BlackRock, Inc. Reports Third Quarter Earnings and Diluted EPS of $33.2 Million and $0.51, Up 21% Year-Over-Year and Announces Terms of Proposed New Long-Term Retention and Incentive Program

Business Wire, Oct 11, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 11, 2002

BlackRock, Inc. (NYSE:BLK) today reported net income of $33.2 million for the third quarter ended September 30, 2002, a 21% increase compared with $27.4 million earned in the third quarter of 2001 and a 5% decrease compared with $34.8 million earned in the second quarter of 2002. Diluted earnings per share for the third quarter of 2002 were $0.51 compared with $0.42 and $0.53 for the third quarter of 2001 and the second quarter of 2002, respectively. Operating income of $55.5 million increased 30% compared with $42.5 million earned in the third quarter of 2001 (See Table 1).

Net income for the nine months ended September 30, 2002 was $99.4 million, a 26% increase compared with $79.1 million earned in the nine months ended September 30, 2001. Diluted earnings per share for the nine months ended September 30, 2002 were $1.52, a 25% increase compared with $1.22 for the nine months ended September 30, 2001. Operating income for the nine months ended September 30, 2002 was $160.1 million, a 26% increase compared with $127.2 million earned during the nine months ended September 30, 2001.

Assets under management ("AUM") at September 30, 2002 were $245.9 billion, a 9% increase compared with $225.6 billion at September 30, 2001 and a 2% decrease from the $249.8 billion reported at June 30, 2002. The $20.3 billion increase in AUM from September 30, 2001 reflects net new business of $22.3 billion in long-dated products and outflows of $7.7 billion in liquidity assets, including $2.4 billion in low-fee securities lending accounts. The $3.9 billion decrease in AUM from second quarter 2002 reflects net new business of $1.5 billion in long-dated products and outflows of $7.0 billion in liquidity assets.

"Our third quarter results demonstrate our ability to achieve strong earnings in the face of extraordinarily adverse business and market conditions," commented Laurence D. Fink, Chairman and CEO of BlackRock. "We remain confident in our ability to generate organic growth over time driven by sustained competitive performance in our traditional products, ongoing delivery of exceptional client service, continuing strong financial discipline and success in making highly selective investments that broaden our capabilities."

Third Quarter Highlights

-- Adverse markets continued to dampen the effect of new business efforts, with over $3.4 billion, or 86%, of the net decrease in assets under management attributable to sharp declines in both domestic and international equity markets.

-- Net new business continued to be strong in several channels, including $2.8 billion from international clients and $830 million in net new closed-end fund assets.

-- We recorded net new business in fixed income of $1.2 billion, bringing the year-to-date total to $19.1 billion. In addition, we successfully completed the offering of a new high yield collateralized bond obligation, adding net new alternative investment assets of $312 million during the quarter.

-- Equities continued to be a mixed story, with net new business of $476 million in international equities offset by $509 million outflows in domestic equities. Importantly, momentum is building in our emerging cap value effort, which we launched at the beginning of the year. In addition, we announced the acquisition of Cyllenius Capital Management, which largely completes the build-out of our fundamental emerging cap growth team and adds an all-cap growth equity hedge fund to our product offerings.

-- Liquidity flows remained exceptionally volatile, with assets down $7.0 billion from second quarter-end. As in previous quarters, however, assets rebounded immediately after quarter-end, recovering $3.5 billion in the first 7 business days of October. Given the historically low level of interest rates, we remain highly cautious on liquidity balances for the remainder of this year.

-- We closed the quarter with $6.3 billion of wins to be funded and a very active pipeline of searches in process for fixed income, international equity and domestic emerging cap equity. We expect to complete the Cyllenius acquisition during the fourth quarter; and we continue to consider a variety of strategic initiatives that can further enhance and expand our product and distribution capabilities over time.

Total revenue for the quarter ended September 30, 2002 increased $2.4 million or 2% to $137.1 million compared with the third quarter of 2001. The increase was primarily the result of a $10.2 million or 18% increase in separate account base fees and a $4.4 million increase in other income partially offset by an $11.5 million decrease in separate account performance fees and a $0.7 million decrease in mutual fund fees. The increase in separate account base fees was driven by a $27.5 billion or 23% increase in fixed income separate account assets. The decrease in separate account performance fees was attributable to investment performance on the firm's fixed income hedge fund which, as noted in our second quarter earnings release and Form 10-Q filing, has resulted in a high water mark for the fund. BlackRock cannot generate additional performance fees on the fund until such time as positive investment performance exceeds the high water mark. The decrease in mutual fund revenue for the third quarter included an $11.4 million or 39% decline in revenue earned on the BlackRock Funds largely due to a $4.8 billion or 53% decline in equity mutual fund assets from September 30, 2001 resulting from redemptions by PNC affiliated entities and clients as well as a significant decline in the equity markets. The decrease in BlackRock Fund revenue was partially offset by strong growth in BlackRock Provident Institutional Fund, closed-end fund and short-term investment fund revenues, which increased $10.6 million or 46%. The increase in other income was primarily due to increased sales of BlackRock Solutions products and services.