SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ______________
Commission File No. 001-15305
BlackRock, Inc.
---------------
(Exact name of Registrant as specified in its charter)
Delaware 51-038-0803
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of principal executive offices)
212-754-5560
------------
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
- ------------------------------ ---------------------------
Class A Common Stock, $.01 New York Stock Exchange
par value
Securities registered pursuant to Section 12 (g) of the Act:
None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in the Proxy Statement incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting common stock held by non-
affiliates of BlackRock as of February 28, 2001, is approximately $435,511,722.
There is no non-voting common stock of the registrant outstanding.
1
As of February 28, 2001, there were 10,071,400 shares of the Registrant's
class A common stock issued and outstanding and 54,156,524 shares of the
Registrant's class B common stock issued and outstanding.
The following documents are incorporated by reference herein:
Portions of the definitive Proxy Statement of BlackRock, Inc., for the annual
meeting of stockholders to be held on May 2, 2001 ("Proxy Statement") are
incorporated by reference into Part III of this Form 10-K. The incorporation by
reference herein of portions of the Proxy Statement shall not be deemed to
specifically incorporate by reference the information referred to in Item 402(a)
(8) and (9) of Regulation S-K.
2
PART I
Item 1 Business 4
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to Vote of Security Holders 14
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures About Market Risk 28
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28
Part III
Item 10 Directors and Executive Officers of the Registrant 29
Item 11 Executive Compensation 29
Item 12 Security Ownership of Certain Beneficial Owners and Management 29
Item 13 Certain Relationships and Related Transactions 29
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 30
3
Item 1. BUSINESS
Overview
BlackRock, Inc., a Delaware corporation formed in 1998 (together with its
subsidiaries "BlackRock" or the "Company"), is one of the largest investment
management firms in the United States, with $204 billion of assets under
management at year-end for institutional and individual investors worldwide.
Our products span a broad spectrum of fixed income, liquidity and equity
separate accounts and mutual funds, including our BlackRock Funds and BlackRock
Provident Institutional Funds families. We also offer risk management and
investment technology services to institutional investors through our newly
launched BlackRock Solutions product line. At year-end, these services were
provided with respect to more than $1.3 trillion of our clients' investment
positions.
We believe that strong investment performance, superior client service, and the
exceptional quality and stability of our professional team are the key drivers
of our growth. The strong relationships we enjoy with our clients and affiliates
are also highly valued. BlackRock is a member of The PNC Financial Services
Group, Inc. ("PNC"), one of the largest diversified financial services companies
in the United States. BlackRock is headquartered in New York City, and has
offices in Edinburgh, Scotland; Hong Kong; Tokyo, Japan; Wilmington, Delaware;
and Philadelphia, Pennsylvania.
In 2000, BlackRock's total assets under management increased by more than $39
billion, or 24%, from year-end 1999 levels. Over the past four years, assets
under management have grown by $121 billion, which represents a compound annual
growth rate of 25%. Importantly, over 80% of annual growth in assets under
management has been derived from new business activity, as opposed to market
appreciation. At December 31, 2000, fixed income products represented 57%,
money market or liquidity products represented 30%, equity products represented
11% and alternative investment products represented 2% of total assets under
management. Approximately 66% of assets are managed in separate accounts and
34% are managed in mutual funds.
Assets Under Management
By Asset Class
At December 31,
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 CAGR
------------ ------------ ------------ ------------ ------------ ------------
($ in millions)
Fixed Income $41,101 $ 52,486 $ 64,821 $ 86,438 $116,878 30%
Liquidity 31,363 39,846 49,381 57,521 61,186 18%
Equity 9,847 12,592 14,504 18,472 22,235 23%
Alternative Investments 403 489 1,936 2,086 3,470 71%
------------ ------------ ------------ ------------ ------------
Total $82,714 $105,413 $130,642 $164,517 $203,769 25%
============ ============ ============ ============ ============
CAGR = Compound Annual Growth Rate
4
Strategy
Our ability to realize continued growth in assets under management will be a
primary determinant of our success in creating value for our shareholders. Our
strategies to drive growth in assets under management begin with our focus on
delivering superior investment performance and exceptional service to clients.
Accordingly, we dedicate significant resources to attracting and retaining
talented professionals, with an emphasis on entry-level recruiting, and to the
ongoing enhancement of our investment technology and operating capabilities.
We plan to build on our recognized core strengths of fixed income and liquidity
management, while enhancing our equity capabilities, expanding our offerings of
alternative investment products, and increasing the scope of our distribution.
To achieve these objectives, we will pursue strategies such as those described
below.
. Increase our fixed income assets. We believe that the high quality of our
investment performance and client service has allowed us to benefit from a
trend among institutional investors to concentrate their fixed income assets
with a small number of highly regarded managers. To increase our fixed income
assets under management, we will seek to broaden our relationships with
existing clients and develop new clients through direct calling on prospects
and consultants. In the coming year, we also expect to expand our calling
effort on the middle market, offering both institutional mutual funds and
selective separate accounts.
. Build our liquidity market share. BlackRock is the nation's fifth largest
manager of institutional money market funds on the basis of year-end assets
under management, as reported by iMoney Net, Inc. (formerly IBC Financial
Data, Inc.). Growth in liquidity assets under management has been achieved
through consistently competitive performance and strong sales and service
capabilities. In order to expand our liquidity market share, we intend to
pursue cross-selling opportunities among our institutional clients, hire
additional liquidity salespeople and expand wholesaling relationships with
financial intermediaries.
. Strengthen our equity capabilities. Today, equity assets represent a
relatively small component of BlackRock's total business. Asset growth in
2000 was largely driven by the successful integration of our European equity
team, with whom we raised over $6 billion in new mandates during the year. We
also witnessed significant improvement in our large cap value performance
after adding new leadership to that team in mid-2000. Performance was not
uniformly strong, however, and additional investments will be required to
establish an equity capability commensurate with our fixed income and
liquidity businesses. To pursue this key strategic priority, we will consider
incremental hiring of individuals and teams of investment professionals, as
well as acquisitions, all in a manner consistent with prudent business
management and our goal of building long-term shareholder value.
. Add alternative investment products. Last year, we raised $2 billion of new
capital to be invested over time in a number of new alternative investment
vehicles. These products are gaining increasing acceptance among
institutional and high net worth investors. As we expand our offerings, we
enhance our ability to attract and retain talented investment professionals,
broaden our ability to serve institutional investors and increase our
presence in the high net worth market. Accordingly, we will seek to
opportunistically expand our alternative investments business over time.
. Grow our "assets under risk management." In August 2000, we introduced
BlackRock Solutions, a new product line consisting of risk management
services and enterprise investment system outsourcing for institutional
investors. These products leverage capabilities we have developed over the
past thirteen years. At this early stage of the business, we expect to
reinvest earnings to establish a robust ability to develop and serve an
external client base. We believe, however, that BlackRock Solutions may
represent an important source of additional shareholder value in the future,
and we intend to pursue the opportunity prudently, but aggressively.
5
Products
BlackRock offers a wide variety of fixed income, liquidity, equity and
alternative investment products. Revenue from these products consists of
advisory fees typically structured as a percentage of assets managed and, in
some instances, performance fees expressed as a percentage of returns realized
in excess of agreed-upon targets.
Fixed Income
------------
In 2000, we continued to build on our position as one of the ten largest
domestic fixed income managers, with superior investment performance and
client service again providing the foundation for industry-leading growth
in assets under management. BlackRock's fixed income assets rose to $117
billion in 2000, reflecting a 35% increase over year-end 1999. Since 1996,
fixed income assets have grown at a compound annual rate of 30%.
BlackRock offers a full range of fixed income separate accounts and mutual
funds tailored to meet the needs of both institutional and individual
investors. Across all fixed income products, we focus on a singular
investment objective - to achieve returns in excess of our performance
benchmarks while assuming equal or lower levels of risk. We have
consistently achieved this objective. Over the past seven years, our core
bond composite, which is our largest fixed income composite, has achieved
higher and less volatile returns than both the median results for the Frank
Russell core bond manager universe and the Lehman Brothers Aggregate Index,
the most commonly used benchmark for this portfolio/1/. Additionally, 75%
or more of the institutional classes of our open-end taxable bond funds
have been ranked in the first quartile of their respective Lipper peer
groups for the one, three and five years ended December 31, 2000/2/.
Our superior investment performance has resulted from a highly disciplined
investment process. Our Investment Strategy Group, which brings together
portfolio and risk management professionals, establishes the broad themes
that serve as a framework for positioning client portfolios. Portfolio
managers work as a team to implement these investment themes within the
guidelines of each portfolio. Across all of our fixed income investments,
we seek to add value principally on the basis of sector and security
selection, rather than through interest rate speculation.
We believe that the consistent strength of our investment performance and
client service represents an important competitive advantage, particularly
in light of the continuing trend among institutional investors to
consolidate assets with a select group of fixed income managers. We will
seek to leverage the strength of our reputation, our investment track
record and the quality of our client service to capitalize on significant
opportunities to build on our success and position of leadership in fixed
income.
Liquidity
---------
BlackRock is the fifth largest institutional money market fund manager in
the nation with more than $36 billion invested in our BlackRock Provident
Institutional Funds. Our total liquidity assets, which include separate
accounts and our complete roster of institutional and retail money market
funds, grew to over $61 billion, or 30% of BlackRock's total assets under
management, by year-end. In aggregate, liquidity assets increased by 6% in
2000, and have grown at a compound annual rate of 18% since 1996.
- -----------------------------------------
/1/ Past performance is no guarantee of future results. Core Bond Composite
performance does not reflect the deduction of management/advisory fees and
other expenses, which will reduce a client's return. For example, assuming
an annual gross return of 8.0% and an annual management/advisory fee of
0.25%, the net annualized total return of the portfolio would be 7.74% over
a 5-year period.
/2/ Performance data assumes the reinvestment of dividends and capital gain
distributions. BlackRock waives fees on selected funds, without which
performance would be lower. Lipper quartiles are from Lipper, Inc., a mutual
fund performance monitor. Lipper rankings are based on total returns with
dividends and distributions reinvested and do not reflect sales charges.
Funds with returns among the top 25% of a peer group of funds with
comparable objectives are in the first quartile. The BlackRock Funds
International Bond, High Yield Bond, Intermediate Bond and Low Duration Bond
Portfolios are in the International Income, High Current Yield, Short
Intermediate Investment Grade Debt and Short Investment Grade Debt Funds
Lipper peer groups, respectively. The BlackRock Funds Core Bond and Managed
Income Portfolios are in the Intermediate Investment Grade Debt Funds Lipper
peer group. TempFund is in the Institutional Money Market Funds Lipper peer
group. As with other money market funds, investments in TempFund are neither
insured nor guaranteed by the U.S. government or any bank and there is no
assurance that the Fund will maintain a stable net asset value of $1.00 per
share.
6
BlackRock's liquidity products include prime, government and tax-exempt
portfolios, which are available to institutional and individual investors.
We have consistently ranked among the nation's top-performing money market
fund managers. TempFund, which comprises 63% of assets managed in our
BlackRock Provident Institutional Funds, was ranked in the first quartile
of its Lipper peer group for the one, three, five, seven and ten year
periods ended December 31, 2000./2/ We also offer liquidity separate
accounts for clients who require the use of customized investment
guidelines in the management of their short-term assets. We believe that
the strength of our investment performance and our ongoing commitment to
delivering innovative solutions to our liquidity clients provides the
foundation for future growth in assets.
Our liquidity investment process begins with a commitment to conservative
money management that places the highest emphasis on safety and liquidity.
We focus on controlling quality through stringent credit analysis, which is
conducted independent of portfolio managers and the major rating agencies.
Quality is further enhanced by structuring highly diversified portfolios,
which are positioned to maximize yield curve opportunities while
safeguarding the integrity of the funds. The discipline of our liquidity
investment process is essential to the prudent management of our clients'
operating cash.
Assets under management in these mandates can be quite volatile, as clients
accumulate and draw down cash in their businesses. Nonetheless, consistent
investment performance and strong sales and service efforts have enabled us
to grow liquidity assets over time. In the coming year, we will target
opportunities to build our asset base through selected additions to our
liquidity sales force, enhanced cross-selling efforts among our
institutional clients and expanded wholesaling relationships with financial
intermediaries.
Equity
------
BlackRock's equity assets grew 20% in 2000 to $22 billion, which
represented approximately 11% of total assets under management. Since 1996,
equity assets have grown at a compound annual rate of 23%. Last year's
growth in particular was a considerable achievement given the significant
decline in the equity markets. We overcame the effect of the markets
principally as a result of the highly successful integration of our
European equity team, with whom we raised over $6 billion in new mandates
during the year.
Nearly two-thirds of our equity assets under management are in a variety of
mutual funds, including core, value and growth portfolios. We also offer
separate accounts to institutional investors who are seeking tailored
portfolios to meet their unique investment requirements. Our objective is
to manage all portfolios in strict adherence to their stated styles and
capitalization ranges, affording investors and their advisors greater
certainty in the execution of their broader asset allocation strategies.
Our domestic equity managers work in teams based on their market segment
expertise - large or emerging capitalization companies. Similarly, our
international equity managers are organized by their regional expertise -
European or Pacific Basin. Investment professionals on each team are
further distinguished by their industry and/or style specialties. Across
all of our equity portfolios, our objective is to consistently achieve
returns in excess of our performance benchmarks through a disciplined stock
selection process, guided by proprietary quantitative analysis, fundamental
research and market flow information. Forty-five percent of our equity
mutual funds and composites achieved this objective last year, including
our large cap value fund and our European equity composite, which are our
largest equity fund and composite, respectively./3/
Establishing a more robust equity business is among BlackRock's most
critical strategic priorities. In 2000, we continued to enhance the
resources committed to achieving this objective. In addition to the
European equity team referenced earlier, we added new leadership in our
domestic large cap value effort and
- -------------------------------------------
/3/ Past performance is no guarantee of future results. Benchmarks for the
equity mutual funds are generally the index for the asset class. For
example, the benchmark for the BlackRock Large Cap Value Portfolio is the
Russell 1000 Value Index. European Equity Composite performance does not
reflect the deduction of management/advisory fees and other expenses, which
will reduce a client's return. For example, assuming an annual gross return
of 8.0% and an annual management/advisory fee of 0.60%, the net annualized
total return of the portfolio would be 7.37% over a 5-year period.
7
continued to strengthen our equity risk management capabilities. In the
coming year, we expect to pursue opportunities to further strengthen our
equity effort through hiring and/or acquisitions that offer both proven
investment capabilities and a shared commitment to an integrated team
approach.
Alternative Investment Products
-------------------------------
Exceptional performance in alternative investment products, most
particularly our fixed income hedge funds, contributed significantly to our
financial results last year. In addition to hedge funds, we offer
collateralized bond obligations (CBOs) and real estate finance portfolios.
All of these investments offer the opportunity for higher absolute returns
and are subject to greater risk than our traditional products. Assets under
management in these products increased 66% last year to $3.5 billion, and
have grown at a compound annual rate of 71% since 1996.
BlackRock's fixed income hedge funds invest opportunistically in the global
bond markets, implementing the conclusions of our Investment Strategy Group
on a more leveraged and/or more concentrated basis than our traditional
products, subject to sufficient diversification of the risk exposures in
each portfolio. Last year, we offered our first equity hedge fund, a
portfolio consisting primarily of long and short positions in Japanese
equities and equity-related securities, and we hope to add additional
equity hedge funds over time.
Our CBOs are fixed income products that focus specifically on investment
opportunities in the high yield sector. These vehicles, which are
structured to take advantage of the yield differential between their assets
and liabilities, have terms to maturity ranging from eight to twelve years.
Extraordinary turbulence in the high yield market last year generated
substantial investment opportunities for which we raised $1.3 billion in
three new CBOs, the last of which closed in January 2001.
Finally, our real estate debt alternatives pursue strong risk-adjusted
returns through collateralized commercial real estate lending activities.
Investments are managed in both separate accounts and commingled vehicles,
including Anthracite Capital, Inc., our publicly traded real estate
investment trust. In 2000, BlackRock raised over $700 million in new
capital commitments to be invested in these products over time.
Institutional and high net worth investors have been increasing their
allocations to alternative investments. We believe that, as a result of our
strong presence in the institutional market and our performance history,
BlackRock is well positioned to benefit from this trend. Over time, we will
seek opportunities to expand our alternative product menu by leveraging
existing capabilities and by attracting talented professionals who add to
the breadth of our investment expertise.
Risk Management and Investment Systems
--------------------------------------
Since 1994, our institutional clients have increasingly sought risk
management services from BlackRock either in conjunction with our asset
management products or independently. These services enhance our clients'
ability to assess risk at the security, portfolio and enterprise level, to
make investment decisions in rapidly moving markets, to comply with
investment guidelines and to execute transactions efficiently. BlackRock
also offers an enterprise investment system that enhances productivity for
investment managers and reduces operational risk. We completed the first
implementation of this system last year for a very large, sophisticated
institutional investor.
These services leverage the investments BlackRock has made over the past
thirteen years in developing a highly sophisticated portfolio management
system featuring straight-through processing of our investment operations
with fully integrated, state-of-the-practice financial analytics. In
effect, clients are offered the same capabilities that support BlackRock's
disciplined investment process, facilitate our growth in assets under
management and enable our high levels of operating efficiency.
In August 2000, we formally launched BlackRock Solutions, a new product
line consisting of risk management services and enterprise investment
system outsourcing for a variety of institutional investors, including
financial institutions, pension plan sponsors, insurance companies,
government agencies,
8
mortgage banks and asset managers. During the past year, we have been
engaged by a number of new clients to provide risk management reporting,
advisory services and/or trading system outsourcing. At December 31, 2000,
BlackRock's "assets under risk management" exceeded $1.3 trillion.
In addition to our successful business development efforts, we have
received prominent recognition of our capabilities within the investment
community. In its January 2001 issue, Risk magazine named BlackRock "Risk
Manager of the Year" on the basis of our strong analytics, customized
reporting and information delivery mechanisms, and exceptional customer
service.
At this early stage of BlackRock Solutions' development, we expect to
reinvest earnings realized from these products in order to enhance our
capacity to serve clients, permit additional development of both our
investment management and risk management capabilities, and further
diversify our revenue base. We intend to seek to create shareholder value
over time through BlackRock Solutions.
Distribution
BlackRock provides investment and risk management services to an extremely
diverse client base consisting of more than 3,300 institutions and 200,000
individual investors. Client assets are managed in a broad spectrum of fixed
income, liquidity, equity and alternative investment separate accounts and
mutual funds. In 2000, separate account assets increased by 35% to $134 billion
and mutual fund assets increased by 7% to $70 billion. Since 1996, we have
realized compound annual growth of 37% and 12% in separate accounts and mutual
funds, respectively.
Assets Under Management
By Product
At December 31,
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 CAGR
------------ ------------ ------------ ------------ ------------ ------------
($ in millions)
Separate Accounts
Fixed Income $28,555 $ 38,772 $ 50,933 $ 73,120 $103,561 38%
Liquidity 7,430 10,019 13,826 20,934 17,996 25%
Equities 1,204 1,763 2,417 3,080 8,716 64%
Alternatives 403 489 1,936 2,086 3,470 71%
------------ ------------ ------------ ------------ ------------
Sub-Total 37,592 51,043 69,112 99,220 133,743 37%
------------ ------------ ------------ ------------ ------------
Mutual Funds
Fixed Income $12,546 $ 13,714 $ 13,888 $ 13,318 $ 13,317 2%
Liquidity 23,933 29,827 35,555 36,587 43,190 16%
Equities 8,643 10,829 12,087 15,392 13,519 12%
------------ ------------ ------------ ------------ ------------
Sub-Total 45,122 54,370 61,530 65,297 70,026 12%
------------ ------------ ------------ ------------ ------------
Total $82,714 $105,413 $130,642 $164,517 $203,769 25%
============ ============ ============ ============ ============
CAGR = Compound Annual Growth Rate
BlackRock's institutional clients include pension plans, insurance companies,
corporations, financial institutions and governmental agencies worldwide. Our
approach to marketing and client service is predicated on developing
"partnerships" with our clients and their consultants to best serve their needs.
In a survey of institutional investors conducted last year by Mercer Manager
Advisory Group, BlackRock was recognized as "setting the standard for client
service. "A more tangible validation of our efforts is the $26 billion of net
new
9
business we added last year from existing and new separate account clients. This
growth accounts for approximately 66% of our total growth in assets under
management in 2000.
Individual investors are served through our mutual fund family, BlackRock Funds.
Our regional wholesalers market these products to intermediaries, principally
broker dealers, who in turn sell our funds to their retail clients. In 2000,
over $1.1 billion in net subscriptions were raised through third-party broker
dealers, and we ranked as the nation's thirteenth largest wholesale fund family
as of year-end, according to Strategic Insight Mutual Fund Research and
Consulting, LLC. In a report published in December 2000 by Dalbar, Inc., a
prominent financial services research firm, BlackRock ranked third among midsize
firms for wholesaler support based on a survey of 32,000 brokers nationwide.
Alternative investments and selective separate accounts are also available to
high net worth investors, although we do not currently have a direct calling
effort to pursue this business. We believe, however, that the high net worth
marketplace represents a significant opportunity to leverage our investment
management capabilities. If appropriate opportunities can be identified, we
will consider establishing a wealth management business or otherwise expanding
our presence in the high net worth market.
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 our business, BlackRock must be able to compete
effectively for assets under management. Key competitive factors include
investment performance track records, investment style and discipline, client
service and brand name recognition. We have historically competed principally
on the basis of our long-term investment performance track record, our
investment process, our risk management and analytic capabilities and the
quality of our client service. Over the past five years, we have succeeded in
growing aggregate assets under management, and we believe that we will continue
to be able to do so by maintaining strong investment performance and client
service and by developing new products and new distribution capabilities. Many
of our competitors, however, have greater financial or marketing resources and
better brand name recognition than BlackRock. These factors may place BlackRock
at a competitive disadvantage, and there can be no assurance that our strategies
and efforts to maintain our existing assets and attract new business will be
successful.
Employees
At December 31, 2000, BlackRock had 727 full-time employees, including 159
professionals in the portfolio management group, 181 professionals in risk
management and analytics, 178 professionals in the separate account and funds
marketing and client service areas and 209 professionals in administrative and
support departments.
Regulation
Virtually all aspects of BlackRock's business are subject to various
federal and state laws and regulations, some of which are summarized below.
These laws and regulations are primarily intended to protect investment advisory
clients, stockholders of registered investment companies, PNC's bank
subsidiaries and bank customers of PNC Bank, National Association ("PNC Bank").
Under these laws and regulations, agencies that regulate investment advisers and
bank subsidiaries such as BlackRock and its subsidiaries have broad
administrative powers, including the power to limit, restrict or prohibit it
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.
BlackRock's subsidiaries are subject to regulation, primarily at the
federal level, by the Securities and Exchange Commission (SEC), the Department
of Labor, the Office of the Comptroller of the Currency (OCC), the Board of
Governors of the Federal Reserve System (FRB), the Commodity Futures Trading
Commission (CFTC) and other regulatory bodies.
10
The Investment Advisers Act imposes numerous obligations on registered
investment advisers, such as BlackRock, including recordkeeping requirements,
operational requirements, marketing requirements, disclosure obligations and
prohibitions on fraudulent activities. The Investment Company Act imposes
similar obligations, as well as detailed operational requirements, on investment
advisers, such as BlackRock, registered investment companies and other managed
accounts. The SEC is authorized to institute proceedings and impose sanctions
for violations of the Investment Advisers Act and the Investment Company Act,
ranging from fines and censure to termination of an investment adviser's
registration.
BlackRock's subsidiaries also are subject to the Employment Retirement
Investment Security Act (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
certain duties on persons who are fiduciaries under ERISA, prohibit certain
transactions involving ERISA plan clients, and provide monetary penalties for
violations of these prohibitions. One of BlackRock's subsidiaries is registered
as a commodity pool operator and commodity trading advisor with the CFTC and the
National Futures Association. The CFTC and NFA administer a comparable
regulatory system covering futures contracts and various other financial
instruments in which BlackRock clients may invest. Another subsidiary is
registered with the SEC as a broker-dealer and is a member of the National
Association of Securities Dealers. Although this entity's NASD membership
agreement limits its permitted activities to the sale of investment company
securities and annuities and certain private placement and financial consulting
activities, it is subject to the customer dealing, reporting and other
requirements of the NASD, as well as the net capital and other requirements of
the SEC.
PNC is a bank holding company and, as discussed below, is also a "financial
holding company" regulated by the FRB. PNC Bank, the indirect parent of
BlackRock, is a national bank subsidiary of PNC. As a subsidiary of PNC Bank,
BlackRock is subject to most banking laws, regulations, and orders that are
applicable to PNC Bank, and therefore to the supervision, regulation, and
examination of the OCC, as well as the SEC. The OCC and the Federal Deposit
Insurance Corporation (FDIC) also have broad enforcement authority over PNC Bank
and its subsidiaries, including the power to prohibit PNC or any subsidiary from
engaging in any activity that, in the OCC's opinion, constitutes an unsafe or
unsound practice in conducting its business, to appoint the FDIC as conservator
or receiver of PNC Bank if any of a number of conditions are met, and to impose
substantial fines and other penalties. Supervision and regulation of PNC Bank
and its subsidiaries are intended primarily for the protection of depositors,
the deposit insurance funds of the FDIC, and the banking system as a whole, not
for the protection of stockholders or creditors of national banks or their
subsidiaries. The FRB has regulatory and supervisory authority with respect to
PNC's non-U.S. activities and investments, including non-U.S. activities and
investments of BlackRock, as well as with respect to its non-bank subsidiaries.
Because BlackRock is a consolidated subsidiary of PNC Bank, federal
restrictions on the payment of dividends by PNC Bank might be applied to
BlackRock. Under federal law, OCC approval is needed before PNC Bank may pay
dividends in any year in which the total of all dividends paid would exceed the
total of PNC Bank's net profits for that year combined with its retained net
profits from the prior two years. PNC Bank also may not pay dividends exceeding
its capital surplus.
As an operating subsidiary of a national bank, BlackRock may not conduct
new activities, establish a subsidiary, or acquire the stock or assets of
another company unless it obtains the approval of the OCC or, with respect to
most non-U.S. activities or investments, the FRB. The OCC will generally approve
only those activities and investments that are legally permissible for a
national bank and consistent with prudent banking principles and regulatory
policy. The FRB will approve only those activities that are usual in connection
with the transaction of the business of banking or other financial operations
outside of the United States. Investment management firms with which BlackRock
competes commonly invest in investment companies and private investment funds to
which they provide services. BlackRock may 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, including applicable banking laws. BlackRock's current domestic
and overseas activities are, with the limited exception of the activities of
BlackRock's financial subsidiaries discussed below, permissible for a national
bank.
Pursuant to the Gramm-Leach-Bliley Act (GLB Act), which became effective on
March 11, 2000, a qualifying bank holding company may become a financial holding
company and engage in a broad range of
11
financial activities. A bank holding company may elect to become a financial
holding company if each of its subsidiary banks is "well capitalized," is "well
managed," and has at least a satisfactory rating under the Community
Reinvestment Act. PNC became a financial holding company as of March 13, 2000.
The GLB Act also permits a national bank, such as PNC Bank, to engage
through the formation of a "financial subsidiary" in expanded activities,
including securities underwriting and dealing.
In order to qualify to establish or acquire a financial subsidiary, a
national bank and each of its depository institution affiliates must be "well
capitalized" and "well managed," and may not have a less than satisfactory
Community Reinvestment Act rating. In addition, the total assets of all
financial subsidiaries of a national bank may not exceed the lesser of 45% of
the parent bank's total assets or $50 billion. A national bank that is one of
the largest 100 insured banks must also have issued debt with a certain rating.
In addition to calculating its risk-based capital on a generally accepted
accounting principles (GAAP) basis, a national bank with one or more financial
subsidiaries must also be well capitalized after excluding from its assets and
equity all equity investments, including retained earnings in a financial
subsidiary, and the assets of the financial subsidiary from the bank's
consolidated assets. Any published financial statement for a national bank with
a financial subsidiary must provide risk-based capital information both in
accordance with GAAP and as described above. The bank must also have policies
and procedures to assess financial subsidiary risks and potential liabilities
and protect the bank from such risks and potential liabilities.
Pursuant to the GLB Act, PNC Bank has filed a "financial subsidiary
certification" with the OCC. In accordance with the financial subsidiary
provisions, BlackRock, while remaining an operating subsidiary of a national
bank, may establish financial subsidiaries that engage in a broader range of
activities than would be permissible for an operating subsidiary of a national
bank. BlackRock has utilized this authority and established two financial
subsidiaries that engage in the activities of providing initial funding to
mutual funds and holding certain equity interests permissible for a financial
subsidiary.
Under the GLB Act and the OCC's proposed regulations, if a national bank
that has one or more financial subsidiaries, or any depository institution
affiliate of such national bank, subsequently fails to be "well capitalized" or
"well managed," the national bank must enter into an agreement with the OCC to
correct the condition. The OCC has the authority to limit the activities of such
a national bank. If the condition is not corrected within six months or within
any additional time granted by the OCC, the national bank could be required to
divest the activities conducted in reliance upon the financial subsidiary
authority. In addition, if the bank or any insured depository institution
affiliate receives a less than satisfactory Community Reinvestment Act
examination rating, the national bank would not be permitted to engage in new
activities, or to make new investments, in reliance upon the financial
subsidiary authority.
The GLB Act, while establishing the FRB as the umbrella supervisor for
financial holding companies, adopts a functional approach to regulation and
supervision that requires the FRB and the OCC to defer to the actions and
requirements of the "functional" regulators of subsidiary broker-dealers,
investment managers, investment companies, banks and other regulated
institutions. Thus, the various state and federal regulators of a bank holding
company's or national bank's subsidiaries, such as the SEC, would retain their
jurisdiction and authority over functionally regulated operating entities. As
the umbrella supervisor, however, the FRB has the potential to affect the
operations and activities of a financial holding company's subsidiaries through
its authority over the financial holding company parent. In addition, the GLB
Act provides the FRB with back-up regulatory authority over functionally
regulated subsidiaries, such as broker-dealers and banks, to intervene directly
in the affairs of the subsidiary for specific reasons.
Under federal law, PNC Bank and its subsidiaries, including BlackRock,
generally may not engage in transactions with PNC or its non-bank subsidiaries,
except on terms and under circumstances that are substantially the same as those
prevailing for comparable transactions involving nonaffiliated companies, or, in
the absence of comparable transactions, that in good faith would be offered to
or would apply to nonaffiliated companies. In addition, certain transactions,
including loans and other extensions of credit, guarantees, investments, and
asset purchases between PNC Bank and its subsidiaries, including BlackRock, on
the one hand, and PNC and its nonbank subsidiaries, on the other hand, are
limited to 10% of PNC Bank's capital and loan loss
12
reserve allowance for transactions with a single company and to 20% of PNC
Bank's capital and loan loss reserve allowance for aggregate transactions with
PNC and all of its nonbank subsidiaries and other affiliates. In certain
circumstances, federal regulatory authorities may impose more restrictive
limitations. Such extensions of credit, with limited exceptions, must be fully
collateralized. These affiliate transaction restrictions also apply in some
cases to loans or other transactions between PNC Bank or BlackRock, on the one
hand, and financial subsidiaries of PNC Bank or BlackRock or investment funds
advised by BlackRock, on the other.
The FDIC could be appointed as conservator or receiver of PNC Bank if the
bank were to become insolvent or if other conditions or events were to occur. As
conservator or receiver, the FDIC could exercise all rights of PNC Bank as a
stockholder of BlackRock. The FDIC would also have the authority to repudiate
contracts by PNC Bank, including servicing or other contracts with BlackRock, at
any time within 180 days of its appointment as conservator or receiver, and
would be obligated to pay BlackRock only "actual direct compensatory damages,"
not including damages for lost profits or opportunity, as of the date of
conservatorship or receivership as a result of such repudiation. The FDIC could
also disregard, without paying damages, any contract that tended to diminish or
defeat the FDIC's interest in any PNC Bank asset if the contract were not:
. in writing;
. executed by PNC Bank and BlackRock contemporaneously with the acquisition
of the asset by PNC Bank;
. approved by the board of directors of PNC Bank or its loan committee with
the approval reflected in the minutes of the board or committee; and
. continuously, from the time of its execution, an official record of PNC
Bank.
In addition, the FDIC could obtain a stay of up to 90 days of any judicial
action or proceeding involving PNC Bank, and could require BlackRock to exhaust
its remedies under FDIC claims procedures before pursuing any available judicial
remedy.
PNC's bank subsidiaries are subject to "cross-guarantee" provisions under
federal law that provide if one of these banks or thrifts fails or requires FDIC
assistance, the FDIC may assess a "commonly controlled" bank or thrift, such as
PNC Bank, for the estimated losses suffered by the FDIC. The FDIC's claim is
superior to the claims of affiliates, such as BlackRock, and of stockholders of
the banks. At December 31, 2000, all of PNC's bank subsidiaries exceeded the
required ratios for classification as "well capitalized" under statutory and
regulatory standards.
BlackRock's international operations are subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies or bodies. As BlackRock expands
its international business, its internal operations may become subject to
requirements in numerous jurisdictions regarding reporting of beneficial
ownership positions in securities issued by companies whose securities are
publicly traded in those countries. BlackRock's subsidiaries are subject to
periodic examination by these regulatory agencies. BlackRock's international
subsidiaries have developed comprehensive compliance systems in order to satisfy
applicable regulatory requirements. The failure of BlackRock's internal
operations to comply with the applicable regulatory frameworks could have a
material adverse effect on BlackRock.
PNC currently holds its ownership interest in BlackRock through a
subsidiary of PNC Bank. As such, BlackRock currently is not subject to
regulation under the nonbanking provisions of the Bank Holding Company Act. If
PNC were instead to hold its ownership interest in BlackRock at the holding
company level, BlackRock would no longer be subject to OCC supervision and
regulation as a subsidiary of a national bank, but would instead become subject
to FRB supervision and regulation as a nonbank subsidiary of a financial holding
company. A nonbank subsidiary of a financial holding company may engage in
insurance underwriting, insurance investment, real estate investment or
development, and merchant banking activities as well as the activities
permissible for a financial subsidiary of a national bank.
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.
13
Item 2. PROPERTIES
BlackRock's principal office is located at 345 Park Avenue, New York, New
York. The Company also leases space at 101 East 52nd Street, New York, New York,
40 East 52nd Street, New York, New York, Philadelphia, Pennsylvania, Wilmington,
Delaware, Edinburgh, Scotland, Hong Kong, San Francisco, California, Kingwood,
Texas and White Plains, New York. During the fourth quarter of 1999, the Company
purchased land in Wilmington, Delaware and is presently constructing an 84,000
square foot office building at an estimated cost, including land, of
approximately $25 million. This facility is scheduled to be completed in the
first quarter of 2001 and will house all of the Company's Philadelphia and
Delaware operations.
On May 3, 2000, BlackRock signed a lease with 40 East 52nd Street L.P. for
approximately 171,000 square feet of office space at 40 East 52nd Street, New
York, New York. This location will be BlackRock's corporate headquarters and
will accommodate all of BlackRock's current New York City-based operations.
Under the lease, BlackRock occupied approximately 19,000 square feet in July
2000 with the remaining 152,000 square feet to commence on or about September 1,
2001. The 152,000 square feet of new space will be placed in service in early
2002.
Item 3. LEGAL PROCEEDINGS
BlackRock and persons to whom BlackRock may have indemnification
obligations, in the normal course of business, are subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted.
Management, after consultation with legal counsel, does not at the present time
anticipate that the ultimate aggregate liability, if any, arising out of such
lawsuits will have a material adverse effect on BlackRock's financial position.
At the present time, management is not in a position to determine whether any
such pending or threatened litigation 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 fiscal year ended December 31, 2000.
14
Part II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
BlackRock's class A common stock is listed on the New York Stock Exchange
and is traded under the symbol "BLK". BlackRock's class B common stock is not
included for listing or quotation on any established market. At the close of
business on March 9, 2001 there were 41 class A common stockholders of record
and 53 class B common stockholders of record.
The following table sets forth for the periods indicated the high and low
reported sale prices per share for the class A common stock as reported on the
NYSE (BlackRock's class A common stock began trading on the NYSE on October 1,
1999):
Stock Price Ranges
---------------------- -------
2000 High Low Close
- ---------------------------- -------- ------- -------
First Quarter $25.00 $15.00 $20.25
Second Quarter $36.00 $20.25 $29.00
Third Quarter $42.63 $28.31 $32.00
Fourth Quarter $48.00 $31.88 $42.00
1999
- ----------------------------
Fourth Quarter $19.38 $12.50 $17.19
(Commencing October 1, 1999)
Dividends
BlackRock has not declared any dividends on its common stock and presently
intends to retain future earnings, if any, for the development of our business
and therefore does not anticipate that our board of directors will declare or
pay any dividends on the class A common stock and class B common stock in the
foreseeable future. The declaration and payment of dividends by BlackRock are
subject to the discretion of our board of directors. BlackRock is a holding
company and, as such, our ability to pay dividends is subject to the ability of
our subsidiaries to provide cash to us. The board of directors will determine
future dividend policy based on our results of operations, financial conditions,
capital requirements and other circumstances. In addition, because we are a
consolidated subsidiary of PNC Bank, federal banking restrictions on payments of
dividends by PNC Bank may apply to us.
Item 6. SELECTED FINANCIAL DATA
The consolidated financial statements of BlackRock include the "carved out"
historical operating results of the asset management businesses of PNC which
were consolidated under BlackRock in 1998 as if the combined operations had been
a separate entity prior to the formation of BlackRock. 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this filing.
15
SELECTED FINANCIAL DATA
(amounts in thousands, except per share data)
Year Ended
December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- --------- --------- --------- --------
Income statement data
- ----------------------------------------------------
Revenue
Investment advisory and administration fees:
Mutual funds $ 229,259 $ 214,728 $ 162,487 $ 117,977 $ 87,189
Separate accounts 223,521 154,046 101,352 62,985 43,069
BlackRock Asset Investors (BAI)/1/ - (7,072) 61,199 13,867 6,061
---------- --------- --------- --------- --------
Total investment advisory and administration fees 452,780 361,702 325,038 194,829 136,319
Other income 24,092 19,279 14,444 10,644 10,159
---------- --------- --------- --------- --------
Total revenue 476,872 380,981 339,482 205,473 146,478
Expense
Employee compensation and benefits 189,684 138,025 109,741 73,217 53,703
BAI incentive compensation/1/ - (5,387) 44,806 9,688 3,525
Fund administration and servicing costs-affiliates 75,686 78,666 52,972 27,278 19,611
General and administration 58,311 48,570 38,696 29,764 24,500
Amortization of intangible assets 10,153 9,653 9,653 9,653 9,603
Closed-end fund offering costs - 511 4,252 - -
---------- --------- --------- --------- --------
Total expense 333,834 270,038 260,120 149,600 110,942
---------- --------- --------- --------- --------
Operating income 143,038 110,943 79,362 55,873 35,536
---------- --------- --------- --------- --------
Non-operating income (expense)
Interest and dividend income 7,734 3,445 1,995 3,117 1,877
Interest expense (855) (10,938) (13,347) (20,249) (19,975)
---------- --------- --------- --------- --------
6,879 (7,493) (11,352) (17,132) (18,098)
Income before income taxes 149,917 103,450 68,010 38,741 17,438
Income taxes 62,556 44,033 32,395 16,655 8,475
---------- --------- --------- --------- --------
Net income $ 87,361 $ 59,417 $ 35,615 $ 22,086 $ 8,963
========== ========= ========= ========= ========
Per share data (unaudited)
- ----------------------------------------------------
Basic earnings $ 1.37 $ 1.04 $ 0.67 $ 0.49 $ 0.20
Diluted earnings 1.35 1.04 0.66 0.49 0.20
Book value 5.75 4.39 1.94 1.00 0.72
Market value 42.00 17.19 - - -
Cash dividends declared per common share N/A N/A N/A N/A N/A
Balance sheet data
- ----------------------------------------------------
Intangible assets $ 192,142 $ 194,257 $ 203,910 $ 213,563 $223,216
Total assets 537,003 447,582 440,784 335,507 332,719
Long-term debt - - 178,200 206,432 234,255
Total liabilities 168,762 167,056 334,593 290,544 300,047
Stockholders' equity 368,241 280,526 106,191 44,963 32,672
Other financial data (unaudited)
- ----------------------------------------------------
Assets under management ($ in millions)
Separate accounts:
Fixed income* $ 107,022 $ 75,206 $ 52,869 $ 39,261 $ 28,958
Liquidity 17,996 20,934 13,826 10,019 7,430
Equity* 8,725 3,080 2,417 1,763 1,204
---------- --------- --------- --------- --------
Subtotal 133,743 99,220 69,112 51,043 37,592
---------- --------- --------- --------- --------
Mutual funds:
Fixed income 13,317 13,318 13,888 13,714 12,546
Liquidity 43,190 36,587 35,555 29,827 23,933
Equity 13,519 15,392 12,087 10,829 8,643
---------- --------- --------- --------- --------
Subtotal 70,026 65,297 61,530 54,370 45,122
---------- --------- --------- --------- --------
Total $ 203,769 $ 164,517 $ 130,642 $ 105,413 $ 82,714
========== ========= ========= ========= ========
* including alternative investment products.
/1/ Pursuant to a plan of liquidation, the assets of BAI were sold in 1999 and
its business operations terminated. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--General".
N/A Not applicable.
16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BlackRock, Inc., a Delaware corporation (together with its subsidiaries
"BlackRock" or the "Company"), is one of the 25 largest investment management
firms in the United States with approximately $204 billion of assets under
management at December 31, 2000. BlackRock is a majority owned indirect
subsidiary of The PNC Financial Services Group, Inc. ("PNC"), one of the largest
diversified financial service companies in the United States operating community
banking, corporate banking, real estate finance, asset-based lending, wealth
management, asset management and global fund services. PNC acquired BlackRock
in 1995 and consolidated a substantial part of PNC's asset management businesses
under the BlackRock name in 1998. On October 1, 1999, BlackRock offered 9
million shares of class A common stock in an initial public offering ("IPO").
As of December 31, 2000, PNC indirectly owns approximately 70%, the public owns
approximately 15% and BlackRock employees own approximately 15% of BlackRock.
The consolidated financial statements of BlackRock include the "carved out"
historical operating results of the asset management businesses of PNC that were
consolidated under BlackRock in 1998 as if the combined operations had been a
separate entity prior to the formation of BlackRock. The following table
summarizes BlackRock's operating performance for the years ended December 31,
2000, 1999 and 1998.
BlackRock, Inc.
Financial Highlights
($ in thousands, except share data)
(unaudited)
Year Ended %
December 31, Change
------------------------------------------- -----------------------------
2000 1999 1998 2000 vs. 1999 1999 vs. 1998
----------- ----------- ----------- ------------- -------------
Total revenue $ 476,872 $ 380,981 $ 339,482 25% 12%
Total expense $ 333,834 $ 270,038 $ 260,120 24% 4%
Operating income $ 143,038 $ 110,943 $ 79,362 29% 40%
Net income $ 87,361 $ 59,417 $ 35,615 47% 67%
Diluted earnings per share $ 1.35 $ 1.04 $ 0.66 30% 58%
Pro-forma diluted earnings per share (a) $ 1.35 $ 0.99 $ 0.64 36% 55%
Diluted cash earnings per share (b) $ 1.51 $ 1.21 $ 0.84 25% 44%
Pro-forma diluted cash earnings per share (a)(b) $ 1.51 $ 1.14 $ 0.80 32% 43%
Average diluted shares outstanding 64,590,707 57,268,912 53,682,204 13% 7%
EBITDA (c) $ 170,767 $ 132,541 $ 94,209 29% 41%
Operating margin (d) 35.7% 36.7% 27.7%
Assets under management ($ in millions) $ 203,769 $ 164,517 $ 130,642 24% 26%
(a) Based on adjusting 1999 and 1998 net income to reflect the after-tax
interest expense benefit of retiring $115 million of debt with the net
proceeds of the Company's IPO and adjusting the weighted-average diluted
shares outstanding to reflect the offering of 9 million shares in the IPO.
(b) Net income plus amortization expense for the period divided by average
diluted shares outstanding.
(c) Earnings before interest, taxes, depreciation and amortization.
(d) Operating income divided by total revenue less fund administration and
servicing costs-affiliates.
17
General
BlackRock derives a substantial portion of its revenue from investment
advisory and administration fees, which are recognized as the services are
performed. Such fees are primarily based on predetermined percentages of the
market value of assets under management and are affected by changes in assets
under management, including market appreciation or depreciation and net
subscriptions or redemptions. Net subscriptions or redemptions represent the
sum of new client assets, additional fundings from existing clients, withdrawals
of assets from and termination of client accounts and purchases and redemptions
of mutual fund shares.
Investment advisory agreements for certain separate accounts and BlackRock's
alternative investment products provide for performance fees in addition to fees
based on assets under management. Performance fees are earned when investment
performance exceeds a contractual threshold and, accordingly, may increase the
volatility of BlackRock's revenue and earnings.
BlackRock provides a variety of risk management and technology services to
insurance companies, finance companies, pension funds, REITs, commercial and
mortgage banks, savings institutions and government agencies. These services
are provided under the brand name BlackRock Solutions and include a wide array
of risk management services and enterprise investment system outsourcing to
clients. The fees earned on risk management advisory assignments are recorded
as other income.
BlackRock Asset Investors ("BAI") was an alternative investment product
created in 1994 in response to the opportunity that the Company perceived in the
commercial real estate sector. Due to reduced opportunities to generate
appropriate returns, BAI's Board of Trustees and shareholders approved
management's recommendation in 1997 to liquidate the fund, which was completed
on September 27, 1999. The net impact to BlackRock's operating income as a
result of the liquidation, which involved the sale of BAI's assets was a loss of
$1.7 million and a gain of $16.4 million for the years ended December 31, 1999
and 1998, respectively.
In May 1998, PNC's private bank, PNC Advisors, converted approximately $8.2
billion of common trust assets into the BlackRock Funds. Prior to the
conversion, the Company received subadvisory fees for investment management
services provided on these assets. Subsequent to the conversion, as sponsor to
the BlackRock Funds, BlackRock is required to report advisory and administration
revenues on these assets gross with amounts paid to PNC Advisors, as subadvisor
and subadministrator, reported as a separate operating expense. Accordingly,
BlackRock's mutual fund advisory and administration fees and fund administration
and servicing costs-affiliates for 1999 and 1998 reflect significant increases
associated with the conversion.
Operating expense primarily consists of employee compensation and benefits,
fund administration and servicing costs-affiliates, general and administration,
and amortization of intangible assets. Employee compensation and benefit expense
reflects salaries, deferred and incentive compensation, and related benefit
costs. BAI incentive compensation expense reflects compensation earned by
investment advisory and other employees of BlackRock in accordance with various
contractual and other arrangements with PNC and the fund. Fund administration
and servicing costs-affiliates expense reflects payments made to PNC affiliated
entities, primarily associated with the administration and servicing of PNC
client investments in the BlackRock Funds. Intangible assets at December 31,
2000 and 1999 were $192.1 million and $194.3 million, respectively, with annual
amortization expense of approximately $10.2 million and $9.7 million,
respectively. Intangible assets reflect PNC's acquisition of BlackRock
Financial Management, L.P. ("BFM") on February 28, 1995 and a management
contract acquired in connection with the agreement and plan of merger of CORE
Cap, Inc. with Anthracite Capital, Inc., a BlackRock managed REIT, on May 15,
2000. This agreement assigns the managerial rights and duties of CORE Cap,
Inc.'s external manager to BlackRock for consideration in the amount of $12.5
million to be paid by BlackRock over a ten-year period. The present value of
the acquired contract using a 10 percent imputed interest rate approximated $8.0
million which was recorded as an intangible asset and is being amortized over
ten years.
18
Assets Under Management
Assets under management ("AUM") increased $39.3 billion, or 24%, to $203.8
billion at December 31, 2000, compared with $164.5 billion at December 31, 1999.
The growth in assets under management was attributable to increases of $34.6
billion in separate accounts and $4.7 billion in mutual fund assets. The
increase in separate accounts was due to net asset growth of $25.9 billion and
market appreciation of $8.7 billion. Net asset growth in fixed income and
equity accounts was $22.7 billion and $6.2 billion, respectively, while
liquidity separate accounts experienced net redemptions of $3.0 billion. The
increase in fixed income assets was attributable to strong relative investment
performance, while the growth in equity separate account assets was primarily
the result of new business generated by the European equity team that joined
BlackRock in January 2000. BlackRock believes that the $3.0 billion decline in
liquidity separate accounts was primarily due to institutions maintaining
unusually large cash reserves at the end of 1999 as a result of year 2000
readiness concerns. The $8.7 billion of market appreciation in separate
accounts was primarily due to declines in market interest rates. The $4.7
billion increase in mutual fund assets reflected net subscriptions of $7.1
billion largely attributable to strong sales of BlackRock Provident
Institutional Funds ("BPIF") which were partially offset by market depreciation
of $2.4 billion due to declines in the equity markets.
Year Ended
December 31, % Change
---------------------------------- -------------------------------
2000 1999 1998 2000 vs. 1999 1999 vs. 1998
--------- -------- --------- ------------- -------------
($ in millions)
Separate Accounts
Fixed income* $107,022 $ 75,206 $ 52,869 42.3% 42.2%
Liquidity 17,996 20,934 13,826 (14.0) 51.4
Equity* 8,725 3,080 2,417 183.3 27.4
--------- -------- --------- ------------- -------------
Subtotal 133,743 99,220 69,112 34.8 43.6
--------- -------- --------- ------------- -------------
Mutual Funds
Fixed income 13,317 13,318 13,888 - (4.1)
Liquidity 43,190 36,587 35,555 18.0 2.9
Equity 13,519 15,392 12,087 (12.2) 27.3
--------- -------- --------- ------------- -------------
Subtotal 70,026 65,297 61,530 7.2 6.1
--------- -------- --------- ------------- -------------
Total $203,769 $164,517 $130,642 23.9% 25.9%
========= ======== ======== ============= =============
* includes alternative investment products.
19
Assets Under Management (continued)
The following tables present the component changes in BlackRock's assets under
management for the years ended December 31, 2000, 1999 and 1998, respectively.
The data reflects certain reclassifications between net subscriptions
(redemptions) and market appreciation (depreciation) from amounts previously
reported.
Net subscriptions increased each of the last three years with net inflows of
$33.0 billion, $32.7 billion and $20.8 billion for the years ended December 31,
2000, 1999 and 1998, respectively. For the three year period ended December 31,
2000 net subscriptions accounted for 88% of asset growth while market
appreciation accounted for 12%.
Year ended
December 31,
-------------------------------------------------
2000 1999 1998
--------- -------- --------
($ in millions)
Separate Accounts
Beginning assets under management $ 99,220 $ 69,112 $ 51,043
Net subscriptions 25,890 30,183 15,166
Market appreciation (depreciation) 8,633 (75) 2,903
--------- -------- --------
Ending assets under management 133,743 99,220 69,112
--------- -------- --------
Mutual Funds
Beginning assets under management 65,297 61,530 54,370
Net subscriptions 7,132 2,524 5,674
Market appreciation (depreciation) (2,403) 1,243 1,486
--------- -------- --------
Ending assets under management 70,026 65,297 61,530
--------- -------- --------
Total $ 203,769 $164,517 $130,642
========= ======== ========
Net subscriptions $ 33,022 $ 32,707 $ 20,840
% of change in AUM from net subscriptions 84.1% 96.6% 82.6%
20
Assets Under Management (continued)
Year ended
December 31,
---------------------------------------------------------------
2000 1999 1998
----------------- --------------------- --------------
($ in millions)
Separate Accounts
Fixed Income*
Beginning assets under management $ 75,206 $52,869 $39,261
Net subscriptions 22,685 23,317 10,928
Market appreciation (depreciation) 9,131 (980) 2,680
------------- ------------ ----------
Ending assets under management 107,022 75,206 52,869
------------- ------------ ----------
Liquidity
Beginning assets under management 20,934 13,826 10,019
Net subscriptions (redemptions) (3,028) 7,061 3,788
Market appreciation 90 47 19
------------- ------------ ----------
Ending assets under management 17,996 20,934 13,826
------------- ------------ ----------
Equity*
Beginning assets under management 3,080 2,417 1,763
Net subscriptions (redemptions) 6,233 (195) 450
Market appreciation (depreciation) (588) 858 204
------------- ------------ ----------
Ending assets under management 8,725 3,080 2,417
------------- ------------ ----------
Total Separate Accounts
Beginning assets under management 99,220 69,112 51,043
Net subscriptions 25,890 30,183 15,166
Market appreciation (depreciation) 8,633 (75) 2,903
------------- ------------ ----------
Ending assets under management $133,743 $99,220 $69,112
============= ============ ==========
*includes alternative investment products.
21
Assets Under Management (continued)
Year ended
December 31,
---------------------------------------------------------------------
2000 1999 1998
------------------- -------------------- ----------------
($ in millions)
Mutual Funds
BlackRock Funds
Beginning assets under management $27,339 $24,231 $22,129
Net subscriptions 1,834 1,459 718
Market appreciation (depreciation) (2,814) 1,649 1,384
----------------- ---------------- ---------------
Ending assets under management 26,359 27,339 24,231
----------------- ---------------- ---------------
BlackRock Global Series
Beginning assets under management - - -
Net subscriptions 72 - -
Market appreciation 3 - -
----------------- ---------------- ---------------
Ending assets under management 75 - -
----------------- ---------------- ---------------
BlackRock Provident Insititutional Funds (BPIF)*
Beginning assets under management 25,554 25,368 20,278
Net subscriptions 6,688 186 5,090
Exchanges 4,096 - -
----------------- ---------------- ---------------
Ending assets under management 36,338 25,554 25,368
----------------- ---------------- ---------------
Closed End Funds
Beginning assets under management 7,340 7,756 8,114
Net redemptions (984) (10) (460)
Market appreciation (depreciation) 408 (406) 102
----------------- ---------------- ---------------
Ending assets under management 6,764 7,340 7,756
----------------- ---------------- ---------------
Short Term Investment Funds (STIF)*
Beginning assets under management 5,064 4,175 3,849
Net subscriptions (redemptions) (478) 889 326
Exchanges (4,096) - -
----------------- ---------------- ---------------
Ending assets under management 490 5,064 4,175
----------------- ---------------- ---------------
Total Mutual Funds
Beginning assets under management 65,297 61,530 54,370
Net subscriptions 7,132 2,524 5,674
Market appreciation (depreciation) (2,403) 1,243 1,486
----------------- ---------------- ---------------
Ending assets under management $70,026 $65,297 $61,530
================= ================ ===============
*During the fourth quarter of 2000, $4.1 billion of STIF assets under management
were exchanged into the BPIF product.
22
Operating results for year ended December 31, 2000 as compared with year ended
December 31, 1999.
Revenue
Total revenue for the year ended December 31, 2000 increased $95.9 million
or 25% to $476.9 million compared with the year ended December 31, 1999.
Investment advisory and administration fees increased $91.1 million to $452.8
million for the year ended December 31, 2000, compared with $361.7 million for
the year ended December 31, 1999. The growth in investment advisory and
administration fees was primarily due to increases in assets under management,
which totaled $203.8 billion at December 31, 2000, a 24% increase compared with
December 31, 1999.
Year ended
December 31, Change
------------------------- -----------------------------
2000 1999 Amount Percent
---------- ------------ --------------- ------------
($ in thousands) ($ in thousands)
Investment advisory and administration fees:
Mutual funds $229,259 $214,728 $14,531 6.8%
Separate accounts 223,521 154,046 69,475 45.1
BAI revenue - (7,072) 7,072 100.0%
------------ --------- --------- ------
Total investment advisory and administration fees: 452,780 361,702 91,078 25.2
Other income 24,092 19,279 4,813 25.0
------------ --------- --------- ------
Total revenue $476,872 $380,981 $95,891 25.2%
============ ========= ========= ======
NM-Not meaningful
Mutual fund advisory and administration fees increased $14.5 million or 7%
to $229.3 million for the year ended December 31, 2000 compared with the year
ended December 31, 1999, primarily due to a $4.7 billion or 7% increase in
assets under management. Separate account advisory fees increased $69.5 million
or 45%, primarily due to a $34.6 billion or 35% increase in assets under
management and higher performance fees associated with alternative investment
products. Excluding alternative product performance fees of $50.2 million in
2000 as compared to $24.7 million in 1999, all other separate account advisory
fees increased $44.0 million or 34%. The $7.1 million change in BAI advisory
fees was due to the fund's liquidation in 1999. Other income increased $4.8
million or 25%, primarily due to increased sales of risk management and
technology products and portfolio accounting services.
Expense
Total expense increased $63.8 million or 24% to $333.8 million for the year
ended December 31, 2000, compared with $270.0 million for the year ended
December 31, 1999. The change was primarily the result of increases in employee
compensation and benefits and general and administration expenses, partially
offset by a decrease in fund administration and servicing costs-affiliates.
Year ended
December 31, Change
------------------------------ -----------------------------
2000 1999 Amount Percent
-------------- ------------ -------------- ------------
($ in thousands) ($ in thousands)
Employee compensation and benefits $189,684 $138,025 $51,659 37.4%
BAI incentive compensation - (5,387) 5,387 (100.0)
Fund administration and servicing costs-affiliates 75,686 78,666 (2,980) (3.8)
General and administration 58,311 49,081 9,230 18.8
Amortization of intangible assets 10,153 9,653 500 NM
------------ ---------- --------- ------
Total expense $333,834 $270,038 $63,796 23.6%
============ ========== ========= ======
NM- Not meaningful
23
Employee compensation and benefits increased $51.7 million primarily due to
additional expenses of $32.6 million for incentive compensation largely based on
operating profit growth and $19.1 million related to salary and benefits.
Salary and benefit cost increases reflected a 15% increase in full-time
employees to support business growth and $4.2 million of additional accruals
reflecting a determination by the Compensation Committee of the Board of
Directors of the Company to increase incentive compensation and related benefits
due to the Company's strong operating performance. The change in BAI incentive
compensation was due to the fund's liquidation in 1999. Fund administration and
servicing costs-affiliates declined $3.0 million or 4% due to lower costs on PNC
client assets invested in the BlackRock Funds. General and administration
expenses increased $9.2 million or 19% primarily due to a $4.3 million increase
in marketing and promotional costs; a $1.9 million increase in office and
related services; and a $2.2 million increase in portfolio data and related
service expenses.
Operating Income and Net Income
Operating income was $143.0 million for the year ended December 31, 2000,
representing a $32.1 million or 29% increase compared with the year ended
December 31, 1999. Non-operating income increased $14.4 million to $6.9 million
for the year ended December 31, 2000 as compared with $7.5 million of non-
operating expense for the year ended December 31, 1999. The significant
improvement largely reflects reduced interest expense associated with the
repayment of debt including $115 million in net proceeds from the IPO. In
addition, interest income increased $4.3 million due to additional investments
of the Company's cash flow from operations. Income tax expense was $62.6
million and $44.0 million, representing effective tax rates of 41.7% and 42.6%
for the years ended December 31, 2000 and 1999, respectively. Net income
totaled $87.4 million for the year ended December 31, 2000 compared with $59.4
million for the year ended December 31, 1999, representing an increase of $27.9
million or 47%.
Operating results for year ended December 31, 1999 as compared with year ended
December 31, 1998.
Revenue
Total revenue for the year ended December 31, 1999 increased $41.5 million or
12% to $381.0 million compared with the year ended December 31, 1998.
Investment advisory and administration fees increased $36.7 million to $361.7
million for the year ended December 31, 1999, compared with $325.0 million for
the year ended December 31, 1998. The growth in investment advisory and
administration fees was primarily due to increases in assets under management,
which totaled $164.5 billion at December 31, 1999, a 26% increase compared with
December 31, 1998.
Year ended
December 31, Change
--------------------------- --------------------------------
1999 1998 Amount Percent
---------- -------- -------------- -----------
($ in thousands) ($ in thousands)
Investment advisory and administration fees:
Mutual funds $214,728 $162,487 $ 52,241 32.2%
Separate accounts 154,046 101,352 52,694 52.0
BAI revenue (7,072) 61,199 (68,271) NM
------------ --------- --------- -----
Total investment advisory and administration fees: 361,702 325,038 36,664 11.3
Other income 19,279 14,444 4,835 33.5
------------ --------- --------- -----
Total revenue $380,981 $339,482 $ 41,499 12.2%
============ ========= ========= =====
NM-Not meaningful
24
Mutual fund advisory and administration fees increased $52.2 million for
the year ended December 31, 1999, of which approximately $32.7 million reflects
increases largely attributable to the May 1998 conversion of $8.2 billion of PNC
common trust assets into the BlackRock Funds. The remaining $19.5 million
increase in mutual fund advisory and administration fees was due to a $3.8
billion increase in mutual fund assets under management. Separate account
advisory fees increased $52.7 million largely as a result of a $30.1 billion
growth in separate account assets under management as well as an $11.7 million
increase in performance fees earned on BlackRock's alternative investment
products. BAI revenues decreased $68.3 million due to the discontinuance of
business activity and reversals of previously accrued performance fees
associated with the fund's liquidation. Other income increased $4.8 million or
34%, primarily due to new risk management advisory engagements which included a
$2.0 million increase for additional services provided to PNC.
Expense
Total expense increased $9.9 million or 4% to $270.0 million for the year
ended December 31, 1999, compared with $260.1 million for the year ended
December 31, 1998 as a result of increases in employee compensation and
benefits, fund administration and servicing costs-affiliates and general and
administration expenses, partially offset by lower BAI incentive compensation
expense related to the fund's liquidation.
Year ended
December 31, Change
--------------------------------- ------------------------------
1999 1998 Amount Percent
--------------- ------------ ------------ ----------
($ in thousands) ($ in thousands)
Employee compensation and benefits $138,025 $109,741 $ 28,284 25.8%
BAI incentive compensation (5,387) 44,806 (50,193) NM
Fund administration and servicing costs-affiliates 78,666 52,972 25,694 48.5
General and administration 49,081 42,948 6,133 14.3
Amortization of goodwill 9,653 9,653 - -
---------- ---------- --------- ------
Total expense $270,038 $260,120 $ 9,918 3.8%
========== ========== ========= ======
NM- Not meaningful
Employee compensation and benefits increased $28.3 million due to
additional expenses of $10.5 million related to salary and benefits and $17.8
million for incentive compensation primarily based on operating profit growth.
Employee compensation and benefit cost increases were attributable to a 19%
increase in full-time employees to support business growth and enhancements to
PNC's 401(k) plan that were partially offset by the adoption of SOP 98-1
(Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use) in 1999 which resulted in a capitalization of approximately $4.9 million of
costs. Fund administration and servicing costs-affiliates increased $25.7
million of which $24.6 million reflects increases largely attributable to the
May 1998 conversion of $8.2 billion of PNC common trust funds into the BlackRock
Funds. General and administration expenses increased $6.1 million primarily due
to additional expenditures related to systems and communications and occupancy
and office services. These increases reflect the substantial rise in full-time
employment associated with business growth experienced during the period, as
well as a change in depreciable life on equipment from five years to three
years. BAI incentive compensation decreased by $50.2 million due to the
discontinuance of business activity and reversals of previously accrued
incentive compensation associated with the fund's liquidation.
25
Operating Income and Net Income
Operating income was $110.9 million for the year ended December 31, 1999,
representing a $31.6 million or 39.8% increase compared with the year ended
December 31, 1998. Non-operating expense decreased $3.9 million or 34.0% to
$7.5 million for the year ended December 31, 1999 compared with $11.4 million
for the year ended December 31, 1998, largely due to reduced interest expense
associated with the repayment of debt. Income tax expense was $44.0 million and
$32.4 million representing effective tax rates of 42.6% and 47.6% for the years
ended December 31, 1999 and 1998, respectively. The difference in the effective
tax rate reflects various permanent differences and state and local income tax
adjustments recorded pursuant to the PNC tax sharing policy. Net income totaled
$59.4 million for the year ended December 31, 1999 compared with $35.6 million
for the year ended December 31, 1998, an increase of 66.8%.
Liquidity and Capital Resources
BlackRock historically met its working capital requirements through cash
generated by its operating activities and borrowings from PNC Bank, N.A., an
indirect, wholly-owned subsidiary of PNC, under a $175.0 million revolving
credit facility. Cash provided by operating activities totaled $108.6 million,
$116.3 million and $53.7 million for the years ended December 31, 2000, 1999 and
1998, respectively. BlackRock expects that cash flows provided by operating
activities will continue to serve as the principal source of working capital for
the near future.
Net cash flow used in investing activities was $45.7 million, $18.9 million
and $5.0 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Capital expenditures for property and equipment were $32.8
million, $18.9 million and $8.4 million for the years ended December 31, 2000,
1999 and 1998, respectively. Capital expenditures in 2000 includes
approximately $20.0 million in construction costs incurred through December 31,
2000 on a new 84,000 square foot office building in Wilmington, Delaware as well
as higher technology investments associated with risk management activities and
increased office and related costs to support personnel growth. Net purchases
of investments were $12.9 million for the year ended December 31, 2000 and
represented seed investments made in certain new BlackRock Funds and alternative
investment products.
Net cash flow used in financing activities was $27.1 million, $53.8 million
and $4.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Debt at December 31, 1998 included $150.0 million outstanding on
a $175.0 million revolving credit facility with PNC Bank due December 31, 2002,
and $47.0 million on the unsecured note due through February 28, 2000 with B.P.
Partners, L.P. Payments on this debt totaled $28.2 million, $168.8 million and
$28.2 million for the years ended December 31, 2000, 1999 and 1998,
respectively. On February 29, 2000 and February 28, 1999, the Company repaid
$28.2 million and $18.8 million, respectively, on the unsecured note with B.P.
Partners, L.P., an entity comprised of former partners of BFM, who received
deferred notes on February 28, 1995 as part of the purchase price for BFM. In
its IPO on October 1, 1999, the Company issued 9 million shares of class A
common stock to the public at an offering price of $14 per share. The proceeds
from the IPO, net of underwriters' discount and estimated offering expenses,
totaled approximately $114.9 million. These net proceeds were used to retire a
portion of BlackRock's revolving credit facility with PNC Bank on October 7,
1999. During 1998, BlackRock received $34.2 million in net proceeds from the
sale of restricted stock to employees. On the March 31, 1998 formation date,
$12.3 million in dividends were paid to PNC in order to establish an appropriate
exchange ratio for PNC and employee ownership interests based on the fair market
value of the combined businesses.
Total capital at December 31, 2000 was $368.2 million and was comprised
entirely of stockholders' equity. Total capital at December 31, 1999 was $308.7
million and was comprised of $280.5 million of stockholders' equity and $28.2
million of debt. Total capital at December 31, 1998 was $303.2 million and was
comprised of $106.2 million of stockholders' equity and $197.0 million of debt.
26
Recent Accounting Developments
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company has adopted SAB No. 101 as required in the first quarter of 2000. The
adoption of SAB No. 101 has not had a material effect on the Company's
consolidated results of operations and financial position.
Interest Rates
The value of assets under management is affected by changes in interest
rates. Since BlackRock derives the majority of its revenues from investment
advisory fees based on the value of assets under management, BlackRock's
revenues may be adversely affected by changing interest rates. In a period of
rapidly rising interest rates, BlackRock's assets under management would likely
be negatively affected by reduced asset values and increased redemptions.
Inflation
The majority of BlackRock's revenues are based on the value of assets under
management. There is no predictable relationship between the rate of inflation
and the value of assets under management by BlackRock, except as inflation may
affect interest rates. BlackRock does not believe inflation will significantly
affect its compensation costs as they are substantially variable in nature.
However, the rate of inflation may affect BlackRock's expenses such as
information technology and occupancy costs. To the extent inflation results in
rising interest rates and has other effects upon the securities markets, it may
adversely affect BlackRock's results of operations by reducing BlackRock's
assets under management, revenues or otherwise.
Forward-looking Statements
This report and other documents filed by BlackRock with the Securities and
Exchange Commission include forward-looking statements within the meaning of the
Private Securities Litigation Reform Act with respect to the Company's future
financial or business performance, conditions, strategies, expectations and
goals. In addition, BlackRock may also include forward-looking statements in
other written or oral statements. Forward-looking statements are typically
identified by words or phrases such as "believe," "expect," "anticipate,"
"intend," "estimate," "position," "target," "mission," "assume," "achievable,"
"potential," "strategy," "goal," "objective," "plan," "aspiration," "outlook,"
"outcome," "continue," "remain," "maintain," "strive," "trend," and variations
of such words and similar expressions, or future or conditional verbs such as
"will," "would," "should," "could," "may," or similar expressions. BlackRock
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which change over time. Forward-looking
statements speak only as of the date they are made, and BlackRock assumes no
duty to update forward-looking statements. Actual results could differ
materially from those anticipated in these forward-looking statements and future
results could differ materially from historical performance.
In addition to factors previously disclosed by BlackRock and those
identified elsewhere in this report, the following factors, among others, could
cause actual results to differ materially from forward-looking statements or
historical performance: the introduction, withdrawal, success and timing of
business initiatives and strategies; economic conditions; changes in interest
rates and financial and capital markets; the investment performance of
BlackRock's advised or sponsored investment products and separately managed
accounts; competitive conditions; capital improvement projects; future
acquisitions; and the impact, extent and timing of technological changes and
legislative and regulatory actions and reforms. Please refer to Exhibit 99.1 of
this report and subsequent quarterly reports on Form 10-Q filed with the SEC for
a more detailed discussion of these and other factors.
27
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The independent auditor's reports and financial statements listed in the
accompanying index are included in Item 14 of this report. See Index to
Financial Statements and Financial Statement Schedules on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosure
matters.
28
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors and executive officers set forth under
the caption "Item 1: Election of Directors - Information Concerning the Nominees
and Directors" of the Proxy Statement is incorporated herein by reference.
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information contained in the section captioned "Compensation of
Executive Officers" and "Item 1: Election of Directors-Compensation of
Directors" of the Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the section captioned "Ownership of BlackRock
Common Stock" and "Ownership of PNC Common Stock" of the Proxy Statement is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Proxy Statement is incorporated herein by
reference.
29
Part IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included herein at pages F-1 through F-25.
2. Financial Data Schedules
All schedules have been omitted because they are not applicable,
not required, or the information required is included in the
financial statements or notes thereto.
3. Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K:
Exhibit No. Description
----------- -----------
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
3.3*** Amendment No. 1 to the Amended and Restated Bylaws of the
Registrant.
4.1* Specimen of Common Stock Certificate (per class).
4.2* Amended and Restated Stockholders Agreement, dated September
30, 1999, by and among the Registrant, PNC Asset Management,
Inc. and certain employees of the Registrant and its
affiliates.
10.1* Tax Disaffiliation Agreement, dated October 6, 1999, among
BlackRock Inc., PNC Asset Management, Inc. and The PNC
Financial Services Group, Inc., formerly PNC Bank Corp.
10.2* 1999 Stock Award and Incentive Plan. +
10.3* 1999 Annual Incentive Performance Plan. +
10.4* Nonemployee Directors Stock Compensation Plan. +
10.5* Form of Employment Agreement. +
10.6* Initial Public Offering Agreement, dated September 30, 1999,
among the Registrant, The PNC Financial Services Group,
Inc., formerly PNC Bank Corp. and PNC Asset Management, Inc.
10.7* Registration Rights Agreement, dated October 6, 1999, among
the Registrant, PNC Asset Management, Inc. and certain
holders of class B common stock of the Registrant.
10.8* Services Agreement, dated October 6, 1999, between the
Registrant and The PNC Financial Services Group, Inc.,
formerly PNC Bank Corp.
10.9** Amended and Restated Long-Term Deferred Compensation Plan. +
10.10** BlackRock International, Ltd. Amended and Restated Long-Term
Deferred Compensation Plan. +
10.11**** Agreement of Lease, dated May 3, 2000, between 40 East 52nd
Street L.P. and the Registrant.
10.12***** Amendment No. 1 to the 1999 Stock Award and Incentive Plan.
+
10.13***** Amendment No. 1 to the 1999 Amended and Restated Long-Term
Deferred Compensation Plan. +
10.14***** Amendment No. 1 to the BlackRock International, Ltd. Amended
and Restated Long-Term Deferred Compensation Plan. +
21.1 List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (Included on the Signature Pages hereto).
99.1 Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act
of 1995.
------------------------------------------------------------------------
* Incorporated by Reference to the Registrant'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.
** Incorporated by Reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-32406), originally filed with the
Securities and Exchange Commission on March 14, 2000.
*** Incorporated by Reference to the Registrant's Annual Report on Form 10-K
(Commission File No. 001-15305), for the year ended December 31, 1999.
**** Incorporated by Reference to the Registrant's Quarterly Report on Form
10-Q (Commission File No. 001-15305), for the quarter ended March 31,
2000.
30
***** Incorporated by Reference to the Registrant's Quarterly Report on Form 10-
Q (Commission File No. 001-15305), for the quarter ended September 30,
2000.
+ Denotes management contractor compensatory plan.
(b) Reports on Form 8-K
1. A current report on Form 8-K, dated October 12, 2000, was filed with
the Securities and Exchange Commission in connection with BlackRock's results of
operations for the three and nine months ended September 30, 2000.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant, BlackRock, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLACKROCK, INC.
(Registrant)
By:/s/ Laurence D. Fink
--------------------
Laurence D. Fink
Chairman, Chief Executive Officer and Director
March 28, 2001
Each of the officers and directors of BlackRock, Inc. whose signature
appears below, in so signing, also makes, constitutes and appoints Robert P.
Connolly and Ralph L. Schlosstein, 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 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
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of BlackRock,
Inc. and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Laurence D. Fink Chairman, Chief Executive Officer and March 28, 2001
- ----------------------------------
Laurence D. Fink Director (Principal Executive Officer)
/s/ Paul L. Audet Managing Director and Chief Financial Officer March 28, 2001
- ----------------------------------
Paul L. Audet (Principal Financial Officer)
/s/ Joseph Feliciani, Jr. Director of Accounting March 28, 2001
- ----------------------------------
Joseph Feliciani, Jr. (Principal Accounting Officer)
/s/ Murry S. Gerber Director March 28, 2001
- ----------------------------------
Murry S. Gerber
/s/ Walter E. Gregg, Jr. Director March 28, 2001
- ----------------------------------
Walter E. Gregg, Jr.
/s/ James Grosfeld Director March 28, 2001
- ----------------------------------
James Grosfeld
/s/ Frank T. Nickell Director March 28, 2001
- ----------------------------------
Frank T. Nickell
/s/ Thomas H. O'Brien Director March 28, 2001
- ----------------------------------
Thomas H. O'Brien
/s/ Helen P. Pudlin Director March 28, 2001
- ----------------------------------
Helen P. Pudlin
/s/ James E. Rohr Director March 28, 2001
- ----------------------------------
James E. Rohr
/s/ Ralph L. Schlosstein Director March 28, 2001
- ----------------------------------
Ralph L. Schlosstein
/s/ Lawrence M. Wagner Director March 28, 2001
- ----------------------------------
Lawrence M. Wagner
32
TABLE OF CONTENTS
FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Management's Responsibility for Financial Reporting F-3
Consolidated Statements of Financial Condition F-4
Consolidated Statements of Income F-5
Consolidated Statements of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to the Consolidated Financial Statements F-8
F-1
Report of Independent Auditors
The Board of Directors and Stockholders
BlackRock, Inc.
We have audited the accompanying consolidated statements of financial condition
of BlackRock, Inc. as of December 31, 2000 and 1999, and the consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BlackRock, Inc. at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
- ----------------------------------
ERNST & YOUNG LLP
New York, New York
January 31, 2001
F-2
Management's Responsibility for Financial Reporting
BlackRock, Inc. is responsible for the preparation, quality and fair
presentation of its published financial statements. The accompanying
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and, as such,
include judgments and estimates of management. BlackRock, Inc., also prepared
the other information included in the Annual Report and is responsible for its
accuracy and consistency with the consolidated financial statements.
Management is responsible for establishing and maintaining effective internal
control over financial reporting. The internal control system is augmented by
written policies and procedures and by audits performed by an internal audit
staff which reports to the Audit Committee of the Board of Directors. Internal
auditors test the operation of the internal control system and report findings
to management and the Audit Committee, and corrective actions are taken to
address identified control deficiencies and other opportunities for improving
the system. The Audit Committee, composed solely of outside directors, provides
oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and circumvention or
overriding of controls. Accordingly, even effective internal control can
provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of
internal control may vary over time.
Management assessed BlackRock, Inc.'s internal control over financial reporting
as of December 31, 2000. Based on this assessment management believes that
BlackRock, Inc. maintained an effective internal control system over financial
reporting as of December 31, 2000.
/s/ Laurence D. Fink /s/ Paul L. Audet
- ------------------------------------ --------------------------------
Laurence D. Fink Paul L. Audet
Chairman & Chief Executive Officer Chief Financial Officer
F-3
BlackRock, Inc.
Consolidated Statements of Financial Condition
(Dollar amounts in thousands)
December 31,
------------------------------
2000 1999
----------- ----------
Assets
Cash and cash equivalents $ 192,590 $ 157,129
Accounts receivable 81,800 63,726
Investments, available for sale (cost: $16,854 and $2,515, respectively) 13,316 2,255
Property and equipment, net 45,598 22,677
Intangible assets (net of accumulated amortization of $56,768 and
$46,615, respectively) 192,142 194,257
Receivable from affiliates 1,484 2,111
Other assets 10,073 5,427
----------- -----------
Total assets $ 537,003 $ 447,582
=========== ===========
Liabilities and stockholders' equity
Note and loan payable to affiliates $ - $ 28,200
Accrued compensation 130,101 90,350
Accounts payable and accrued liabilities
Affiliate 14,750 33,476
Other 12,264 10,474
Accrued interest payable to affiliates - 705
Acquired management contract obligation 8,040 -
Other liabilities 3,607 3,851
----------- -----------
Total liabilities 168,762 167,056
=========== ===========
Stockholders' equity
Common stock, class A, 9,487,297 and
9,000,000 shares issued, respectively 95 90
Common stock, class B, 54,509,875 and
54,864,382 shares issued, respectively 545 549
Additional paid-in capital 172,156 169,554
Retained earnings 200,064 112,703
Unearned compensation (2,126) (2,139)
Accumulated other comprehensive loss (2,477) (231)
Treasury stock, at cost (16) -
----------- -----------
Total stockholders' equity 368,241 280,526
----------- -----------
Total liabilities and stockholders' equity $ 537,003 $ 447,582
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
BlackRock, Inc.
Consolidated Statements of Income
(Dollar amounts in thousands, except share data)
Year ended
December 31,
------------------------------------------------
2000 1999 1998
------------- ------------- ------------
Revenue
Investment advisory and administration fees
Mutual funds $229,259 214,728 $162,487
Separate accounts 223,521 154,046 101,352
BAI - (7,072) 61,199
Other income
Affiliate 5,000 5,000 3,000
Other 19,092 14,279 11,444
--------------- -------------- -------------
Total revenue 476,872 380,981 339,482
=============== ============== =============
Expense
Employee compensation and benefits 189,684 138,025 109,741
BAI incentive compensation - (5,387) 44,806
Fund administration and servicing costs - affiliates 75,686 78,666 52,972
General and administration
Affiliate 4,962 5,320 4,666
Other 53,349 43,250 34,030
Amortization of intangible assets 10,153 9,653 9,653
Closed-end fund offering costs - 511 4,252
--------------- -------------- -------------
Total expense 333,834 270,038 260,120
=============== ============== =============
Operating income 143,038 110,943 79,362
Non-operating income (expense)
Interest income 7,734 3,445 1,995
Interest expense (855) (10,938) (13,347)
--------------- -------------- -------------
Total non-operating income (expense) 6,879 (7,493) (11,352)
=============== ============== =============
Income before income taxes 149,917 103,450 68,010
Income taxes 62,556 44,033 32,395
--------------- -------------- -------------
Net income $87,361 $59,417 $35,615
=============== ============== =============
Earnings per share
Basic $1.37 $1.04 $0.67
Diluted $1.35 $1.04 $0.66
Weighted-average shares outstanding
Basic 63,886,353 57,057,014 53,507,051
Diluted 64,590,707 57,268,912 53,682,204
See accompanying notes to consolidated financial statements.
F-5
BlackRock, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
(Dollar amounts in thousands)
Accumulated
Common Stock Additional Other Total
Class Paid-In Retained Unearned Comprehensive Treasury Stockholders'
A B Capital Earnings Compensation Loss Stock Equity
----- ----- ---------- -------- ------------ ------------- -------- -------------
December 31, 1997 $ - $ - $ 15,091 $ 29,872 $ - $ - $ - $ 44,963
Net income - - - 35,615 - - - 35,615
Dividends to PNC - - - (12,300) - - - (12,300)
Issuance of class B common stock - - 35,951 - - - - 35,951
Stock reclassification - 549 (549) - - - - -
Purchase of treasury stock - - - - - - (200) (200)
Forgiveness of intercompany allocations - - - 99 - - - 99
Capital contribution from
PNC Bank, N.A. - - 2,063 - - - - 2,063
----- ----- ---------- -------- ------------ ------------- -------- -------------
December 31, 1998 - 549 52,556 53,286 - - (200) 106,191
Net income - - - 59,417 - - - 59,417
Purchase of treasury stock - - - - - - (550) (550)
Sale of treasury stock - - 2,239 - (2,239) - 750 750
Issuance of class A common stock, net 90 - 114,759 - - - - 114,849
Amortization of discount on issuance
of class B common stock - - - - 100 - - 100
Unrealized loss on investments, net - - - - - (231) - (231)
------ ----- ---------- -------- ------------ ------------- -------- -------------
December 31, 1999 90 549 169,554 112,703 (2,139) (231) - 280,526
Net income - - - 87,361 - - - 87,361
Purchase of treasury stock - - - - - - (16) (16)
Conversion of class B stock to
class A stock 5 (5) - - - - - -
Issuance of shares to Nonemployee
Directors - - 111 - - - - 111
Proceeds from issuance of class A
common stock - - 222 - - - - 222
Expenses from issuance of class A
common stock - - (91) - - - - (91)
Issuance of class B common stock - 1 1,008 - (744) - - 265
Amortization of discount on
issuance of class B common stock - - - - 757 - - 757
Stock options exercised - - 742 - - - - 742
Tax benefit from stock options exercised - - 610 - - - - 610
Foreign currency translation loss - - - - - (408) - (408)
Unrealized loss
on investments, net - - - - - (1,838) - (1,838)
----- ----- ---------- -------- ------------ ------------- -------- -------------
December 31, 2000 $95 $545 $172,156 $200,064 ($2,126) ($2,477) ($16) $368,241
===== ===== ========== ======== ============ ============= ======== =============
See accompanying notes to consolidated financial statements.
F6
BlackRock, Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
Year ended
December 31,
-----------------------------------------------
2000 1999 1998
----------- ------------ -------------
Cash flows from operating activities
Net income $ 87,361 $ 59,417 $ 35,615
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,995 18,153 12,852
Stock-based compensation 868 100 1,737
Tax benefit from stock options exercised 610 - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (18,074) 42,484 (70,364)
Decrease (increase) in receivable from affiliates 627 (1,665) 1,422
(Increase) decrease in other assets (4,646) (3,426) 192
Increase (decrease) in accrued compensation 39,751 (19,979) 61,597
(Decrease) increase in accounts payable and accrued liabilities (16,936) 19,845 11,126
Decrease in accrued interest payable to affiliates (705) (470) (483)
(Decrease) increase in other liabilities (244) 1,867 41
----------- ------------ -------------
Cash provided by operating activities 108,607 116,326 53,735
----------- ------------ -------------
Cash flows from investing activities
Purchase of property and equipment (32,761) (18,925) (8,414)
(Purchase) sale of investments (12,899) 29 3,400
----------- ------------ -------------
Cash used in investing activities (45,660) (18,896) (5,014)
----------- ------------ -------------
Cash flows from financing activities
Repayment of note and loan payable to affiliates (28,200) (168,800) (28,232)
Issuance of class A common stock 222 117,495 -
Issuance of class B common stock 265 - 34,214
Expenses related to issuance of class A common stock (91) (2,646) -
Capital contribution from PNC Bank, N.A. - - 2,063
Purchase of treasury stock (16) (550) (200)
Reissuance of treasury stock - 750 -
Stock options exercised 742 - -
Forgiveness of intercompany allocations - - 99
Dividends to PNC Bank, N.A. - - (12,300)
----------- ------------ -------------
Cash used in financing activities (27,078) (53,751) (4,356)
----------- ------------ -------------
Effect of exchange rate changes on cash and cash equivalents (408) - -
----------- ------------ -------------
Net increase in cash and cash equivalents 35,461 43,679 44,365
Cash and cash equivalents, beginning of period 157,129 113,450 69,085
----------- ------------ -------------
Cash and cash equivalents, end of period $ 192,590 $ 157,129 $ 113,450
=========== ============ =============
See accompanying notes to consolidated financial statements.
F-7
Blackrock, Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2000, 1999 and 1998
(Dollar amounts in thousands, except share data)
1. Significant Accounting Policies
Organization and Basis of Presentation
BlackRock, Inc. (together with its subsidiaries "BlackRock" or the
"Company") is indirectly majority owned by The PNC Financial Services Group,
Inc. ("PNC"). The consolidated financial statements of BlackRock include the
assets, liabilities and earnings of its wholly-owned subsidiaries BlackRock
Advisors, Inc. ("BA"), BlackRock Institutional Management Corporation ("BIMC"),
BlackRock Capital Management ("BCM"), BlackRock Investments, Inc., formerly
Provident Advisers, Inc. ("BII"), BlackRock Financial Management, Inc. ("BFM"),
BlackRock Funding, Inc. and BlackRock International, Ltd. ("BI") and their
subsidiaries. BlackRock and its consolidated subsidiaries provide diversified
investment management services to institutional clients, including certain
subsidiaries and affiliates of PNC, and to individual investors through various
investment vehicles. Institutional investment management services primarily
consists of the active management of fixed income, equity and liquidity client
accounts and the management of the BlackRock Provident Institutional Funds, a
money market mutual fund family serving the institutional market. Individual
investor services primarily consists of the management of the Company's
sponsored open-end and closed-end mutual funds ("BlackRock Funds"). BA, BIMC,
BFM, BI and BCM are registered investment advisers under the Investment Advisers
Act of 1940 while BII is a registered broker dealer.
The consolidated financial statements of the Company include the "carved
out" historical financial position, results of operations, cash flows and
changes in stockholders' equity of the asset management businesses of PNC that
were combined under BlackRock as if they had been operating as a separate
corporate entity. The consolidated statement of income for the year ended
December 31, 1998 has been adjusted to reflect an allocation of certain
expenses, primarily relating to office rent and overhead charges for various
administrative functions provided by PNC. The allocations were required to
reflect all costs of doing business and have been based on various methods which
management believes results in reasonable allocations of such costs.
The intercompany allocations and other adjustments related to the carve out
which were not paid by the Company are reflected in the Company's consolidated
statements of changes in stockholders' equity as forgiveness of intercompany
allocations.
Significant intercompany accounts and transactions between the consolidated
entities have been eliminated.
Formation Transactions
The Company was formed in 1998 as a result of PNC's decision to consolidate
a substantial portion of its asset management businesses under a common
management and brand (BlackRock). Prior to the formation, on January 31, 1998,
PNC sold 30,000 shares of restricted BFM stock to certain key employees and PNC
retained 70,000 shares. The purchase price for the stock was based on an
independent valuation of BFM with the shares subject to significant vesting and
transfer restrictions.
On March 31, 1998, PNC Bank, N.A. ("PNC Bank"), the principal bank
subsidiary of PNC, contributed BFM and other asset management subsidiaries into
a new holding company, BlackRock. BFM's employee shareholders exchanged their
stock in BFM for 8,250,000 shares of restricted class B common stock in the
Company while PNC received 19,250,000 shares of the Company for its ownership
interest in BFM and an additional 25,850,000 shares representing the fair value
based on an independent valuation of PNC's other contributed asset management
businesses. In May 1998, the Company sold an additional 1,514,382 shares and
entered into forward sales agreements for 175,153 shares of restricted stock to
key employees of the contributed businesses.
On September 30, 1999, the Company effected a 275:1 stock split by
reclassifying each share of common stock issued into 275 shares of class B
common stock (the "Stock Reclassification"). The Stock Reclassification has been
retroactively restated in the consolidated financial statements.
F-8
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
On September 30, 1999, BlackRock reissued 213,474 shares of class B common
stock, held in treasury, to key employees in the form of restricted stock.
These shares were sold at a discount to fair market value of $2.2 million which
will be expensed on a straight-line basis over the five-year vesting period.
The discount was recorded as additional paid-in capital and unearned
compensation in the consolidated statements of financial condition. The
proceeds from the sale of treasury stock approximated $750.
On October 1, 1999, BlackRock sold 9,000,000 shares of class A common stock
to the public at an initial price of $14 per share (the "IPO"). The proceeds
from the IPO, net of underwriters' discount and estimated IPO expenses, totaled
approximately $115,000. These proceeds were used to retire a portion of
BlackRock's revolving line of credit with PNC Bank on October 7, 1999.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with original maturities of three months or less. Cash and cash
equivalents are held at major financial institutions and in money market mutual
funds, in which the Company is exposed to market and credit risk.
Investments
Investments consist primarily of BlackRock Funds and certain institutional
and private placement portfolios ("alternative investment products") and are
stated at quoted market values. Securities which are not readily marketable
(alternative investment products) are stated at their estimated fair market
value as determined by the Company's management. The resulting unrealized gains
and losses are included in the accumulated other comprehensive loss component of
stockholders' equity, net of tax. Realized gains and losses on investments and
interest and dividend income are included in non-operating income (expense). The
Company's management periodically assesses impairments on investments to
determine if they are other than temporary. Any impairments on investments are
recorded in earnings.
Revenue Recognition
Investment advisory and administration fees are recognized as the services
are performed. Such fees are primarily based on predetermined percentages of the
market values of the assets under management. Investment advisory and
administration fees for mutual funds are shown net of fees waived pursuant to
expense limitations.
The Company also receives performance fees or an incentive allocation from
alternative investment products and certain separate accounts. These performance
fees are earned upon attaining specified return thresholds and may contain other
restrictions.
Administration and Servicing Costs
In connection with mutual funds advised by the Company, certain
administration and servicing costs are expensed as incurred.
F-9
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation generally is provided on the straight-line method over an estimated
useful life ranging from three to seven years. Leasehold improvements are
amortized using the straight-line method over their estimated useful lives or
lease terms, whichever is shorter.
Intangible Assets
Intangible assets are comprised of goodwill and management contract
acquired. Goodwill is amortized on a straight-line basis over 25 years.
Management contract acquired is amortized in proportion to and over the period
of contract revenue, which is ten years. The Company continually evaluates the
carrying value of intangible assets. Any impairment would be recognized when
the future operating cash flows expected to be derived from such intangible
assets are less than their carrying value. In such instances, impairment, if
any, is measured on a discounted future cash flow basis.
Stock-based Compensation
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-based Compensation", and has adopted the
intrinsic value method for all arrangements under which employees receive shares
of stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. Fair value
disclosures are included in the notes to the consolidated financial statements.
Earnings Per Share
The Company has adopted SFAS No. 128, "Earnings Per Share." Basic earnings
per common share is calculated by dividing net income applicable to common
stockholders by the weighted average number of shares of common stock
outstanding. Diluted earnings per common share is computed by dividing net
income by the total weighted average number of shares of common stock
outstanding and common stock equivalents. Diluted earnings per share is
computed using the treasury stock method.
Business Segments
The Company has not presented business segment data in accordance with SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information",
because it operates predominantly in one business segment, the investment
advisory and asset management business.
Software Costs
The Company has adopted Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. Qualifying software costs of
approximately $5.2 and $4.9 million have been capitalized for the years ended
December 31, 2000 and 1999, respectively, and are being amortized over an
estimated useful life of three years.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires that all changes in equity except those resulting from
investments by shareholders and distributions to shareholders be included in
accumulated other comprehensive income (loss). Comprehensive income has been
presented to conform to SFAS No. 130 requirements.
F-10
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Disclosure of Fair Value
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of estimated fair values of certain on- and off-balance
sheet financial instruments. The methods and assumptions are set forth below:
. Cash and cash equivalents, receivables, other assets, accounts
payable, accrued liabilities, and note and loan payable to affiliates
approximate fair value due to the short maturities.
. The fair value of investments is based on quoted market values. If
securities are not readily marketable (alternative investment
products), values are stated at their estimated fair value as
determined by the Company's management.
. The fair value of the acquired management contract obligation is based
on current rates offered to the Company for debt with a similar
remaining maturity.
Derivative Instruments and Hedging Activities
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts and for hedging
activities. SFAS No. 133 generally requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those investments at fair value. SFAS No. 133, as amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138,
"Accounting for Certain Derivative and Certain Hedging Activities, an amendment
to FASB Statement No. 133," is required to be adopted for fiscal years beginning
after June 15, 2000. The Company adopted the new statement effective January 1,
2001. The statement requires the recognition of all derivatives on the balance
sheet at fair value. The adoption of SFAS No. 133, as amended by SFAS No. 137
and 138, is not expected to have a material impact on the Company's results of
operations or financial position.
Reclassification of Prior Periods' Statements
Certain items previously reported have been reclassified to conform with
the current year's presentation.
Recent Accounting Pronouncements
Revenue Recognition in Financial Statements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company adopted SAB No. 101 as required in the first quarter of 2000. The
adoption of SAB No. 101 did not have a material effect on the Company's
consolidated results of operations and financial position.
F-11
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
2. Property and Equipment
Property and equipment consists of the following:
December 31,
---------------------------
2000 1999
---------------------------
Equipment and computer software $ 37,157 $ 26,778
Leasehold improvements 9,361 7,454
Furniture and fixtures 7,262 6,893
Land 3,564 3,564
Construction in progress 19,826 -
-------- ---------
77,170 44,689
-------- ---------
Less accumulated depreciation 31,572 22,012
-------- ---------
Property and equipment, net $ 45,598 $ 22,677
======== =========
Depreciation expense was approximately $9,842, $8,500 and $3,199 for the
years ended December 31, 2000, 1999 and 1998, respectively.
Construction in progress primarily reflects expenditures for a new building
located in Wilmington, Delaware. The facility, which is expected to be completed
in the first quarter of 2001, will house all of the Company's operations
currently conducted in leased facilities in Wilmington, Delaware and
Philadelphia, Pennsylvania.
3. Intangible Assets
a) Goodwill
The consolidated financial statements reflect the results of
operations of the former BlackRock Financial Management, L.P.
("BFM") and BFM Advisory L.P., which were acquired by The PNC
Financial Services Group, Inc. on February 28, 1995. Goodwill
recognized at acquisition approximated $240,000 and is being
amortized on a straight-line basis over 25 years.
b) Management Contract Acquired
On May 15, 2000, BlackRock entered into a contract in connection
with the agreement and plan of merger of CORE Cap, Inc. with
Anthracite Capital, Inc., a BlackRock managed REIT. This
agreement assigns the managerial rights and duties of CORE Cap,
Inc.'s former manager to BlackRock for consideration in the
amount of $12,500 to be paid by BlackRock over a ten-year period.
As of December 31, 2000, the present value of the acquired
contract using an imputed interest rate of 10 percent is $8,040.
This amount is recorded as an intangible asset and is being
amortized over ten years.
4. Note and Loan Payable to Affiliates
On February 29, 2000, the Company paid the remaining balance of $28,200 on
an unsecured note with B.P. Partners, L.P., an entity comprised of former
partners of BFM, who received deferred notes on February 28, 1995 as part of the
purchase price for BFM.
Interest expense for the periods ended December 31, 2000, 1999 and 1998 was
$353, $10,938, and $13,347, respectively.
F-12
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
5. Commitments
a) Lease Commitments
The Company leases its primary office space under agreements which expire
through 2017. Future minimum commitments under these operating leases, net
of rental reimbursements of $1,836 through 2005 from a sublease
arrangement, are as follows:
2001 $ 5,850
2002 9,251
2003 10,017
2004 10,017
2005 10,017
Thereafter 110,202
----------
$ 155,354
==========
In connection with certain lease agreements, the Company is responsible for
escalation payments.
Occupancy expense amounted to $9,707, $8,022 and $5,662 for the years ended
December 31, 2000, 1999 and 1998, respectively.
On May 3, 2000, BlackRock signed a lease with 40 East 52/nd/ Street L.P.
for approximately 171,000 square feet of office space at 40 East 52/nd/ Street,
New York, New York. This location will be BlackRock's corporate headquarters and
will accommodate all of BlackRock's current New York City-based operations.
Under the lease, BlackRock occupied approximately 19,000 square feet in July
2000 with the remaining 152,000 square feet to commence on or about September 1,
2001. The lease will terminate on February 28, 2017. Total rent payments over
the lease term will approximate $138,000. The 152,000 square feet of new space
will be placed in service in early 2002.
b) Acquired Management Contract Obligation
In connection with the management contract acquired associated with the
agreement and plan of merger of CORE Cap, Inc. with Anthracite Capital, Inc., a
BlackRock managed REIT, the Company recorded an $8,040 liability using an
imputed interest rate of 10 percent. For the year ended December 31, 2000, the
related expense was $502. At December 31, 2000, the future minimum commitment
under the agreement is as follows:
2001 $ 1,500
2002 1,500
2003 1,500
2004 1,500
2005 1,500
Thereafter 5,000
---------
$ 12,500
---------
Less imputed interest 4,460
---------
Present value of management contract $ 8,040
=========
F-13
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
5. Commitments (continued)
c) Unused Line of Credit
As of December 31, 2000 and 1999, the Company has an unused revolving line
of credit, due December 2002, with PNC Bank whereby the Company may borrow
principal amounts up to $175,000 at prime rate (9.5% at December 31, 2000).
6. Employee Benefit Plans
The Company's employees participate in PNC's Incentive Savings Plan
("ISP"), a defined contribution plan. Under the ISP, employee contributions of
up to 6% of eligible compensation, subject to Internal Revenue Code limitations,
are matched by the Company (the "Company Match"). ISP expenses for the Company
were $3,758, $2,212 and $1,210 for the years ended December 31, 2000, 1999 and
1998, respectively. Contributions to the plan are matched primarily by shares of
PNC's common stock funded by PNC's Employee Stock Ownership Plan. Effective
January 1, 2001, BlackRock began contributing the Company match to the ISP with
BlackRock class A common stock.
PNC provides certain health care and life insurance benefits for retired
employees. Expenses for postretirement benefits allocated to the Company by PNC
were $272, $225 and $217 for the fiscal years ended December 31, 2000, 1999 and
1998, respectively. At December 31, 2000 and 1999, accrued postretirement
benefits included in the consolidated statements of financial condition totaled
$923 and $741, respectively. No separate financial obligation data for the
Company is available with respect to such plan.
Certain employees of the Company participate in PNC's noncontributory
defined benefit pension plan. Retirement benefits are based on compensation
level, age and length of service. Pension contributions are based on actuarially
determined amounts necessary to fund total benefits payable to plan
participants. During 1999, the Company contributed approximately $1,600 to the
plan and had a prepaid balance of approximately $1,200 in pension benefit
obligation as of December 31, 2000 and 1999. These amounts were recorded in
other assets on the consolidated statement of financial condition. Pension
(income) expense was approximately $0, $(81) and $79 for the fiscal years ended
December 31, 2000, 1999 and 1998, respectively.
F-14
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
7. Stock Award and Incentive Plans
Stock Option Plan
Effective October 1, 1999, the Board of Directors of BlackRock adopted the
1999 Stock Award and Incentive Plan (the "Award Plan"). A maximum of 3,795,011
shares of class A common stock are authorized for issuance under the Award Plan.
On October 1, 1999, options to purchase 1,061,000 shares of class A common stock
at $14 per share were issued to eligible employees. These options have a ten
year life, vest ratably over three years and become exercisable upon vesting.
On December 15, 2000, options to purchase 1,274,000 shares of class A common
stock at $43.31 per share were issued to eligible employees. These options have
a ten year life, vest over four years (50% in year three and 50% in year four)
and become exercisable upon vesting. On December 29, 2000, options to purchase
208,034 shares of class A common stock at $42.00 were issued to certain
Edinburgh-based employees in accordance with their employment agreements. These
options have a ten year life, vest over four years (25% at December 29, 2000
with the remaining 75% vesting ratably over three years) and become exercisable
upon vesting.
Pursuant to SFAS No. 123 "Accounting for Stock-based Compensation," the
Company has elected to account for its Award Plan under Accounting Principles
Board Opinion No. ("APB") 25, "Accounting for Stock Issued to Employees," and
adopt the disclosure only provisions of SFAS No. 123. Under APB 25, no
compensation costs were recognized related to the Award Plan because the option
exercise price of the options awarded is equal to the fair market price of the
common stock on the date of the grant. Under SFAS No. 123, compensation costs
related to the Award Plan are measured at the grant date based on the fair value
and are recognized ratably over the vesting period. If the Company had elected
to recognize compensation costs based on the fair value of the options granted
at the grant date as prescribed by SFAS No. 123, net income would have been
reduced by $1,502 and $331 for the years ended December 31, 2000 and 1999. Basic
earnings per share would have been reduced by $0.03 and $0.01 per share for the
years ended December 31, 2000 and 1999, respectively. Diluted earnings per share
would have been reduced by $0.02 and $0.01 per share for the years ended
December 31, 2000 and 1999, respectively.
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following assumptions for the years ended December
31, 2000 and 1999, respectively:
2000 1999
--------------- -----------------
Expected dividend yield 0.00% 0.00%
Expected volatility 31.36% 27.50%
Risk-free interest 5.88% 7.08%
Expected term 7 years 7 years
The weighted-average fair value of the options granted in 1999 and 2000
were $6.51 and $19.92 per share, respectively.
F-15
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
7. Stock Award and Incentive Plans (continued)
Stock option activity during 1999 - 2000 is summarized below:
Shares under Weighted-avg.
Outstanding at option exercise price
------------ --------------
October 1, 1999 - $ -
Granted 1,061,000 14.00
Exercised - -
Canceled 5,000 14.00
----------- --------------
December 31, 1999 1,056,000 14.00
Granted 1,482,034 43.13
Exercised 53,024 14.00
Canceled 83,500 14.00
----------- --------------
December 31, 2000 2,401,510 $ 31.98
=========== ==============
The shares of class A common stock authorized under the Company's stock
option plan were 3,795,011 at December 31, 2000. Of this amount, 1,340,477
shares remain available for future awards.
Stock options outstanding and exercisable on December 31, 2000 are as
follows:
Weighted-avg.
Shares under Weighted-avg. remaining
option exercise price contractual life
-------------- ---------------- ------------------
Outstanding: 208,034 $42.00 9.99
1,274,000 43.31 9.96
919,476 14.00 8.75
-------------- ---------------- ------------------
2,401,510 $31.98 9.50
============== ================ ==================
Exercisable: 52,010 $42.00 9.99
271,406 14.00 8.75
-------------- ---------------- ------------------
323,416 $18.50 8.95
============== ================ ==================
F-16
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
7. Stock Award and Incentive Plans (continued)
Deferred Compensation Plan
The Company has a Long-term Deferred Compensation Plan (the "Plan") to
provide a competitive long-term incentive for key officers and employees. The
awards vest through 2004 and are expensed on a straight-line method over the
respective vesting periods.
On October 1, 1999, approximately $19,800 of the $20,700 in deferred
compensation awards was converted into 1,518,690 shares of class A common stock
in connection with the Plan. The excess of the fair market value over the $13.06
conversion price of each share resulted in additional compensation expense of
$1,400. The compensation expense will be recorded over the applicable vesting
periods through 2004. Compensation expense under the Plan for the years ended
December 31, 2000, 1999 and 1998 was $5,904, $5,033 and $6,321, respectively.
8. Related Party Transactions
The Company and its consolidated subsidiaries provide investment advisory
and administration services to the BlackRock Funds, the BlackRock Provident
Institutional Funds and other commingled funds.
Revenues for services provided to these mutual funds are as follows:
Year ended
December 31,
-----------------------------
2000 1999 1998
-------- ------ ---------
Investment advisory and administration fees:
BlackRock Open-end Funds $151,918 $142,597 $ 86,225
BlackRock Closed-end Funds 33,916 34,581 36,521
BlackRock Provident Institutional Funds 38,120 33,021 32,202
Commingled Funds 5,305 4,529 7,539
--------- -------- --------
$229,259 $214,728 $162,487
========= ======== ========
During May 1998, approximately $8,200,000 in assets of the PNC Common Trust
commingled funds were converted to the BlackRock Open-end Funds. During the
first four months of 1998, $3,142 of fees were earned on these commingled funds.
F-17
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
8. Related Party Transactions (continued)
The Company provides investment advisory and administration services to
certain PNC subsidiaries for a fee, based on assets under management. In
addition, the Company provides risk management and, beginning in 1998, model
portfolio services to PNC. Revenues for such services are as follows:
Year ended
December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Investment advisory and administration fees:
Separate accounts $ 5,155 $ 3,493 $3,468
Model Portfolio Services 4,400 4,400 2,567
Other income-risk management 5,000 5,000 3,000
Fixed income trading services 1,125 281 -
------- ------- --------
$15,680 $13,174 $9,035
======= ======= ========
The Company has entered into various memoranda of understanding and co-
administration agreements with affiliates of PNC pursuant to which the Company
pays administration fees for the BlackRock Provident Institutional Funds and
certain other commingled funds and service fees for PNC Advisors' (PNC's wealth
management business) clients invested in the BlackRock Funds.
The Company incurred interest expense to related parties in connection with
the 7.5% unsecured note with B.P. Partners, L.P. and the revolving line of
credit with PNC. PNC also provides general and administrative services to the
Company. Charges for such services were based on actual usage or on defined
formulas which, in management's view, resulted in reasonable allocations.
Aggregate expenses included in the consolidated financial statements for
transactions with related parties are as follows:
Year ended
December 31,
-------------------------------
2000 1999 1998
-------- -------- --------
Fund administration and servicing costs-affiliates $75,686 $78,666 $52,972
General and administration 4,962 5,320 4,666
Interest expense-affiliates 353 10,938 13,347
-------- -------- --------
$81,001 $94,924 $70,985
======== ======== ========
Additionally, an indirect wholly-owned subsidiary of PNC acts as a
financial intermediary associated with the sale of back-end loaded shares of
certain BlackRock funds. This entity finances broker sales commissions and
receives all associated sales charges.
Payable to affiliates approximated $14,750 and $33,476 at December 31, 2000
and 1999, respectively. These amounts primarily represent income taxes payable
and fund administration and servicing costs-affiliates payable. These amounts do
not bear interest.
Receivable from affiliates was approximately $1,484 and $2,111 at December
31, 2000 and 1999, respectively. The amount primarily represents a receivable
for administration fees earned in connection with services provided to the
BlackRock Closed-end Funds.
F-18
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
9. BlackRock Asset Investors
BFM previously served as an investment advisor to BlackRock Asset Investors
("BAI"), a closed-end investment company. BAI was liquidated on September 27,
1999 in accordance with a plan adopted by BAI's Board of Trustees and
shareholders in 1997. BAI's principal business was to acquire, work out, pool
and repackage performing and distressed commercial, multifamily, and single
family mortgage loans as commercial or residential mortgage-backed securities
for sale in the capital markets through independent underwriters and broker-
dealers.
BFM recorded investment advisory and administration fees for BAI for the
years ended December 31, 2000, 1999, and 1998 of $0, $1,943 and $3,291,
respectively. BFM earned performance fees based on a stipulated percentage of
the excess profits after BAI shareholders had received a minimum return on
invested capital. Based on the market value of BAI's underlying assets, overall
investor returns and final asset liquidation values, the Company recorded
performance fees/(reduction of previously recorded performance fees), of $0,
$(9,015) and $57,908 for the years ended December 31, 2000, 1999 and 1998,
respectively.
In accordance with various contractual arrangements including the 1994
acquisition agreement between PNC and BFM, incentive compensation earned on BAI
revenue was $0, $(5,387) and $44,806 for the years ended December 31, 2000, 1999
and 1998, respectively.
10. Net Capital Requirements
As a registered broker-dealer, BII is subject to the Uniform Net Capital
requirements under the Securities Exchange Act of 1934, which requires
maintenance of certain minimum net capital levels. At December 31, 2000 and
1999, BII's net capital of $2,764 and $5,391 was $2,587 and $5,217 in excess of
regulatory requirements, respectively.
F-19
BlackRock, Inc.
Notes to the Consolidated Financial Statements (continued)
11. Common Stock
BlackRock's class A, $0.01 par value, common shares authorized was
250,000,000 shares as of December 31, 2000 and 1999. BlackRock's class B, $0.01
par value, common shares authorized was 100,000,000 shares as of December 31,
2000 and 1999, respectively.
The Company's common shares issued and outstanding and related activity consist
of the following:
Shares issued
-------------------------------------------
Common shares Treasury shares Shares outstanding
----------------------
Class Class Class
--------------------- ------------------ ----------------------
A B A B A B
--------------------- ------------------ ----------------------
January 1, 1998 - 45,100,000 - - - 45,100,000
Issuance of class B common stock - 9,764,382 - - - 9,764,382
Purchase of treasury stock - - - (56,900) - (56,900)
----------------------- ------------------ --------- ----------
December 31, 1998 - 54,864,382 - (56,900) - 54,807,482
Issuance of class A common stock 9,000,000 - - - - -
Purchase of treasury stock - - - (156,574) - (156,574)
Sale of treasury stock - - - 213,474 - 213,474
------------------------ ------------------ --------- ----------
December 31, 1999 9,000,000 54,864,382 - - 9,000,000 54,864,382
Purchase of treasury stock - - (353) - (353) -
Conversion of class B stock
to class A stock 430,145 (430,145) - - 430,145 (430,145)
Issuance of shares to
Nonemployee Directors 4,128 - - - 4,128 -
Issuance of class B common stock - 75,638 - - - 75,638
Stock options exercised 53,024 - - - 53,024 -
----------------------- ------------------ --------- ----------
December 31, 2000 9,487,297 54,509,875 (353) - 9,486,944 54,509,875
======================= ================== ========= ==========
F-20
BlackRock, Inc.
Notes to Consolidated Financial Statements (continued)
12. Income Taxes
The Company accounts for income taxes under the liability method prescribed
by SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax basis.
Prior to and including October 6, 1999, the operating results of the
Company were primarily included in the consolidated U.S. Federal tax returns of
PNC or its subsidiaries. For state and local income tax purposes, the Company
was included in the combined and unitary tax returns with PNC and its
subsidiaries, and filed separate company returns.
Effective October 6, 1999, PNC and BlackRock entered into a tax
disaffiliation agreement (the "Tax Disaffiliation Agreement") that sets forth
each party's rights and obligations with respect to income tax payments and
refunds for periods before and after the completion of the IPO 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.
For periods beginning on October 7, 1999 and thereafter, BlackRock will
file its own consolidated federal income tax return. BlackRock may file
separate state and municipal income tax returns or may be included in state
and/or municipal income tax returns with one or more PNC subsidiaries on a
combined or unitary basis. If BlackRock is included in a group's combined or
unitary state or municipal income tax filing with PNC subsidiaries, BlackRock's
share of the liability generally will be based upon an allocation to BlackRock
of a percentage of the total tax liability based upon BlackRock's level of
activity in such state or municipality.
The provision (benefit) for income taxes consists of the following:
Year ended
December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Current:
Federal $48,668 $39,540 $16,408
State and local 16,206 11,320 8,746
---------- ---------- ----------
Total current 64,874 50,860 25,154
---------- ---------- ----------
Deferred:
Federal (1,876) (5,177) 4,422
State and local (442) (1,650) 2,819
---------- ---------- ----------
Total deferred (2,318) (6,827) 7,241
---------- ---------- ----------
Total $62,556 $44,033 $32,395
========== ========== ==========
F-21
BlackRock, Inc.
Notes to Consolidated Financial Statements (continued)
12. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities, which are shown net in accounts
payable and accrued liabilities-affiliate in the consolidated statements of
financial condition, consisted of the following:
December 31,
------------------------
2000 1999
--------- ----------
Deferred tax assets:
Compensation and benefits $10,039 $ 7,506
Depreciation 2,851 899
Deferred state income taxes 4,003 2,038
Other 4,570 3,358
--------- ----------
Gross deferred tax asset 21,463 13,801
--------- ----------
Deferred tax liabilities:
Goodwill 19,845 16,762
Other 3,526 2,489
--------- ----------
Gross deferred tax liability 23,371 19,251
--------- ----------
Net deferred tax liability $ 1,908 $ 5,450
========= ==========
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,
-----------------------------------------------------
2000 % 1999 % 1998 %
--------------- --------------- ---------------
Expected income tax expense $52,471 35.0% $36,208 35.0% $23,804 35.0%
Increase (decrease) in income taxes resulting from:
State and local taxes 10,247 6.8 6,286 6.1 7,517 11.1
Other (162) (0.1) 1,539 1.5 1,074 1.5
--------------- --------------- ---------------
Income tax expense $62,556 41.7% $44,033 42.6% $32,395 47.6%
=============== =============== ===============
F-22
BlackRock, Inc.
Notes to Consolidated Financial Statements (continued)
13. Comprehensive Income
Year ended
December 31,
-------------------------------------------
2000 1999 1998
------- ------- -------
Net income $87,361 $59,417 $35,615
Accumulated other comprehensive loss:
Unrealized loss from investments, available for sale, net (2,069) (231) -
Foreign currency translation loss (408) - -
------- ------- -------
Comprehensive income $84,884 $59,186 $35,615
======= ======= =======
14. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Year ended
December 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
Net income $ 87,361 $ 59,417 $ 35,615
----------- ----------- -----------
Basic weighted-average shares outstanding 63,886,353 57,057,014 53,507,051
Dilutive potential shares from forward sales 173,947 175,153 175,153
Dilutive potential shares from stock options 530,407 36,745 -
----------- ----------- -----------
Dilutive weighted-average shares outstanding 64,590,707 57,268,912 53,682,204
----------- ----------- -----------
Basic earnings per share $ 1.37 $ 1.04 $ 0.67
=========== =========== ===========
Diluted earnings per share $ 1.35 $ 1.04 $ 0.66
=========== =========== ===========
Net income per common share is computed using the weighted-average number
of common and common equivalent shares outstanding. Common and common
equivalent shares from stock options are excluded from the computation if their
effect is antidilutive, except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin 98, "Earnings Per Share," common and common
equivalent shares issued at prices below the public IPO price during the twelve
months immediately preceding BlackRock's IPO on October 1, 1999 have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method and the options' exercise price of
$14.00 per share.
F-23
BlackRock, Inc.
Notes to Consolidated Financial Statements (continued)
15. Supplemental Statements of Cash Flow Information
Supplemental disclosure of cash flow information:
Year ended
December 31,
-----------------------------------
2000 1999 1998
------- ------- -------
Cash paid for interest $ 353 $11,408 $13,683
======= ======= =======
Cash paid for income taxes $80,046 $34,900 $25,983
======= ======= =======
Supplemental schedule of noncash transactions:
Year ended
December 31,
2000 1999
-------------------
Issuance of long term obligation in connection
with acquisition of management contract $8,040 -
====== ======
16. Subsequent Events
Employee Stock Purchase Plan
Subject to shareholder approval, the Compensation Committee of the Board of
Directors of BlackRock approved a plan to establish an Employee Stock Purchase
Plan ("ESPP"), the terms of which allow for eligible employees to participate
in the purchase of designated shares of the Company's class A common stock at
85% of the lesser of fair market value on the first or last day of each offering
period. No charge to earnings will be recorded with respect to the ESPP.
Incentive Savings Plan
Effective January 1, 2001, BlackRock began contributing the Company match
to the ISP with BlackRock class A common stock. Prior to January 1, 2001 the
Company match to the ISP was with PNC common stock.
Other
On January 8, 2001, the Company entered into a commitment to invest $8,400
in Magnetite Asset Investors III, L.L.C., an alternative investment fund
sponsored by BlackRock.
F-24
BlackRock, Inc.
Notes to Consolidated Financial Statements (continued)
17. Selected Quarterly Financial Data (unaudited):
Quarter
----------------------------------------------------------------------------------------
1st 2nd 3rd 4th
------------------ ------------------ -------------------- --------------------
2000
- ---------------------------------------
Revenue $ 108,060 $ 112,571 $ 127,701 $ 128,540
Operating income 32,118 34,322 36,926 39,672
Net income 19,197 20,857 22,761 24,546
EBITDA* $ 37,801 $ 40,641 $ 44,580 $ 47,745
Earnings per share:
Basic $ 0.30 $ 0.33 $ 0.36 $ 0.38
Diluted $ 0.30 $ 0.32 $ 0.35 $ 0.38
Weighted-average shares outstanding:
Basic 63,864,382 63,865,770 63,884,410 63,930,387
Diluted 64,342,592 64,492,447 64,651,300 64,727,763
Common stock price per share:
High $ 25.00 $ 36.00 $ 42.63 $ 48.00
Low $ 15.00 $ 20.25 $ 28.31 $ 31.88
Close $ 20.25 $ 29.00 $ 32.00 $ 42.00
1999
- ---------------------------------------
Revenue $ 87,875 $ 92,217 $ 100,107 $ 100,782
Operating income 23,706 26,920 30,658 29,659
Net income 12,218 13,767 16,223 17,209
EBITDA* $ 29,679 $ 31,696 $ 35,867 $ 35,299
Earnings per share:
Basic $ 0.22 $ 0.25 $ 0.30 $ 0.27
Diluted $ 0.22 $ 0.25 $ 0.30 $ 0.27
Weighted-average shares outstanding:
Basic 54,807,482 54,807,482 54,675,353 63,864,382
Diluted 54,982,635 54,982,635 54,850,506 64,185,316
Common stock price per share:/(1)/
High - - - $ 19.38
Low - - - $ 12.50
Close - - - $ 17.19
/(1)/ Prior to October 1, 1999, there was no public market for the common stock.
* Earnings before interest, taxes, depreciation and amortization.
F-25