BlackRock Annual Report 2011

financial information

27 Selected Financial Data 28 Management's Discussion and Analysis of Financial Condition and Results of Operations 71 Reports on Consolidated Financial Statements 74 Consolidated Statements of Financial Condition 75 Consolidated Statements of Income 76 Consolidated Statements of Comprehensive Income 76 Consolidated Statements of Changes in Equity 79 Consolidated Statements of Cash Flows 81 Notes to the Consolidated Financial Statements

26 26

Selected Financial Data

The selected financial data presented below has been derived in part from, and should be read in conjunction with, the consolidated financial statements of BlackRock and "Management's Discussion and Analysis of Financial Condition

and Results of Operations" included elsewhere in this Annual Report. Prior year data reflects certain reclassifications to conform to the current year presentation.

Year ended December 31,

(Dollar amounts in millions, except per share data)

2011

2010(1)

2009

2008

2007

Income statement data:

Related parties(2)

$5,431 $5,025 $2,716 $3,006 $2,663

Other third parties

3,650

3,587

1,984

2,058

2,182

Total revenue

9,081

8,612

4,700

5,064

4,845

Expenses

Restructuring charges

32

--

22

38

--

Termination of closed-end fund administration and

servicing arrangements

--

--

--

--

128

Other operating expenses

5,800

5,614

3,400

3,433

3,423

Total expenses

5,832

5,614

3,422

3,471

3,551

Operating income

3,249

2,998

1,278

1,593

1,294

Total non-operating income (expense)

(114)

23

(6)

(577)

526

Income before income taxes

3,135

3,021

1,272

1,016

1,820

Income tax expense

796

971

375

387

463

Net income

2,339

2,050

897

629

1,357

Less: Net income (loss) attributable to

non-controlling interests

2

(13)

22

(155)

364

Net income attributable to BlackRock, Inc.

$2,337 $2,063

$875

$784

$993

Per share data(3):

Basic earnings

$12.56 $10.67

$6.24

$5.86

$7.53

Diluted earnings

$12.37 $10.55

$6.11

$5.78

$7.37

Book value(4)

$140.07 $136.09 $128.86 $92.91 $90.16

Common and preferred cash dividends

$5.50

$4.00

$3.12

$3.12

$2.68

December 31,

(Dollar amounts in millions)

2011

2010

2009(1)

2008

2007

Balance sheet data:

Cash and cash equivalents

$ 3,506 $3,367 $4,708 $2,032 $1,656

Goodwill and intangible assets, net

30,148 30,317 30,346 11,974 12,073

Total assets(5)

179,896 178,459 178,124 19,924 22,561

Less:

Separate account assets(6)

118,871 121,137 119,629

2,623

4,670

Collateral held under securities lending agreements(6)

20,918

17,638

19,335

--

--

Consolidated investment vehicles(7)

2,006

1,610

282

502

805

Adjusted total assets

38,101

38,074

38,878

16,799

17,086

Short-term borrowings

$100

$100 $2,234

$200

$300

Convertible debentures

--

67

243

245

242

Long-term borrowings

4,690

3,192

3,191

697

697

Total borrowings

$4,790

$3,359

$5,668

$1,142

$1,239

Total stockholders' equity

$25,048 $26,094 $24,329 $12,069 $11,601

(Dollar amounts in millions)

Assets under management:

Equity:

Active

$275,156 $334,532 $348,574 $152,216 $291,324

Institutional index

865,299 911,775 806,082 51,076 71,381

iShares

419,651 448,160 381,399

--

--

Fixed income:

Active

614,804 592,303 595,580 477,492 506,265

Institutional index

479,116 425,930 357,557

3,873

3,942

iShares

153,802 123,091 102,490

--

--

Multi-asset class

225,170 185,587 142,029

77,516

98,623

Alternatives(8):

Core

63,647 63,603 66,058 60,954 70,884

Currency and commodities

41,301

46,135

36,043

590

887

Long-term

3,137,946 3,131,116 2,835,812 823,717 1,043,306

Cash management

254,665 279,175 349,277 338,439 313,338

Sub-total

3,392,611 3,410,291 3,185,089 1,162,156 1,356,644

Advisory(9)

120,070 150,677 161,167 144,995

--

Total

$3,512,681 $3,560,968 $3,346,256 $1,307,151 $1,356,644

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

(2) BlackRock's related party revenue includes fees for services provided to registered investment companies that it manages, which include mutual funds and exchange traded funds, as a result of the Company's advisory relationship. In addition, equity method investments are considered related parties due to the Company's influence over the financial and operating policies of the investee. See Note 15 to the consolidated financial statements for more information on related parties.

(3) Participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.

(4) Total BlackRock stockholders' equity, excluding appropriated retained earnings, divided by

total common and preferred shares outstanding at December 31 of the respective year-end. (5) Includes separate account assets that are segregated funds held for purposes of funding

individual and group pension contracts and collateral held under securities lending agreements related to these assets that have equal and offsetting amounts recorded in liabilities and ultimately do not impact BlackRock's stockholders' equity or cash flows. (6) Equal and offsetting amounts, related to separate account assets and collateral held under securities lending agreements, are recorded in liabilities. (7) Includes assets held by consolidated variable interest entities and consolidated sponsored investments funds. (8) Data reflects the reclassification of prior period AUM to the current period presentation. (9) Advisory AUM represents long-term portfolio liquidation assignments.

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

Overview

BlackRock, Inc. ("BlackRock" or the "Company") is the world's largest publicly traded investment management firm. As of December 31, 2011, the Company managed $3.513 trillion of assets under management ("AUM") on behalf of institutional and individual investors worldwide. The Company provides a wide array of passively and actively managed products, including various equities, fixed income, multi-asset class, alternative investment and cash management products. BlackRock offers clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange traded products, hedge funds and funds of funds. In addition, BlackRock Solutions provides market risk management, financial markets advisory and enterprise investment system

services to a broad base of clients. Financial markets advisory services include valuation of illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

As of December 31, 2011, equity ownership of BlackRock was

as follows:

Voting

common stock Capital stock(1)

PNC

24.0%

21.0%

Barclays

2.2%

19.7%

Other

73.8%

59.3%

100.0%

100.0%

(1) Includes outstanding common and non-voting preferred stock.

Financial Highlights

Variance

Year ended December 31,

2011 vs. 2010

2010 vs. 2009

(Dollar amounts in millions, except per share data)

2011

2010

2009Amount

%Amount

%

GAAP basis:

Total revenue

$9,081

$8,612

$4,700

$469 5%

$3,912 83%

Total expenses

$5,832

$5,614

$3,422

$218 4%

$2,192 64%

Operating income

$3,249

$2,998

$1,278

$251 8%

$1,720 135%

Operating margin

35.8%

34.8%

27.2%

1.0% 3%

7.6% 28%

Non-operating income (expense),

less net income (loss) attributable to

non-controlling interests

($116)

$36

($28)

($152)

*

$64

*

Net income attributable to BlackRock, Inc.

$2,337

$2,063

$875

$274 13%

$1,188 136%

Diluted earnings per common share(e)

$12.37

$10.55

$6.11

$1.82 17%

$4.44 73%

Effective tax rate

25.4%

32.0%

30.0%

(6.6%) (21%)

2.0% 7%

As adjusted:

Operating income(a)

$3,392

$3,167

$1,570

$225 7%

$1,597 102%

Operating margin(a)

39.7%

39.3%

38.2%

0.4% 1%

1.1% 3%

Non-operating income (expense),

less net income (loss) attributable

to non-controlling interests(b)

($113)

$25

($46)

($138)

*

$71

*

Net income attributable

to BlackRock, Inc.(c), (d)

$2,239

$2,139

$1,021

$100 5%

$1,118 110%

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

$11.85

$10.94

$7.13

$0.91 8%

$3.81 53%

Effective tax rate

31.7%

33.0%

33.0%

(1.3%) (4%)

--% --%

Other:

Assets under management (end of period) $3,512,681 $3,560,968 $3,346,256 ($48,287) (1%) $214,712 6%

Diluted weighted-average common

shares outstanding(e)

187,116,410 192,692,047 139,481,449 (5,575,637) (3%) 53,210,598 38%

Shares outstanding (end of period)

178,309,109 191,191,553 188,806,296 (12,882,444) (7%) 2,385,257 1%

Book value per share**

$140.07

$136.09

$128.86

$3.98 3%

$7.23 6%

Cash dividends declared

and paid per share

$5.50

$4.00

$3.12

$1.50 38%

$0.88 28%

** ? Not applicable. ** ? Total BlackRock stockholders' equity, excluding appropriated retained earnings, divided by total common and preferred shares outstanding at December 31 of the respective year end.

Explanation of Use of Non-GAAP Financial Measures

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"); however, management believes that evaluating the Company's ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock's financial performance over time. BlackRock's management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Computations for all periods are derived from the Company's consolidated statements of income as follows:

(a) Operating income, as adjusted, and operating margin, as adjusted: Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems non-recurring, or transactions that ultimately will not impact BlackRock's book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement, divided by revenue used for operating margin measurement, as indicated in the table below.

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(Dollar amounts in millions) Operating income, GAAP basis Non-GAAP expense adjustments: BGI transaction/integration costs Employee compensation and benefits General and administration Total BGI transaction/integration costs U.K. lease exit costs Restructuring charges PNC LTIP funding obligation Merrill Lynch compensation contribution Compensation expense related to appreciation (depreciation) on deferred compensation plans Operating income, as adjusted Closed-end fund launch costs Closed-end fund launch commissions Operating income used for operating margin measurement Revenue, GAAP basis Non-GAAP adjustments: Distribution and servicing costs Amortization of deferred sales commissions Revenue used for operating margin measurement Operating margin, GAAP basis Operating margin, as adjusted

2011 $3,249

Year ended December 31, 2010

$2,998

2009 $1,278

-- -- -- 63 32 44

7

(3) 3,392

26 3

$3,421 $9,081

(386) (81)

$8,614 35.8% 39.7%

25 65 90 -- -- 58 10

11 3,167

15 2

$3,184 $8,612

(408) (102) $8,102 34.8% 39.3%

60 123 183

-- 22 59 10

18 1,570

2 1 $1,573 $4,700

(477) (100) $4,123 27.2% 38.2%

Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock's financial performance over time and, therefore, provide useful disclosure to investors.

Operating income, as adjusted: BGI transaction and integration costs consisted principally of compensation expense, legal fees, marketing and promotional, occupancy and consulting expenses incurred in conjunction with the BGI acquisition from Barclays. Restructuring charges recorded in 2011 and 2009 consisted of compensation costs and professional fees. Restructuring charges in 2009 also included occupancy costs. U.K. lease exit costs represent costs to exit two locations in London in the third quarter 2011.

The portion of compensation expense associated with certain long-term incentive plans ("LTIP") that has been or will be funded through distributions to participants of shares of BlackRock stock held by PNC and a Merrill Lynch cash compensation contribution, a portion of which has been received, has been excluded because these charges ultimately do not impact BlackRock's book value. The expense related to the Merrill Lynch cash compensation contribution ceased at the end of the third quarter 2011.

Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income (expense).

Management believes operating income exclusive of these costs is a useful measure in evaluating BlackRock's operating performance and helps enhance the comparability of this information for the reporting periods presented.

Operating margin, as adjusted: Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Management believes the exclusion of such costs and commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company's results until future periods.

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

Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, offset distribution fee revenue earned by the Company. BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenues.

(b) Non-operating income (expense), less net income (loss) attributable to non-controlling interests, as adjusted: Non-operating income (expense), less net income (loss) attributable to non-controlling interests ("NCI"), as adjusted, equals non-operating income (expense), GAAP basis, less net income (loss) attributable to NCI, GAAP basis, adjusted for compensation expense associated with (appreciation) depreciation on investments related to certain BlackRock deferred compensation plans. The compensation expense offset is recorded in operating income. This compensation expense has been included in non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in non-operating income (expense), GAAP basis.

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(Dollar amounts in millions) Non-operating income (expense), GAAP basis Less: Net income (loss) attributable to NCI Non-operating income (expense)(1) Compensation expense related to (appreciation) depreciation on deferred compensation plans Non-operating income (expense), less net income (loss)

attributable to NCI, as adjusted

2011 ($114)

2 (116)

3

($113)

Year ended December 31, 2010 $23 (13) 36

(11)

$25

2009 ($6) 22 (28)

(18)

($46)

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

Management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of this information among reporting periods and is an effective measure for reviewing BlackRock's non-operating contribution to its results. As compensation expense associated with (appreciation) depreciation on investments related to certain deferred compensation plans, which is included in operating income, substantially offsets the gain (loss) on the investments set aside for these plans, management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock's non-operating results that impact book value.

(c) Net income attributable to BlackRock, Inc., as adjusted: Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock's profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant non-recurring items, charges that ultimately will not impact BlackRock's book value or certain tax items that do not impact cash flow.

(Dollar amounts in millions, except per share data) Net income attributable to BlackRock, Inc., GAAP basis Non-GAAP adjustments, net of tax:(d) BGI transaction/integration costs U.K. lease exit costs Restructuring charges PNC LTIP funding obligation Merrill Lynch compensation contribution Income tax law changes/election Net income attributable to BlackRock, Inc., as adjusted Allocation of net income attributable to BlackRock, Inc., as adjusted: Common shares(e) Participating restricted stock units Net income attributable to BlackRock, Inc., as adjusted Diluted weighted-average common shares outstanding(e) Diluted earnings per common share, GAAP basis(e) Diluted earnings per common share, as adjusted(e)

2011 $2,337

-- 43 22 30

5 (198) $2,239

$2,218 21

$2,239 187,116,410

$12.37 $11.85

Year ended December 31, 2010

$2,063

2009 $875

59 -- -- 40

7 (30) $2,139

129 -- 14 41 7

(45) $1,021

$2,109 30

$2,139 192,692,047

$10.55 $10.94

$995 26

$1,021 139,481,449

$6.11 $7.13

See note (a) Operating income, as adjusted, and operating margin, as adjusted, for information on BGI transaction/integration costs, U.K. lease exit costs, PNC LTIP funding obligation, Merrill Lynch compensation contribution and restructuring charges.

During the years ended December 31, 2011, 2010 and 2009, adjustments primarily related to a state tax election and certain enacted U.K., Japan, U.S. state and local tax legislation, which resulted in the re-measurement of certain deferred income tax liabilities primarily related to acquired indefinite-lived intangible assets. The resulting increase or decrease in income taxes has been excluded from net income attributable to BlackRock, Inc., as adjusted, as these items will not have a cash flow impact and to ensure comparability for periods presented.

(d) For the years ended December 31, 2011, 2010 and 2009 non-GAAP adjustments were tax effected at 31.8%, 33% and 30%, respectively, which reflects the blended rate applicable to the adjustments.

(e) Non-voting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations. Certain unvested restricted stock units are not included in this number as they are deemed participating securities in accordance with required provisions of Accounting Standards Codification 260-10, Earnings per Share. For the years ended December 31, 2011, 2010 and 2009 average outstanding participating securities were 1.8 million, 2.8 million and 3.8 million, respectively.

BlackRock has portfolio managers located around the world, including in the United States, the United Kingdom, the Netherlands, Japan, Hong Kong, Singapore, Australia and Germany. The Company provides a wide array of products, including passively and actively managed equities, fixed income, multi-asset class, cash management and alternatives. BlackRock offers clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange traded products, hedge funds, and funds of funds. BlackRock provides global advisory services for private investment funds and retail products. The Company's nonU.S. investment funds are based in a number of domiciles and cover a range of asset classes, including equities, fixed income, cash management and alternatives.

In the United States, retail offerings include various open-end and closed-end funds, including iShares, the global product

leader in exchange traded products for institutional, retail and high net worth investors. There are 504 iShares products globally across equities, fixed income and commodities, which trade like common stocks on 20 exchanges worldwide. iShares AUM totaled $593.4 billion at December 31, 2011. The BlackRock Global Funds, the Company's primary retail fund group offered outside the United States, are authorized for distribution in 35 jurisdictions worldwide. Additional fund offerings include structured products, real estate funds, hedge funds, hedge funds of funds, private equity funds and funds of funds, managed futures funds and exchange funds. These products are sold to both U.S. and non-U.S. high net worth, retail and institutional investors in a wide variety of active and passive strategies covering both equity and fixed income assets.

BlackRock's client base consists of financial institutions and other corporate clients, pension plans, charities, official

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