This summary is based on the third quarter fiscal 2007 earnings call conducted by BlackRock, Inc. (BLK) on October 17, 2007.
Management:
General Counsel: Robert P. Connolly
CFO: Paul L. Audet
CEO and Chairman: Laurence D. Fink
Key Investors Issues
- EPS were $1.94 a share compared to 28 cents a share last year.
- Net income reached $255.2 million, from $18.9 million in the year-earlier period.
- Revenue quadrupled to $1.3 billion from $323.1 million a year ago.
Third Quarter Highlights
The company has been presented or and it has seen volatility in not only the equity markets but also in the fixed income and short-term financing markets.
The company saw a lot of clients reducing or delaying long-dated investment decisions and date for a quality and safety and there has been a significant growth in the money market assets in short-term investments because of this.
- Organic growth in cash management business was $30 billion.
- The company generated substantial performance fees and almost 50% of those performance fees are coming from international equity based hedge fund products.
The company continues to see strong investment performance across all of equity, alternative product and liquidity platforms.
Concerns about credit pricing over the last couple of years did have some implication of fixed income, but the company believes that what it is seeing now in terms of the correction in credit pricing as well as some of the volatility in market will obviously enhance ability to generate fixed income returns. A tangible piece of evidence with respect to that is, this quarter the company had some of this highest performance in obsidian fixed income hedge fund as a result of positions.
There were some special items incorporated in financial results.
The company completed attractive trade with Merrill Lynch to in-source servicing which they performed on approximately 40 closed-end funds. This fee servicing would run between 30 and 40 years and in fact amounted to a notional payout of probably about $600 million over the term. The company took that out in effect for a $128 million, it will add about $15 million of operating income benefits on an annualized basis going forward.
- The company financed a $128 million payment for those services with proceeds from a $700 million tenure debt offering completed during the third quarter. It came at a yield of $636 million.
- The company completed the Quellos acquisition on October 1st. The initial purchase price payment of that was $562 million in cash. So effectively, by October 1st, the company has reinvested all of the proceeds of a long-term debt, between the transaction with Merrill Lynch and the first payment.
- On August 22nd, the company closed a new five-year, $2.5 billion revolving credit facility.
Third quarter included one one-time tax adjustment of approximately $51 million to re-measure certain deferred tax liabilities, as a result of recent corporate income tax reductions in the UK and Germany.
The UK reduced its corporate income tax from 30% to 28% and the company actually saw the German corporate income tax go from 41% to 32%.
Total revenues ex performance fees were up 8% on a linked quarter basis, $78 million.
- Operating expense excluding out of performance fee related incentive costs and before the impacts of the net changing closed and fund launched to cost were up 3.5%, or approximately $20 million.
- Operating margins improved almost less than 2% between the second quarter and the third quarter.
- Non-operating income declined approximately $20 million from the second to third quarter.
There were some big changes going to a volatile area between non-operating income and non-controlling interest.
The company had mark-to-market declines in private equity and head fund to fund products. But it was also offset by strong mark-to-market gain in certain real estate equities namely Peter Cooper Village.
