subsidiary and clarifies that a non-controlling interest in a subsidiary is an ownership interestpart of their investment strategy.

Changes in the fair value of the Company’s derivative financial instruments are recognized in current earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities or hedged investments, on the consolidated entitystatements of income.

Comprehensive Income Attributable to BlackRock

Subsequent to the issuance of BlackRock’s second quarter 2010 Form 10-Q, filed with the SEC on August 6, 2010, the Company determined that pursuant to ASC 810, it should be reportedhave presented the amount of comprehensive income attributable to non-controlling interests and comprehensive income attributable to BlackRock on its consolidated statements of comprehensive income and it mislabeled total comprehensive income as equity, separate frombeing attributable to BlackRock. The affected periods include each of the parent’s equity,two years in the period ended December 31, 2009. The accompanying Consolidated Statements of Comprehensive Income for years ended December 31, 2009 and 2008 have been corrected to include the required information as the Company believes this correction was not material to the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing non-controlling interests. All other requirements of SFAS No. 160 shall be applied prospectively. statements taken as a whole.

Subsequent Events

The Company currently is evaluating the potential impact of SFAS No. 160discloses subsequent events in accordance with ASC 855-10,Subsequent Events(“ASC 855-10”), which provides guidance to its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised),Business Combinations(“SFAS No. 141(R)”). SFAS No. 141(R) revises SFAS No. 141,Business Combinations, while retaining the fundamental requirements of SFAS No. 141 that the acquisition methodestablish general standards of accounting (the purchase method) be used for all business combinations and for an acquirerdisclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be identified for each business combination. SFAS No. 141(R) further definesissued and ASU 2010-09,Amendments to Certain Recognition and Disclosure Requirements, which amends ASC 855-10 to clarify that an SEC filer is not required to disclose the acquirer, establishes the acquisition date and broadens the scope of transactions that qualify as a business combination. Additionally, SFAS No. 141(R) changes the fair value measurement provisions for determining assets acquired and liabilities assumed and any non-controlling interestthrough which subsequent events have been evaluated in the acquiree, provides guidancefinancial statements. See Note 25, Subsequent Events, for the measurement of fair value in a step acquisition, changes the requirements for recognizing assets acquired and liabilities assumed subject to contingencies, provides guidance on recognition and measurement of contingent consideration and requires that acquisition-related costs of the acquirer be expensed as incurred. In addition, if liabilities for unrecognized tax benefits related to tax positions assumed in a business combination are settled prior to the adoption of SFAS 141(R), the reversal of any remaining liability will affect goodwill. If such liabilities reverse subsequent to the adoption of SFAS No. 141(R), such reversals will affect the income tax provision in the period of reversal. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company currently is evaluating the impact of the adoption of SFAS No. 141(R) on its consolidated financial statements.further discussion.

F-24


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)2. Significant Accounting Policies (continued)

 

3.Mergers and Acquisitions

Accounting Policies Adopted in the Year Ended December 31, 2010

Quellos GroupNew Consolidation Guidance for Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASU 2009-17, which amended the consolidation guidance for VIEs. The amendments include: (1) the elimination of the exemption from consolidation for qualifying special purpose entities, (2) a new approach for determining the PB of a VIE, which requires that the PB have both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE, and (3) the requirement to continually reassess the PB of a VIE.

In February 2010, the FASB issued ASU 2010-10.This ASU defers the application of SFAS No. 167 for a reporting enterprise’s interest in an entity if all of the following conditions are met:

(1) the entity either has all of the attributes of an investment company, as specified in ASC 946-10,Financial Services-Investment Companies (“ASC 946-10”) or it is industry practice to apply measurement principles for financial reporting that are consistent with those in ASC 946-10; (2) the entity is not a securitization entity, an asset-backed financing entity, or an entity formerly considered a qualifying special-purpose entity, and (3) the reporting enterprise does not have an explicit or implicit obligation to fund losses of the entity that could potentially be significant to the entity.

In addition, the deferral applies to a reporting entity’s interest in an entity that is required to comply or operate in accordance with the requirements of Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

The amendments in ASU 2010-10 clarify that for entities that do not qualify for the deferral, related parties should be considered when evaluating each of the criteria for determining whether a decision maker or service provider fee represents a variable interest.

An entity that qualifies for the deferral will continue to be assessed for consolidation under the overall guidance on variable interest entities in ASC 810, (before its amendment by SFAS No. 167) or other applicable consolidation guidance, including guidance for the consolidation of partnerships in ASC 810. The amendment does not defer the disclosure requirements of ASU 2009-17.

On January 1, 2010, upon adoption of ASU 2009-17, the Company determined it was the PB of three CLOs, which resulted in consolidation of these CLOs on the Company’s consolidated financial statements. Upon consolidation, the Company elected the fair value option for eligible financial assets and liabilities to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplifications. Upon adoption of the provisions of ASU 2009-17, the Company recorded a cumulative effect adjustment to appropriated retained earnings of $114 million.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

2. Significant Accounting Policies (continued)

Accounting Policies Adopted in the Year Ended December 31, 2010 (continued)

Improving Disclosures about Fair Value Measurements

In January 2010, the FASB issued ASU 2010-06,Fair Value Measurements and Disclosures(“ASU 2010-06”). ASU 2010-06 amended ASC 820-10 to require new disclosures with regards to significant transfers into and out of Levels 1 and 2. ASU 2010-06 also clarifies existing fair value disclosures about the appropriate level of disaggregation and about inputs and valuation techniques for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009. The adoption on January 1, 2010 of the additional disclosure requirements of ASU 2010-06 did not materially impact BlackRock’s financial statement disclosures.

Recent Accounting Pronouncements Not Yet Adopted

Additional Level 3 Fair Value Rollforward Disclosures

In addition, ASU 2010-06 requires separate disclosures about purchases, sales, issuances and other settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of the additional Level 3 rollforward disclosure requirements is not expected to materially impact BlackRock’s financial statement disclosures.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

3. Mergers and Acquisitions

Barclays Global Investors

On OctoberDecember 1, 2007,2009, BlackRock acquired from Barclays all of the Company closedoutstanding equity interests of subsidiaries of Barclays conducting the Quellos Transaction and paid Quellos $562,500investment management business of BGI in cash and issued 1,191,785exchange for an aggregate of 37,566,771 shares of BlackRock common stock valued at $187,500.and participating preferred stock and $6.65 billion in cash. The common stock will be held in escrow for up to three years and is available to satisfy certain indemnification obligations of Quellos under the asset purchase agreement. Thefair value of the common stock consideration37,566,771 shares at closing, on December 1, 2009, was determined using$8.53 billion, at a price of $227.08 per share, the average closing price of BlackRock’s common stock ten days beforeon November 30, 2009.

The shares of capital stock issued to Barclays pursuant to the QuellosBGI Transaction announcement date.

represented approximately 4.8% of the outstanding shares of common stock and approximately an aggregate 19.8% economic interest in BlackRock immediately following the closing of the transaction. Barclays generally is restricted from purchasing additional shares of BlackRock common or preferred stock if it would result in Barclays holding more than 4.9% of the total voting power of BlackRock or more than 19.9% of the total capital stock of BlackRock on a fully diluted basis. In addition, Quellos may receive two contingent payments, upon achieving certain investment advisory revenue measuresafter the close of the BGI Transaction, Barclays was restricted from transferring 100% of its BlackRock capital stock for one year after closing and 50% of its BlackRock capital stock for the second year, without the prior written consent of BlackRock.

The cash portion of the purchase price was funded through December 31, 2010, totaling up to $969,000 in a combination of existing cash, issuance of short-term debt backed by a short-term credit facility which was arranged by Barclays, a related party, and stock. The first contingent payment,subsequently terminated upon the issuance of up to $374,000 is payable,long-term notes in December 2009, up to 25% in BlackRockand proceeds from the private issuance of 19,914,652 shares of common and preferred stock, converted into common shares at a price of $157.33,$140.60, to a group of institutional investors, including PNC.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

3. Mergers and the remainder in cash. The second contingent payment, based on investment advisory fees through 2010, of up to $595,000 is payable in cash.Acquisitions (continued)

Barclays Global Investors (continued)

The QuellosBGI Transaction was accounted for under the purchaseacquisition method of accounting in accordance with SFAS No. 141,Business Combinations.ASC 805. Accordingly, the purchase price was allocated to the assets acquired and liabilities and non-controlling interests assumed based upon their estimated fair values at the date of the transaction. TheSubstantially all of the excess if any, of the final purchase price which may include contingent consideration payments, over the fair value of assets acquired and liabilities and non-controlling interests assumed will bewas recorded as non-deductible goodwill.

A summary of the estimated acquisition dateinitial and revised fair values of the assets acquired and liabilities and non-controlling interests assumed on December 1, 2009 in this acquisition is as follows:

 

   Estimate of
Fair Value
 

Investments

  $20,074 

Property and equipment

   9,435 

Other assets

   4,329 

Goodwill

   27,437 

Finite-life intangible management contracts

   161,000 

Indefinite-life intangible management contracts

   631,000 

Liabilities assumed

   (33,648)

Due to Quellos

   (13,390)

Deferred tax liabilities

   (281,104)
     

Total purchase price, including transaction costs

  $525,133 
     

Summary of consideration, net of cash acquired:

  

Cash paid

  $562,500 

Cash acquired

   (49,340)

Other capitalized transaction costs

   11,973 
     

Total consideration

  $525,133 
     
(Dollar amounts in millions)  Initial
Estimate of
Fair Value
  Purchase
Price
Adjustments
  Revised
Estimate of
Fair Value
 

Accounts receivable

  $593   ($12 $581  

Investments

   125    —      125  

Separate account assets

   116,301    —      116,301  

Collateral held under securities lending agreements

   23,498    —      23,498  

Property and equipment

   205    (2  203  

Finite-lived intangible management contracts (intangible assets)

   163    (7  156  

Indefinite-lived intangible management contracts (intangible assets)

   9,785    25    9,810  

Trade names / trademarks (indefinite-lived intangible assets)

   1,403    —      1,403  

Goodwill

   6,842    110    6,952  

Other assets

   366    16    382  

Separate account liabilities

   (116,301  —      (116,301

Collateral liability under securities lending agreements

   (23,498  —      (23,498

Deferred income tax liabilities

   (3,799  (45  (3,844

Accrued compensation and benefits

   (885  —      (885

Other liabilities assumed

   (660  (85  (745

Non-controlling interest assumed

   (12  —      (12
             

Total consideration, net of cash acquired

  $14,126   $—     $14,126  
             

Summary of consideration, net of cash acquired:

    

Cash paid

  $6,650   $—     $6,650  

Cash acquired

   (1,055  —      (1,055

Capital stock at fair value

   8,531    —      8,531  
             

Total cash and stock consideration

  $14,126   $—     $14,126  
             

The fair value of BGI finite-lived management contracts consists primarily of separate accounts and custom segregated funds and the fair value of BGI indefinite-lived management contracts primarily consists of exchange-traded funds, collective investment trusts and other investment funds.

F-25

Finite-lived management contracts have a weighted-average estimated useful life of approximately 10 years and are amortized using the straight-line method.


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

3.Mergers and Acquisitions

 

Quellos Group3. Mergers and Acquisitions (continued)

 

Finite-life intangible management contracts have a weighted average estimated useful life of approximately eight years and are amortized on the straight-line method.

Approximately $11,973 of direct costs were capitalized in conjunction with the Quellos Transaction, primarily representing $7,500 of financial advisory fees and approximately $4,473 in legal and other professional fees.

The purchase accounting adjustments are preliminary and subject to revision. At this time, except for the items noted below, the Company does not expect material changes to the value of the assets acquired or liabilities assumed in conjunction with the transaction. Specifically, the following assets and liabilities are subject to change:

Investments were valued at fair value using the most up to date information available. The values of such investments may change, primarily as the result of finalization of the valuations of non-marketable investments;

Intangible management contracts were valued using preliminary October 1, 2007 AUM and assumptions. The value of such contracts may change, primarily as the result of updates to AUM and those assumptions;

As management receives additional information, deferred income tax assets and liabilities may be adjusted as the result of changes in purchase accounting and applicable tax rates.

As contingencies are resolved, BlackRock common shares held in escrow may be released from escrow. If contingent consideration payments are made to Quellos, additional purchase price consideration will be recorded, which may result in additional goodwill if there is excess purchase price over the fair value of assets acquired and liabilities assumed.

F-26


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

3.Mergers and Acquisitions

Quellos GroupBarclays Global Investors (continued)

 

The following unaudited pro forma combined financial information does not purportfair value of acquired trade names/trademarks was determined using a royalty rate based primarily on normalized marketing and promotion expenditures to be indicative of actual financial position or results of BlackRock’s operations haddevelop and support the Quellos and MLIM Transactions actually been consummated at the beginning of each period presented. The 2006 pro-forma financial information has been prepared as if the MLIM and Quellos acquisitions occurred at the beginning of the period. The 2007 pro-forma financial information was prepared as if the Quellos acquisition occurred at the beginning of the period. Certain one-time charges have been eliminated. The pro forma combined provision for income taxes may not represent the amount that would have resulted had BlackRock, Quellos and MLIM filed consolidated income tax returns during the year presented. Management expects to realize net operating synergies from this transaction. The pro forma combined financial information does not reflect the potential impact of these synergies.

(unaudited)  Year Ended
December 31,
(in millions, except per share data)  2007  2006

Total revenue

  $5,112  $4,094

Operating income

  $1,424  $1,205

Net income

  $1,052  $819

Earnings per share:

    

Basic

  $8.19  $6.35

Diluted

  $7.96  $6.21

BlackRock results included $20,661 and $141,932 of MLIM and Quellos integration costs during the years ended December 31, 2007 and 2006, respectively. For purposes of the pro forma financial information above, these costs have been removed as they are deemed to be one-time integration costs directly attributable to the transactions

The results for the year ended December 31, 2006 include a pre-tax expense of $62 million related to potential legal claims related to the Quellos business. The liability related to such claims was not assumed in the transaction. The MLIM Business for the nine months ended September 30, 2006 includes a pre-tax expense of $109 million related to the acceleration of certain stock-based compensation. These expenses are not excluded from the pro forma results above as they are not directly attributable to the transactions.brands globally.

Fund of Hedge FundsHelix Financial Group LLC

On April 30, 2003, the Company purchased an 80% interest in an investment manager of a hedge fund of funds for approximately $4,100 in cash. On October 1, 2007, the Company paid $27,000 in cash to purchase the remaining 20% of the investment manager. The purchase price of the remaining interest was performance-based and was not subject to a maximum, minimum or the continued employment of former employees of the investment manager with the Company. As a result of the transaction in October 2007 $21,292 and $8,400 of additional goodwill and indefinite-life intangible assets, respectively, was recorded.

F-27


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

3.Mergers and Acquisitions (continued)

Merrill Lynch Investment Managers

On September 29, 2006,In January 2010, the Company completed the MLIM Transaction and issued 52,395,082 sharesacquisition of BlackRock common stock and 12,604,918 of series A non-voting participating preferred stock to Merrill Lynch in consideration for the MLIM Business. Total consideration issued to Merrill Lynch was $9,089,233, net of cash acquired, including capitalized transaction costs. The Company’s consolidated financial statements include the accounts of the MLIM Business subsequent to September 29, 2006.

In connection with the MLIM Transaction, Merrill Lynch and PNC each have entered into stockholder agreements with BlackRock. Pursuant to the terms of the stockholder agreement, Merrill Lynch is restricted from owning more than 49.8% of the fully diluted capital stock of BlackRock. PNC, which owned approximately 69% of BlackRock’s total capital stock prior to the MLIM Transaction, owned approximately 34% of the total outstanding capital stock as of September 30, 2006 and December 31, 2006. Pursuant to the terms of the stockholder agreement, PNC generally is restricted from owning more than the greater of 35% of the capital stock of BlackRock or the percentage ownership it held immediately following the closing of the MLIM Transaction, except in the case where an increase in PNC’s percentage ownership is due to a BlackRock share buyback, in which case PNC is permitted to own no more than 40% of the Company’s outstanding capital stock.

In addition to the ownership restrictions described above, the stockholder agreements include the following additional provisions, among others:

Both Merrill Lynch and PNC generally are restricted from purchasing additional shares of BlackRock common stock if it would result in either exceeding their respective ownership caps;

Merrill Lynch is restricted from transferring any common stock or the series A non-voting participating preferred stock for a period of three years without the prior consent of BlackRock;

PNC, and Merrill Lynch after the third anniversary of the closing of the MLIM Transaction, are subject to additional transfer restrictions designed to ensure that no party acquires a significant holding of voting stock;

Merrill Lynch and PNC are required to vote their shares in accordance with the BlackRock Board of Directors’ recommendations to the extent consistent with the provisions of the stockholder agreements; and

Certain fundamental transactions may not be entered into without prior approval ofsubstantially all of the independent directors then in office, or at least two-thirdsnet assets of the directors then in office. Additionally, BlackRock may not enter into certain key transactions without prior approval of Merrill LynchHelix Financial Group LLC, which provides advisory, valuation and PNC.

F-28


BlackRock, Inc.

Notesanalytics solutions to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

3.Mergers and Acquisitions (continued)

Merrill Lynch Investment Managers (continued)

The series A non-voting participating preferred stock:

Except as otherwise provided by applicable law, is non-voting;

Participates in dividends, on a basis generally equal to the common stock;

Grants the holder the right to receive dividends in common stock (subject to applicable ownership restrictions) or in cash;

Benefits from a liquidation preference of $0.01 per share;commercial real estate lenders and

Is mandatorily convertible to BlackRock common stock upon transfer to an unrelated party.

The MLIM Transaction was accounted for under the purchase method of accounting in accordance with SFAS No. 141,Business Combinations investors (the “Helix Transaction”). Accordingly, the purchase price was allocated to theThe assets acquired and liabilities assumed, based upon their estimated fair values atas well as the datetotal consideration paid for the acquisition, were not material to the Company’s consolidated financial statements.

Primasia Investment Trust Co., LTD.

In October 2010, the Company completed the acquisition of all of the transaction.net assets of Primasia Investment Trust Co., LTD., which sells offshore mutual funds in Taiwan (the “Primasia Transaction”). The excess of the purchase price over the fair value of assets acquired and liabilities assumed, was recorded as goodwill. The value ofwell as the total consideration paid for the net assets acquired was determined using the average closing price of BlackRock’s common stock two days before, the day of and two days after the MLIM Transaction announcement date of February 15, 2006 in accordance with EITF No. 99-12,Determination of the Market Price of Acquirer Securities Issued in a Purchase Business Combination. Both the common stock and the series A non-voting participating preferred stockacquisition, were valued at a price of $147.34 per share since both classes of stock participate equally in dividends and have transfer restrictions.

A summary of the recorded fair values at September 29, 2006 of the assets acquired and liabilities assumed in this acquisition, including adjustments made subsequentnot material to the Company’s original estimates is as follows:

   Adjusted
Estimate of
Fair Value
 

Accounts receivable

  $645,273 

Investments

   1,262,579 

Property and equipment

   36,631 

Deferred mutual fund commissions

   188,491 

Other assets

   151,592 

Separate account assets

   4,212,311 

Finite-life intangible management contracts

   1,135,100 

Indefinite-life intangible management contracts

   4,477,400 

Goodwill

   5,234,052 

Liabilities assumed

   (6,074,109)

Deferred tax liabilities

   (2,001,019)

Payable to Merrill Lynch

   (179,068)
     

Total purchase price, including transaction costs

  $9,089,233 
     

Summary of consideration, net of cash acquired:

  

Capital stock, at fair value

  $9,577,100 

Cash acquired

   (519,761)

Other capitalized transaction costs

   31,894 
     

Total consideration

  $9,089,233 
     

F-29


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

3.Mergers and Acquisitions (continued)

Merrill Lynch Investment Managers (continued)

The fair values of the assets acquired and liabilities assumed in the MLIM Transaction were estimated by management. The Company utilized an income approach to valuing the acquired intangible management contracts of MLIM, including mutual funds and separate accounts, which requires a projection of revenues, based in part upon estimates of AUM growth and client attrition, and expenses both specifically attributable to the intangible assets. The discounted cash flow method was then applied to the potential income streams. The value of the intangible asset was taken as the present value of the after-tax cash flows attributable to the asset.

Generally, acquired management contracts of mutual funds are considered indefinite-lived intangible assets, while acquired management contracts of separate accounts and funds with fixed terms are considered finite-lived. Remaining economic useful life of finite-lived intangible management contracts were based upon historical and projected client turnover.

Nomura BlackRock Asset Management

On September 29, 2006, BlackRock acquired the 50% interest in Nomura BlackRock Asset Management Co., Ltd. (“NBAM”) that was held by its joint venture partner, Nomura Asset Managers (“Nomura”), for a purchase price of five billion Japanese yen (approximately $42,408), subject to certain adjustment provisions. Prior to the NBAM transaction, NBAM was consolidated in the Company’s financial statements under FIN No. 46(R), as a result of the preferential payments received by a BlackRock subsidiary which resulted in BlackRock being considered the primary beneficiary of NBAM.

The Company accounted for its acquisition of NBAM using step acquisition accounting in accordance with SFAS No. 141, resulting in a partial step-up in the book basis of the assets of NBAM to fair value. As a result of the acquisition, the Company recorded finite-lived intangible assets of $13,100 with an amortizable life of nine years and goodwill of approximately $34,025.

SSRM Holdings, Inc.

On January 31, 2005, the Company closed the acquisition of SSR, the holding company of State Street Research & Management Company and SSR Realty Advisors, Inc. (renamed BlackRock Realty Advisors, Inc., “Realty”), from MetLife, Inc. (“MetLife”) for an adjusted purchase price of $265,089 in cash and 550,000 shares of BlackRock restricted common stock. The Company’s consolidated financial statements include the accounts of SSR subsequent to January 31, 2005. MetLife generally was precluded from selling the BlackRock shares received in the SSR Transaction until the third anniversary of the closing.

Pursuant to the terms of the stock purchase agreement for the SSR transaction an additional payment was made to MetLife in the amount of $50,000 based on the Company achieving specified retention levels of AUM and run-rate revenue for the year ended January 31, 2006. This amount was paid in the second quarter of 2006.

In addition, the stock purchase agreement provides for two other contingent payments. MetLife received 32.5% of performance fees earned, as of March 31, 2006, from a certain large institutional real estate client. In 2006, the Company incurred and paid a fee sharing expense of $34,450 related to this arrangement. In addition, on the fifth anniversary of the closing of the SSR Transaction, MetLife may receive an additional payment up to a maximum of $10,000 based on the Company’s retained AUM associated with the MetLife defined benefit and defined contribution plans.

F-30


BlackRock, Inc.statements.

Notes to the Consolidated Financial Statements4. Investments

(Dollar amounts in thousands, except per share data or as otherwise noted)

4.Investments

A summary of the carrying value of total investments is as follows:

 

   Carrying Value
   December 31,
2007
  December 31,
2006

Available-for-sale investments

  $263,795  $158,442

Trading investments

   395,006   370,718

Other investments:

    

Consolidated sponsored investment funds

   760,378   1,199,484

Equity method

   554,016   326,537

Cost method

   4,039   24,247

Deferred compensation plan investments

   22,710   18,146
        

Total other investments

   1,341,143   1,568,414
        

Total investments

  $1,999,944  $2,097,574
        

BlackRock acts as general partner or managing member for consolidated sponsored private equity funds of funds. In December 2007, BlackRock took necessary steps to grant additional rights to the unaffiliated investors in approximately 14 funds with net assets at December 31, 2007 of approximately $1,000,000. The granting of these rights resulted in the deconsolidation of such investment funds from the consolidated financial statements as of December 31, 2007.

(Dollar amounts in millions)  December 31,
2010
   December 31,
2009
 

Available-for-sale investments

  $45    $73  

Held-to-maturity investments

   100     29  

Trading investments:

    

Consolidated sponsored investment funds

   60     103  

Other equity and debt securities

   22     22  

Deferred compensation plan mutual fund investments

   49     42  
          

Total trading investments

   131     167  

Other investments:

    

Consolidated sponsored investment funds

   337     360  

Equity method investments

   556     372  

Deferred compensation plan hedge fund equity method investments

   27     29  

Carried interest

   13     4  

Cost method investments

   331     15  
          

Total other investments

   1,264     780  
          

Total investments

  $1,540    $1,049  
          

At December 31, 2007,2010, the Company had $1,054,208consolidated $397 million of total investments held by consolidated sponsored investment funds. funds (non-VIEs) of which $60 million and $337 million were classified as trading investments and other investments, respectively.

At December 31, 2007, $293,830 and $760,3782009, the Company consolidated $463 million of the investments held by consolidated sponsored investmentsinvestment funds of which $103 million and $360 million were classified as a component of trading investments (equity and municipal debt securities) and other investments, respectively. Other investments at December 31, 2009 included $40 million related to a consolidated VIE, which has been reclassified prospectively as of January 1, 2010 to bank loans and other investments of consolidated VIEs on the consolidated statement of financial condition.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

4. Investments (continued)

Available-for-sale Investments

A summary of the cost and carrying value of investments classified as available-for-sale, is as follows:

 

(Dollar amounts in millions)              
     Gross Unrealized Carrying      Gross Unrealized Carrying
Value
 

December 31, 2010

  Cost   Gains   Losses 
  Cost  Gains  Losses Value

December 31, 2007

       

Total available-for-sale investments:

       

Available-for-sale investments:

       

Equity securities:

       

Sponsored investment funds

  $245,677  $5,894  ($1,217) $250,354  $33    $4    ($1 $36  

Collateralized debt obligations

   10,458   53   —     10,511

Other

   2,815   115   —     2,930

Collateralized debt obligations (“CDOs”)

   2     —       —      2  

Debt securities:

       

Mortgage debt

   4     2     —      6  

Asset-backed debt

   1     —       —      1  
               
            

Total available-for-sale investments

  $258,950  $6,062  ($1,217) $263,795  $40    $6    ($1 $45  
                           

December 31, 2006

       

Total available-for-sale investments:

       
      Gross Unrealized Carrying
Value
 

December 31, 2009

  Cost   Gains   Losses 

Available-for-sale investments:

       

Equity securities:

       

Sponsored investment funds

  $118,147  $8,085  ($583) $125,649  $53    $2    ($1 $54  

Collateralized debt obligations

   27,496   1,866   —     29,362   2     —       —      2  

Other

   3,312   119   —     3,431

Debt securities:

       

Mortgage debt

   6     1     —      7  

Asset-backed debt

   10     —       —      10  
               
            

Total available-for-sale investments

  $148,955  $10,070  ($583) $158,442  $71    $3    ($1 $73  
                           

Available-for-sale investments include seed investments in BlackRock sponsored investment funds and debt securities received upon closure of certain funds in lieu of the Company’s remaining investment in the funds and securities purchased upon closure from an enhanced cash fund.

F-31


BlackRock, Inc.

NotesDuring the years ended December 31, 2010, 2009 and 2008, the Company recorded other-than-temporary impairments of less than $1 million, $5 million, and $8 million, respectively, which were recorded in non-operating income (expense) on the consolidated statements of income. The other-than-temporary impairments in 2009 included $2 million related to credit loss impairments on debt securities, which were determined by comparing the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

4.Investments (continued)

estimated discounted cash flows versus the amortized cost for each individual security.

The Company has reviewed the gross unrealized losses of $1,217 at$1 million as of December 31, 2007, the majority of2010 related to available-for-sale equity securities, which had been in a loss position for lessgreater than twelve months, and determined that these unrealized losses were not other than temporaryother-than-temporary primarily because the Company has the ability and intent to hold the securities for a period of time sufficient to recoverallow for recovery of such unrealized losses. As a result, the Company recorded nodid not record impairments on such equity securities.

During

BlackRock, Inc.

Notes to the years endedConsolidated Financial Statements

4. Investments (continued)

Available-for-sale Investments (continued)

The cost and fair value of debt securities classified as available-for-sale at December 31, 2007, 20062010 and 2005, the Company recorded impairments of $16,497, $2,256 and $811 to its CDO investments, respectively.2009 by maturity date were as follows:

(Dollar amounts in millions)  1 Year or
less
   After 1
Year
through 5
Years
   After 5
Years
through 10
Years
   After 10
Years
   Total 

December 31, 2010

          

Mortgage debt

  $—      $—      $1    $3    $4  

Asset-backed debt

   —       —       —       1     1  
                         

Cost

  $—      $—      $1    $4    $5  
                         

Fair value

  $—      $—      $1    $6    $7  
                         

December 31, 2009

          

Mortgage debt

  $2    $2    $2    $—      $6  

Asset-backed debt

   —       —       —       10     10  
                         

Cost

  $2    $2    $2    $10    $16  
                         

Fair value

  $2    $2    $3    $10    $17  
                         

A summary of sale activity in the Company’s available-for-sale securities during the years ended December 31, 2007, 20062010, 2009 and 20052008 is shown below.

 

  Year ended December 31,   Year ended
December 31,
 
(Dollar amounts in millions)  2010 2009 2008 
  2007 2006  2005 

Sales proceeds

  $111,710  $6,682  $15,126   $42   $100   $57  
                    

Net realized gain:

     

Net realized gain (loss):

    

Gross realized gains

  $7,673  $1,428  $629   $3   $3   $2  

Gross realized losses

   (152)  —     (13)   (1  (8  (7
                    

Net realized gain

  $7,521  $1,428  $616 

Net realized gain (loss)

  $2   ($5 ($5
                    

F-32


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)4. Investments (continued)

 

Held-to-Maturity Investments

A summary of the carrying value of held-to-maturity investments is as follows:

   Carrying Value 
(Dollar amounts in millions)  December 31,
2010
   December 31,
2009
 

Held-to-maturity investments:

    

Foreign government debt

  $100    $28  

U.S. government debt

   —       1  
          

Total held-to-maturity investments

  $100    $29  
          

Held-to-maturity investments include debt instruments held for regulatory purposes and the amortized cost (the carrying value) of these investments approximates fair value.

The amortized cost and fair value of debt securities classified as held-to-maturity at December 31, 2010 and 2009 by maturity date were as follows:

(Dollar amounts in millions)  1 Year or
less
   After 1
Year
through 5
Years
   After 5
Years
through 10
Years
   After 10
Years
   Total 

December 31, 2010

          

Foreign government debt

  $18    $76    $—      $6    $100  
                         

Fair value

  $18    $76    $—      $6    $100  
                         

December 31, 2009

          

Foreign government debt

  $23    $—      $—      $5    $28  

U.S. government debt

   1     —       —       —       1  
                         

Total

  $24    $—      $—      $5    $29  
                         

Fair value

  $24    $—      $—      $5    $29  
                         

BlackRock, Inc.

Notes to the Consolidated Financial Statements

4. Investments (continued)

Trading Investments

A summary of the cost and carrying value of trading and other investments is as follows:

 

    Cost  Carrying
Value

December 31, 2007

    

Trading investments:

    

Deferred compensation plan investments

  $40,394  $44,680

Equity securities

   103,058   116,742

Municipal debt securities

   239,398   233,584
        

Total trading investments

  $382,850  $395,006
        

Other investments:

    

Consolidated sponsored investment funds

  $721,300  $760,378

Equity method

   463,497   554,016

Cost method

   4,039   4,039

Deferred compensation plan investments

   14,086   22,710
        

Total other investments

  $1,202,922  $1,341,143
        

December 31, 2006

    

Trading investments:

    

Deferred compensation plan and other investments

  $53,306  $54,527

Equity securities

   139,874   148,025

Municipal debt securities

   154,015   154,510

Corporate notes and bonds

   13,779   13,656
        

Total trading investments

  $360,974  $370,718
        

Other investments:

    

Consolidated sponsored investment funds

  $1,180,099  $1,199,484

Equity method

   308,470   326,537

Cost method

   24,247   24,247

Deferred compensation plan investments

   14,074   18,146
        

Total other investments

  $1,526,890  $1,568,414
        
   December 31, 2010   December 31, 2009 
       Carrying       Carrying 
(Dollar amounts in millions)  Cost   Value   Cost   Value 

Trading investments:

        

Deferred compensation plan mutual fund investments

  $45    $49    $49    $42  

Equity securities

   37     45     112     97  

Debt securities:

        

Municipal debt

   10     10     10     11  

Foreign government debt

   —       —       15     15  

Corporate debt

   25     27     1     1  

U.S. government debt

   —       —       1     1  
                    

Total trading investments

  $117    $131    $188    $167  
                    

Management reviewed the carrying value of investments accounted for using the cost method atAt December 31, 20072010, trading investments include $24 million of equity and estimated their aggregate fair value to be equal to their carrying value. No impairments were recorded on such investments during the years ended December 31, 2007, 2006 or 2005.

F-33


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

4.Investments (continued)

Trading investments include$36 million of debt securities held by consolidated sponsored investment funds, $49 million of certain deferred compensation plan mutual fund investments and $22 million of equity and debt securities within certain consolidated sponsored investment funds and equity securities held in separate investment accounts for the purpose of establishing an investment history in various investment strategies before being marketed to investors.

TheOther Investments

A summary of the cost and carrying value of other investments is as follows:

   December 31, 2010   December 31, 2009 
(Dollar amounts in millions)  Cost   Carrying
Value
   Cost   Carrying
Value
 

Other investments:

        

Consolidated sponsored investment funds

  $319    $337    $380    $360  

Equity method

   569     556     499     372  

Deferred compensation plan hedge fund equity method investments

  ��20     27     28     29  

Carried interest

   —       13     —       4  

Cost method investments:

        

Federal Reserve Bank stock

   325     325     10     10  

Other

   6     6     5     5  
                    

Total cost method investments

   331     331     15     15  
                    

Total other investments

  $1,239    $1,264    $922    $780  
                    

Consolidated sponsored investment funds include third party private equity funds, direct investments in debtprivate companies and third party hedge funds held by BlackRock sponsored investment funds.

Equity method investments include BlackRock’s direct investment in BlackRock sponsored investment products.

Carried interest represents allocations to BlackRock general partner capital accounts for certain funds. These balances are subject to change upon cash distributions, additional allocations, or reallocations back to limited partners within the respective funds.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

4. Investments (continued)

Other Investments (continued)

Cost method investments include non-marketable securities, by contractual maturityincluding $325 million of Federal Reserve Bank stock at December 31, 20072010, which is held for regulatory purposes and 2006 was as follows:is restricted from sale. As of December 31, 2010, there were no indicators of impairments on these investments.

5. Equity Method Investments

   Carrying Value

Maturity date

  December 31,
2007
  December 31,
2006

<1 year

  $—    $776

1-5 years

   9,567   7,989

5-10 years

   28,677   2,772

After 10 years

   195,340   156,629
        

Total

  $233,584  $168,166
        

BlackRock invests in hedge funds, funds of hedge funds, real estate funds and private equity investments to establish a performance track record or for co-investment purposes. BlackRock accounts for certain of these investments under the equity method of accounting in addition to other accounting methods. At December 31, 2007,2010 and 2009, the debt securitiesCompany held the following equity method investments in its sponsored investment products:

   December 31, 2010  Year Ended
December 31, 2010
 
   Net   BlackRock’s   Average
Ownership
  Net Income   BlackRock’s 
(Dollar amounts in millions)  Assets(1)   Investments   %  (Loss)   Portion 

Investments:

         

Private equity

  $1,853    $87     5 $187    $8  

Real estate funds

   2,681     54     2  471     11  

Hedge funds/Funds of hedge funds

   12,221     331     3  3,187     84  

Other investments

   393     111     28  13     5  
                     

Total

  $17,148    $583     $3,858    $108  
                     

   December 31, 2009  Year Ended
December 31, 2009
 
   Net   BlackRock’s   Average
Ownership
  Net Income  BlackRock’s 
(Dollar amounts in millions)  Assets(1)   Investments   %  (Loss)  Portion 

Investments:

        

Private equity

  $574    $38     7 $23   $2  

Real estate funds

   1,365     43     3  (1,588  (108

Hedge funds/Funds of hedge funds

   11,450     319     3  2,984    120  

Other investments

   434     1     <1  —      —    
                    

Total

  $13,823    $401     $1,419   $14  
                    

(1)

The majority of the net assets of the equity method investees are comprised of investments held for capital appreciation offset by liabilities, which may include borrowings.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

5. Equity Method Investments (continued)

In addition, due to BlackRock’s ownership levels, BlackRock has equity method investments in various operating advisory entities held for strategic purposes related to BlackRock’s core business, which are recorded in other assets. The table above consist of municipal debt securities held by a fund that is consolidatedbelow includes BlackRock’s approximate 40% investment in DSP BlackRock Investment Managers Pvt. Ltd and its 42% investment in Private National Mortgage Acceptance Company, LLC.

(Dollar amounts in millions)        

Equity Method Investees

  December 31,
2010
   December 31,
2009
 

Assets

  $181    $99  

Liabilities

   51     18  
          

Equity

  $130    $81  
          

BlackRock’s investments (1)

  $56    $34  
   Year ended
December  31,
2010
   Year ended
December  31,
2009
 

Net income (loss) of equity method investees

  $40    $31  

BlackRock’s portion

  $17    $14  

(1)

In addition, at December 31, 2010 and 2009, BlackRock had approximately $2 million and $2 million, respectively, of other strategic equity method investments recorded within other assets.

BlackRock, Inc.

Notes to the Company’s financial statements.Consolidated Financial Statements

6. Consolidated Sponsored Investment Funds

The Company consolidates certain sponsored investment funds primarily because it is deemed to control such investmentsfunds in accordance with GAAP. The investments that are owned by these consolidated sponsored investment funds are classified as other or trading and other investments. At December 31, 20072010 and 2006,2009, the following table presents the balances related to these consolidated funds that were consolidated inincluded on the consolidated statements of financial condition:condition as well as BlackRock’s net interest in these funds:

 

   December 31,
2007
  December 31,
2006
 

Cash and cash equivalents

  $66,971  $90,919 

Investments

   1,054,208   1,469,930 

Other net liabilities

   (218,337)  (127,266)

Non-controlling interest

   (578,210)  (1,109,092)
         

Total exposure to consolidated investment funds

  $324,632  $324,491 
         
(Dollar amounts in millions)  December 31,
2010
  December 31,
2009
 

Cash and cash equivalents

  $65   $75  

Investments:

   

Trading investments

   60    103  

Other investments

   337    360  

Other assets

   3    2  

Other liabilities

   (10  (9

Non-controlling interests

   (195  (273
         

BlackRock’s net interests in consolidated investment funds

  $260   $258  
         

At December 31, 2009, the above balances included a consolidated sponsored investment fund that was also deemed a VIE. This VIE, as well as three consolidated CLOs, which are also VIEs, were excluded from the December 31, 2010 balances in the table above. See Note 8, Variable Interest Entities, for further discussion on these consolidated products.

BlackRock’s total exposure to consolidated sponsored investment funds of $324,632$260 million and $324,491$258 million at December 31, 20072010 and 2006,2009, respectively, represents the fair value of the Company’s economic ownership interest in these sponsored investment funds. Valuation changes associated with these consolidated investment funds are reflected in non-operating income (expense) and partially offset in net income (loss) attributable to non-controlling interest. Approximately $209,729 and $95,815 of borrowings by consolidated sponsored investment funds at December 31, 2007 and December 31, 2006, respectively, is included in other liabilities oninterests for the consolidated statements of financial condition.portion not attributable to BlackRock.

The Company may not be readily able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company may not be readily able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in its operations.

F-34


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts7. Fair Value Disclosures

Fair Value Hierarchy

Total assets measured at fair value on a recurring basis of $140,460 million at December 31, 2010 were as follows:

   Assets measured at fair value         
(Dollar amounts in millions)  Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   Other Assets
Not Held at
Fair Value (1)
   December 31,
2010
 

Assets:

          

Investments

          

Available-for-sale:

          

Equity securities (funds and CDOs)

  $36    $—      $2    $—      $38  

Debt securities

   —       7     —       —       7  
                         

Total available-for-sale

   36     7     2     —       45  

Held-to-maturity:

          

Debt securities

   —       —       —       100     100  
                         

Total held-to-maturity

   —       —       —       100     100  

Trading:

          

Deferred compensation plan mutual funds investments

   49     —       —       —       49  

Equity securities

   36     9     —       —       45  

Debt securities

   —       37     —       —       37  
                         

Total trading

   85     46     —       —       131  

Other investments:

          

Consolidated sponsored investment funds:

          

Hedge funds / Funds of funds

   —       1     19     —       20  

Private / public equity

   18     —       299     —       317  
                         

Total consolidated sponsored investment funds

   18     1     318     —       337  

Equity method:

          

Hedge funds / Funds of hedge funds

   —       44     226     34     304  

Private equity investments

   —       —       68     20     88  

Real estate funds

   —       8     36     10     54  

Fixed income mutual funds

   103     —       —       —       103  

Equity / Multi-asset class mutual funds

   7     —       —       —       7  
                         

Total equity method

   110     52     330     64     556  

Deferred compensation plan hedge fund equity method investments

   —       27     —       —       27  

Carried interest

   —       —       —       13     13  

Cost method investments

   —       —       —       331     331  
                         

Total investments

   249     133     650     508     1,540  

Separate account assets:

          

Equity securities

   79,727     3     4     —       79,734  

Debt securities

   —       36,415     170     —       36,585  

Derivatives

   1     1,598     —       —       1,599  

Money market funds

   2,549     —       —       —       2,549  

Other

   —       —       —       670     670  
                         

Total separate account assets

   82,277     38,016     174     670     121,137  

Collateral held under securities lending agreements

          

Equity securities

   15,237     —       —       —       15,237  

Debt securities

   —       2,401     —       —       2,401  
                         

Total collateral held under securities lending agreements

   15,237     2,401     —       —       17,638  
                         

Other assets(2)

   —       11     —       —       11  

Assets of consolidated VIEs:

          

Bank loans

   —       1,130     32     —       1,162  

Bonds

   —       113     —       —       113  

Private / public equity

   4     3     30     —       37  
                         

Total assets of consolidated VIEs

   4     1,246     62     —       1,312  
                         

Total

  $97,767    $41,807    $886    $1,178    $141,638  
                         

(1)

Comprised of investments held at cost, amortized cost, carried interest and equity method investments, which include investment companies, and other assets which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and financial liabilities under fair value measures, therefore, the Company’s investment in such equity method investees may not represent fair value.

(2)

Includes company-owned and split-dollar life insurance policies.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at December 31, 2010 were as follows:

(Dollar amounts in millions)  Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   December 31,
2010
 

Liabilities:

        

Borrowings of consolidated VIEs

  $—      $—      $1,278    $1,278  

Collateral liability under securities lending agreements

   15,237     2,401     —       17,638  

Other liabilities(1)

   —       3     —       3  
                    

Total liabilities measured at fair value

  $15,237    $2,404    $1,278    $18,919  
                    

(1)

Includes credit default swap (Pillars) recorded within other liabilities on the consolidated statement of financial condition.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Total assets and liabilities measured at fair value on a recurring basis of $139,226 million and $19,335 million, respectively, at December 31, 2009 were as follows:

   Assets and liabilities measured at fair value         
(Dollar amounts in millions)  Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   Other Assets
Not Held at

Fair Value (1)
   December 31,
2009
 

Assets:

          

Investments:

          

Available-for-sale

  $53    $20    $—      $—      $73  

Held-to-maturity

   —       —       —       29     29  

Trading

   118     49     —       —       167  

Other investments:

          

Consolidated sponsored investment funds

   22     —       338     —       360  

Equity method

   —       1     330     41     372  

Deferred compensation plan hedge fund equity method investments

   —       14     15     —       29  

Carried interest

   —       —       —       4     4  

Cost method investments

   —       —       —       15     15  
                         

Total investments

   193     84     683     89     1,049  

Separate account assets

   99,983     17,599     1,292     755     119,629  

Collateral held under securities lending agreements

   11,580     7,755     —       —       19,335  

Other assets(2)

   —       11     46     —       57  
                         

Total

  $111,756    $25,449    $2,021    $844    $140,070  
                         

Liabilities:

          

Collateral liability under securities lending agreements

  $11,580    $7,755    $—      $—      $19,335  
                         

(1)

Comprised of investments held at cost, amortized cost, carried interest and equity method investments, which include investment companies, and other assets which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and financial liabilities under fair value measures, therefore, the Company’s investment in such equity method investees may not represent fair value.

(2)

Includes disposal group assets and company-owned and split-dollar life insurance policies.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Separate Account Assets

BlackRock Pensions Limited and BlackRock Asset Management Pensions Limited, both wholly-owned subsidiaries of the Company, are registered life insurance companies that maintain separate account assets, representing segregated funds held for purposes of funding individual and group pension contracts, and equal and offsetting separate account non-financial liabilities. The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s consolidated statements of income.

Money Market Funds within Cash and Cash Equivalents

At December 31, 2010 and 2009, approximately $87 million and $1.4 billion, respectively, of money market funds were recorded within cash and cash equivalents on the Company’s consolidated statements of financial condition. Money market funds are valued through the use of quoted market prices (a Level 1 input), or $1.00, which generally is the net asset value of the fund.

Level 3 Assets

Level 3 assets recorded within investments, which include equity method investments and consolidated investments of real estate funds, private equity funds and funds of private equity funds, are valued based upon valuations, including capital accounts, received from internal as well as third party fund managers. Fair valuations of the underlying funds are based on a combination of methods, which may include third-party independent appraisals and discounted cash flow techniques. Direct investments in thousands, exceptprivate equity companies held by funds of private equity funds are valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third party financing, changes in valuations of comparable peer companies, the business environment of the companies and market indices, among other factors.

Level 3 assets recorded within separate account assets include single broker non-binding quotes for fixed income securities and equity securities which have unobservable inputs due to certain corporate actions.

Level 3 assets of consolidated VIEs include bank loans valued based on single broker non-binding quotes and direct private equity investments and private equity funds valued based upon valuations received from internal as well as third party fund managers, which may be adjusted by using the returns of certain market indices.

Level 3 Liabilities

Level 3 liabilities recorded as borrowings of consolidated VIEs include CLO borrowings valued based upon single broker non-binding quotes.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Year Ended December 31, 2010

(Dollar amounts in millions)  December 31,
2009
   Realized
and
unrealized
gains /
(losses), net
  Purchases,
sales, other
settlements
and
issuances,
net
  Net
transfers
in and/or
out of
Level 3
  December 31,
2010
   Total net
gains
(losses)
included in
earnings(1)
 

Assets:

         

Investments:

         

Available-for-sale:

         

Equity securities (funds and CDOs)

  $—      $1   ($1 $2   $2    $—    

Consolidated sponsored investment funds:

         

Hedge funds / Funds of funds

   26     1    (8  —      19     1  

Private equity

   312     44    (54  (3  299     44  

Equity method:

         

Hedge funds / Funds of hedge funds

   247     36    (26  (31  226     34  

Private equity investments

   47     8    13    —      68     6  

Real estate funds

   36     17    (17  —      36     10  

Deferred compensation plan hedge funds

   15     —      —      (15  —       —    
                           

Total Level 3 investments

   683     107    (93  (47  650     95  

Separate account assets:

         

Equity securities

   5     29    (93  63    4    

Debt securities

   1,287     60    284    (1,461  170    
                        

Total Level 3 separate account assets

   1,292     89    191    (1,398  174     n/a(2) 

Other assets

   46     (8  (38  —      —       —    

Assets of consolidated VIEs:

         

Bank loans

   —       —      —      32    32    

Private equity

   —       3    27    —      30    
                        

Total Level 3 assets of consolidated VIEs

   —       3    27    32    62     n/a(3) 
                        

Total Level 3 assets

  $2,021    $191   $87   ($1,413 $886    
                        

Liabilities:

         

Borrowings of consolidated VIEs

  $—      ($121 $1,157   $—     $1,278     n/a(3) 

n/a – not applicable

(1)

Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

(2)

The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s consolidated statements of income.

(3)

The net gain (loss) on consolidated VIEs is solely attributable to non-controlling interests on the Company’s consolidated statements of income.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis for the Year Ended December 31, 2009

(Dollar amounts in millions)  December 31,
2008
   Realized
and
unrealized
gains /
(losses),
net
  Purchases,
sales, other
settlements
and issuances,
net
  Net
transfers in
and/or out
of Level 3
  December 31,
2009
   Total net
gains
(losses)
included in
earnings(1)
 

Investments

  $813    $45   ($153 ($22 $683    $92  

Other assets

   64     (20  2    —      46     (20

Separate account assets

   4     8    1,276    4    1,292     n/a(2) 
                           

Total Level 3 assets

  $881    $33   $1,125   ($18 $2,021    $72  
                           

n/a – not applicable

(1)

Earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date.

(2)

The net investment income and net gains and losses attributable to separate account assets accrue directly to the contract owners and are not reported on the Company’s consolidated statements of income.

Realized and Unrealized Gains / (Losses) for Level 3 Assets and Liabilities

Realized and unrealized gains / (losses) recorded for Level 3 assets and liabilities are reported in non-operating income (expense) on the Company’s consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs is allocated to non-controlling interests to reflect net income (loss) not attributable to the Company.

Significant Transfers in and/or out of Levels

Transfers in and/or out of Levels are reflected as of the beginning of the period when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable / unobservable, or when the Company determines it has the ability, or no longer has the ability, to redeem in the near term certain investments that the Company values using a NAV (or a capital account), or when the book value of certain equity method investments no longer represents fair value as determined under fair value methodologies.

Separate Account Assets

In the year ended December 31, 2010 there were $1.5 billion of net transfers out of Level 3 to Level 2 related to debt securities held within separate account assets. The net transfers in Levels were primarily due to availability of observable market inputs, including additional inputs from pricing vendors and brokers.

In the year ended December 31, 2010 there were $63 million of net transfers of equity securities held within separate account assets into Level 3 from Level 1 and Level 2. The net transfers into Level 3 were primarily due to market inputs no longer being considered observable.

Significant Other Settlements in 2010

As of January 1, 2010, upon the adoption of ASU 2009-17 there was a $35 million reclassification of assets from Level 3 private equity investments to Level 3 private equity assets of consolidated VIEs as well as the consolidation of $1,157 million of borrowings within the consolidated CLOs.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share

As a practical expedient to value certain investments, the Company relies on net asset values as the fair value for certain investments. The following table lists information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a net asset value per share data or as otherwise noted)(or its equivalent) at December 31, 2010:

(Dollar amounts in millions)  

Ref

  Fair Value   Total
Unfunded
Commitments
   

Redemption
Frequency

  

Redemption
Notice Period

Trading:

          

Equity

  (a)  $9    $—      Daily (100%)  none

Consolidated sponsored investment funds:

          

Private equity funds of funds

  (b)   247     62    n/r  n/r

Other funds of hedge funds

  (c)   3     —      

Quarterly (84%)

Annual (16%)

  30 – 90 days

Equity method:(1)

          

Hedge funds/funds of hedge funds

  (d)   269     9    

Monthly (1%),

Quarterly (17%)

n/r (82%)

  15 – 90 days

Private equity funds

  (e)   68     57    n/r  n/r

Real estate funds

  (f)   44     52    

Quarterly (18%)

n/r (82%)

  60 days

Deferred compensation plan hedge fund investments

  (g)   27     —      

Monthly (11%),

Quarterly (89%)

  60 – 90 days

Consolidated VIE:

          

Private equity funds

  (h)   29     2    n/r  n/r
                

Total

    $696    $182      
                

n/r – not redeemable

(1)Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for both their financial assets and financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.
(a)This category includes several consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the investments in this category have been estimated using the net asset value of master offshore funds held by the feeder funds. Investments in this category generally can be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

 

5.Variable Interest Entities(b)This category includes the underlying third party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third party funds have been estimated using the net asset value of the Company’s ownership interest in partners’ capital in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption, however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately 8 years. Total remaining unfunded commitments to other third party funds is $62 million. The Company is contractually obligated to fund only $42 million to the consolidated funds, while the remaining unfunded balances in the table above are required to be funded by capital contributions from non-controlling interest holders.
(c)This category includes several consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments in this category have been estimated using the net asset value of the fund’s ownership interest in partners’ capital of each fund in the portfolio. Investments in this category generally can be redeemed, as long as there are no restrictions in place by the underlying funds.
(d)This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage instruments and other third party hedge funds. The fair values of the investments in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital. It is estimated that the investments in the funds that are not subject to redemptions will be liquidated over a weighted-average period of less than 7 years.
(e)This category includes several private equity funds that initially invest in non-marketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using the net asset value of the Company’s ownership interest in partners’ capital as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It is estimated that the investment in these funds will be liquidated over a weighted-average period of approximately 5 years.
(f)This category includes several real estate funds that invest primarily to acquire, expand, renovate, finance, hold for investment, and ultimately sell income-producing apartment properties or to capitalize on the distress in the residential real estate market. The fair values of the investments in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital. The majority of the Company’s investments in these funds is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It is estimated that the investments in these funds will be liquidated over a weighted-average period of approximately 7 years.
(g)This category includes investments in certain hedge funds that invest in energy and health science related equity securities. The fair values of the investments in this category have been estimated using the net asset value of the Company’s ownership interest in partners’ capital as well as performance inputs.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

7. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

(h)This category includes the underlying third party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values of the investments in the third party funds have been estimated using the net asset value of the Company’s ownership interest in partners’ capital in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption, however for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately 5 years. Total remaining unfunded commitments to other third party funds is $2 million, which are required to be funded by capital contributions from non-controlling interest holders.

Fair Value Option

Upon consolidation of three CLOs on January 1, 2010, the Company elected to adopt the fair value option provisions for eligible assets and liabilities, including bank loans and borrowings of the CLOs. To the extent there is a difference between the change in fair value of the assets and liabilities, the difference will be reflected as net income (loss) attributable to nonredeemable non-controlling interests on the consolidated statements of income and offset by a change in appropriated retained earnings on the consolidated statements of financial condition.

The following table presents, as of December 31, 2010, the fair value of those assets and liabilities selected for fair value accounting:

(Dollar amounts in millions)  December 31,
2010
 

CLO Bank Loans:

  

Aggregate principal amounts outstanding

  $1,245  

Fair value

  $1,162  

Aggregate unpaid principal balance in excess of fair value

  $83  

Unpaid principal balance of loans more than 90 days past due

  $3  

Aggregate fair value of loans more than 90 days past due

  $1  

Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due

  $2  

CLO Borrowings:

  

Aggregate principal amounts outstanding

  $1,430  

Fair value

  $1,278  

The principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2019.

During the year ended December 31, 2010, the change in fair value of the bank loans, along with the bonds held at fair value, resulted in a $148 million gain, which was offset by a $175 million loss in the fair value of the CLO borrowings. The net loss was recorded in net gain (loss) on consolidated VIEs on the consolidated statement of income. The change in fair value of the assets and liabilities includes interest income and expense, respectively.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

8. Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including collateralized debt obligationsCDOs/CLOs and privatesponsored investment funds, thatwhich may be considered VIEs. The Company receives managementadvisory fees and/or other incentive related fees for its services and may from time to time own equity or debt securities inor enter into derivatives with the vehicles, each of which are considered variable interests. The Company engages inenters into these variable interests principally to address client needs through the launch of such investment vehicles. The VIEs are primarily financed via capital contributed by equity and debt holders. The Company’s involvement in financing the operations of the VIEs is limited to its equity interests.

The PB of a VIE that is an investment fund that meets the conditions of ASU 2010-10 is the enterprise that has a variable interest (or combination of variable interests, including those of related parties) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns or both. In order to determine whether the Company is the PB of a VIE, management must make significant estimates and assumptions of probable future cash flows of the VIEs. Assumptions made in such analyses may include, but are not limited to, market prices of securities, market interest rates, potential credit defaults on individual securities or default rates on a portfolio of securities, pre-payments, realization of gains, liquidity or marketability of certain securities, discount rates and the probability of certain other outcomes.

Effective January 1, 2010, the PB of a CDO/CLO or other entity that is a VIE that does not meet the conditions of ASU 2010-10 is the enterprise that has the power to direct activities of the entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the entity.

VIEs in which BlackRock is the Primary Beneficiary

At December 31, 2010

At December 31, 2007,2010, BlackRock was the Companyprimary beneficiary of four VIEs, which included three CLOs in which it did not have an investment, however, BlackRock, as the collateral manager, was deemed to have both the power to control the activities of the CLOs and the right to receive benefits that could potentially be significant to the VIE. In addition, BlackRock was the primary beneficiary of one VIE, which resulted in consolidation of a sponsored private equity investment fund in which it had a non-substantive investment, which absorbed the majority of the variability due to its de-facto third party relationships with netother partners in the fund. The assets of $96,229, primarily consisting of cash and cash equivalents and investments. Creditorsthese VIEs are not available to creditors of the VIE do notCompany. In addition, the investors in these VIEs have no recourse to the credit of the Company. The Company’s variable interests and maximum risk of loss related to this VIE was not material to its consolidated financial statements.

At December 31, 2007 and 20062010, the following balances related to these four VIEs were consolidated on the Company’s maximum riskconsolidated statement of loss related to VIEs in which it had a significant variable interest and was not the primary beneficiary were as follows:financial condition:

 

   December 31,
2007
  December 31,
2006

Maximum Risk of Loss from:

    

Collateralized debt obligations

  $32,098  $52,125

Private investment funds

   197,234   7,994
        

Total

  $229,332  $60,119
        
(Dollar amounts in millions)  December  31,
2010
 
   

Assets of consolidated VIEs:

  

Cash and cash equivalents

  $93  

Bank loans, bonds and other investments

   1,312  

Liabilities of consolidated VIEs:

  

Borrowings

   (1,278

Other liabilities

   (7

Appropriated retained earnings

   (75

Non-controlling interests of consolidated VIEs

   (45
     

Total net interests in consolidated VIEs

  $—    
     

At December 31, 2007, the Net Assets of the VIEs in which the Company had a significant variable interest and was not the primary beneficiary was approximately $1,800,000.

At December 31, 2007, BlackRock’s maximum risk of loss for private investment funds primarily relates to: (i) BlackRock’s equity investment in two enhanced cash funds and (ii) the impact of the Company’s capital support agreements which were established in support of the two enhanced cash funds. In addition, the table above excludes the value of a credit default swap related to a synthetic CDO transaction. See Note 6 for further information.

F-35


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)8. Variable Interest Entities (continued)

 

6.Derivatives and Hedging

VIEs in which BlackRock is the Primary Beneficiary (continued)

At December 31, 2010 (continued)

For the year ended December 31, 2010, the Company recorded non-operating expense of $35 million offset by a $35 million net loss attributable to nonredeemable non-controlling interests on the Company’s consolidated statements of income.

At December 31, 2010, bank loans, bonds and other investments of consolidated VIEs were $1,162 million, $113 million, and $37 million, respectively. The weighted-average maturity of the bank loans and bonds was approximately 4.2 years.

At December 31, 2009

At December 31, 2009, BlackRock was the PB of one VIE, a sponsored private equity investment fund in which it did not have a substantive investment, due to its de-facto third party relationships with other partners in the fund. Due to the consolidation of this VIE, at December 31, 2009, the Company recorded $54 million of net assets, primarily comprised of investments and cash and cash equivalents. These net assets were offset by $54 million of nonredeemable non-controlling interests, which reflect the equity ownership of third parties, on the Company’s consolidated statements of financial condition. For the year ended December 31, 2009, the Company recorded a non-operating expense of $4 million offset by a $4 million net loss attributable to nonredeemable non-controlling interests on its consolidated statements of income.

VIEs in which the Company holds significant variable interests or is the sponsor that holds a variable interest but is not the Primary Beneficiary of the VIE

At December 31, 2010 and 2009, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs in which it holds a significant variable interest or is the sponsor that holds a variable interest, but for which it was not the PB, were as follows:

At December 31, 2010

(Dollar amounts in millions)  Variable Interests on the Consolidated
Statement of Financial Condition
    
   Investments   Advisory
Fee
Receivables
   Other Net
Assets
(Liabilities)
  Maximum
Risk of Loss
 

CDOs/CLOs

  $2    $3    ($3 $22  

Other sponsored investment funds:

       

Collective trusts

   —       188     —      188  

Private equity funds

   14     —       (7  14  

Other

   14     52     —      66  
                   

Total

  $30    $243    ($10 $290  
                   

BlackRock, Inc.

Notes to the Consolidated Financial Statements

8. Variable Interest Entities (continued)

VIEs in which the Company holds significant variable interests or is the sponsor that holds a variable interest but is not the Primary Beneficiary of the VIE (continued)

The size of the net assets of the VIEs that the Company does not consolidate related to CDOs/CLOs, collective trust funds and other sponsored investment funds were as follows:

CDOs/CLOs - approximately ($4) billion, comprised of approximately $7 billion of assets at fair value and $11 billion of liabilities, primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

Other sponsored investments funds – approximately $1.6 trillion to $1.7 trillion of net assets

This amount includes approximately $1.2 trillion of collective trusts. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts.

The net assets of these VIEs primarily are comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

At December 31, 2010, BlackRock’s maximum risk of loss associated with these VIEs primarily relates to: (i) BlackRock’s investments, (ii) advisory fee receivables and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

At December 31, 2009

(Dollar amounts in millions)  Variable Interests on the Consolidated
Statement of Financial Condition
    
   Investments   Advisory
Fee
Receivables
   Other Net
Assets
(Liabilities)
  Maximum
Risk of Loss
 

CDOs/CLOs

  $2    $2    ($3 $21  

Other sponsored investment funds

   14     254     (7  268  
                   

Total

  $16    $256    ($10 $289  
                   

The size of the net assets of the VIEs that the Company does not consolidate related to CDOs/CLOs, collective trust funds and other sponsored investment funds were as follows:

CDOs/CLOs - approximately ($8) billion, comprised of approximately $10 billion of assets at fair value and $18 billion of liabilities, primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

Other sponsored investments funds – approximately $1.5 trillion to $1.6 trillion of net assets

This amount includes approximately $1.1 trillion of collective trusts. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts.

The net assets of these VIEs primarily are comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

At December 31, 2009, BlackRock’s maximum risk of loss associated with these VIEs primarily relates to: (i) BlackRock’s investments, (ii) advisory fee receivables and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

9. Derivatives and Hedging

For the years ended December 31, 20072010 and 2006,2009, the Company did not hold any derivatives designated in a formal hedge relationship under SFAS No. 133,Derivative Instruments and Hedging Activities, as amended.ASC 815-10.

During 2007, the Company commenced a program to enter into a series of total return swaps to economically hedge against market price exposures with respect to certain seed investments in sponsored investment products. At December 31, 2010, the Company had six outstanding total return swaps with two counterparties with an aggregate notional value of approximately $25 million. At December 31, 2009, the Company had seven outstanding total return swaps with two counterparties with an aggregate notional value of approximately $36 million.

By using derivative financial instruments, the Company exposes itself to market and counterparty risk. Market risk from forward foreign currency exchange contracts is the effect on the value of a financial instrument that results from a change in currency exchange rates. The Company manages certain exposure to market risk associated with foreign currency exchange contracts by establishing and monitoring parameters that limit the types and degrees of market risk that may be undertaken. For the year ended December 31, 2007, the change in fair value of foreign exchange forward contracts was not material to the Company’s consolidated financial statements.

During 2007, the Company entered into a series of total return swaps to economically hedge market price exposures with respect to seed investments in sponsored investment products. At December 31, 2007,2010, the Company did not have any outstanding total return swapsforward foreign currency exchange contracts. At December 31, 2009, the Company had two outstanding forward foreign currency exchange contracts with two counterparties with an aggregate notional value of approximately $93,600 and net realized and unrealized losses of approximately $820 for the year ended$100 million.

In December 31, 2007. The net losses were included in non-operating income in the Company’s consolidated statements of income.

2007, BlackRock entered into capital support agreements, up to $100,000$100 million, with two enhanced cash funds,funds. These capital support agreements were backed by letters of credit (“LOCs”) in which BlackRock agreed to reimburse the bank for any amounts drawn on the LOCs.As of the date the LOCs were issued BlackRock established a $12,000 derivative liability for the fair value ofunder BlackRock’s revolving credit facility. In December 2008, the capital support agreements forwere modified to be up to $45 million and were no longer backed by the two funds. The amountletters of credit. In 2009, the capital support agreements were terminated, due to the closure of the liability will increase or decrease as BlackRock’s obligationrelated funds. During 2009, the Company provided approximately $4 million of capital contributions to the funds under the guarantee fluctuates based oncapital support agreements. BlackRock determined that the fair valuecapital support agreements qualified as derivatives under ASC 815-10. Upon closure of the derivative.funds in 2009, the liability decreased $11 million to zero and the change in the liability was included in general and administration expenses.

The Company acts as the portfolio manager in a series of credit default swap transactions, referred to collectively as the Pillars synthetic CDO transaction (“Pillars”). The Company has entered into a credit default swap with Citibank, N.A. (“Citibank”), providing Citibank credit protection of approximately $16,667,$17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. Under the terms of its credit default swap with Citibank, the Company is entitled to an annual coupon of 4% of the swap’s notional balance of $16,667 and 25% of the structure’s residual balance at its expected termination date in December 2009. The Company’s management has performed an assessment of its variable interest in Pillars (a collateral management agreement and the credit default swap) under FIN 46(R)ASC 810-10 and has concluded the Company is not Pillars’ primary beneficiary.PB. Pursuant to SFAS No. 133,ASC 815-10, the Company carries the Pillars credit default swap at fair value based on the expected future cash flows under the arrangement. For

On behalf of clients of the year ended December 31, 2007,Company’s registered life insurance companies that maintain separate accounts representing segregated funds held for the purpose of funding individual and group pension contracts, the Company recorded a net gain of $64invests in non-operating income in the consolidated statement of income related tovarious derivative instruments, which may include futures and forward foreign currency exchange contracts and interest accrued offset by the change in the fair value of the credit default swap. At December 31, 2007, the fair value of the Pillars credit default swap was approximately $4,920rate and was included in other assets on the consolidated statement of financial condition.inflation rate swaps.

The Company may, at times, consolidateconsolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the fund’s investment strategy. SuchThe change in fair value of such derivatives, arewhich is recorded in non-operating income (expense), was not material to the Company’s consolidated financial statements.

F-36


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)9. Derivatives and Hedging (continued)

 

7.Property and Equipment

The following table presents fair value as of December 31, 2010 of derivative instruments not designated as hedging instruments:

   

Assets

   

Liabilities

 
(Dollar amounts in millions)  

Balance Sheet
Location

  Fair
Value
   

Balance Sheet
Location

  Fair
Value
 

Credit default swap (Pillars)

  Other assets  $—      Other liabilities  $3  

Separate account derivatives

  

Separate

account

assets

   1,599    

Separate

account

liabilities

   1,599  
              

Total

    $1,599      $1,602  
              

The following table presents fair value as of December 31, 2009 of derivative instruments not designated as hedging instruments:

   

Assets

   

Liabilities

 
(Dollar amounts in millions)  

Balance Sheet
Location

  Fair
Value
   

Balance Sheet
Location

  Fair
Value
 

Credit default swap (Pillars)

  Other assets  $—      Other liabilities  $3  

Separate account derivatives

  

Separate

account

assets

   1,501    

Separate

account

liabilities

   1,501  
              

Total

    $1,501      $1,504  
              

The following table presents gains (losses) recognized in income on derivative instruments for the years ended December 31, 2010 and 2009:

(Dollar amounts in millions)  

Income Statement

Location

  2010  2009 

Foreign currency exchange contracts

  General and administration expense  ($5 $—    

Total return swaps

  Non-operating income (expense)   (2  (10

Credit default swap (Pillars)

  Non-operating income (expense)   —      (2

Capital support agreements

  General and administration expense   —      7  
           

Total

    ($7 ($5
           

Net realized and unrealized gains and losses attributable to derivatives held by separate account assets and liabilities accrue directly to the contract owners and are not reported in the Company’s consolidated statements of income.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

10. Property and Equipment

Property and equipment consists of the following:

 

  Estimated useful  December 31,
  life - in years  2007  2006
(Dollar amounts in millions)  Estimated useful
life - in years
   December 31, 
  2010   2009 

Property and equipment:

            

Land

  N/A  $3,564  $3,564   N/A    $4    $4  

Building

  39   16,972   16,972   39     17     17  

Building improvements

  15   12,169   12,030   15     13     13  

Leasehold improvements

  1-15   145,101   113,718   1-15     352     324  

Equipment and computer software

  3-5   254,977   184,706   3-5     368     304  

Furniture and fixtures

  3-7   51,036   39,072   2-7     74     69  

Construction in progress

  N/A   8,286   4,555   N/A     26     15  
                  

Gross property and equipment

     492,105   374,617     854     746  

Less: accumulated depreciation

     225,645   159,833     426     303  
                  

Property and equipment, net

    $266,460  $214,784    $428    $443  
                  

 

N/A—A – Not applicableApplicable

Qualifying software costs of approximately $25,457, $11,519$39 million, $31 million and $9,443$28 million have been capitalized within equipment and computer software for the years ended December 31, 2007, 20062010, 2009 and 20052008, respectively, and are being amortized over an estimated useful life of three years.

Depreciation expense was $67,742, $35,291$145 million, $85 million and $23,397$84 million for the years ended December 31, 2007, 20062010, 2009 and 2005,2008, respectively.

F-37


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

8.Goodwill

11. Goodwill

Goodwill activity during the years ended December 31, 20072010 and 2006 is2009 was as follows:

 

(Dollar amounts in millions)        
  2007 2006  2010   2009 

Beginning of year balance

  $5,257,017  $189,814  $12,680    $5,533  

Goodwill acquired related to:

       

Quellos

   27,437   —  

Fund of hedge funds manager

   21,292   —  

MLIM

   —     5,021,959

NBAM

   —     27,725

BGI(1)

   —       6,952  

Other

   8     —    
              

Total goodwill acquired

   48,729   5,049,684   8     6,952  

Goodwill adjustments related to:

       

MLIM

   212,093   —  

Quellos

   (4,684)  —     117     185  

NBAM

   6,300  

Other

   259   17,519

SSR / Other

   —       10  
              

Total goodwill adjustments

   213,968   17,519   117     195  
              

End of year balance

  $5,519,714  $5,257,017  $12,805    $12,680  
              

(1)

December 31, 2009 goodwill has been retrospectively adjusted by $110 million to reflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date.

During the year ended December 31, 2007, the Company recorded2010, goodwill adjustmentsincreased by $125 million. The increase resulted from a $136 million release of $213,968 primarily related to the MLIM Transaction as the result of the Company’s review of its purchase price allocation of the net assets acquiredcommon shares held in the MLIM Transaction. Additional net deferred tax liabilities totaling $176,825 were recorded during the year, comprised of $212,374 of increased deferred tax liabilities related primarily to changes in expected applicable state tax rates, offset by $35,549 of deferred tax assets related to additional expected compensation deductions. Additionally, the Company established a reserve and the related deferred tax asset for an out-of-market lease assumed in the MLIM Transaction in the net amount of $23,166. These adjustments increased recorded goodwill arising from the MLIM Transaction.

Goodwill recordedescrow in connection with the Quellos Transaction has been reduced duringand the periodHelix Transaction, offset by the amount ofa decline related to tax benefitbenefits realized from tax-deductible goodwill in excess of book goodwill. It is expected that

At December 31, 2010, the balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately $353 million. Goodwill related to the Quellos Transaction will continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill.goodwill from the Quellos Transaction.

The impairment tests performed for goodwill as of July 31, 2010, 2009 and 2008 indicated that no impairment charges were required. The Company continuously monitors its book value per share as compared to closing prices of its common stock for potential indicators of impairment. As of December 31, 2010 the Company’s common stock closed at $190.58, which exceeded its book value per share of approximately $136.09 after excluding appropriated retained earnings.

F-38


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

9.Intangible Assets

12. Intangible Assets

Intangible assets at December 31, 20072010 and 20062009 consisted of the following:

 

   Remaining
Weighted-Average
Estimated

Useful Life
  December 31, 2007
    Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount

Indefinite-lived intangible assets:

        

Acquired management contracts:

        

Mutual funds

  N/A  $4,461,290  $—    $4,461,290

Alternative investment products

  N/A   889,842   —     889,842
              

Total indefinite-lived intangible assets

     5,351,132   —     5,351,132
              

Finite-lived intangible assets:

        

Acquired management contracts:

        

Institutional

  8.5   832,500   119,237   713,263

Retail

  9.7   348,200   39,655   308,545

Alternative investment products

  7.6   199,740   19,558   180,182
               

Total finite-lived intangible assets

  8.7   1,380,440   178,450   1,201,990
              

Total intangible assets

    $6,731,572  $178,450  $6,553,122
              

The 2007 increase in intangible assets was primarily related to the Quellos Transaction.

  Remaining
Weighted-Average
Estimated

Useful Life
  December 31, 2006  Remaining
Weighted-Average

Estimated
Useful Life
   December 31, 2010 
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
(Dollar amounts in millions)  Remaining
Weighted-Average

Estimated
Useful Life
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
 

Indefinite-lived intangible assets:

              

Acquired management contracts:

                

Mutual funds

  N/A  $4,461,290  $—    $4,461,290

Alternative investment products

  N/A   250,442   —     250,442

Mutual funds/Exchange-traded products

   N/A    $10,661    $—      $10,661  

Other collective investment funds

   N/A     3,610     —       3,610  

Alternative investment funds

   N/A     917     —       917  

Trade names / trademarks

   N/A     1,403     —       1,403  

License

   N/A     6     —       6  
                         

Total indefinite-lived intangible assets

     4,711,732   —     4,711,732     16,597     —       16,597  
                         

Finite-lived intangible assets:

                

Acquired management contracts:

                

Institutional

  9.4   832,500   32,118   800,382

Retail

  10.7   348,200   8,000   340,200

Alternative investment products

  9.9   38,740   8,624   30,116

Institutional / Retail separate accounts

   6.5     1,341     534     807  

Alternative investment accounts and funds

   5.0     183     79     104  

Other(1)

   7.6     6     2     4  
                          

Total finite-lived intangible assets

  9.8   1,219,440   48,742   1,170,698   6.3     1,530     615     915  
                         

Total intangible assets

    $5,931,172  $48,742  $5,882,430    $18,127    $615    $17,512  
                         
  Remaining
Weighted-Average

Estimated
Useful Life
   December 31, 2009 
(Dollar amounts in millions)  Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
 

Indefinite-lived intangible assets:

        

Acquired management contracts:

        

Mutual funds/Exchange-traded products(2)

   N/A    $10,661    $—      $10,661  

Other collective investment funds(2)

   N/A     3,610     —       3,610  

Alternative investment funds

   N/A     917     —       917  

Trade names / trademarks

   N/A     1,403     —       1,403  
              

Total indefinite-lived intangible assets

     16,591     —       16,591  
              

Finite-lived intangible assets:

        

Acquired management contracts:

        

Institutional / Retail separate accounts(2)

   7.4     1,345     403     942  

Alternative investment accounts and funds

   5.1     190     62     128  

Other(1)

   8.6     6     1     5  
              

Total finite-lived intangible assets

   7.2     1,541     466     1,075  
              

Total intangible assets

    $18,132    $466    $17,666  
              

 

N/A—A – Not applicableApplicable

(1)

Other represents intellectual property.

(2)

Indefinite-lived and finite-lived intangible assets have been retrospectively adjusted by $25 million and ($7) million, respectively, to reflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date.

Amortization expense for finite-lived intangible assets was $129,736, $37,515 and $7,505 in 2007, 2006 and 2005, respectively.

F-39


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)12. Intangible Assets (continued)

 

9.Intangible Assets (continued)

Amortization expense for finite-lived intangible assets was $160 million, $147 million and $146 million in 2010, 2009 and 2008, respectively. The impairment tests performed for intangible assets as of July 31, 2010, 2009 and 2008 indicated that no impairment charges were required.

Finite-Lived Acquired Management Contracts

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. (“Anthracite”), 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%, the prevailing interest rate on the date of acquisition, was $8,040 on May 15, 2000. This amount was recorded as an intangible asset and is being amortized on a straight-line basis over ten years. At December 31, 2007, the unamortized balance on this management contract was $1,909. The Company’s remaining liability at December 31, 2007 of $2,487 is included in long-term borrowings on the consolidated statement of financial condition. The Company’s remaining cash obligation at December 31, 2007 is approximately $684 per year for the next three years. If Anthracite’s management contract is terminated, not renewed or not extended for any reason other than cause, Anthracite would remit to the Company all future payments due under this obligation.

In January 2005, the Company acquired $63,200 in finite-life management contracts from MetLife, consisting of $48,300 in contracts with institutional separate accounts, $8,700 in contracts with real estate equity funds and $6,200 in contracts with CDOs. The useful lives of finite-life acquired management contracts range from 5 to 20 years.

On September 29, 2006,December 2009, in conjunction with the MLIMBGI Transaction, the Company acquired finite-life$156 million of finite-lived management contracts valued at $1,135,100, consisting primarily of $771,100 of contracts with institutional separate accounts, $348,200 of contracts with retail separate accounts, $11,200 of private equity accounts and $4,600 in trade name intangibles. Thea weighted-average estimated useful life of these finite-life management contracts is approximately 10.1 years.

On September 29, 2006, in conjunction with the NBAM transaction, the Company acquired $13,100 of finite-life management contracts, consisting primarily of institutional fixed income accounts. The weighted-average useful life of these finite-life management contracts is approximately nine years.

On October 1, 2007, in conjunction with the Quellos Transaction, the Company acquired $161,100 of finite-life management contracts, consisting primarily of private equity, fund of funds and other contracts. The weighted-average useful life of these finite-life management contracts is approximately 7.510 years.

Estimated amortization expense for finite livedfinite-lived intangible assets for each of the five succeeding years is as follows:

 

 2008  $145,489  
 

2009

  $143,770  
 

2010

  $142,699  
 

2011

  $139,382  
 

2012

  $138,646  
(Dollar amounts in millions)    

Year

  Amount 

2011

  $156  

2012

   155  

2013

   155  

2014

   148  

2015

   119  

Indefinite-Lived Acquired Management Contracts

F-40

On December 1, 2009, in conjunction with the BGI Transaction, the Company acquired indefinite-lived management contracts valued at $9,810 million consisting primarily of exchange-traded funds and common and collective trusts.


Indefinite-Lived Acquired Trade Names / Trademarks

On December 1, 2009, in conjunction with the BGI Transaction, the Company acquired trade names/trademarks related toiShares®/LifePath®valued at $1.403 billion. The fair value was determined using a royalty rate primarily based on normalized marketing and promotion expenditures to develop and support the brands globally.

Indefinite-Lived Acquired License

In 2010, in conjunction with the Primasia Transaction, the Company acquired a license to develop mutual funds in Taiwan.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or13. Borrowings

Short-Term Borrowings

The carrying value of short-term borrowings included the following:

(Dollar amounts in millions)        
    December 31,
2010
   December 31,
2009
 

Commercial paper program

  $—      $2,034  

2007 Revolving credit facility

   100     200  
          

Total short-term borrowings

  $100    $2,234  
          

Commercial Paper Program

On October 14, 2009, BlackRock established a commercial paper program (the “CP Program”) under which the Company may issue unsecured commercial paper notes (the “CP Notes”) on a private placement basis up to a maximum aggregate amount outstanding at any time of $3 billion. The initial proceeds of the commercial paper issuances were used for the financing of a portion of the BGI Transaction. Subsidiaries of Bank of America and Barclays, as otherwise noted)well as other third parties, act as dealers under the CP Program. The CP Program is supported by the 2007 revolving credit facility.

The Company began issuance of CP Notes under the CP Program on November 4, 2009. During 2010 all CP Notes outstanding as of December 31, 2009 have been repaid and as of December 31, 2010, BlackRock did not have any outstanding CP Notes.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

13. Borrowings (continued)

 

9.Intangible Assets (continued)

Short-Term Borrowings (continued)

 

Indefinite-Lived Acquired Management Contracts2007 Revolving Credit Facility

On September 29, 2006, in conjunction with the MLIM Transaction, the Company acquired indefinite-life management contracts valued at $4,477,400, consisting of accounts for 100% of $4,271,200 of retail mutual funds and $206,200 of alternative investment products.

On January 31, 2005, the Company acquired $229,200 in indefinite-life management contracts in the SSR transaction, consisting of $187,800 in contracts with mutual funds and $41,400 in contracts with alternative investment funds.

On October 1, 2007, in conjunction with the Quellos Transaction, the Company acquired $631,000 in indefinite-life management contracts, consisting of alternative investment products.

On October 1, 2007, the Company purchased the remaining 20% of an investment manager of a fund of hedge funds. In conjunction with this transaction, the Company recorded $8,400 in additional indefinite-life management contracts consisting of alternative investment products.

10.Borrowings

Short-Term Borrowings:

In December 2006, the Company entered into an unsecured revolving credit facility with a syndicate of banking institutions. This facility, as amended in February 2007 (the “2006 facility”), permitted the Company to borrow up to $800,000.

In August 2007, the Company terminated the 2006 facility and entered into a new five year $2,500,000five-year $2.5 billion unsecured revolving credit facility (the “2007 facility”), which permits the Company to request an additional $500,000$500 million of borrowing capacity, subject to lender credit approval, up to a maximum of $3,000,000.$3.0 billion. The 2007 facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to EBITDA,earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less domestic unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at December 31, 2007.2010.

The 2007 facility was used to refinance the 2006 facility and will provideprovides back-up liquidity, fundfunds ongoing working capital for general corporate purposes and fundfunds various investment opportunities. At December 31, 2007,2010, the Company had $300,000$100 million outstanding under the 2007 facility with an interest rates between 5.105% to 5.315%rate of 0.47% and a maturity dates between March 2008 and September 2008.date of February 28, 2011.

In December 2007, in order to support two enhanced cash funds that BlackRock manages, BlackRock elected to procure two letters of creditLehman Commercial Paper Inc. has a $140 million participation under the existing 2007 facility totaling in aggregate $100 million.

F-41


facility; however BlackRock does not expect that Lehman Commercial Paper Inc.

Notes will honor its commitment to fund additional amounts. Bank of America has a $140 million participation under the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

10.Borrowings (continued)

2007 facility.

Long-Term Borrowings:Japan Commitment-line

The Company’s long-term borrowings included the following components:

   December 31,
   2007  2006

Long-term notes

  $694,537  $—  

Convertible debentures

   249,997   249,997

Other

   2,487   3,170
        

Total long-term borrowings

  $947,021  $253,167
        

Long-term notes

In September 2007,2010, BlackRock Japan Co., Ltd., a wholly-owned subsidiary of the Company, issued $700,000 in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017renewed a five billion Japanese yen commitment-line agreement with a banking institution (the “Notes”“Japan Commitment-line”). The Notes were issued at a discount of $5,628, which is being amortized over their ten-year term. The Company incurred approximately $4,000 in debt issuance costs, which are included in other assets on the consolidated statements of financial condition and are being amortized over the term of the Notes.renewed Japan Commitment-line is one year and will accrue interest on outstanding borrowings at the applicable Japanese short-term prime rate. The Japan Commitment-line is intended to provide liquidity and flexibility for operating requirements in Japan. At December 31, 2010, the Company had no borrowings outstanding under the Japan Commitment-line.

Convertible debenturesDebentures

The maturity amount and carrying value of the 2.625% convertible debentures due in 2035 included the following:

(Dollar amounts in millions)        
    December 31,
2010
   December 31,
2009
 

Maturity amount / Carrying value

  $67    $243  
          

Fair value

  $128    $486  

In February 2005, the Company issued $250,000 aggregate principal amount$250 million of convertible debentures (the “Debentures”), due in 2035 and bearing interest at a rate of 2.625% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year,year.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

13. Borrowings (continued)

Convertible Debentures (continued)

The Company retrospectively adopted the requirements of ASC 470-20 on January 1, 2009 (see Note 2, Significant Accounting Policies, for further discussion) resulting in a total cumulative impact of a $9 million reduction to retained earnings at December 31, 2008. The effective borrowing rate for nonconvertible debt at the time of issuance was estimated to be 4.3%, which resulted in $18 million of the $250 million initial aggregate principal amount of the Debentures issued, or $12 million after tax, being attributable to equity. The Company recognized interest expense of $2 million, $10 million and commenced August 15, 2005.$10 million for years ended December 31, 2010, 2009 and 2008, respectively, comprised of $2 million, $6 million and $7 million related to the coupon and less than $1 million, $4 million and $3 million related to amortization of the discount for the years ended December 31, 2010, 2009, and 2008 respectively. As of March 31, 2010, the initial $18 million debt discount was fully amortized.

Prior to February 15, 2009, the Debentures may becould have been convertible at the option of the holder at a December 31, 20072008 conversion rate of 9.85089.9639 shares of common stock per $1one dollar principal amount of Debentures under certain circumstances. TheCommencing on February 15, 2009, at any time prior to maturity at the option of the holder the Debentures will bebecame convertible into cash and in some situations as described below, additional shares of the Company’s common stock if duringat the five business day period after any five consecutive trading day period in whichcurrent conversion rate. During the trading price per Debenture for each day of such period is less than 103% of the product of the last reported sales price of BlackRock’s common stock and the conversion rate of the Debentures on each such day or upon the occurrence of certain other corporate events, such as a distribution to theyear ended December 31, 2010, holders of BlackRock common stock$176 million of certain rights, assets or debt securities, if the Company becomes party to a merger, consolidation or transfer of all or substantially all of its assets or a change of control of the Company. On and after February 15, 2009, the Debentures will be convertibleconverted their holdings into cash at any time prior to maturity at the option of the holder and in some situations as described below, additional shares of the Company’s common stock at the above initial conversion rate, subject to adjustments.

F-42


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

10.Borrowings (continued)

Long-Term Borrowings: (continued)

Convertible debentures (continued)

approximately 942,000 shares.

At the time the Debentures are tendered for conversion, for each $1one dollar principal amount of Debentures converted, a holder shall be entitled to receive cash and shares of BlackRock common stock, if any, the aggregate value of which (the “conversion value”) will be determined by multiplying the applicable conversion rate by the average of the daily volume weighted average price of BlackRock common stock for each of the ten consecutive trading days beginning on the second trading day immediately following the day the Debentures are tendered for conversion (the “ten day“ten-day weighted average price”). The Company will deliver the conversion value to holders as follows: (1) an amount in cash (the “principal return”) equal to the lesser of (a) the aggregate conversion value of the Debentures to be converted and (b) the aggregate principal amount of the Debentures to be converted, and (2) if the aggregate conversion value of the Debentures to be converted is greater than the principal return, an amount in shares (the “net shares”), determined as set forth below, equal to such aggregate conversion value less the principal return (the “net share amount”). The number of net shares to be paid will be determined by dividing the net share amount by the ten-day weighted average price. In lieu of delivering fractional shares, the Company will deliver cash based on the ten-day weighted average price.

The conversion rate for the Debentures is subject to adjustments upon the occurrence of certain corporate events, such as a change of control of the Company eachor payment of quarterly dividends greater than $0.30 per share, the issuance of certain rights or warrants to holders of, or subdivisions on, BlackRock’s common stock, a distribution of assets or indebtedness to holders of BlackRock common stock or a tender offer on the common stock. The conversion rate adjustments vary depending upon the specific corporate event necessitating the adjustment and serve to ensure that any economic gains realized by the Company’s stockholders are shared with the holders of the Debentures.share. The initial conversion rate of 9.7282 was determined by the underwriters based on market conditions and has been subsequently revised in 2007 to 9.850810.2628 as a result of dividends paid by the Company that were in excess of $0.30 per share.

If

BlackRock, Inc.

Notes to the effective date or anticipated effective date of certain transactions that constitute a change of control occurs on or prior to February 15, 2010, under certain circumstances, the Company will provide for a make-whole amount by increasing, for a certain time period, the conversion rate by a number of additional shares of common stock for any conversion ofConsolidated Financial Statements

13. Borrowings (continued)

Convertible Debentures in connection with such transactions. The amount of additional shares will be determined based on the price paid per share of BlackRock common stock in the transaction constituting a change of control and the effective date of such transaction. However, if such transaction constitutes a public acquirer change of control, the Company may elect to issue shares of the acquiring company rather than BlackRock shares.(continued)

Beginning on February 20, 2010, the Company maywas able to redeem any of the Debentures at a redemption price of 100% of their principal amount, plus accrued and unpaid interest, including contingent interest and accrued and unpaid liquidated damages, if any.any, upon not more than 60 but not less than 30 days notice. Holders of the Debentures have the right to require the Company to repurchase the Debentures for cash on February 15, 2010, 2015, 2020, 2025 and 2030. In addition, holders of the Debentures may require the Company to repurchase the Debentures for cash at a repurchase price equal to 100% of their principal amount plus accrued and unpaid interest, including contingent interest and accrued and unpaid liquidated damages, if any, (i) upon a change of control of the Company or (ii) if BlackRock’s common stock is neither listed for trading on the New York Stock Exchange nor approved for trading on the NASDAQ.

Long-Term Borrowings

F-43

The carrying value and fair value of long-term borrowings estimated using market prices at December 31, 2010 included the following:


(Dollar amounts in millions)                
   2.25%
Notes
due 2012
  3.50%
Notes
due 2014
  6.25%
Notes
due 2017
  5.00%
Notes
due 2019
  Total
Long-term
Borrowings
 

Maturity amount

  $500   $1,000   $700   $1,000   $3,200  

Unamortized discount

   (1  (1  (4  (2  (8
                     

Carrying value

  $499   $999   $696   $998   $3,192  
                     

Fair value

  $511   $1,040   $789   $1,041   $3,381  

2017 Notes

In September 2007, the Company issued $700 million in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017 (the “2017 Notes”). Interest is payable semi-annually in arrears on March 15 and September 15 of each year, or approximately $44 million per year. The 2017 Notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” redemption price. The 2017 Notes were issued at a discount of $6 million, which is being amortized over their ten-year term. The Company incurred approximately $4 million of debt issuance costs, which are being amortized over ten years. As of December 31, 2010, $3 million of unamortized debt issuance costs were included in other assets on the consolidated statement of financial condition.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

10.Borrowings (continued)

 

Long-Term Borrowings:13. Borrowings (continued)

 

Convertible debenturesLong-Term Borrowings (continued)

 

The2012, 2014 and 2019 Notes

In December 2009, the Company is obligated to pay contingent interest, which is the amount of interest payable to holders of the Debentures for any six-month period from February 15 to August 15 or from August 15 to February 15, with the initial six-month period commencing February 15, 2010, if the trading price of the Debentures for each of the ten trading days immediately preceding the first day of the applicable six-month period equals 120% or more of theissued $2.5 billion in aggregate principal amount of unsecured and unsubordinated obligations. These notes were issued as three separate series of senior debt securities including $0.5 billion of 2.25% notes, $1.0 billion of 3.50% notes and $1.0 billion of 5.0% notes maturing in December 2012, 2014 and 2019, respectively. Net proceeds of this offering were used to repay borrowings under the Debentures. During any period when contingent interestCP Program, which was used to finance a portion of the BGI Transaction, and for general corporate purposes. Interest on these notes is payable semi-annually in arrears on June 10 and December 10 of each year in an amount of approximately $96 million per year. These notes may be redeemed prior to maturity at any time in whole or in part at the contingent interest payable per Debenture will equal 0.25%option of the average trading priceCompany at a “make-whole” redemption price. These notes were issued collectively at a discount of $5 million which is being amortized over the respective terms of the Debentures duringnotes. The Company incurred approximately $13 million of debt issuance costs, which are being amortized over the ten trading days immediately precedingrespective terms of these notes. As of December 31, 2010, $11 million of unamortized debt issuance costs were included in other assets on the first dayconsolidated statement of financial condition.

The carrying value and fair value of long-term borrowings estimated using market prices at December 31, 2009 included the applicable six-month interest period.following:

 

11.Commitments and Contingencies
(Dollar amounts in millions)             
   2.25%
Notes
due 2012
  3.50%
Notes
due 2014
  6.25%
Notes
due 2017
  5.00%
Notes
due 2019
  Total
Long-term
Borrowings
 

Maturity amount

  $500   $1,000   $700   $1,000   $3,200  

Unamortized discount

   (1  (1  (4  (3  (9
                     

Carrying value

  $499   $999   $696   $997   $3,191  
                     

Fair value

  $497   $987   $751   $987   $3,222  

14. Commitments and Contingencies

Operating Lease Commitments

The Company leases its primary office space and certain office equipment under agreements which expire through 2023.2035. Future minimum commitments under these operating leases are as follows:

 

   

Year

  Amount   
 

2008

  $71,696  
 

2009

   65,463  
 

2010

   62,919  
 

2011

   60,576  
 

2012

   54,944  
 

Thereafter

   216,982  
       
   $532,580  
       

The above lease commitments include facilities which currently are leased from Merrill Lynch, a related party to BlackRock. Future lease commitments on such leases are $11,435 in 2008, $8,539 in 2009, $7,314 in 2010, $5,770 in 2011 and $5,559 in 2012.

(Dollar amounts in millions)    

Year

  Amount 

2011

  $131  

2012

   117  

2013

   130  

2014

   115  

2015

   106  

Thereafter

   903  
     
  $1,502  
     

Rent expense and certain office equipment expense under agreements amounted to $84,888, $42,976$158 million, $87 million and $25,547$92 million for the years ended December 31, 2007, 20062010, 2009 and 2005,2008, respectively.

F-44


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

11.Commitments and Contingencies (continued)

14. Commitments and Contingencies (continued)

 

Investment / LoanPurchase Commitments

During 2010, the Company entered into a purchase obligation for construction services related to Drapers Gardens of approximately $67 million. The Company has certainincurred $4 million of construction services, which is recorded in property and equipment, during the year ended December 31, 2010 resulting in a remaining obligation of approximately $63 million.

Investment Commitments

At December 31, 2010, the Company had $183 million of various capital commitments to fund sponsored investment and loan commitments relating primarily tofunds, including funds of private equity funds, real estate productsfunds and distressed credit funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third party funds as third party non-controlling interest holders have the legal obligation to fund the respective commitments of such funds of funds. Dates shown below representGenerally, the expiration datestiming of the commitments. Amounts to be funded generallyfunding of these commitments is unknown and the commitments are callable on demand at any pointtime prior to the expiration of the commitment. These unfunded commitments are not recorded on the Company’s consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company’s Capital Committee, but which are not yet legally binding. The Company hasintends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.

BlackRock, Inc.

Notes to the following unfunded investment and loan commitments at December 31, 2007:Consolidated Financial Statements

 

   

Year of Expiration

  Amount   
 

2008

  $98,795  
 

2009

   89,642  
 

2010

   49,548  
 

2011

   643  
 

2012

   —    
 

Thereafter

   364,927  
       
 

Total

  $603,555  
       

BlackRock also is obligated to maintain a specified ownership level in certain investment products, which may result in additional required contributions of capital. These amounts14. Commitments and timing of such amounts are inherently uncertain.Contingencies (continued)

Contingencies

Contingent Payments Related to Business Acquisitions

On October 1, 2007, the Company acquired the fund of funds business of Quellos. As part of this transaction, Quellos (See Note 3). The Asset Purchase Agreement associated with this acquisition provides foris entitled to receive two contingent payments to Quellos ofupon achieving certain investment advisory revenue measures through December 31, 2010, totaling up to an additional $969,000$969 million in a combination of cash and stock. The first contingent payment was paid in 2009 and the second contingent payment, of up to $595 million, would have been payable in cash in 2011.

During 2009, the Company determined the first contingent payment to be $219 million, of which $11 million was previously paid in cash during 2008. Of the remaining $208 million, $156 million was paid in cash and $52 million was paid in common stock, or approximately 330,000 shares based on a price of $157.33 per share. Quellos was entitled to a “catch-up” payment related to the first contingent uponpayment if certain operatingperformance measures throughwere met in 2010 as the value of the first contingent payment was less than $374 million. At December 31, 2010.

In addition, on January 31, 2010, the fifth anniversarybase and performance fee measures were not achieved and therefore the remaining contingent payments will not occur.

In connection with the acquisition of SSR, the closingholding company of State Street Research and Management Company, which closed in January 2005, the SSR Transaction (See Note 3), MetLife may be entitled to receive an additionalCompany made a final contingent payment up to a maximumin August 2010 of $10,000approximately $8 million based on the Company’s retained AUMassets under management associated with the MetLife, Inc. defined benefit and defined contribution plans.

Capital Support Agreements

In December 2007, BlackRock entered into capital support agreements, up to $100 million, with two enhanced cash funds,funds. These capital support agreements were backed by letters of credit drawnissued under BlackRock’s existingrevolving credit facility. Pursuant toIn December 2008, the capital support agreements BlackRock has agreedwere modified to make subsequentbe up to $45 million and were no longer backed by the letters of credit. In January and May 2009, the capital support agreements were terminated due to the closure of the related funds. During the six months ended June 30, 2009, the Company provided approximately $4 million of capital contributions to the funds to cover realized losses, up to $100 million, related to specified securities held byunder the two enhanced cash funds. The termscapital support agreements. At December 31, 2008, the derivative liability for the fair value of the capital support agreements expirefor the two funds totaled approximately $18 million. The fair value of these liabilities increased and decreased as BlackRock’s obligation under the guarantee fluctuated based on the fair value of the derivative. Upon closure of the funds, the liability decreased $11 million to zero, while the change in December 2008 unless renewed by BlackRock.the liability was included in general and administration expenses.

Other Contingent Payments

The Company acts as the portfolio manager in a series of credit default swap transactions and has a maximum potential exposure of $16,667$17 million under a credit default swap between the Company and Citibank. See Note 69, Derivatives and Hedging, for further discussion of this transaction and the related commitment.

F-45


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

11.Commitments and Contingencies (continued)

14. Commitments and Contingencies (continued)

 

Legal Proceedings

BlackRock has received subpoenas from various U.S. federal and state governmental and regulatory authorities and various information requests from the SEC in connection with industry-wide investigations of U.S. mutual fund matters. BlackRock is continuing to cooperate fully in these matters. From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is subjectBlackRock’s policy to other regulatory inquiries and proceedings.

cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations class actions, and other litigation and regulatory proceedings arising in connection with BlackRock’s activities. While Merrill Lynch has agreed to indemnify the Company for certain pre-closing liabilities related to legal and regulatory proceedings acquired in the MLIM Transaction, entities that BlackRock now owns may be named as defendants in these matters and the Company’s reputation may be negatively impacted. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which potentially could potentially harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.

Management, after consultation with legal counsel, currently does not currently anticipate that the aggregate liability, if any, arising out of such regulatory matters or lawsuits will have a material adverse effect on BlackRock’s earnings, financial position, or cash flows, although, at the present time, management is not in a position to determine whether any such pending or threatened matters will have a material adverse effect on BlackRock’s results of operations in any future reporting period.

Indemnifications

In the ordinary course of business, BlackRock enters into contracts with third parties pursuant to which theit may agree to indemnify third parties provide services on behalf of BlackRock. In many of the contracts, BlackRock agrees to indemnify the third party service provider underin certain circumstances. The terms of the indemnitythese indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined.

Under the Transaction Agreementtransaction agreement in the MLIM Transaction, the Company has agreed to indemnify Merrill Lynch for losses it may incur arising from (1) inaccuracy in or breach of representations or warranties related to the Company’s SEC reports, absence of undisclosed liabilities, litigation and compliance with laws and government regulations, without giving effect to any materiality or material adverse effect qualifiers, (2) any alleged or actual breach, failure to comply, violation or other deficiency with respect to any regulatory or fiduciary requirements relating to the operation of BlackRock’s business, (3)(2) any fees or expenses incurred or owed by BlackRock to any brokers, financial advisors or comparable other personpersons retained or employed by BlackRock in connection with the transactions,MLIM Transaction, and (4)(3) certain specified tax covenants.

Merrill Lynch is not entitledUnder the transaction agreement in the BGI Transaction, the Company has agreed to indemnificationindemnify Barclays for any losses it may incur arising from (1) breach by the circumstances and events describedCompany of certain representations, (2) breach by the Company of any covenant in (1) above until the aggregate losses (otheragreement, (3) liabilities of the entities acquired in the transaction other than individual losses less than $100) of Merrill Lynch exceed $100,000. In the event that such losses exceed $100,000, Merrill Lynch is entitled to be indemnified only for such losses (other than individual losses less than $100) in excess of $100,000. Merrill Lynch is not entitled to indemnification payments pursuant to (1) above in excess of $1,600,000liabilities assumed by Barclays or for claims made more than 18 months from the closing of the MLIM Transaction. These limitations do not apply to losses arising from the circumstances and events described in (2), (3)which it is providing indemnification, and (4) above, which survive indefinitely.certain taxes.

Management believes that the likelihood of any liability arising under thesethe MLIM Transaction or the BGI Transaction indemnification provisions to be remote and, as such, no liability has been recorded on the consolidated statements of financial condition.is remote. Management cannot estimate any potential maximum exposure due both to the remoteness of any potential claims and the fact that items that would be included within any such calculated claim would be beyond the control of BlackRock. Consequently, no liability has been recorded on the consolidated statements of financial condition.

F-46


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

12.Stock-Based Compensation

15. Stock-Based Compensation

The components of the Company’s stock-based compensation expense are comprised of the following:

 

  Year ended December 31,
(Dollar amounts in millions)  Year ended
December 31,
 
  2007  2006  2005  2010   2009   2008 

Stock-based compensation:

            

Restricted stock and RSUs

  $121,762  $48,486  $12,044  $375    $246    $209  

Long-term incentive plans funded by PNC

   58     59     59  

Stock options

   12,977   12,537   340   12     12     10  

Long-term incentive plans (funded by PNC)

   53,517   50,031   48,587

ESPP and other

   —     9,382   8,479
                     

Total stock-based compensation

  $188,256  $120,436  $69,450  $445    $317    $278  
                     

Stock Award and Incentive Plan

Pursuant to the BlackRock, Inc. 1999 Stock Award and Incentive Plan (the “Award Plan”), options to purchase shares of the Company’s common stock at an exercise price not less than the market value of BlackRock’s common stock on the date of grant in the form of stock options, restricted stock or RSUs may be granted to employees.employees and non-employee directors. A maximum of 17,000,00027,000,000 shares of common stock are authorized for issuance under the Award Plan. Of this amount, 5,451,2209,957,638 shares remain available for future awards at December 31, 2007.2010. Upon exercise of employee stock options, the issuance of restricted stock or the vesting of RSUs, the Company issues shares out of treasury, to the extent available.

F-47


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

12.Stock-Based Compensation (continued)

Stock Options

Stock option grants were made to certain employees pursuant to the Award Plan in 1999 through 2003. Options granted have a ten-year life, vest ratably over periods ranging from three to four years and become exercisable upon vesting. Prior to the January 2007 grant described below, the Company had not granted any stock options since 2003. Stock option activity for the years ended December 31, 2007, 2006 and 2005 is summarized below:

      Weighted
   Shares  average
   under  exercise

Outstanding at

  option  price

December 31, 2004

  4,935,736  $36.84

Exercised

  (320,093) $37.18

Forfeited

  (38,002) $37.36
     

December 31, 2005

  4,577,641  $36.81

Exercised

  (113,572) $33.23

Forfeited

  (6,400) $37.36
     

December 31, 2006

  4,457,669  $36.90

Granted

  1,545,735  $167.76

Exercised

  (1,899,239) $36.96

Forfeited

  (3,000) $37.36
     

December 31, 2007(1)

  4,101,165  $86.19
     

(1)

At December 31, 2007, approximately 3.9 million awards were vested or are expected to vest.

The aggregate intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $267,729, $11,531 and $14,502, respectively.

F-48


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

12.Stock-Based Compensation (continued)

Stock Options (continued)

Stock options outstanding and exercisable at December 31, 2007 are as follows:

   Options Outstanding  Options Exercisable

Exercise

Prices

  Options
Outstanding
  Weighted
Average
Remaining
Life
(years)
  Weighted
Average
Exercise
Price
  Options
Exercisable
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Life
(years)
  Aggregate
Intrinsic
Value of
Exercisable
Shares
(per share)                     
$14.00  159,584  1.75  $14.00  159,584  $14.00  1.75  $32,364
$37.36  1,985,646  4.79  $37.36  1,985,646  $37.36  4.79   356,304
$43.31  410,200  2.95  $43.31  410,200  $43.31  2.95   71,165
$167.76  1,545,735  9.08  $167.76  —     —    —     —  
                    
  4,101,165  6.10  $86.19  2,555,430  $36.86  4.30  $459,833
                    

On January 31, 2007, the Company awarded options to purchase 1,545,735 shares of BlackRock common stock to certain executives as long-term incentive compensation. The options vest on September 29, 2011, provided that the Company has actual GAAP earnings per share of at least $5.20 in 2009, $5.52 in 2010 or $5.85 in 2011 or has attained an alternative performance hurdle based on the Company’s earnings per share growth rate versus certain peers over the term of the awards. The options have a strike price of $167.76, which was the closing price of the shares on the grant date. Fair value, as calculated in accordance with a modified Black-Scholes model, was approximately $45.88 per option. The fair value of the options is being amortized over the vesting period as exceeding the performance hurdles was deemed probable of occurring.

Assumptions used in calculating the grant-date fair value for the stock options issued in January 2007 were as follows:

Exercise price

  $167.76 

Expected term (years)

   7.335 

Expected volatility

   24.5%

Dividend yield

   1.0%-4.44%

Risk-Free interest rate

   4.8%

F-49


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

12.Stock-Based Compensation (continued)

Stock Options (continued)

The Company’s expected option term was derived using the mathematical average between the earliest vesting date and the option expiration date in accordance with SEC Staff Accounting Bulletin No. 107. The Company’s expected stock volatility assumption was based upon historical stock price fluctuations of BlackRock’s common stock. The dividend yield assumption was derived using estimated dividends over the expected term and the stock price at the date of grant. The risk free interest rate is based on the U.S. Treasury yield at date of grant.

As of December 31, 2007, the Company had $56,988 in unrecognized stock-based compensation expense related to unvested stock options. The unrecognized compensation cost is expected to be recognized over a remaining weighted-average period of 3.8 years.

Restricted Stock and RSUs

Pursuant to the Award Plan, restricted stock grants and RSUs may be granted to certain employees. RestrictedSubstantially all restricted stock was issued for stock awards prior to 2006. RSUs were issued for the majority of grants in 2006 and 2007. These restricted shares and RSUs vest over periods ranging from one to five years and are expensed onusing the straight-line method over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Dividend equivalents onPrior to 2009, the Company awarded restricted stock and RSUs with nonforfeitable dividend equivalent rights. Restricted stock and RSUs awarded in 2009 and 2010 are paid to employees based onnot considered participating securities as the dividend payment date.equivalents are subject to forfeiture prior to vesting of the award.

F-50


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)15. Stock-Based Compensation (continued)

 

12.Stock-Based Compensation (continued)

Restricted Stock and RSUs (continued)

 

Restricted stock and RSU activity for the years ended December 31, 2007, 20062010, 2009 and 20052008 is summarized below:

 

Outstanding at

  Unvested
Restricted
Stock and
Units
 Weighted
Average
Grant Date
Fair Value
  Restricted
Stock and
Units
 Weighted
Average
Grant  Date

Fair Value
 

December 31, 2004

  140,814  $51.77

Granted

  251,095  $80.33

Converted

  (100,261) $66.48
     

December 31, 2005

  291,648  $71.30

December 31, 2007

   3,709,008   $158.01  

Granted

  1,341,975  $137.97   1,618,161   $201.80  

Converted

  (113,456) $68.15   (468,046 $146.69  

Forfeited

  (4,277) $113.13   (255,170 $163.64  
          

December 31, 2006

  1,515,890  $130.49

December 31, 2008

   4,603,953   $174.24  

Granted

  2,551,913  $167.64   1,869,849   $118.43  

Converted

  (274,164) $104.15   (894,909 $178.53  

Forfeited

  (84,631) $159.95   (218,430 $157.21  
          

December 31, 2007(1)

  3,709,008  $158.01

December 31, 2009

   5,360,463   $154.75  

Granted

   3,283,321   $228.77  

Converted

   (1,400,390 $156.09  

Forfeited

   (500,925 $198.86  
          

December 31, 2010 (1)

   6,742,469   $187.24  
     

 

(1)

At December 31, 2007,2010, approximately 3.56.0 million awards are expected to vest.vest and 41,944 awards have vested but have not been converted.

The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price.

In January 2006, the Company issued approximately 299,400 RSUs to certain employees at a total fair value of approximately $33,874. The awards vest evenly over three years. In November 2006,2008 and 2009, the Company granted approximately 1,013,600under the Award Plan 295,633 and 23,417 RSUs, which vest after five years as incentive awards to former MLIM employees remaining with BlackRock after the closing of the MLIM Transaction.

On January 25, 2007, the Company issued approximately 901,200 RSUs to employees in conjunction with their annual incentive compensation awards. The RSU awards vest over three years through January 2010. The value of the RSUs was calculated using BlackRock’s closing stock price on the date of grant, or $169.70. The grant date fair value of the RSUs is being amortized into earnings on the straight-line method over the requisite service period, net of expected forfeitures, for each separately vesting portion of the award as if the award was, in substance, multiple awards. In addition, in January 2007, the Company granted 1,559,022 of RSUsrespectively, as long-term incentive compensation, which will be partially funded by shares currently held by PNC.PNC (seeLong-Term Incentive Plans Funded by PNC below). The awards cliff vest five years from the date of grant.

In January 2008 and 2009, the Company granted 1,212,759 and 1,789,685 RSUs, respectively, to employees as part of annual incentive compensation under the Award Plan that vest ratably over three years from the date of grant.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

15. Stock-Based Compensation (continued)

Restricted Stock and RSUs (continued)

In January 2010, the Company granted the following awards under the Award Plan:

846,884 RSUs to employees as part of annual incentive compensation that vest ratably over three years from the date of grant.

256,311 RSUs to employees that cliff vest on January 31, 2012, the end of the service condition, as BlackRock had actual GAAP EPS in excess of $6.13 in 2010. The RSUs may not be sold before the one-year anniversary of the vesting date.

1,497,222 RSUs to employees that vest 50% on both January 31, 2013 and 2014, the end of the service condition, as BlackRock had actual GAAP EPS in excess of $6.13 in 2010.

124,575 shares of restricted common stock to employees that vest in tranches on January 31, 2010, 2011 and 2012. The restricted common stock may not be sold before the one-year anniversary of each vesting date.

In May 2010, the Company granted 198,977 RSUs to employees that cliff vest on January 31, 2012, the end of the service condition, as BlackRock had actual GAAP EPS in excess of $6.13 in 2010. The RSUs may not be sold before the one-year anniversary of the vesting date.

At December 31, 2007,2010, there was $398,551 of$528 million in total unrecognized stock-based compensation costexpense related to unvested restricted stock and RSUs. The unrecognized compensation cost is expected to be recognized over athe remaining weighted averageweighted-average period of 4.51.4 years.

In January 2008,2011, the Company issued approximately $240,061 ofgranted the following awards under the Award Plan:

1,594,259 RSUs to employees as part of an annual incentive compensation under the Award Plan that vests evenlyvest ratably over three years.years from the date of grant.

 

F-51609,733 RSUs to employees that cliff vest 100% on January 31, 2014.


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

12.Stock-Based Compensation (continued)

Long-Term Incentive Plans Funded by PNC

Under a share surrender agreement, PNC committed to provide up to 4,000,000 shares of BlackRock common stock, held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). In February 2009, the share surrender agreement was amended for PNC to provide BlackRock series C non-voting participating preferred stock to fund the remaining committed shares.

The BlackRock, Inc. 2002 Long-Term Retention and Incentive Plan (the “2002 LTIP Awards”) permitted the grant of up to $240,000$240 million in deferred compensation awards, of which the Company previously granted approximately $232,700.$233 million. Approximately $208,200$208 million of the 2002 LTIP Awards were paid in January 2007. The 2002 LTIP Awards were payablesettled for approximately 16.7% in cash and the remainder in approximately 1 million shares of BlackRock common stock contributed by PNC and distributed to plan participants. Approximately $20,000During the year ended December 31, 2010, the remaining $6 million of previously issued 2002 LTIP Awards will resultwere settled in the settlement ofcash and BlackRock shares held by PNC through 2010 at a conversion price approximating the market price on the settlement date. The fair value of the remaining 2002 LTIP Awards are accrued prior to settlement over the remaining service period in accrued compensation and benefits on the consolidated statements of financial condition.

The settlement of the 2002 LTIP Awards in January 2007 resulted in the surrender by PNC of approximately 1,000,000 shares of BlackRock common stock. Under the terms of the 2002 LTIP Awards, employees elected to put approximately 95% of the stock portion of the awards back to the Company at a total fair market value of approximately $165,700. On the payment date, the Company recorded a capital contribution from PNC for the amount of shares funded by PNC. For the shares not put back

BlackRock, Inc.

Notes to the Company, no dilution resulted from the delivery of stock pursuant to the awards since they were funded by shares heldConsolidated Financial Statements

15. Stock-Based Compensation (continued)

Long-Term Incentive Plans Funded by PNC and were issued and outstanding at December 31, 2006. Put elections made by employees were accounted for as treasury stock repurchases and are accretive to the Company’s earnings per share. The shares repurchased were retained as treasury stock.(continued)

During 2007, the Company granted additional long-term incentive awards, out of the Award Plan, of approximately 1,600,0001.6 million RSUs, that will be settled using BlackRock shares held by PNC in accordance with the share surrender agreement. The RSU awards will vest on September 29, 2011, provided thatthe end of the service condition, as BlackRock hashad actual GAAP earnings per shareEPS in excess of at least $5.20, in 2009, $5.52 in 2010 or $5.85 in 2011 or has attained an alternativethe applicable performance hurdle based on the Company’s earnings per share growth rate versus certain peers over the term of the awards.in 2009. The value of the RSUs was calculated using BlackRock’s closing stock price on the date of grant. The grant date fair value of the RSUs is being amortized into earnings onas an expense using the straight-line method over the vesting period, net of expected forfeitures. The maximum value of awards that may be funded by PNC, prior to the earlier of September 29, 2011 or the date the performance criteria are met, is approximately $271,000, net$271 million, all of forfeitures, which includes approximately $270,000was granted as of awards granted in 2007.December 31, 2009.

Subsequent to September 29, 2011, the remaining shares committed by PNC, shares, of approximately 1,400,000,1.3 million, would be available forto fund future long-term incentive awards.

Stock Options

F-52

Stock option grants were made to certain employees pursuant to the Award Plan in 1999 through 2007. Options granted have a ten-year life, vest ratably over periods ranging from two to five years and become exercisable upon vesting. The Company has not granted any stock options subsequent to the January 2007 grant which will vest on September 29, 2011 as the Company had actual GAAP EPS in excess of $5.20, the applicable performance hurdle in 2009. Stock option activity for the years ended December 31, 2010, 2009 and 2008 is summarized below:


Outstanding at

  Shares
under
option
  Weighted
average
exercise
price
 

December 31, 2007

   4,101,165   $86.19  

Exercised

   (662,013 $36.36  

Forfeited

   (298,635 $167.76  
      

December 31, 2008

   3,140,517   $88.82  

Exercised

   (490,617 $34.92  

Forfeited

   (8,064 $167.76  
      

December 31, 2009

   2,641,836   $98.59  

Exercised

   (288,100 $39.35  

Forfeited

   (9,002 $167.76  
      

December 31, 2010 (1)

   2,344,734   $105.60  
      

(1)

At December 31, 2010, approximately 2.3 million options were vested or are expected to vest.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)15. Stock-Based Compensation (continued)

 

12.Stock-Based Compensation (continued)

Stock Options (continued)

 

Employee Stock Purchase Plan

Through August 2006, the termsThe aggregate intrinsic value of the BlackRock Employee Stock Purchase Plan (“ESPP”) allowed eligible employees to purchase shares of the Company’s common stock at 85% of the lesser of fair market value on the first or last day of each six-month offering period. Eligible employees could not purchase more than 500 shares of common stock in any six-month offering period. In addition, for any calendar year in which the option to purchase shares is outstanding, Section 423(b)(8) of the Internal Revenue Code restricts an ESPP participant from purchasing more than $25 worth of common stock based on its fair market value. The Company used the fair value method of measuring compensation cost pursuant to SFAS No. 123 and incurred ESPP-related compensation expense of approximately $988 and $1,258options exercised during the years ended December 31, 20062010, 2009 and 2005,2008 was $46 million, $63 million and $113 million, respectively.

Stock options outstanding and exercisable at December 31, 2010 were as follows:

    Options Outstanding   Options Exercisable 
(Dollar amounts in millions,                         
except per share data)   Weighted               Weighted   Aggregate 
Exercise
Prices
   Options
Outstanding
   Average
Remaining
Life
(years)
   Weighted
Average
Exercise
Price
   Options
Exercisable
   Weighted
Average
Exercise
Price
   Average
Remaining
Life
(years)
   Intrinsic
Value of
Exercisable
Shares
 
(per share)                             
$37.36     1,117,700     1.79    $37.36     1,117,700    $37.36     1.79    $171  
$167.76     1,227,034     6.09    $167.76     45,023    $167.76     6.09     1  
                       
   2,344,734     4.04    $105.60     1,162,723    $42.41     1.96    $172  
                       

As of December 31, 2010, the Company had $9 million in unrecognized stock-based compensation expense related to unvested stock options. The unrecognized compensation cost is expected to be recognized over a remaining period of 0.8 years.

Employee Stock Purchase Plan (“ESPP”)

The ESPP was suspended in August 2006 and amended effective January 2007.

Effective January 2007, the terms of the amended ESPP allowallows eligible employees to purchase the Company’s common stock at 95% of the fair market value on the last day of each three-month offering period. In accordance with SFAS No. 123R, ASC 718-10,Compensation – Stock Compensation,the Company willdoes not record compensation expense related to employees purchasing shares under the amended ESPP.

Through August 2006, the fair value of ESPP shares was estimated using the Black-Scholes option-pricing model with the following assumptions for the years ended December 31, 2006 and 2005, respectively:

    2006  2005

Expected dividend yield

  1.3%  1.42% to 1.5%

Expected volatility

  28.03%  19.46% to 24.24%

Risk-free interest

  4.59%  2.77% to 3.69%

Expected term

  6 months  6 months

These assumptions were developed by management based upon reviews of third party market data as of the end of the latest offer period.

The weighted average fair value of the discount, including the fair value of the embedded look-back option, on ESPP shares acquired by employees in 2006 and 2005 was $30.13 and $17.46, per share, respectively.

F-53


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

13.Employee Benefit Plans

16. Employee Benefit Plans

Involuntary Deferred Compensation PlanPlans

Effective January 2002, the Company adopted an Involuntary Deferred Compensation Plan (“IDCP”) for the purpose of providing deferred compensation and retention incentives to key officers and employees. The IDCP provided for a mandatory deferral of up to 15% of annual incentive compensation. For annual incentive awards for fiscal years prior to 2005, the mandatory deferral was matched by BlackRock in an amount equal to 20% of the deferral for employees with total compensation above certain levels. The matching contribution related to the mandatory deferral vests on the third anniversary of the deferral date. The Company funds the obligation through the establishment of a rabbi trust on behalf of the participants in the plan. No mandatory deferrals under the IDCP have been made since the annual incentive awards for fiscal year 2004.

Voluntary Deferred Compensation Plan

Effective January 2002, theThe Company adopted a Voluntary Deferred Compensation Plan (“VDCP”) whichthat allows participants to elect to defer between 1% and 100% of that portion of the employee’stheir annual cash incentive compensation not mandatorily deferred under the IDCP or the Company’s RSUs.compensation. The participants must specify a deferral period of one, three, five or ten years. The Company funds the obligation through the establishment of a rabbi trust on behalf of the participants in the plan.plan’s participants.

Rabbi Trust

The rabbi trust established for the IDCP and VDCP, with assets totaling $67,293$66 million and $49,401$57 million as of December 31, 20072010 and 2006,2009, respectively, is reflected in investments on the Company’s consolidated statements of financial condition. Such investments are classified as trading and other investments. The corresponding liability balance of $60,009$66 million and $48,647$57 million as of December 31, 20072010 and 20062009, respectively, is reflected inon the Company’s consolidated statements of financial condition as accrued compensation and benefits. Earnings in the rabbi trust, including unrealized appreciation or depreciation, are reflected as non-operating income or loss(expense) and changes in the corresponding liability are reflected as employee compensation and benefits expense inon the accompanying consolidated statements of income.

Defined Benefit Plans

Certain employees of the Company participate in PNC’s non-contributory defined benefit pension plan. Effective July 1, 2004, PNC froze all accrued benefits related to BlackRock participants under this plan and closed this plan to new BlackRock participants. Effective September 29, 2006, the Company paid PNC $1,945 to assume all future liabilities under the Plan. BlackRock recorded pension expenses related to this plan of $0, $626 and $0 for the years ended December 31, 2007, 2006 and 2005, respectively.

Through the MLIM Transaction, the Company assumed several defined benefit pension plans in Japan, Germany, Luxembourg, and Jersey. All accrued benefits under these defined benefit plans are currently frozen and the plans are closed to new participants,with the exception of Jersey. Otherwise, participant benefits under the plans will not change with salary increases or additional years of service. The liabilities assumed under these plans were recorded as part of the purchase price allocation for the MLIM Transaction (see Note 3) and are immaterial to the Company’s 2007 and 2006 consolidated statements of financial condition.

F-54


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)16. Employee Benefit Plans (continued)

 

13.Employee Benefit Plans (continued)

Deferred Compensation Plans (continued)

 

Defined BenefitOther Deferred Compensation Plans (continued)

Pension benefit costs for the State Street Research & Management Retirement Plan (“SSRM Plan”) are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in pension benefit costs may occur in the future due to changes in these assumptions, changes in the number of plan participants and changes in plan asset levels.

Effective July 1, 2007, the Company terminated the SSRM Plan. Upon termination of the SSRM Plan, participants are eligible to elect to receive a distribution of their benefits in the form of a one-time lump sum payment or an annuity, to be purchased from an insurer at market rates. The Company expects to distribute the assets of the Plan in the second quarter of 2008. Additional costs of termination were not material to the Company’s consolidated financial statements.

The measurement date used to determine the pension benefit obligation measures for the SSRM Plan was December 31, 2007.

The following tables provide a reconciliation of the changes in the benefit obligation and fair value of plan assets for 2007 and 2006 as well as a summary of the unfunded status at December 31, 2007 and 2006.

    December 31,
2007
  December 31,
2006
 

Change in accumulated benefit obligation:

   

Accumulated benefit obligation, beginning of the year

  $3,564  $3,685 

Interest cost

   209   201 

Actuarial (gain) or loss

   910   (213)

Disbursements

   (121)  (109)
         

Accumulated benefit obligation, end of year

  $4,562  $3,564 
         
    December 31,
2007
  December 31,
2006
 

Change in plan assets:

   

Fair value of plan assets, beginning of the year

  $3,230  $2,727 

Actual return on plan assets

   194   289 

Employer contributions

   —     323 

Disbursements

   (121)  (109)
         

Fair value of plan assets, end of year

  $3,303  $3,230 
         

F-55


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

13.Employee Benefit Plans (continued)

Defined Benefit Plans (continued)

    December 31,
2007
  December 31,
2006
 

Unfunded status:

   

Unfunded status, beginning of the year

  $(1,304) $(334)
         

Net amount recognized

  $(1,304) $(334)
         

The net benefit cost consists of the following:

    For the Year ended December 31, 
   2007  2006  2005 

Net periodic benefit cost:

    

Interest cost

  $209  $201  $178 

Expected return on plan assets

   (222)  (194)  (177)
             

Net periodic benefit cost

  $(13) $7  $1 
             

Weighted-average assumptions used to determine benefit obligations are as follows:

   2007  2006 

Discount rate

  5.90% 5.50%

Expected long-term rate of return on plan assets

  7.00% 7.00%

Rate of future compensation increase

  N/A  N/A 

F-56


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

13.Employee Benefit Plans (continued)

Defined Benefit Plans (continued)

The weighted-average allocation of pension plan assets is as follows:

    December 31,
2007
  December 31,
2006
 

Asset Category

   

Equity

  44.0% 47.0%

Fixed income

  35.0  33.0 

Other

  21.0  20.0 
       

Total

  100.0% 100.0%
       

Plan assets consist primarily of listed domestic equity securities and U.S. government, agency and corporate debt securities held in two BlackRock funds. Plan assets do not include any common stock or debt of BlackRock.

The Company did not make a contribution intohas additional compensation plans for the SSRM Plan during 2007. The Company expectspurpose of providing deferred compensation and retention incentives to make a contribution in connectioncertain employees. For these plans, the final value of the deferred amount to be distributed upon vesting is associated with the terminationreturns of the SSRM Plan in the second quarter of 2008 of approximately $1,247.

F-57


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

13.Employee Benefit Plans (continued)

Defined Contribution Plans

Until September 30, 2006, the Company’s employees participated in PNC’s Incentive Savings Plan (“ISP”), a defined contribution plan. Under the ISP, employee contributions of up to 6% of eligible compensation, as defined by the plan,certain investment funds. The liability balances for these plans were matched by the Company, subject to Internal Revenue Code limitations. Effective in October 2006, the Company established the BlackRock Retirement Savings Plan (“BRSP”). Active employee accounts in the ISP were transferred directly to the BRSP in October 2006. Under BRSP, employee contributions of up to 6% of eligible compensation subject to Internal Revenue Code limitations are matched by the Company at 50%. As part of the BRSP, the Company will also make an annual retirement contribution on behalf of each eligible participant equal to 3% of eligible compensation, as well as up to an additional 2% of eligible compensation may be made at the Company’s discretion. The BRSP$13 million and ISP expense for the Company was $30,680, $10,608, and $7,221 for the years ended December 31, 2007, 2006 and 2005, respectively. Contributions to the ISP were matched by shares of BlackRock’s common stock in 2006 and 2005. 500,000 shares of BlackRock’s common stock have been reserved for the ISP, of which approximately 493,000 shares have been issued$38 million as of December 31, 2007. Contributions to2010 and 2009, respectively, and are reflected in the BRSP are made in cash. Investments in BlackRock stock were transferredCompany’s statements of financial condition as accrued compensation and benefits. In January 2011, the Company granted approximately $36 million of additional deferred compensation which will fluctuate with investment returns and will vest ratably over three years from the ISP to the BRSP; however, no new investments in BlackRock stock or matching contributionsdate of stock are available in the BRSP.

BlackRock International, Ltd. (“BIL”) and BlackRock Investment Management (UK) Limited (“BIM”), wholly-owned subsidiaries of the Company, contribute to the BlackRock Group Personal Pension Plan a defined contribution plan for all employees of BIL and BIM. BIL and BIM contribute between 6% and 15% of each employee’s eligible compensation, which totaled $1,558, $1,119 and $833 during the years ended December 31, 2007, 2006 and 2005, respectively.

The Company assumed two 401(k) Plans covering employees of SSR and Realty (the “Research Plan” and “Realty Plan,” respectively) as a result of the SSR Transaction. Effective with the closing of the SSR Transaction, contributions ceased for all participants in the Research Plan and selected participants in the Realty Plan and the Research Plan was closed to new participants. All participants for which contributions ceased in either the Research Plan or Realty Plan, participated in the ISP through September 30, 2006 and became participants of the BRSP thereafter. For all employees who remain active participants in the Realty Plan, employee contributions of up to 3% of eligible compensation, as well as an additional 50% of the next 2% of eligible compensation, subject to Internal Revenue Code limitations, are matched by the Company.

Effective November 1, 2007, the Company merged the assets of the Research Plan and select participant accounts of the Realty Plan into the BRSP.

F-58


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

13.Employee Benefit Plans (continued)

Deferred Compensation Plansgrant.

SSR and Realty havehad deferred compensation plans (collectively, the “SSR New Plan”) whichthat allowed participants to elect to defer a portion of their annual incentive compensation or commissions for either a fixed term or until retirement and invest the funds in specified investments. SSR has funded a portion of the obligation through the purchase of company-owned life insurance (“COLI”) policies to the benefit of SSR. The COLI assets are carried at fair value on the consolidated statementstatements of financial condition, and at December 31, 2007,2010 and 2009, the value of the COLI assets was $15,618$11 million and was$11 million, respectively, which were recorded in other assets. Changes in the cash surrender value of the COLI policies are recorded to non-operating income in(expense) on the consolidated statements of income. In addition, the Company has recorded a related obligation to repay the deferred incentive compensation, plus applicable earnings, to employees, which totaled $18,188$10 million and was$11 million which were recorded in accrued compensation and benefits on the consolidated statementstatements of financial condition as of December 31, 2007.2010 and 2009, respectively. Changes in the Company’s obligationobligations under the SSR New Plan,these plans, as a result of appreciation or depreciation of the underlying investments in an employee’s account, are recorded as compensation and benefits expense inon the consolidated statements of income. Effective March 2004 the SSR New PlanBoth plans no longer allowedallow participants to defer a portion of their annual incentive compensation or commissions.

Prior to 2003, SSR sponsored a deferred compensation plan (the “SSR Old Plan”) under which eligible participants could defer annual incentive compensation and commissions for either a fixed term or until retirement. Obligations under this plan were funded through split-dollar life insurance policies acquired by SSR

BlackRock, Inc.

Notes to the benefitConsolidated Financial Statements

16. Employee Benefit Plans (continued)

Defined Contribution Plans

BlackRock Retirement Savings Plan

Certain of the respective participant. SSR is entitledCompany’s employees participate in the BlackRock Retirement Savings Plan (“BRSP”). Under the BRSP, employee contributions of up to 6% of eligible compensation, as defined by the return of any premium paidplan and subject to Internal Revenue Code limitations (“IRC”), are matched by the Company at 50%. As part of the BRSP, the Company also will make an annual retirement contribution on behalf of each eligible participant equal to no less than 3% of eligible compensation, plus an additional amount, determined at the discretion of the Company, not to exceed 2% of eligible compensation for a total contribution of no more than 5% of eligible compensation, who has attained one year of service and as such, premiums paid are recorded by SSR as a receivable fromremain employed with the participant. AtCompany through the end of a participant’s deferral period, all amounts advanced by SSR under the SSR Old Plan will be applied first against the obligation to repay premiums advanced by SSR, with any remaining value accruing to the benefit of the employee. All obligations under the SSR Old Plan are convertible to obligations under the SSR New Plan at the election of the participant at the respective insurance policy’s cash surrender value. At December 31, 2007, the receivables from employees and obligations under the SSR Old Plan were $991.

Post-retirement Benefits

Until December 31, 2006, PNC provided certain post-retirement health care and life insurance benefitsplan year. The BRSP expense for certain eligible employees. As of December 31, 2006, the Company transferred all future liability under this plan to PNC for $1,828. Expenses for post-retirement benefits allocated to the Company by PNC were $794was $35 million, $24 million and $68$33 million for the years ended December 31, 20062010, 2009 and 2005,2008, respectively. No separate financial obligation dataContributions to the BRSP are made in cash and no new investments in BlackRock stock or matching contributions of stock are available in the BRSP.

Effective January 1, 2011, all U.S. employees, including U.S. legacy BGI employees, will participate in the BRSP. All plan assets in the two legacy BGI plans, including the 401K Plan and Retirement Plan (see below), were merged into the BRSP on January 1, 2011. Under the combined BRSP, employee contributions of up to 8% of eligible compensation, as defined by the plan and subject to IRC limitations, will be matched by the Company at 50%. In addition, the Company will continue to make an annual retirement contribution to eligible participants equal to 3-5% of eligible compensation.

BlackRock Institutional Trust Company 401(k) Savings Plan (formerly the BGI 401(k) Savings Plan)

The Company assumed a 401(k) Plan (the “BGI Plan”) covering employees of former BGI as a result of the BGI Transaction. As part of the BGI Plan, employee contributions for participants with at least one year of service were matched at 200% of participants’ pre-tax contributions up to 2% of base salary and overtime, and matched 100% of the next 2% of base salary and overtime, as defined by the plan and subject to IRC limitations. The maximum matching contribution a participant would have received is an amount equal to 6% of base salary up to the IRC limitations. The BGI Plan expense was $12 million for the year ended December 31, 2010 and immaterial to the Company’s consolidated financial statements for the year ended December 31, 2009. Effective January 1, 2011, the net assets of this plan merged into the BRSP.

BlackRock Institutional Trust Company is availableRetirement Plan (formerly the BGI Retirement Plan)

The Company assumed a defined contribution money purchase pension plan (“BGI Retirement Plan”) as a result of the BGI Transaction. All salaried employees of former BGI and its participating affiliates who were U.S. residents on the U.S. payroll were eligible to participate. For participants earning less than $100,000 in base salary, the Company contributed 6% of a participant’s total compensation (base salary, overtime and performance bonus) up to $100,000. For participants earning $100,000 or more in base salary, the Company contributed 6% of a participant’s base salary and overtime up to the IRC limitation of $245,000 in 2010. These contributions were 25% vested once the participant has completed two years of service and then vested at a rate of 25% for each additional year of service completed. Employees with respectfive or more years of service under the Retirement Plan were 100% vested in their entire balance. The Retirement Plan expense was $13 million for the year ended December 31, 2010 and immaterial to the Company’s consolidated financial statements for the year ended December 31, 2009. Effective January 1, 2011, the net assets of this plan merged into the BRSP.

BlackRock Group Personal Pension Plan

BlackRock Investment Management (UK) Limited (“BIM”), a wholly-owned subsidiary of the Company, contributes to the BlackRock Group Personal Pension Plan, a defined contribution plan for all employees of BIM. BIM contributes between 6% and 15% of each employee’s eligible compensation. The expense for this plan was $22 million, $13 million and $16 million for the years ended December 31, 2010, 2009 and 2008, respectively.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

16. Employee Benefit Plans (continued)

Defined Benefit Plans

In 2009, prior to the BGI Transaction, the Company had several defined benefit pension plans in Japan, Germany, Luxembourg and Jersey. All accrued benefits under these defined benefit plans are currently frozen and the plans are closed to new participants. In 2008, the defined benefit pension values in Luxembourg were transferred into a new defined contribution plan for such employees, removing future liabilities. Participant benefits under the plans will not change with salary increases or additional years of service.

Through the BGI Transaction, the Company assumed defined benefit pension plans in Japan and Germany which are closed to new participants. During 2010, these plans merged into the legacy BlackRock plans in Japan (the “Japan Plan”) and Germany. At December 31, 2010 and 2009, the plan assets for these plans were approximately $19 million and $10 million, respectively, and the unfunded obligations were less than $6 million and $3 million, respectively, which were recorded in accrued compensation and benefits on the consolidated statements of financial condition. Benefit payments for the next five years and in aggregate for the five years thereafter are not expected to be material.

Defined benefit plan assets for the Japan Plan of approximately $16 million are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and achieve the target investment return benchmark. Investment strategies and asset allocations are based on consideration of plan liabilities and the funded status of the plan. Investment performance and asset allocation are measured and monitored on an ongoing basis. The current target allocations for the plan assets are 45-50% for U.S. and international equity securities, 50-55% for U.S. and international fixed income securities and 0-5% for cash and cash equivalents.

The table below provides the fair value of the defined benefit Japan Plan assets at December 31, 2010 by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category.

(Dollar amounts in millions)  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   December 31,
2010
 

Cash and cash equivalents

  $9    $—      $9  

Equity securities

   4     —       4  

Fixed income securities

   —       3     3  
               

Fair value of plan assets

  $13    $3    $16  
               

BlackRock, Inc.

Notes to the Consolidated Financial Statements

16. Employee Benefit Plans (continued)

Defined Benefit Plans (continued)

The assets and unfunded obligation for the defined benefit pension plan in Germany and Jersey were immaterial to the Company’s consolidated financial statements at December 31, 2010.

Post-retirement Benefit Plans

Prior to the BGI Transaction, the Company had requirements to deliver post-retirement medical benefits to a closed population based in the United Kingdom and through the BGI Transaction, the Company assumed a post-retirement benefit plan to a closed population of former BGI employees in the United Kingdom. For the years ended December 31, 2010, 2009 and 2008, expenses and unfunded obligations for these benefits were immaterial to the Company’s consolidated financial statements.

In addition, in conjunction withthrough the MLIMBGI Transaction, the Company assumed a requirement to deliver post-retirement medical benefits to a closed population basedof former BGI employees in the United Kingdom.States. At December 31, 2010 and 2009, the accumulated benefit obligation for this unfunded plan, which is included in accrued compensation and benefits on the consolidated statements of financial condition, was approximately $7 million and $14 million, respectively. For the yearsyear ended December 31, 2007 and 20062010, expenses for these benefits were immaterial to the Company’s consolidated financial statements. The post-retirement medical plan costs are developed from actuarial valuations that include key assumptions, including the discount rate and health care cost trends. Changes in retiree medical plan benefit costs may occur in the future due to changes in these assumptions, changes in the number of plan participants and increases in the cost of healthcare. Benefit payments for the next five years and in aggregate for the five years thereafter are not expected to be material. The estimated impact of a one percentage-point change in the discount rate would be a change of less than $100 thousand on 2010 pension expense and would change the projected benefit obligation by less than $1 million.

F-59


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

14.Related Party Transactions

17. Related Party Transactions

Determination of Related Parties

As a result of the MLIMBGI Transaction, (see Note 3 for further discussion), Merrill LynchBarclays acquired approximately 49.3%19.8% of the total capital stock of BlackRock on a fully diluted basis.BlackRock. See Note 3, Mergers and Acquisitions, for further discussion. The Company has considered Merrill Lynch,Barclays, along with its affiliates, ato be related partyparties in accordance with SFAS No. 57,ASC 850-10,Related Party Disclosures(“ASC 850-10”), since the closing of the MLIMBGI Transaction based on its level of capital stock ownership. At December 31, 2007, Merrill Lynch2010, Barclays owned approximately 45.1%2.3% of the Company’s voting common stock and held approximately 49.0%19.6% of the total capital stock.

As a result of the MLIM Transaction in 2006, the Company considered Merrill Lynch (a subsidiary of Bank of America), along with its affiliates, to be related parties based on its level of ownership. Subsequent to the secondary offering in November 2010 by Bank of America of shares of the Company’s stock, Bank of America owned 0% of the Company’s voting common stock and held approximately 7.1% of the total capital stock, on a fully diluted basis.and therefore, subsequent revenues and expenses after the secondary offering related to Bank of America and its affiliates are no longer considered related party transactions.

For the years ended December 31, 2007, 20062010, 2009 and 2005,2008, the Company considered PNC, along with its affiliates, to be related parties based on their collectivethe level of its ownership of BlackRock capital stock of approximately 69% for those years through September 29, 2006.stock. At December 31, 20072010, PNC owned approximately 33.5%25.3% of the Company’s capital stock.

In connection with the closingvoting common stock and held approximately 20.3% of the SSR Transaction in January 2005, MetLife was issued 550,000 shares of restricted BlackRock common stock (see Note 3 for further discussion). The Company has considered MetLife a related party since January 2005 because of this level of ownership and because of the significance of the revenue earned by BlackRock from MetLife. Subsequent to the MLIM Transaction, however, MetLife’s ownership interest in the Company has decreased to less than 1% of the Company’s total capital stock and the revenue earned by BlackRock from MetLife has decreased as a percentage of the Company’s total revenue due to the significant increase in the Company’s revenue. Consequently, the Company has not considered MetLife to be a related party since December 31, 2006.

For the year ended December 31, 2005, the Company considered Nomura to be a related party because the Company and Nomura were joint venture partners, each holding a 50% interest, in NBAM, and as a result of the significance of revenues earned by the Company from Nomura. On September 29, 2006, the Company purchased Nomura’s 50% interest in NBAM (see Note 3 for additional information) and the Company’s revenue increased significantly as a result of the MLIM Transaction. Consequently, the Company has not considered Nomura to be a related party since December 31, 2006.stock.

For the years ended December 31, 2007, 20062010, 2009 and 2005,2008, the Company considers itsthe registered investment companies that it manages, which include mutual funds and exchanged-traded funds, to be related parties as a result of the Company’s advisory relationship. In addition, equity method investments are considered related parties in accordance with ASC 850-10 due to the Company’s influence over the Company has over such mutual funds as a resultfinancial and operating policies of the Company’s advisory relationship.investee.

F-60


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)17. Related Party Transactions (continued)

 

14.Related Party Transactions (continued)

Investment Advisory and Administration Fees from Related Parties

Revenues for services provided by the Company to these and other related parties are as follows:

(Dollar amounts in millions)  Year ended
December 31,
 
   2010   2009   2008 

Investment advisory, administration fees and securities lending revenue:

      

Bank of America and affiliates

  $37    $48    $76  

PNC and affiliates

   4     3     8  

Barclays and affiliates

   14     2     —    

Anthracite Capital, Inc.

   4     1     14  

Registered investment companies/Equity method investees

   4,833     2,561     2,864  

Other

   1     1     —    
               

Total investment advisory and administration fees

   4,893     2,616     2,962  

Investment advisory performance fees (equity method investees)

   39     35     —    

BlackRock Solutions and advisory:

      

Bank of America and affiliates

   1     2     —    

PNC and affiliates

   9     8     11  

Equity method investees

   17     21     19  

Other

   —       —       1  
               

TotalBlackRock Solutions and advisory

   27     31     31  

Other revenue:

      

Bank of America and affiliates

   4     13     10  

PNC and affiliates

   4     3     —    

Barclays and affiliates

   35     2     —    

Equity method investees

   22     15     1  

Other

   1     1     2  
               

Total other revenue

   66     34     13  
               

Total revenue from related parties

  $5,025    $2,716    $3,006  
               

The Company provides investment advisory and administration services to its openopen- and closed-end funds and other commingled or pooled funds and separate accounts in which related parties invest. In addition, the Company provides investment advisory and administration services to certain Bank of America/Merrill Lynch, subsidiaries,Barclays and PNC subsidiaries, MetLife sponsored variable annuities and separate accounts and Nomura and its affiliates for a feefees based on AUM. Further, the Company provides risk management services to PNC.

RevenuesPNC and Bank of America/Merrill Lynch. The Company contracts with Bank of America/Merrill Lynch for services providedvarious mutual fund distribution and shareholder servicing to be performed on behalf of certain non-U.S. funds managed by the Company. The Company records its investment advisory and administration fees net of retrocessions. Such retrocession arrangements paid to these related parties are as follows:Bank of America and affiliates during 2010 prior to the offering, 2009 and 2008 were $88 million, $85 million and $118 million, respectively.

    Year ended December 31,
   2007  2006  2005

Investment advisory and administration fees from related parties:

      

Merrill Lynch and affiliates

  $89,471  $20,499  $—  

PNC and affiliates

   8,781   12,557   13,327

MetLife and affiliates

   —     61,613   51,805

Nomura and affiliates

   —     6,474   8,781

Mutual funds

   2,542,023   763,855   271,030
            

Total investment advisory and administration fees from related parties

  $2,640,275  $864,998  $344,943
            

F-61


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)17. Related Party Transactions (continued)

 

14.Related Party Transactions (continued)

Certain Agreements and Arrangements with Merrill Lynch

On September 29, 2006, BlackRock entered into a global distribution agreement with Merrill Lynch. The global distribution agreement provides a framework under which Merrill Lynch provides portfolio administration and servicing of client investments in certain BlackRock investment advisory products (including those of the former MLIM Business). Pursuant to the global distribution agreement, Merrill Lynch has agreed to cause each of its distributors to continue distributing BlackRock covered products and covered products of the former MLIM Business that it distributed as of February 15, 2006 on the same economic terms as were in effect on February 15, 2006 or as the parties otherwise agree. For new covered products introduced by BlackRock to Merrill Lynch for distribution that do not fall within an existing category, type or platform of covered products distributed by Merrill Lynch, the Merrill Lynch distributors must be offered the most favorable economic terms offered by BlackRock to other distributors of the same product. If a covered product that does not fall within an existing category, type or platform of covered products distributed by Merrill Lynch becomes part of a group or program of similar products distributed by the Merrill Lynch distributors, some of which are sponsored by managers other than BlackRock, the economic terms offered by Merrill Lynch distributors to BlackRock for the distribution of such covered products must be at least as favorable as the most favorable economic terms to which any such product is entitled. The economic terms of all covered products distributed by Merrill Lynch will remain in effect until September 30, 2009. After such term, the agreement will renew for additional one-year terms, subject to certain conditions.

The total amount expensed by BlackRock during 2007 relating to Merrill Lynch portfolio administration and servicing of products covered by the global distribution agreement, including mutual funds, separate accounts, liquidity funds, alternative investments and insurance products, was approximately $436,886.

On September 29, 2006, BlackRock entered into a transition services agreement with Merrill Lynch and its controlled affiliates to allow BlackRock to transition from relying on Merrill Lynch for various functions for the former MLIM business and to allow Merrill Lynch to transition from relying on the former MLIM Business for various functions. The pricing for such services is required to be consistent with historical practices. The total amount expensed by BlackRock for the years ended December 31, 2007 and 2006 relating to the transition services agreement with Merrill Lynch was approximately $5,418 and $5,837, respectively.

In connection with the MLIM Transaction, Merrill Lynch has agreed that it will provide reimbursement to BlackRock for employee incentive awards issued to former MLIM employees who became BlackRock employees subsequent to the MLIM Transaction. Reimbursements will amount to 50% of the total amount of awards to former MLIM employees between $100,000 and $200,000. The Company is entitled to invoice Merrill Lynch following its determination of the portion of awards entitled to reimbursement for a given calendar year. Through January 2007, the Company had issued total eligible incentive compensation to qualified employees in excess of $200,000 per year and intends to seek reimbursement from Merrill Lynch for an appropriate portion of these awards. Contributions made by Merrill Lynch will be recorded as capital contributions when received.

Effective September 29, 2006, the Company leases certain office buildings from Merrill Lynch. The lease agreements expire in 2018. Rent expense of $17,773 and $4,328 for the years ended December 31, 2007 and 2006, respectively, was recorded related to office buildings leased from Merrill Lynch.

F-62


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

14.Related Party Transactions (continued)

Merrill Lynch and certain of its affiliates have been engaged by the Company to provide recordkeeping, administration and trustee services to the BRSP. All compensation to Merrill Lynch and its affiliates for these services is paid by the Company.

On September 28, 2007, the Company insourced certain closed-end fund administration and servicing arrangements in place with Merrill Lynch. In connection with this insourcing, the Company terminated 40 agreements with Merrill Lynch with original terms ranging from 30 to 40 years and made a one-time payment to Merrill Lynch of $128,114 on October 31, 2007. The payment is reported as “termination of closed-end fund administration and servicing arrangements” on the consolidated statement of income. As a result of these terminations, Merrill Lynch was discharged of any further duty to provide the services and BlackRock was discharged from any further payment obligation.

Certain Agreements and Arrangements with MetLife

During 2006, the Company incurred a fee sharing payment of $34,450 payable to MetLife based upon certain contractual arrangements entered into in conjunction with the SSR Transaction. See Note 3 for further information.

Aggregate Expenses for Transactions with Related Parties

Aggregate expenses included in the consolidated statements of income for transactions with affiliates, including related parties are as follows:

 

    Year ended December 31,
   2007  2006  2005

Expenses with related parties:

      

Portfolio administration and servicing costs

      

Merrill Lynch and affiliates

  $444,376  $96,362  $—  

PNC and affiliates

   23,201   24,060   17,259

Other

   2,164   5,751   5,800
            
   469,741   126,173   23,059

General and administration

      

Merrill Lynch and affiliates

   48,459   11,062   —  

PNC and affiliates

   —     1,607   1,824

MetLife and affiliates

   —     3,932   —  

Support of two private enhanced cash funds

   35,948   —     —  

Other

   8,263   1,149   656
            
   92,670   17,750   2,480

Termination of closed-end fund administration and servicing arrangements to Merrill Lynch

   128,114   —     —  

Fee sharing payment - MetLife

   —     34,450   —  
            

Total expenses with related parties

  $690,525  $178,373  $25,539
            
(Dollar amounts in millions)  Year ended
December 31,
 
   2010   2009   2008 

Expenses with related parties:

      

Distribution and servicing costs

      

Bank of America and affiliates

  $214    $349    $464  

PNC and affiliates

   11     19     30  

Barclays and affiliates

   1     —       —    

Other

   —       —       1  
               

Total distribution and servicing costs

   226     368     495  

Direct fund expenses

      

Bank of America and affiliates

   10     —       —    

Barclays and affiliates

   6     —       —    
               

Total direct fund expenses

   16     —       —    

General and administration expenses

      

Bank of America and affiliates

   11     7     13  

Barclays and affiliates

   14     3     —    

Anthracite Capital, Inc.

   14     31     —    

Other registered investment companies

   33     31     21  

Support of two private sponsored enhanced cash funds / Other

   —       1     10  
               

Total general and administration expenses

   72     73     44  
               

Total expenses with related parties

  $314    $441    $539  
               

Certain Agreements and Arrangements with Merrill Lynch and PNC

F-63

Global Distribution Agreement with Merrill Lynch


The global distribution agreement provides a framework under which Merrill Lynch provides distribution and servicing of client investments in certain BlackRock investment advisory products. Pursuant to the global distribution agreement, Merrill Lynch has agreed to cause each of its distributors to continue distributing BlackRock covered products and covered products of the former MLIM Business that it distributed as of February 15, 2006 on the same economic terms as were in effect on February 15, 2006 or as the parties otherwise agree. For new covered products introduced by BlackRock to Merrill Lynch for distribution that do not fall within an existing category, type or platform of covered products distributed by Merrill Lynch, the Merrill Lynch distributors must be offered the most favorable economic terms offered by BlackRock to other distributors of the same product. If a covered product that does not fall within an existing category, type or platform of covered products distributed by Merrill Lynch becomes part of a group or program of similar products distributed by the Merrill Lynch distributors, some of which are sponsored by managers other than BlackRock, the economic terms offered by Merrill Lynch distributors to BlackRock for the distribution of such covered products must be at least as favorable as the most favorable economic terms to which any such product is entitled.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)17. Related Party Transactions (continued)

 

14.Related Party Transactions (continued)

Certain Agreements and Arrangements with Merrill Lynch and PNC (continued)

 

July 2008 Changes to Stockholder and Global Distribution Agreements

In July 2008, the Company entered into an amended and restated stockholder agreement and an amended and restated global distribution agreement with Merrill Lynch.

These changes to the stockholder agreement with Merrill Lynch, among other items, (i) provide Merrill Lynch with additional flexibility to form or acquire asset managers substantially all of the business of which is devoted to non-traditional investment management strategies such as short selling, leverage, arbitrage, specialty finance and quantitatively-driven structured trades; (ii) expand the definition of change in control of Merrill Lynch to include the disposition of two-thirds or more of its Global Wealth & Investment Management business; (iii) extend the general termination date to the later of July 16, 2013 or the date Merrill Lynch’s beneficial ownership of BlackRock voting securities falls below 20%; and (iv) clarify certain other provisions in the agreement.

The changes in the global distribution agreement in relation to the prior agreement, among other things, (i) provide for an extension of the term to five years from the date of a change in control of Merrill Lynch (to January 1, 2014 following Bank of America’s acquisition of Merrill Lynch) and one automatic 3-year extension if certain conditions are satisfied; (ii) strengthen the obligations of Merrill Lynch to achieve revenue neutrality across the range of BlackRock products distributed by Merrill Lynch if the pricing or structure of particular products is required to be changed; (iii) obligate Merrill Lynch to seek to obtain distribution arrangements for BlackRock products from buyers of any portion of its distribution business on the same terms as the global distribution agreement for a period of at least 3 years; and (iv) restrict the manner in which products managed by alternative asset managers in which Merrill Lynch has an interest may be distributed by Merrill Lynch.

In connection with the closings under the exchange agreements, on February 27, 2009, BlackRock entered into a second amended and restated stockholder agreement with Merrill Lynch and an amended and restated implementation and stockholder agreement with PNC, and a third amendment to the share surrender agreement with PNC. See Note 19, Capital Stock, for further discussion.

The changes contained in the amended and restated stockholder agreement with Merrill Lynch, in relation to the prior agreement, among other things, (i) revised the definitions of “Fair Market Value,” “Ownership Cap” and “Significant Stockholder”; and (ii) amended or supplemented certain other definitions and provisions therein to incorporate series B preferred stock and series C preferred stock, respectively. The changes contained in the amended and restated stockholder agreement with PNC, in relation to the prior agreement, among other things, (i) revised the definitions of “Fair Market Value,” “Ownership Cap,” “Ownership Percentage,” “Ownership Threshold” and “Significant Stockholder”; and (ii) amended or supplemented certain other provisions therein to incorporate series B preferred stock and series C preferred stock, respectively.

The amendment to the share surrender agreement with PNC provided for the substitution of series C preferred stock for the shares of common stock subject to the share surrender agreement.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

17. Related Party Transactions (continued)

Certain Agreements and Arrangements with Merrill Lynch and PNC (continued)

June 2009 Changes to Stockholder Agreements

In connection with the BGI Transaction, certain additional amendments were made to the amended and restated stockholder agreements with Merrill Lynch and PNC.

The amended and restated stockholder agreement with Merrill Lynch was changed to, among other things, (i) amend or supplement certain definitions and provisions therein to incorporate series D participating preferred stock, (ii) amend the provision relating to the composition of BlackRock’s Board of Directors and (iii) add certain provisions relating to the U.S. Bank Holding Company Act.

The amended and restated stockholder agreement with PNC was changed to, among other things, (i) revise the definitions of “Ownership Cap” and “Ownership Threshold,” (ii) amend or supplement certain other definitions and provisions therein to incorporate series D participating preferred stock, (iii) provide that none of the transfer restriction provisions set forth in the amended and restated stockholder agreement with PNC apply to the shares purchased by PNC as part of the financing for the BGI Transaction, (iv) amend the provision relating to the composition of BlackRock’s Board of Directors and (v) provide that the amended and restated stockholder agreement with PNC shall terminate upon the later of (A) the five year anniversary of the amended and restated stockholder agreement with PNC and (B) the first date on which PNC and its affiliates beneficially own less than 5% of the outstanding BlackRock capital stock, subject to certain other conditions specified therein.

November 2010 Changes to Stockholder and Global Distribution Agreements with Merrill Lynch

In November 2010, in connection with the secondary offering by Bank of America of shares of BlackRock’s common stock, the Company entered into an amended and restated stockholder agreement and an amended and restated global distribution agreement with Merrill Lynch.

The changes to the stockholder agreement with Merrill Lynch provides, among other things, for the following: (i) a reduction in the number of directors Merrill Lynch is entitled to designate upon its holding falling below 10% and 5% thresholds, (ii) a reduction of the cap on total ownership of BlackRock capital stock, (iii) restrictions on Merrill Lynch transferring any shares until November 15, 2011 and (iv) the setting of a termination date of the agreement to July 31, 2013.

This amendment to the global distribution agreement clarifies certain economic arrangements with respect to revenue neutrality across BlackRock products distributed by Merrill Lynch.

The total amount of related party transactions expensed by BlackRock through November 2010, and full year 2009 and 2008 related to Merrill Lynch distribution and servicing of products covered by the global distribution agreement, including mutual funds, separate accounts, liquidity funds, alternative investments and insurance products, was approximately $210 million, $337 million and $456 million, respectively.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

17. Related Party Transactions (continued)

Certain Agreements and Arrangements with Merrill Lynch and PNC (continued)

Other Agreements

In connection with the MLIM Transaction, Merrill Lynch agreed that it will provide reimbursement to BlackRock for employee incentive awards issued to former MLIM employees who became BlackRock employees subsequent to the MLIM Transaction. Reimbursements will amount to 50% of the total amount of awards to former MLIM employees between $100 million and $200 million. The Company is entitled to invoice Merrill Lynch following its determination of the portion of awards entitled to reimbursement for a given calendar year. Through January 2007, the Company had issued total eligible incentive compensation to qualified employees in excess of $200 million. In 2010 and 2009, Merrill Lynch reimbursed $10 million and $25 million, respectively, to BlackRock for employee incentive awards issued to former MLIM employees who became BlackRock employees subsequent to the MLIM Transaction. Upon receipt, the reimbursements were recorded as capital contributions.

Merrill Lynch and certain of its affiliates have been engaged by the Company to provide recordkeeping, administration and trustee services to the BRSP. The compensation to Merrill Lynch and its affiliates for these services paid by the Company was not material.

Certain Agreements and Arrangements with Barclays

Barclays Amended and Restated Stock Purchase Agreement

On November 30, 2009, BlackRock, Barclays Bank PLC and Barclays PLC (for limited purposes) entered into an Amended and Restated Stock Purchase Agreement (the “Amended and Restated Stock Purchase Agreement”). The Amended and Restated Stock Purchase Agreement amended and restated the terms of the Stock Purchase Agreement, dated as of June 16, 2009, by and among BlackRock, Barclays and Barclays PLC (for limited purposes), which provided for the acquisition by BlackRock of BGI from Barclays. The revised terms relate, among other things, to the amount of cash and capital required to be held by the various BGI entities at the closing of the acquisition and to the post-closing purchase price adjustment mechanism. On December 1, 2009, BlackRock completed its acquisition of BGI pursuant to the Amended and Restated Stock Purchase Agreement.

Barclays Stockholder Agreement

In connection with the completion of its acquisition of BGI, BlackRock entered into a Stockholder Agreement, dated as of December 1, 2009 (the “Barclays Stockholder Agreement”), with Barclays and Barclays BR Holdings S.à.r.l. (“BR Holdings”, and together with Barclays, the “Barclays Parties”). Pursuant to the terms of the Barclays Stockholder Agreement, the Barclays Parties agreed, among other things, to certain transfer and voting restrictions with respect to shares of BlackRock common stock and preferred stock owned by them and their affiliates, to limits on the ability of the Barclays Parties and their affiliates to acquire additional shares of BlackRock common stock and preferred stock and to certain other restrictions. In addition, the Barclays Stockholder Agreement contains certain provisions relating to the composition of BlackRock’s board of directors, including a requirement that BlackRock’s board must consist of not more than 19 directors, with two directors designated by the Barclays Parties.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

17. Related Party Transactions (continued)

Certain Agreements and Arrangements with Barclays (continued)

Other Agreements

Barclays and certain of its affiliates have been engaged by the Company to provide the use of certain indices for certain BlackRock investments funds and for a fee to provide indemnification to clients related to potential losses in connection with lending of client securities. For the year ended December 31, 2010, fees incurred for these agreements were $14 million and amounts during the year ended December 31, 2009 were not material.

Certain Agreements with Merrill Lynch, PNC and Barclays

Concurrent with the secondary offering, BlackRock, Merrill Lynch, PNC and Barclays agreed with the underwriters in such transactions subject to certain limited exceptions, not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 90 days after November 8, 2010 without first obtaining the written consent of Merrill Lynch. This lock-up provision expired on February 8, 2011. Additionally, Merrill Lynch agreed to an additional lock-up period of 12 months following the closing of the secondary offering, which occurred on November 15, 2010, subject to certain limited exceptions, pursuant to the amended and restated stockholder agreement with BlackRock.

Receivables and Payables with Related Parties

Due from related parties was $174,853$150 million and $113,184$189 million at December 31, 20072010 and 2006,2009, respectively, and primarily represented a tax indemnification asset due from Barclays, receivables for investment advisory and administration services provided by BlackRock, and loanother receivables from certain funds of fundsinvestment products managed by BlackRock and warehouse entities established for such funds.BlackRock. Due from related parties at December 31, 20072010 included $14,819$71 million due from certain funds, $69 million of a tax indemnification asset due from Barclays and $10 million in receivables from PNC and affiliates and $42,956 in receivables from Merrill Lynch and affiliates.Barclays. Due from related parties at December 31, 2006 primarily represented $40,6222009 included $72 million of a tax indemnification asset due from Barclays, $57 million due from certain funds, $48 million in receivables from Bank of America/Merrill Lynch, PNC and $35,372Barclays and a $12.5 million carrying value in loan receivables from Merrill Lynch and affiliates.Anthracite Capital, Inc. (“Anthracite”) (see below).

Accounts receivable at December 31, 20072010 and 20062009 includes $388,125$559 million and $321,706,$492 million, respectively, related to receivables from BlackRock mutual funds andiSharesfor investment advisory and administration services.

Due to related parties was $114,347$57 million and $243,836$505 million at December 31, 20072010 and 2006,2009, respectively, including $96,459 payableand primarily represented assumed liabilities from the BGI Transaction. Due to Merrill Lynch and $3,364 payable to PNC and its affiliatesrelated parties at December 31, 2007.2010 included $41 million and $15 million payable to Barclays and certain investment products managed by BlackRock, respectively. The payable at December 31, 2010 to Barclays included non-interest bearing notes assumed by BlackRock at the close of the BGI Transaction related to certain acquired tax receivables and other contractual items. Due to related parties at December 31, 2009 included $408 million and $95 million payable to Barclays and Merrill Lynch, primarily includes acquired payables and accrued liabilities under the global distribution agreement and the transition services agreement.respectively. The payable at December 31, 2009 to PNCBarclays included non-interest bearing notes assumed by BlackRock at the close of the BGI Transaction related to certain acquired tax receivables and its affiliates represents fund administration and servicing costs.other contractual items.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

 

15.Net Capital Requirements

17. Related Party Transactions (continued)

Loan Commitments with Anthracite

Prior to March 31, 2010, the Company was committed to provide financing of up to $60 million to Anthracite, a specialty commercial real estate finance company that was managed by a subsidiary of BlackRock. The financing is collateralized by a pledge by Anthracite of its ownership interest in a real estate debt investment fund, which is managed by a subsidiary of BlackRock. At December 31, 2010, $33.5 million of financing was outstanding and remains outstanding as of February 2011, which is past its final maturity date of March 5, 2010. At December 31, 2010, the carrying value of the collateral was estimated to be zero, which resulted in an additional $12.5 million reduction in amounts due from related parties on the Company’s consolidated statement of financial condition and an equal amount recorded in general and administrative expenses on the Company’s consolidated statement of income for the year ended December 31, 2010. The Company has no obligation to loan additional amounts to Anthracite under this facility. Anthracite filed a voluntary petition for relief under Chapter 7 of Title 11 of the U.S. Code in the U.S. Bankruptcy Court for the Southern District of New York on March 15, 2010. Recovery of any amount of the financing provided by the Company in excess of the value of the collateral is not anticipated. The Company continues to evaluate the collectability of the outstanding borrowings.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

18. Net Capital Requirements

The Company is required to maintain net capital in certain internationalregulated subsidiaries within a number of jurisdictions, which is met in partpartially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in itstheir ability to transfer cash between different jurisdictions. At December 31, 2007,jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the Company was required to maintain approximately $217,361 in net capital at these subsidiaries and was in compliance with all regulatory minimum net capital requirements.United States, may have adverse tax consequences that could discourage such transfers.

Banking Regulatory Requirements

BlackRock Investments, Inc.Institutional Trust Company, N.A. (“BII”BTC”), a registered broker-dealer and a wholly-owned subsidiary of the Company, is chartered as a national bank whose powers are limited to trust activities. BTC is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, BTC must meet specific capital guidelines that invoke quantitative measures of BTC’s assets, liabilities, and certain off-balance sheet items as calculated under the regulatory accounting practices. BTC’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulators to ensure capital adequacy require BTC to maintain a minimum Tier 1 capital and Tier 1 leverage ratio, as well as Tier 1 and Total risk-based capital ratios. Based on BTC’s calculations as of December 31, 2010 and 2009, it exceeded the applicable capital adequacy requirements.

(Dollar amounts in millions)  Actual  For Capital
Adequacy
Purposes
  To Be Well
Capitalized Under
Prompt

Corrective Action
Provisions
 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

December 31, 2010

          

Total capital (to risk weighted assets)

  $874     103.3 $68     8.0 $85     10.0

Tier 1 capital (to risk weighted assets)

  $874     103.3 $34     4.0 $51     6.0

Tier 1 capital (to average assets)

  $874     55.1 $64     4.0 $79     5.0

Broker-dealers

BlackRock isInvestments, LLC, BlackRock Capital Markets, LLC, BlackRock Execution Services and BlackRock Fund Distribution Company are registered broker-dealers and wholly-owned subsidiaries of BlackRock that are subject to the Uniform Net Capital requirements under the Securities Exchange Act of 1934, which requires maintenance of certain minimum net capital levels. At

Capital Requirements as of December 31, 2007, BII’s net capital was $10,161 in excess of minimum regulatory requirements.2010

16.Capital Stock

At December 31, 2005, BlackRock’s authorized class A common stock, $0.01 par value, was 250,000,000 shares and BlackRock’s authorized class B common stock, $0.01 par value, was 100,000,000 shares. Holders of class A common stock had one vote per share and holders of class B common stock had five votes per share on all stockholder matters affecting both classes.

On September 29, 2006,2010, the Company completedwas required to maintain approximately $897 million in net capital in certain regulated subsidiaries, including BTC, entities regulated by the MLIM TransactionFSA in the United Kingdom, and issued 52,395,082 shares of BlackRock common stockthe broker-dealers and 12,604,918 of series A non-voting participating preferred shares to Merrill Lynchis in consideration for the MLIM business. In conjunctioncompliance with the MLIM Transaction, all existing class A and class B common stockholders exchanged their shares for the newly issued common stock of the Company. All such shares contain the same voting rights.applicable regulatory minimum net capital requirements.

F-64


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

16.

19. Capital Stock

Capital Stock Authorized

Capital Stock (continued)

BlackRock’s authorized common stock, $0.01 par value, was 500,000,000 shares at December 31, 2006. BlackRock’s authorized Series2010 and 2009. At December 31, 2010 and 2009, BlackRock had 20,000,000 series A non-voting participating preferred stock,shares, $0.01 par value, was 500,000,000 shares atauthorized. At December 31, 2006.2010 and 2009, BlackRock had 150,000,000 series B non-voting participating preferred shares, $0.01 par value, authorized. At December 31, 2010 and 2009, BlackRock had 6,000,000 series C non-voting participating preferred shares, $0.01 par value, authorized. At December 31, 2010 and 2009, BlackRock had 20,000,000 series D non-voting participating preferred shares, $0.01 par value, authorized.

Common Shares Held in Escrow

On October 1, 2007, the Company acquired the fund of funds business of Quellos. The Company issued 1,191,785 shares of BlackRock common stock that were placed into an escrow account. In April 2008, November 2009 and October 2010, 280,519, 42,326, and 865,337, respectively, of common shares were released to Quellos in accordance with the Quellos asset purchase agreement, which resulted in an adjustment to the recognized purchase price and had a dilutive effect subsequent to the release. The remaining 3,603 common shares may have a dilutive effect in future periods based on the timing of the release of shares from the escrow account in accordance with the Quellos asset purchase agreement.

February 2009 Capital Exchanges

On January 1, 2009, Bank of America acquired Merrill Lynch. In connection with this transaction, BlackRock entered into exchange agreements with each of Merrill Lynch and PNC pursuant to which each agreed to exchange a portion of the BlackRock common stock it held for an equal number of shares of non-voting participating preferred stock. On February 27, 2009, Merrill Lynch exchanged (i) 49,865,000 shares of BlackRock’s common stock for a like number of shares of BlackRock’s series B non-voting participating preferred stock, and (ii) 12,604,918 shares of BlackRock’s series A preferred stock for a like number of shares of series B preferred stock, and PNC exchanged (i) 17,872,000 shares of BlackRock’s common stock for a like number of shares of series B non-voting preferred stock and (ii) 2,889,467 shares of BlackRock’s common stock for a like number of shares of BlackRock’s series C non-voting participating preferred stock.

Below is a summary description of the series B and C preferred stock issued in the exchanges.

The series AB non-voting participating preferred stock:

 

Exceptis non-voting except as otherwise provided by applicable law, is non-voting;law;

 

Participatesparticipates in dividends on a basis generally equal to the common stock;

 

Grants the holder the option to receive dividends in common stock (subject to applicable ownership restrictions) or in cash;

Benefitsbenefits from a liquidation preference of $0.01 per share; and

 

Isis mandatorily convertible to BlackRock common stock upon transfer to an unrelated party.

On October 1, 2007,The series C non-voting participating preferred stock:

is non-voting except as otherwise provided by applicable law;

participates in dividends on a basis generally equal to the Company acquired the fundcommon stock;

benefits from a liquidation preference of funds business of Quellos (See Note 3). The Company issued 1,191,785 shares of newly-issued$40.00 per share; and is only convertible to BlackRock common stock upon the termination of the obligations of PNC under its share surrender agreement with BlackRock.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

19. Capital Stock (continued)

2009 Capital Stock Activities Related to BGI Transaction

In June and December 2009 the Company raised capital from third party investors via a private placement of 19,914,652 shares of capital stock, at an agreed upon fixed price of $140.60 per share, to finance the cash consideration of the BGI Transaction. The issuance price of $140.60 was based on the valuation of the Company’s common shares for a 10 day period prior to the announcement of the BGI Transaction less an agreed upon discount. Subsequent to the determination of the issuance price the number of share to be issued were fixed.

In June 2009, the Company issued to an institutional investor 2,133,713 shares of BlackRock’s common stock at $140.60 per share. The $300 million proceeds from this issuance was used to fund a portion of the purchase of BGI. See Note 3, Mergers and Acquisitions, for further discussion.

On December 1, 2009, pursuant to separate stock purchase agreements entered into on June 11, 2009 and June 12, 2009, as amended, BlackRock sold an aggregate of 8,637,519 shares of common stock, 5,587,232 shares of series B non-voting participating preferred stock and 3,556,188 shares of series D non-voting participating preferred stock (collectively, the “Financing Shares”) to certain institutional investors, including the sale of the 3,556,188 shares of series D non-voting participating preferred stock to PNC, each at a price of $140.60 per share. The Company received approximately $2.5 billion in connectiontotal consideration from the sale of the Financing Shares, which was also used to fund the cash portion of the purchase of BGI.

At the close of the BGI Transaction on December 1, 2009, the Company issued 3,031,516 common shares, and 26,888,001 and 7,647,524 of series B and D non-voting participating preferred stock, respectively, to Barclays as part of the consideration for the purchase of BGI.

January 2010 Capital Exchange

In January 2010, 600,000 common shares were exchanged for Series B preferred stock and all 11,203,442 Series D preferred stock outstanding at December 31, 2009 were exchanged for Series B preferred stock.

November 2010 Capital Exchanges

On November 15, 2010, the Company announced the closing of the secondary offerings by Bank of America and PNC of 58,737,122 shares of BlackRock’s common stock, which included 56,407,040 shares of common stock issued upon the conversion of BlackRock’s series B non-voting participating preferred stock. Concurrently with the acquisition. Thesecondary offerings, BlackRock issued 11,105,000 shares of common stock will be heldto PNC in exchange for an escrow accountequal number of shares of series B non-voting participating preferred stock.

Cash Dividends for upCommon and Preferred Shares / RSUs

During the years ended December 31, 2010, 2009 and 2008, the Company paid cash dividends of $4.00 per share (or $776 million), $3.12 per share (or $422 million) and $3.12 per share (or $419 million), respectively.

BlackRock, Inc.

Notes to three years and will be available to satisfy certain indemnification obligations of Quellos under the Asset Purchase Agreement.Consolidated Financial Statements

19. Capital Stock (continued)

The Company’s common and preferred shares issued and outstanding and related activity consist of the following:

 

   Shares Issued  Shares Outstanding 
   Common
Shares
  Escrow
Common
Shares
  Treasury
Common
Shares
  Preferred
Shares
Series A
  Preferred
Shares
Series B
  Preferred
Shares
Series C
  Preferred
Shares
Series D
  Common
Shares
  Preferred
Shares
Series A
  Preferred
Shares
Series B
  Preferred
Shares
Series C
  Preferred
Shares
Series D
 

January 1, 2008

   118,573,367    (1,191,785  (1,322,022  12,604,918    —      —      —      116,059,560    12,604,918    —      —      —    

Net issuance of common shares related to employee stock transactions and convertible debt conversions

   —      —      976,103    —      —      —      —      976,103    —      —      —      —    

Release of common stock from escrow agent in connection with Quellos Transaction

   —      280,519    —      —      —      —      —      280,519    —      —   ��  —      —    

PNC LTIP capital contribution

   —      —      (25,072  —      —      —      —      (25,072  —      —      —      —    
                                                 

December 31, 2008

   118,573,367    (911,266  (370,991  12,604,918    —      —      —      117,291,110    12,604,918    —      —      —    
                                                 

Issuance of shares to institutional investors

   10,771,232    —      —      —      5,587,232    —      3,556,188    10,771,232    —      5,587,232    —      3,556,188  

Issuance of shares to Barclays

   3,031,516    —      —      —      26,888,001    —      7,647,254    3,031,516    —      26,888,001    —      7,647,254  

Issuance of common shares for contingent consideration

   330,341    —      —      —      —      —      —      330,341    —      —      —      —    

Release of common stock from escrow agent in connection with Quellos Transaction

   —      42,326    —      —      —      —      —      42,326    —      —      —      —    

Net issuance of common shares related to employee stock transactions and convertible debt conversions

   696,788    —      410,789    —      —      —      —      1,107,577    —      —      —      —    

Exchange of preferred shares series A for series B

   —      —      —      (12,604,918  12,604,918    —      —      —      (12,604,918  12,604,918    —      —    

Exchange of common shares for preferred shares series B

   (67,737,000  —      —      —      67,737,000    —      —      (67,737,000  —      67,737,000    —      —    

Exchange of common shares for preferred shares series C

   (2,889,467  —      —      —      —      2,889,467    —      (2,889,467  —      —      2,889,467    —    

PNC LTIP capital contribution

   —      —      (51,399  —      —      —      —      (51,399  —      —      —      —    
                                                 

December 31, 2009

   62,776,777    (868,940  (11,601  —      112,817,151    2,889,467    11,203,442    61,896,236    —      112,817,151    2,889,467    11,203,442  
                                                 

Release of common stock from escrow agent in connection with Quellos Transaction

   —      865,337    —      —      —      —      —      865,337    —      —      —      —    

Other stock repurchases

   —      —      (896,102      (896,102    

Exchange of common stock for preferred shares series B

   —       (600,000  —      600,000    —      —      (600,000  —      600,000    —      —    

Net issuance of common shares related to employee stock transactions and convertible debt conversions

   1,634,807    —      804,243    —      —      —      —      2,439,050    —      —      —      —    

Exchange of preferred shares series D for series B

   —      —      —      —      11,203,442    —      (11,203,442  —      —      11,203,442    —      (11,203,442

Exchange of preferred shares series B for common shares

   67,512,040    —      —      —      (67,512,040  —      —      67,512,040    —      (67,512,040  —      —    

PNC LTIP capital contribution

   —      —       —      —      (23,028  —      —      —      —      (23,028  —    
                                                 

December 31, 2010

   131,923,624    (3,603  (703,460  —      57,108,553    2,866,439    —      131,216,561    —      57,108,553    2,866,439    —    
                                                 

F-65


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except per share data or as otherwise noted)

 

16.Capital Stock (continued)

20. Restructuring Charges

   Shares Issued Shares Outstanding
   Common
Shares

Class A&B
  Common
Shares
 Escrow
Shares
  Treasury
Shares

Class A&B
  Treasury
Shares
  Preferred
Shares

Series A
 Common
Shares

Class A&B
  Common
Shares
  Preferred
Shares

Series A

January 1, 2005

 64,743,388  —   —    (1,077,665) —    —   63,665,723  —    —  

Conversion of class B stock to class A stock

 (351,579) —   —    351,579  —    —   —    —    —  

Issuance of class A common stock

 700,780  —   —    587,580  —    —   1,288,360  —    —  

Treasury stock transactions

 —    —   —    (953,265) —    —   (953,265) —    —  
                        

December 31, 2005

 65,092,589  —   —    (1,091,771) —    —   64,000,818  —    —  

Conversion of class B stock to class A stock

 (154,181) —   —    154,181  —    —   —    —    —  

Issuance of class A common stock

 48,094  —   —    179,604  —    —   227,698  —    —  

Treasury stock transactions

 —    —   —    (190,081) —    —   (190,081) —    —  

Conversion of class A common stock to common stock

 (20,072,356) 20,072,356 —    —    —    —   (20,072,356) 20,072,356  —  

Conversion of class B common stock to common stock

 (44,914,146) 44,914,146 —    —    —    —   (44,914,146) 44,914,146  —  

Issuance of preferred series A stock

 —    —   —    —    —    12,604,918 —    —    12,604,918

Issuance of common stock

 —    52,395,080 —    —    (24,618) —   —    52,370,462  —  

Conversion of class A treasury stock to treasury shares

 —    —   —    141,400  (141,400) —   141,400  (141,400) —  

Conversion of class B treasury stock to treasury shares

 —    —   —    806,667  (806,667) —   806,667  (806,667) —  
                        

December 31, 2006

 —    117,381,582 —    —    (972,685) 12,604,918 —    116,408,897  12,604,918
                        

Issuance of common stock

 —    —   —    —    2,089,341  —   —    2,089,341  —  

Issuance of common stock to escrow agent in connection with Quellos Transaction

 —    1,191,785 (1,191,785) —    —    —   —    —    —  

PNC capital contribution

 —    —   —    —    (966,512) —   —    (966,512) —  

Treasury stock transactions

 —    —   —    —    (1,472,166) —   —    (1,472,166) —  
                        

December 31, 2007

 —    118,573,367 (1,191,785) —    (1,322,022) 12,604,918 —    116,059,560  12,604,918
                        

During the yearsfourth quarter of 2008, the Company reduced its workforce globally by approximately 9%. This action was the result of a cost cutting initiative designed to streamline operations, enhance competitiveness and better position the Company in the asset management marketplace. The Company recorded a pre-tax restructuring charge of approximately $38 million ($26 million after-tax) for the year ended December 31, 20072008. This charge was comprised of $34 million of severance and 2006,associated outplacement costs, $3 million of expenses related to the accelerated amortization of previously granted equity-based compensation awards, and $1 million of expenses related to legal services for the year ended December 31, 2008.

During 2009, the Company paid cash dividendscontinued to reduce its workforce globally. This action was the result of $2.68 per common/preferred shares, or $353,463,business reengineering efforts designed to streamline operations, enhance competitiveness and $1.68 per share, or $135,665, respectively.better position the Company in the asset management marketplace. The Company recorded a pre-tax restructuring charge of $22 million ($14 million after-tax) for the three months ended March 31, 2009. This charge was comprised of $15 million of severance and associated outplacement costs, $4 million of property costs associated with the lease payments for the remaining term in excess of the estimated sublease proceeds and $3 million of expenses related to the accelerated amortization of previously granted equity-based compensation awards.

The following table presents a rollforward of the Company’s restructuring liability, which is included within other liabilities on the Company’s consolidated statements of financial condition:

 

(Dollar amounts in millions)    

Liability as of December 31, 2007

  $—    

Additions

   38  

Cash payments

   (14

Accelerated amortization of equity-based awards

   (3
     

Liability as of December 31, 2008

   21  

Additions

   22  

Cash payments

   (34

Accelerated amortization of equity-based awards

   (3
     

Liability as of December 31, 2009

  $6  

Cash payments

   (4
     

Liability as of December 31, 2010

  $2  
     

F-66


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

 

17.Income Taxes

21. Income Taxes

The components of income taxestax expense for the years ended December 31, 2010, 2009 and 2008, are as follows:

 

  Year ended December 31,   Year ended
December 31,
 
  2007 2006 2005 
(Dollar amounts in millions)  2010 2009 2008 

Current income tax expense:

        

Federal

  $327,299  $183,835  $137,461   $708   $342   $396  

State and local

   47,771   22,199   16,986    60    36    49  

Foreign

   193,416   25,938   3,006    200    86    175  
                    

Total net current income tax expense

   568,486   231,972   157,453    968    464    620  
                    

Deferred income tax expense:

    

Deferred income tax expense (benefit):

    

Federal

   (38,329)  (25,528)  (17,715)   28    (7  (160

State and local

   (8,778)  (10,592)  (1,180)   10    (60  (21

Foreign

   (57,547)  (6,389)  —      (35  (22  (52
                    

Total net deferred income tax expense

   (104,654)  (42,509)  (18,895)

Total net deferred income tax expense (benefit)

   3    (89  (233
                    

Net current and deferred income tax expense

  $463,832  $189,463  $138,558 

Total income tax expense

  $971   $375   $387  
                    

Income tax expense has been based on the following components of income before taxes:taxes, less net income (loss) attributable to non-controlling interests:

 

  Year ended December 31,  Year ended
December 31,
 
  2007  2006  2005
(Dollar amounts in millions)  2010   2009   2008 

Domestic

  $735,682  $448,252  $362,882  $2,258    $899    $654  

Foreign

   723,422   63,813   9,584   776     351     517  
                     

Total

  $1,459,104  $512,065  $372,466  $3,034    $1,250    $1,171  
                     

BlackRock, Inc.

Notes to the Consolidated Financial Statements

21. Income Taxes (continued)

A reconciliation of income tax expense with expected federal income tax expense computed at the applicable federal income tax rate of 35% is as follows:

 

    Year ended December 31, 
   2007  %  2006  %  2005  % 

Statutory income tax expense

  $510,686  35.0% $179,223  35.0% $130,363  35.0%

Increase (decrease) in income taxes resulting from:

       

Change in deferred foreign taxes for tax rate changes

   (51,445) (3.5)  —    —     —    —   

Effect of foreign tax rates

   (35,990) (2.5)  4,770  0.9   (1,191) (0.3)

State and local taxes (net of federal benefit)

   38,993  2.7   16,204  3.2   10,275  2.7 

Change in deferred state and local taxes for tax rate changes

   —    —     (10,592) (2.1)  —    —   

Other

   1,588  0.1   (142) (0.0)  (889) (0.2)
                      

Income tax expense

  $463,832  31.8% $189,463  37.0% $138,558  37.2%
                      

F-67


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

17.Income Taxes (continued)

   Year ended December 31, 
(Dollar amounts in millions)  2010  %  2009  %  2008  % 

Statutory income tax expense

  $1,062    35 $438    35 $410    35

Increase (decrease) in income taxes resulting from:

       

State and local taxes (net of federal benefit)

   53    2    21    2    25    2  

Impact of foreign, state, and local tax rate changes on deferred taxes

   (27  (1  (45  (4  —      —    

Effect of foreign tax rates

   (145  (4  (81  (6  (37  (3

Other

   28    —      42    3    (11  (1
                         

Income tax expense

  $971    32 $375    30 $387    33
                         

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the Company’s consolidated financial statements. These temporary differences result in taxable or deductible amounts in future years.

The components of deferred income tax assets and liabilities are shown below:

 

    December 31, 
   2007  2006 

Deferred tax assets:

   

Compensation and benefits

  $147,245  $166,239 

Other

   85,381   12,723 
         

Gross deferred tax asset

   232,626   178,962 
         

Deferred tax liabilities:

   

Goodwill and acquired intangibles

   2,246,084   1,871,078 

Other

   37,403   31,867 
         

Gross deferred tax liability

   2,283,487   1,902,945 
         

Net deferred tax (liabilities) asset

  $(2,050,861) $(1,723,983)
         
   December 31, 
(Dollar amounts in millions)  2010  2009(1) 

Deferred income tax assets:

   

Compensation and benefits

  $374   $399  

Unrealized investment losses

   108    155  

Loss carryforwards

   67    40  

Other

   186    134  
         

Gross deferred tax assets

   735    728  

Less: deferred tax valuation allowances

   (78  (71
         

Deferred tax assets net of valuation allowances

   657    657  
         

Deferred income tax liabilities:

   

Goodwill and acquired indefinite-lived intangibles

   5,813    5,829  

Acquired finite-lived intangibles

   271    325  

Other

   40    53  
         

Gross deferred tax liabilities

   6,124    6,207  
         

Net deferred tax (liabilities)

  ($5,467 ($5,550
         

(1)

Certain line items on the consolidated statement of financial condition, including deferred tax assets and deferred tax liabilities, have been retrospectively adjusted as of December 31, 2009 to reflect new information obtained about facts that existed as of December 1, 2009, the BGI acquisition date.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

21. Income Taxes (continued)

Deferred income tax assets and liabilities are recorded net when related to the same tax jurisdiction. At December 31, 2007,2010, the Company recorded on the consolidated statement of financial condition deferred income tax assets, within other assets, and deferred income tax liabilities of $9,119$10 million and $2,059,980,$5,477 million, respectively. At December 31, 2006,2009, the Company recorded $14,687on the consolidated statement of financial condition deferred income tax assets, within other assets, and $1,738,670deferred income tax liabilities of deferred tax liabilities.$21 million and $5,571 million, respectively.

DuringThe United Kingdom in the third quarter of 2007,2010 and New York City in the United Kingdom and Germanythird quarter of 2009 enacted legislation to reducereducing corporate income tax rates, effectivewhich resulted in April and January 2008, respectively. As a result, the Company revalued its deferred tax liabilities attributable to these jurisdictions and recorded a one-timerevaluation of certain net deferred income tax liabilities primarily related to acquired intangible assets, which resulted in a $30 million and a $45 million tax benefit, of $51,445 in 2007.respectively.

The change inCompany had a deferred income tax asset related to unrealized investment losses of approximately $108 million and $155 million as of December 31, 2010 and 2009, respectively, reflecting the Company’s conclusion that based on the weight of available evidence, it is more likely than not that the deferred tax liabilityasset will be realized. During 2008, the Company incurred investment losses of $573 million primarily related to goodwillunrealized losses on investments. Substantially all of the investment losses relate to investments held by subsidiaries in the United States. After the allocation of net loss attributable to non-controlling interests of $155 million, the net loss on investments was $418 million. A portion of the net loss is expected to be ordinary if recognized and, as result, will not be subject to any limitations. Realized capital losses may be carried back three years and carried forward five years and offset against realized capital gains for federal income tax purposes. The Company expects to be able to carry back a portion of its unrealized capital losses when realized, hold certain fixed income securities over a period sufficient for them to recover their unrealized losses, and to generate future capital gains sufficient to offset the unrealized capital losses.

At December 31, 2010 and 2009, the Company had available state net operating loss carry forwards of $182 million and $568 million, respectively, which will expire on or before 2032. As of December 31, 2010, the Company had a foreign net operating loss carryforwards of $84 million of which $42 million expires on or before 2017 and the balance will carry forward indefinitely. In addition, at December 31, 2010 and 2009, the Company had U.S. capital loss carryforwards of $90 million which were acquired intangibles during 2007 relates in part to the QuellosBGI Transaction and will expire on or before 2013.

At December 31, 2010 and 2009, the Company had $78 million and $71 million of valuation allowances for deferred income tax assets, respectively, recorded on the consolidated statements of financial condition. The year over year increase in partthe valuation allowance primarily related to purchase price adjustments recorded for the Company’s acquisition of MLIM. Deferredcertain foreign deferred income tax liabilities of $281,104 were recorded for book tax differences in goodwill and intangibles associated with the Quellos business. Additional deferred tax liabilities of $176,825 were also recorded during 2007 as purchase price adjustments relating to MLIM.assets.

Goodwill recorded in connection with the Quellos Transaction has been reduced during the period by the amount of tax benefit realized from tax-deductible goodwill. (SeeSee Note 8)11, Goodwill, for further discussion.

At December 31, 2007, the Company had $15,200 of deferred tax assets recorded in the consolidated statements of financial condition for state and foreign tax net operating losses and tax credits. These deferred tax assets were fully offset by a $15,200 valuation allowance.

F-68


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

 

17.Income Taxes (continued)

21. Income Taxes (continued)

 

Current income taxes are recorded net in the consolidated statements of financial condition when related to the same tax jurisdiction. TheAs of December 31, 2010, the Company had current income taxes receivable and payable of $47,078$57 million and $228,402,$157 million, respectively, as of December 31, 2007 recorded in other assets and accounts payable and accrued liabilities, respectively. AtAs of December 31, 2006,2009, the Company recordedhad current income taxes receivable of $42,068 and current income taxes payable of $171,378.$292 million and $86 million, respectively, recorded in other assets and accounts payable and accrued liabilities, respectively.

The Company records a portiondoes not provide deferred taxes on the excess of the financial reporting over tax benefits related to stock-based compensation to additional paid-in capital. For the years endedbasis on its investments in foreign subsidiaries that are essentially permanent in duration. The excess totaled $1,297 million and $778 million as of December 31, 2007, 20062010 and 2005,2009, respectively. The determination of the Company increased additional paid-in capital for these tax benefits by $118,574, $4,852 and $4,967, respectively.

Underdeferred income taxes on the provisions of APB No. 23,Accounting for Income Taxes, the Companyexcess has not recorded a provision forbeen provided because it is not practicable due to the residual U.S. income taxes and foreign withholding taxes that would occur upon repatriation of previously undistributed foreign earnings that are considered permanently reinvested. At December 31, 2007, the amount of undistributed foreign earnings was approximately $528,000. A determination of unrecognized deferred tax liabilitycomplexities associated with unrepatriated foreign earnings is not practicable.its hypothetical calculation.

BlackRock adopted the provisions of FIN No. 48,Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result ofPursuant to the adoption of FIN 48, the Company recognized approximately $15,200 in increased income tax reservesASC 740-10 related to uncertainuncertainty in income taxes, see the following tabular reconciliation which presents the total amounts of gross unrecognized tax positions. Approximately $13,600benefits:

   Year ended
December 31,
 
(Dollar amounts in millions)  2010  2009  2008 

Balance at January 1

  $285   $114   $66  

Additions for tax positions of prior years

   10    11    12  

Reductions for tax positions of prior years

   (17  (1  (2

Additions based on tax positions related to current year

   35    63    42  

Lapse of statute of limitations

   (8  —      —    

Settlements

   (2  (16  (7

Foreign exchange translation

   —      (3  3  

Positions assumed in BGI Transaction

   4    117    —    
             

Balance at December 31

  $307   $285   $114  
             

Included in the balance of this increase related to taxes that would affect the effective tax rate if recognized, and this portion was accounted for as a reduction to the January 1, 2007 balance in retained earnings. The remaining $1,600 balance, if disallowed, would not affect the annual effective tax rate. Total gross unrecognized tax benefits at January 1, 2007 were approximately $52,100. The total amountDecember 31, 2010, 2009 and 2008, respectively, are $194 million, $184 million and $60 million of unrecognized tax benefits that, if recognized, would have affected the effective tax rate at January 1, 2007, was approximately $25,700.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2007 is as follows:

Balance at January 1, 2007

  $52,100 

Additions for tax positions of prior years

   1,238 

Reductions for tax positions of prior years

   (10,980)

Additions based on tax positions related to the current year

   24,440 

Lapse of statute of limitations

   (475)
     

Balance at December 31, 2007

  $66,323 
     

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2007 was approximately $40,601.rate.

The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. Potential interest expense of $1,727, relatedRelated to thesethe unrecognized tax benefits wasnoted above, the Company accrued interest and penalties of $8 million during 2007,2010 and in total, atas of December 31, 2007,2010, has recognized a liability for interest and penalties of $56 million. During 2009, the Company accrued interest and penalties of $8 million and in total, as of December 31, 2009, has recognized a liability for interest and penalties of $48 million, of which $28 million was assumed in the BGI Transaction. During 2008, the Company accrued interest and penalties of $5 million and in total, as of December 31, 2008, had recognized a liability for interest and penalties of $11 million.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

21. Income Taxes (continued)

Pursuant to the Amended and Restated Stock Purchase Agreement, the Company has recorded a liabilitybeen indemnified by Barclays for potential interest$69 million of $6,327. The Company has not accrued any tax-related penalties.unrecognized tax benefits.

BlackRock is subject to U.S. federal income tax as well as income tax in multiple jurisdictions. The tax years after 20032005 remain open to U.S. federal, state and local income tax examination, and the tax years after 20042006 remain open to income tax examination in the United Kingdom. PriorWith few exceptions, as of December 31, 2010, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2006. The Internal Revenue Service (“IRS”) is currently examining the closing of the MLIM Transaction, BlackRock filed New York StateCompany’s 2006 and New York City income tax returns on a combined basis with PNC and the2007 tax years after 2001 remain openand management expects that examination to income tax examinationconclude during 2011. In February 2011, the Company received a notice of proposed adjustments from the IRS. Management does not anticipate that its resolution would result in New York State and New York City.a material change to its consolidated financial statements. The Company however, is currently under audit in several state and foreign jurisdictions.

As of December 31, 2010, it is reasonably possible the total amounts of unrecognized tax benefits will increase or decrease within the next twelve months due to completion of tax authorities’ exams or the expiration of statues of limitations. Management estimates that the existing liability for uncertain tax positions could decrease by approximately $15 million to $25 million within the next twelve months. The Company does not anticipate that any possible adjustments resulting from these audits would result in a material change to its consolidated financial position.statements.

F-69


Prior to September 29, 2006, BlackRock Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

17.Income Taxes (continued)

As of December 31, 2007, it is reasonably possible the total amounts of unrecognized tax benefits will significantly decrease within the next twelve months. PNC has entered into a closing agreement with the Internal Revenue Service regarding its federal income tax returns. As part of that agreement, thehad filed selected state and localmunicipal income tax returns filedwith one or more PNC subsidiaries on a combined or unitary basis. When BlackRock was included in a group’s combined or unitary state or municipal income tax filing with PNC will be amended to report these changes. The Company anticipates that it is reasonably possible that its portionsubsidiaries, BlackRock’s share of the payments,liability generally was an allocation to BlackRock of a percentage of the total tax liability based upon BlackRock’s level of activity in the range of $5,000 to $6,000, will be made by the end of 2008 related to these amended tax returns.

such state or municipality. PNC and BlackRock have entered into a tax disaffiliation agreement that sets forth each party’s rights and obligations with respect to income tax payments and refunds and addresses related matters such as the filing of tax returns and the conduct of audits or other proceedings involving claims made by taxing authorities. As such, the Company may be responsible for its pro rata share of tax positions taken by PNC for unaudited tax years which may be subsequently challenged by taxing authorities. Management does not anticipate that any such amounts would be material to the Company’s operations, financial position or cash flows.

For the years ended December 31, 2006 and 2005, BlackRock has filed, and will file for the year ended December 31, 2007, its own consolidated federal income tax return. BlackRock has filed selected state and municipal income tax returns with one or more PNC subsidiaries on a combined or unitary basis for the year ended December 31, 2005, and filed selected state and municipal income tax returns with one or more PNC subsidiaries on a combined or unitary basis for the period from January 1, 2006 though September 29, 2006. Other state and municipal income tax returns for the year ended December 31, 2005, have been filed separately. BlackRock has not filed state or municipal income tax returns with PNC subsidiaries on a combined or unitary basis for periods after September 29, 2006.

When BlackRock was included in a group’s combined or unitary state or municipal income tax filing with PNC subsidiaries, BlackRock’s share of the liability generally was an allocation to BlackRock of a percentage of the total tax liability based upon BlackRock’s level of activity in such state or municipality.

F-70


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

 

18.Earnings Per Share

22. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:EPS:

 

    Year ended December 31,
   2007  2006  2005

Net income

  $995,272  $322,602  $233,908
            

Basic weighted-average shares outstanding

   128,488,561   80,638,167   64,182,766

Dilutive potential shares from stock options and restricted stock units

   2,447,727   2,207,139   2,692,383

Dilutive potential shares from convertible debt

   1,033,789   513,088   —  

Dilutive potential shares from acquisition-related contingent stock payments

   118,733   —     —  
            

Dilutive weighted-average shares outstanding

   132,088,810   83,358,394   66,875,149
            

Basic earnings per share

  $7.75  $4.00  $3.64
            

Diluted earnings per share

  $7.53  $3.87  $3.50
            
   Year ended
December 31,
 
(Dollar amounts in millions, except per share data)  2010  2009  2008 

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784  

Less:

    

Dividends distributed to common shares

   764    412    406  

Dividends distributed to participating RSUs

   12    10    13  
             

Undistributed net income attributable to BlackRock, Inc.

   1,287    453    365  

Percentage of undistributed net income allocated to common shares(a)

   98.6  97.3  96.6
             

Undistributed net income allocated to common shares

   1,269    441    353  

Plus:

    

Common share dividends

   764    412    406  
             

Net income attributable to common shares

  $2,033   $853   $759  
             

Weighted-average shares outstanding

   190,554,510    136,669,164    129,543,443  

Basic earnings per share attributable to BlackRock, Inc., common stockholders:

  $10.67   $6.24   $5.86  

BlackRock, Inc.

Notes to the Consolidated Financial Statements

22. Earnings Per Common Share (continued)

The following table sets forth the computation of diluted EPS:

   Year ended
December 31,
 
(Dollar amounts in millions, except per share data)  2010  2009  2008 

Net income attributable to BlackRock, Inc.

  $2,063   $875   $784  

Less:

    

Dividends distributed to common shares

   764    412    406  

Dividends distributed to participating RSUs

   12    10    13  
             

Undistributed net income attributable to BlackRock, Inc.

   1,287    453    365  

Percentage of undistributed net income allocated to common shares(a)

   98.6  97.3  96.6
             

Undistributed net income allocated to common shares

   1,269    441    353  

Plus:

    

Common share dividends

   764    412    406  
             

Net income attributable to common shares

  $2,033   $853   $759  
             

Weighted-average common shares outstanding

   190,554,510    136,669,164    129,543,443  

Dilutive effect of:

    

Stock options and non-participating RSUs

   1,751,487    1,519,570    1,172,081  

Convertible debt

   386,050    1,292,715    254,284  

Acquisition-related contingent stock payments

   —      —      406,709  
             

Total diluted weighted-average shares outstanding

   192,692,047    139,481,449    131,376,517  
             

Dilutive earnings per share attributable to BlackRock, Inc., common stockholders:

  $10.55   $6.11   $5.78  

(a)Allocation to common shareholders is based on the total of common and participating security shareholders (which represent unvested RSUs that contain nonforfeitable rights to dividends). At December 31, 2010, 2009 and 2008, outstanding participating securities were 2.8 million, 3.8 million and 4.5 million, respectively.

Basic EPS is calculated pursuant to the two-class method to determine income attributable to common shareholders. Basic EPS is calculated by dividing net distributed and undistributed earnings allocated to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includes the determinants of basic EPS and in addition, reflects the impact of other potentially dilutive shares, including RSU awards that do not contain nonforfeitable rights to dividends, unexercised stock options and convertible debentures. The dilutive effect of participating securities is calculated under the more dilutive of either the treasury method or the two-class method.

Due to the similarities in terms between BlackRock series A, B, C and D non-voting participating preferred stock and the Company’s common stock, the Company considers the series A, B, C and D non-voting participating preferred stock to be a common stock equivalent for purposes of earnings per shareEPS calculations. As such, the Company has included the outstanding series A, B, C and D non-voting participating preferred stock and dividends paid for these series in the calculation of average basic and diluted shares outstanding for the years ended December 31, 20072010, 2009 and 2006.2008.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

22. Earnings Per Common Share (continued)

For the year ended December 31, 2007, 1,545,7352010, 1,198,856 RSUs were excluded from the calculation of diluted EPS because to include them would have an anti-dilutive effect. For the years ended December 31, 2009 and 2008, 1,240,998 and 1,336,911 stock options, respectively, were excluded from the calculation of diluted earnings per share because to include them would have an anti-dilutive effect.

Shares issued in acquisitionQuellos Transaction

On October 1, 2007, the Company acquired the fund of funds business of Quellos (See Note 3).Quellos. The Company issued 1,191,785 shares of newly-issued BlackRock common stock which is being held inthat were placed into an escrow account. In total, 1,188,182 common shares were released to Quellos between April 2008 and October 2010 and became dilutive subsequent to the respective release dates. The remaining 3,603 common shares issued have no dilutive effect for 2007, however willmay have a dilutive effect in future periods based on the timing of the release of shares from the escrow account in accordance with the Quellos Asset Purchase Agreement.asset purchase agreement.

F-71


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)

 

19.Segment Information

23. Segment Information

The Company’s management directs BlackRock’s operations as one business, the asset management business. As such, the Company believes it operates in one business segment in accordance with SFAS No. 131,Disclosures About Segments of an Enterprise and Related Information.ASC 280-10.

The following table illustrates investment advisory, administration fees, securities lending revenue and administration base feeperformance fees,BlackRock Solutions and advisory, distribution fees and other revenue by asset class for the years ended December 31, 2007, 20062010, 2009 and 2005, respectively.2008.

 

    Year ended December 31,
(Dollar amounts in thousands)  2007  2006  2005

Investment advisory and administration fees:

      

Fixed income

  $917,390  $590,225  $453,742

Equity and balanced

   2,202,076   625,390   176,278

Cash management

   519,733   202,515   105,406

Alternative investments

   370,862   180,611   114,952
            

Total investment advisory and administration base fees

  $4,010,061  $1,598,741  $850,378
            
(Dollar amounts in millions)  Year ended
December 31,
 
   2010   2009   2008 

Equity

  $4,055    $1,468    $1,701  

Fixed income

   1,531     921     879  

Multi-asset class

   773     499     527  

Alternatives

   961     515     619  

Cash management

   510     625     708  
               

Total investment advisory, administration fees, securities lending revenue and performance fees

   7,830     4,028     4,434  

BlackRock Solutions and advisory

   460     477     393  

Distribution fees

   116     100     139  

Other revenue

   206     95     98  
               

Total revenue

  $8,612    $4,700    $5,064  
               

The following chart showstable illustrates the Company’s revenues and long-lived assets, including goodwill and property and equipmenttotal revenue for the years ended December 2007, 20062010, 2009 and 2005.2008 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect in all cases, where the customer is sourced orresides.

(Dollar amounts in millions)

Revenue

  2010   % of
Total
  2009   % of
Total
  2008   % of
Total
 

Americas

  $5,824     67 $3,309     70 $3,438     68

Europe

   2,300     27  1,179     25  1,360     27

Asia-Pacific

   488     6  212     5  266     5
                            

Total revenue

  $8,612     100 $4,700     100 $5,064     100
                            

The following table illustrates the Company’s long-lived assets, including goodwill and property and equipment at December 31, 2010, 2009 and 2008 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.

 

Revenues (in millions)

  2007  % of
total
 2006  % of
total
 2005  % of
total
 

North America

  $3,069.3  63.4% $1,715.2  81.7% $1,157.7  97.2%

Europe

   1,536.9  31.7%  320.9  15.3%  24.4  2.0%

Asia-Pacific

   238.5  4.9%  61.9  3.0%  9.3  0.8%
                   

Total revenues

  $4,844.7  100% $2,098.0  100.0% $1,191.4  100%
                   

Long-Lived Assets (in millions)

          

North America

  $5,695.2  98.4% $5,408.1  98.8% $316.6  99.2%

(Dollar amounts in millions)

Long-lived Assets

  2010   % of
Total
 2009   % of
Total
 2008   % of
Total
 

Americas

  $13,092     99 $12,983     99 $5,714     99

Europe

   34.6  0.6%  30.1  0.6%  2.1  0.7%   42     —    46     —    27     —  

Asia-Pacific

   56.4  1.0%  33.6  0.6%  0.6  0.1%   99     1  94     1  52     1
                                         

Total long-lived assets

  $5,786.2  100.0% $5,471.8  100.0% $319.3  100.0%  $13,233     100 $13,123     100 $5,793     100
                                         

Revenue and Long-lived assets in North America areAmericas primarily is comprised of the United States, Canada, Brazil and Mexico, while Europe and Asia-Pacific are primarily is comprised of the United Kingdom and Asia-Pacific primarily is comprised of Japan, respectively.Australia and Hong Kong.

F-72


BlackRock, Inc.

Notes to the Consolidated Financial Statements

(Dollar amounts in thousands, except share data or as otherwise noted)24. Selected Quarterly Financial Data (unaudited)

 

20.Selected Quarterly Financial Data (unaudited)

(Dollar amounts in millions, except per share data)

2010

  1st Quarter   2nd Quarter   3rd Quarter   4th Quarter 

Revenue

  $1,995    $2,032    $2,092    $2,493  

Operating income

  $654    $697    $707    $940  

Net income

  $428    $389    $584    $649  

Net income attributable to BlackRock, Inc.

  $423    $432    $551    $657  

Earnings per share attributable to BlackRock, Inc. common stockholders:

        

Basic

  $2.20    $2.23    $2.85    $3.39  

Diluted

  $2.17    $2.21    $2.83    $3.35  

Weighted-average common shares outstanding:

        

Basic

   189,676,023     190,975,161     190,494,905     191,057,374  

Diluted

   192,152,251     192,569,539     192,326,841     193,478,460  

Dividend Declared Per Share

  $1.00    $1.00    $1.00    $1.00  

Common stock price per share:

        

High

  $243.80    $212.27    $172.87    $193.74  

Low

  $200.56    $143.01    $138.42    $161.53  

Close

  $217.76    $143.40    $170.25    $190.58  

2009

  1st Quarter   2nd Quarter   3rd Quarter   4th Quarter 

Revenue

  $987    $1,029    $1,140    $1,544  

Operating income

  $271    $261    $357    $389  

Net income

  $62    $244    $334    $257  

Net income attributable to BlackRock, Inc.

  $84    $218    $317    $256  

Earnings per share attributable to BlackRock, Inc. common stockholders:

        

Basic

  $0.63    $1.62    $2.31    $1.65  

Diluted

  $0.62    $1.59    $2.27    $1.62  

Weighted-average common shares outstanding:

        

Basic

   130,216,218     130,928,926     133,266,379     152,062,468  

Diluted

   131,797,189     133,364,611     135,902,241     155,040,242  

Dividend Declared Per Share

  $0.78    $0.78    $0.78    $0.78  

Common stock price per share:

        

High

  $143.32    $183.80    $220.17    $241.66  

Low

  $88.91    $119.12    $159.45    $206.00  

Close

  $130.04    $175.42    $216.82    $232.20  

 

    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter

2007

            

Revenue

  $1,005,374  $1,097,023  $1,298,079  $1,444,179

Operating income

  $272,229  $282,001  $271,718  $467,716

Net income

  $195,389  $222,244  $255,200  $322,439

Earnings per share:

        

Basic

  $1.52  $1.73  $1.99  $2.51

Diluted

  $1.48  $1.69  $1.94  $2.43

Weighted-average shares outstanding:

        

Basic

   128,809,726   128,544,894   128,161,027   128,449,943

Diluted

   131,895,570   131,383,470   131,316,455   132,578,679

Dividend Declared Per Share

  $0.67  $0.67  $0.67  $0.67

Common stock price per share:

        

High

  $180.30  $162.83  $179.97  $224.54

Low

  $151.32  $143.69  $139.20  $172.18

Close

  $156.31  $156.59  $173.41  $216.80

2006

            

Revenue

  $395,660  $360,733  $323,058  $1,018,525

Operating income

  $100,027  $96,683  $29,008  $246,082

Net income

  $70,862  $63,404  $18,914  $169,422

Earnings per share:

        

Basic

  $1.11  $0.99  $0.29  $1.31

Diluted

  $1.06  $0.95  $0.28  $1.28

Weighted-average shares outstanding:

        

Basic

   64,074,888   64,136,378   64,761,447   129,040,518

Diluted

   66,731,560   66,653,479   67,477,536   131,853,835

Dividend Declared Per Share

  $0.42  $0.42  $0.42  $0.42

Common stock price per share:

        

High

  $161.49  $159.36  $152.34  $158.50

Low

  $105.74  $120.69  $123.04  $140.72

Close

  $140.00  $139.17  $149.00  $151.90

The first quarter of 2009 included the impact of a $22 million pre-tax expense related to restructuring charges.

 

Increases in the 4th quarter of 2006 reflect the impact of the MLIM Transaction.

The second, third and fourth quarters of 2009 included $15 million, $16 million and $152 million of pre-tax BGI transaction and integration costs, respectively.

 

The fourth quarter of 2009 included incremental revenue and expenses related to the operations of BGI in December 2009, and subsequent quarters in 2010 included the full effect of the operations of BGI.

The third quarter of 2010 and 2009 included a $30 million and $45 million tax benefit related to United Kingdom and New York City income tax law changes, respectively.

The first, second and third quarters of 2010 included $52 million, $32 million and $6 million of pre-tax BGI integration costs, respectively.

BlackRock, Inc.

Notes to the Consolidated Financial Statements

The 3rd quarter of 2007 includes the impact of a $128,114 pre-tax expense related to the termination of administration and servicing arrangements with Merrill Lynch and a $51,445 tax benefit resulting from a decrease in deferred income taxes due to enacted legislation during the quarter reducing corporate income taxes in the United Kingdom and Germany.

 

F-73

25. Subsequent Events


Additional Subsequent Event Review

In addition to the subsequent events included in the notes to the consolidated financial statements, the Company conducted a review for additional subsequent events and determined that no additional subsequent events had occurred that would require accrual or additional disclosures.

EXHIBIT INDEX

Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about BlackRock or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.

ExhibitNo.Description

 

Exhibit No.

 

Description

  2.1(1)Transaction Agreement and Plan of Merger, dated as of February 15, 2006, by and among Merrill Lynch & Co., Inc., BlackRock, Boise Merger Sub, Inc. and Old BlackRock.
    3.1(2)3.1(1) Amended and Restated Certificate of Incorporation of BlackRock.
    3.2(2)3.2(1) Amended and Restated Bylaws of BlackRock.
    3.3(2)3.3(1) Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.
    4.1(3)3.4(2)Certificate of Designations of Series B Convertible Participating Preferred Stock of BlackRock.
    3.5(2)Certificate of Designations of Series C Convertible Participating Preferred Stock of BlackRock.
    3.6(3)Certificate of Designations of Series D Convertible Participating Preferred Stock of BlackRock.
    4.1(4) Specimen of Common Stock Certificate.
    4.2(4)4.2(5) Indenture, dated as of February 23, 2005, between Old BlackRock and The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as trustee, relating to the 2.625% Convertible Debentures due 2035.
    4.3(4)4.3(5) Form of 2.625% Convertible DebentureDebentures due 2035 (included as Exhibit A in Exhibit 4.2).
    4.4(2)4.4(1) First Supplemental Indenture, dated September 29, 2006, relating to the 2.625% Convertible Debentures due 2035.
    4.5(5)4.5(6) Indenture, dated September 17, 2007, between BlackRock and The Bank of New York, as trustee, relating to senior debt securities.
    4.6(6)4.6(7) Form of 6.25% Notes due 2017.
10.1(7)    4.7(8)Form of 2.25% Notes due 2012.
    4.8(8)Form of 3.50% Notes due 2014.
    4.9(8)Form of 5.00% Notes due 2019.
  10.1(9) Tax Disaffiliation Agreement, dated October 6, 1999, among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc., formerly PNC Bank Corp.
10.2(3)  10.2(10) BlackRock, Inc. Amended and Restated 1999 Stock Award and Incentive Plan.+
10.3(3)  10.3(11)Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan. +
  10.4(12) Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Stock Award andAnnual Incentive Performance Plan.+
10.4(3)Amendment No. 2 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.5(3)Amendment No. 3 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.6(3)Amendment No. 4 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.7(3)BlackRock, Inc. 2002 Long-Term Retention and Incentive Program.+
10.8(3)Amendment No. 1 to 2002 Long-Term Retention and Incentive Program.+
10.9(3)Amendment No. 2 to 2002 Long-Term Retention and Incentive Program.+
10.10(3)BlackRock, Inc. Nonemployee Directors Stock Compensation Plan.+
10.11(3)  10.5(4) BlackRock, Inc. Voluntary Deferred Compensation Plan.Plan, as amended and restated as of January 1, 2005.+


EXHIBIT INDEX (continued)

 

10.12(3)

Exhibit No.

 BlackRock, Inc. Involuntary Deferred Compensation Plan.+

Description

10.13(2)  10.6(1) Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.14(2)  10.7(1) Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted Stock under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.15(2)  10.8(13) Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.16(2)  10.9(13)Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units for long-term incentive awards under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
  10.10(1) Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+
10.17(8)BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan.+
10.18(9)Amendment No. 1 to the BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan.+
10.19(2)  10.11(1) Registration Rights Agreement, dated as of September 29, 2006, among BlackRock, Merrill Lynch & Co., Inc. and the PNC Financial Service Group, Inc.
10.20(10)Agreement of Lease, dated May 3, 2000, between 40 East 52nd Street L.P. and Old BlackRock.
10.21(11)Agreement of Lease, dated September 4, 2001, between 40 East 52nd Street L.P. and Old BlackRock.
10.22(12)  10.12(14) Share Surrender Agreement, dated October 10, 2002 (the “Share Surrender Agreement”), among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.+
10.23(1)  10.13(15) First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement, dated as of October 10, 2002, among PNC Bancorp, Inc., The PNC Financial Services Group, Inc. and Old BlackRock.Agreement.+
10.24(13)  10.14(16) Second Amendment, dated as of June 11, 2007, to the Share Surrender Agreement, dated October 10, 2002, among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.Agreement.+
10.25(14)  10.15(2) Amended and Restated, BlackRock, Inc. 1999 Annual Incentive Performance Plan. Third Amendment, dated as of February 27, 2009, to the Share Surrender Agreement.+
10.26(15)Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Annual Incentive Performance Plan+
10.27(16)Agreement of Lease, dated July 29, 2004, between Park Avenue Plaza Company L.P. and Old BlackRock.
10.28(16)Letter Agreement, dated July 29, 2004, amending the Agreement of Lease between Park Avenue Plaza Company L.P. and Old BlackRock.


EXHIBIT INDEX (continued)

10.29(17)Stock Purchase Agreement among MetLife, Inc., Metropolitan Life Insurance Company, SSRM Holdings, Inc. Old BlackRock and BlackRock Financial Management, Inc., dated August 25, 2004.
10.30(4)Registration Rights Agreement, dated as of February 23, 2005, between Old BlackRock and Morgan Stanley & Co. Incorporated, as representative of the initial purchasers named therein, relating to the 2.625% Convertible Debentures due 2035.
10.31(1)Implementation and Stockholder Agreement, dated as of February 15, 2006, among The PNC Financial Services Group, Inc., BlackRock and Old BlackRock.
10.32(1)Stockholder Agreement, dated as of February 15, 2006, between Merrill Lynch & Co., Inc. and BlackRock.
10.33(18)Global Distribution Agreement, dated as of September 29, 2006, by and between BlackRock and Merrill Lynch & Co., Inc.
10.34(18)  10.16(17) Transition Services Agreement, dated as of September 29, 2006, by and between Merrill Lynch & Co., Inc. and BlackRock.
10.35(19)  10.17(18) Asset Purchase Agreement, dated as of June 26, 2007, by and among BlackRock, Inc., BAA Holdings, LLC and Quellos Holdings, LLC.
10.36(20)  10.18(19) Five-Year Revolving Credit Agreement, dated as of August 22, 2007, by and among BlackRock, Inc., Wachovia Bank, National Association, as administrative agent, swingline lender and issuing lender, Sumitomo Mitsui Banking Corporation, as Japanese Yen lender, a group of lenders, Wachovia Capital Markets, LLC and Citigroup Global Markets Inc., as joint lead arrangers and joint book managers, Citigroup Global Markets Inc., as syndication agent, and HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., and Morgan Stanley Bank, as documentation agents.
  10.19(20)Second Amended and Restated Global Distribution Agreement, dated as of November 15, 2010, among BlackRock, Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
  10.20(2)Amended and Restated Implementation and Stockholder Agreement, dated as of February 27, 2009, between The PNC Financial Services Group, Inc. and BlackRock.
  10.21(21)Amendment No. 1, dated as of June 11, 2009, to the Amended and Restated Implementation and Stockholder Agreement between The PNC Financial Services Group, Inc. and BlackRock.


EXHIBIT INDEX (continued)

Exhibit No.

Description

  10.22Third Amended and Restated Stockholder Agreement, dated as of November 15, 2010, among BlackRock, Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc.
  10.23(22)Stock Purchase Agreement, dated as of June 11, 2009, between The PNC Financial Services Group, Inc. and BlackRock.
  10.24(23)Commercial Paper Dealer Agreement between BlackRock and Barclays Capital Inc., dated as of October 14, 2009.
  10.25(3)Amended and Restated Stock Purchase Agreement, dated as of June 16, 2009, by and among Barclays Bank PLC, Barclays PLC (solely for the purposes of Section 6.16, Section 6.18 and Section 6.24) and BlackRock.
  10.26(3)Stockholder Agreement, dated as of December 1, 2009, by and among BlackRock, Barclays Bank PLC and Barclays BRHoldings S.à.r.l.
  10.27(3)Registration Rights Agreement, dated as of December 1, 2009, by and among BlackRock, Barclays Bank PLC and Barclays BRHoldings S.à.r.l.
  10.28(24)Lease Agreement, dated as of February 17, 2010, among BlackRock Investment Management (UK) Limited and Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers Gardens Unit Trust for the lease of Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United Kingdom.
12.1 Computation of Ratio of Earnings to Fixed Charges.
  21.1Subsidiaries of Registrant.
23.1 Deloitte & Touche LLP ConsentConsent.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

 

(1)Incorporated by Referencereference to OldBlackRock’s Current Report on Form 8-K filed on October 5, 2006.
(2)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 22, 200627, 2009.
(2)(3)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2006.December 3, 2009.
(3)(4)Incorporated by Referencereference to BlackRock’s Registration Statement on Form S-8 (Registration No. 333-137708) filed with the Securities and Exchange Commission on September 29, 20062006.
(4)(5)Incorporated by Referencereference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2004.
(5)(6)Filed herewith.Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2007.


EXHIBIT INDEX (continued)

(6)(7)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on September 17, 2007.
(7)(8)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed on December 10, 2009.
(9)Incorporated by reference to Old BlackRock’s Registration Statement on Form S-1 (Registration No. 333-78367), as amended, originally filed with the Securities and Exchange Commission on May 13, 1999.
(8)(10)Incorporated by Referencereference to Old BlackRock’s Registration Statement on Form S-8 (Registration No. 333-32406), originally filed with the Securities and Exchange Commission on March 14, 2000.


EXHIBIT INDEX (continued)

(9)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q filed for the quarter ended SeptemberJune 30, 2000.
(10)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended March 31, 2000.2010.
(11)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001.
(12)Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2002.
(13)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(14)Incorporated by Reference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2002.
(15)(12)Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on May 24, 2006.
(16)(13)Incorporated by Referencereference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2008.
(14)Incorporated by reference to Old BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended JuneSeptember 30, 2004.2002.
(17)(15)Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on August 30, 2004.February 22, 2006.
(18)(16)Incorporated by Referencereference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(17)Incorporated by reference to BlackRock’s Registration Statement on Form S-4, as amended, originally filed with the Securities and Exchange Commission on June 9, 2006.
(19)(18)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on July 2, 2007.
(20)(19)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on August 27, 2007.
(20)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on November 17, 2010.
(21)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 17, 2009.
(22)Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2009.
(23)Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 20, 2009.
(24)Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2009.
+Denotes compensatory plans or arrangements