Annex A: Non-GAAP Reconciliation
Non-GAAP Financial Measures
BlackRock reports its financial results in accordance with GAAP in the United States; however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and considers them to be helpful, for both management and investors, in evaluating BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. 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. Non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. Adjustments to GAAP financial measures (“non-GAAP adjustments”) include certain items management deems nonrecurring or that occur infrequently, transactions that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.
Computations for all periods are derived from the consolidated statements of income as follows:
(1) Operating income, as adjusted, and Operating Margin, as adjusted:
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, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. In 2016, a restructuring charge primarily comprised of severance and accelerated amortization expense of previously granted deferred compensation awards has been excluded to provide an analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented. In 2015, 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 nonoperating income (expense).
- Operating income used for measuring Operating Margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of product launch costs (e.g. closed-end fund launch costs) and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact BlackRock’s results until future periods.
- Revenue used for Operating Margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes such costs represent a benchmark for the amount of revenue passed through to external parties who distribute the Company’s products. In addition, 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, substantially offset distribution fee revenue the Company earns. For each of these items, BlackRock excludes from revenue used for Operating Margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenue.
(2) Compensation and benefits expense-to-revenue ratio, as adjusted:
- Employee compensation and benefits, as adjusted, includes non-GAAP expense adjustments. The portion of compensation expense associated with certain LTIP funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. 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 nonoperating income (expense).
- Compensation and benefits expense-to-revenue ratio, as adjusted, is equal to Employee compensation and benefits, as adjusted, divided by Revenue, GAAP basis.
(3) Net income attributable to BlackRock, as adjusted:
(1) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.
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 nonrecurring items, charges that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.
See discussion above regarding Operating Income, as adjusted, and Operating Margin, as adjusted, for information on the PNC LTIP funding obligation and the restructuring charge.
For each period presented, the non-GAAP adjustment related to the restructuring charge and PNC LTIP funding obligation was tax effected at the respective blended rates applicable to the adjustments. The noncash deferred tax revaluation benefit of $1,758 million and the other income tax matters were primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill. These amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented. A deemed repatriation tax expense of $477 million has been excluded from the 2017 as adjusted results due to the one-time nature and to ensure comparability among periods presented.
Per share amounts reflect net income attributable to BlackRock, as adjusted divided by diluted weighted average common shares outstanding.
Annex B Amendment to the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan
THIS AMENDMENT (this “Amendment”) is made as of May , 2018 to the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan, as amended from time to time (the “Plan”). Any capitalized terms used and not defined herein shall have the meanings set forth in the Plan.
WHEREAS, pursuant to Section 8(f) of the Plan, the Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, provided that (i) no amendment shall adversely affect any of the rights of any Grantee, without such Grantee’s consent, under any Award theretofore granted under the Plan and (ii) any amendment shall be approved by the stockholders (unless otherwise determined by the Board) if necessary to comply with state law, stock listing requirements or other applicable law; and
WHEREAS, the Board has determined to amend the Plan in the manner set forth below, subject to approval by the stockholders.
NOW, THEREFORE, the Plan is hereby amended as follows, subject to approval by the stockholders:
- The first sentence of Section 5(a) of the Plan is hereby amended and restated in its entirety as follows:“Subject to adjustment as provided in Section 5(d), 41,500,000 shares of Stock shall be reserved for the grant or settlement of Awards under the Plan.”
- This Amendment and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware without giving effect to the conflict of laws principles thereof.
- Except as amended above, the Plan shall remain in full force and effect.
BlackRock’s Mission Statement on Sustainability
We are an asset manager whose objective is to create better financial futures for our clients and the people they serve. We aspire to be an industry leader in how we incorporate sustainability into:
1 GOVERNANCE AND BOARD
We are vocal advocates for the adoption of sound corporate governance policies that include strong Board leadership, prudent management practices and transparency and have implemented such a framework at BlackRock through a set of principles, guidelines and practices that support sustainable financial performance and long-term value creation for shareholders. We continually review our approach in coordination with the governance philosophy and standards we apply to other companies.
BlackRock’s Board plays an integral role in our governance and long-term sustainability. As BlackRock has evolved, so has our Board’s pursuit of strong corporate governance and standards of excellence. In reviewing Director candidates, the Nominating and Governance Committee takes into consideration a candidate’s professional background, gender, race, national origin and age and regularly reviews the overall composition of the Board and its Committees to assess whether it reflects the appropriate mix of skill sets, experience, backgrounds and qualifications that are relevant to BlackRock’s current and future global strategy, business and governance.
2 HUMAN CAPITAL
As an asset manager, the long-term sustainability of our firm is heavily dependent on our people. We deliberately align employee incentives with the risk and performance frameworks of the firm. We are committed to fostering a unifying culture, encouraging innovation, ensuring that we are developing, retaining and recruiting the best talent and incorporating inclusion and diversity into all levels of our business. We support employees in giving back and volunteering in their local communities and globally for environmental and social efforts that move them.
3 ENVIRONMENTAL SUSTAINABILITY
BlackRock is committed to using our resources responsibly to support the long-term sustainability of our firm and of the global environment in which we and our clients live and operate. We do this, for example, by investing in LED technology and green buildings, pursuing a high utilization rate of our corporate offices and consolidating our data centers. Two of our largest data centers are now powered by renewable hydropower. Employees are also encouraged to participate in activities which focus on BlackRock’s impact on the environment, including: low carbon travel to work and video conferencing in lieu of travel. Additionally, we provide opportunities for employees to engage on sustainability-themed initiatives outside of the office.
4 PUBLIC POLICY
As an important part of our fiduciary duty to our clients, BlackRock advocates for public policies that we believe are in our clients’ long-term interests. We support the creation of regulatory regimes that increase financial market transparency, protect investors, and facilitate responsible growth of capital markets, while preserving consumer choice and properly balancing benefits versus implementation costs.
5 RISK MANAGEMENT
Understanding and managing risk is the cornerstone of BlackRock’s approach to responsible investing. Our Risk and Quantitative Analysis group promotes BlackRock as a leader in risk management by providing independent top-down and bottom-up oversight to help identify investment, counter-party, operational, regulatory and technology risks. The Board has ultimate responsibility for oversight of BlackRock’s risk management activities.
BlackRock’s mission is to create a better financial future for our clients. As we pursue this mission, we are guided by BlackRock’s Principles — that is, our shared understanding of who we are, what we stand for and how we conduct ourselves each and every day.
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