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financial information 26 26 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 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 (Dollar amounts in millions, except per share data) and Results of Operations” included elsewhere in this Annual Report. Prior year data reflects certain reclassifications to conform to the current year presentation. 2011 Year ended December 31, 2010(1) 2009 2008 2007 Income statement data: Related parties(2) Other third parties Total revenue Expenses Restructuring charges Termination of closed-end fund administration and servicing arrangements Other operating expenses Total expenses Operating income Total non-operating income (expense) Income before income taxes Income tax expense Net income Less: Net income (loss) attributable to non-controlling interests Net income attributable to BlackRock, Inc. $5,431 3,650 9,081 $5,025 3,587 8,612 $2,716 1,984 4,700 $3,006 2,058 5,064 $2,663 2,182 4,845 32 — 22 38 — — 5,800 5,832 3,249 (114) 3,135 796 2,339 — 5,614 5,614 2,998 23 3,021 971 2,050 — 3,400 3,422 1,278 (6) 1,272 375 897 — 3,433 3,471 1,593 (577) 1,016 387 629 128 3,423 3,551 1,294 526 1,820 463 1,357 2 $2,337 (13) $2,063 22 $875 (155) $784 364 $993 Basic earnings $12.56 $10.67 $6.24 $5.86 Diluted earnings $12.37 $10.55 $6.11 $5.78 Book value(4) $140.07 $136.09 $128.86 $92.91 Common and preferred cash dividends $5.50 $4.00 $3.12 $3.12 December 31, (Dollar amounts in millions) 2011 2010 2009(1) 2008 $7.53 $7.37 $90.16 $2.68 Per share data(3): 2007 Balance sheet data: Cash and cash equivalents Goodwill and intangible assets, net Total assets(5) Less: Separate account assets(6) Collateral held under securities lending agreements(6) Consolidated investment vehicles(7) Adjusted total assets Short-term borrowings Convertible debentures Long-term borrowings Total borrowings Total stockholders’ equity $ 3,506 30,148 179,896 $3,367 30,317 178,459 $4,708 30,346 178,124 $2,032 11,974 19,924 $1,656 12,073 22,561 118,871 20,918 2,006 38,101 $100 — 4,690 $4,790 $25,048 121,137 17,638 1,610 38,074 $100 67 3,192 $3,359 $26,094 119,629 19,335 282 38,878 $2,234 243 3,191 $5,668 $24,329 2,623 — 502 16,799 $200 245 697 $1,142 $12,069 4,670 — 805 17,086 $300 242 697 $1,239 $11,601 $275,156 865,299 419,651 $334,532 911,775 448,160 $348,574 806,082 381,399 $152,216 51,076 — $291,324 71,381 — 614,804 479,116 153,802 225,170 592,303 425,930 123,091 185,587 595,580 357,557 102,490 142,029 477,492 3,873 — 77,516 506,265 3,942 — 98,623 (Dollar amounts in millions) Assets under management: Equity: Active Institutional index iShares Fixed income: Active Institutional index iShares Multi-asset class Alternatives(8): Core Currency and commodities Long-term Cash management Sub-total Advisory(9) Total (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 63,647 63,603 66,058 41,301 46,135 36,043 3,137,946 3,131,116 2,835,812 254,665 279,175 349,277 3,392,611 3,410,291 3,185,089 120,070 150,677 161,167 $3,512,681 $3,560,968 $3,346,256 60,954 70,884 590 887 823,717 1,043,306 338,439 313,338 1,162,156 1,356,644 144,995 — $1,307,151 $1,356,644 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. 27 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 Financial Highlights (Dollar amounts in millions, except per share data) 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) 24.0% 21.0% 2.2% 19.7% 73.8% 59.3% 100.0% 100.0% PNC Barclays Other (1) Includes outstanding common and non-voting preferred stock. Variance Year ended December 31, 2011 vs. 2010 2010 vs. 2009 2011 2010 2009 Amount % Amount % GAAP basis: $9,081 $5,832 $3,249 35.8% $8,612 $5,614 $2,998 34.8% $4,700 $3,422 $1,278 27.2% $469 $218 $251 1.0% 5% 4% 8% 3% $3,912 $2,192 $1,720 7.6% 83% 64% 135% 28% ($116) $2,337 $12.37 25.4% $36 $2,063 $10.55 32.0% ($28) $875 $6.11 30.0% ($152) $274 $1.82 (6.6%) * 13% 17% (21%) $64 $1,188 $4.44 2.0% * 136% 73% 7% $3,392 39.7% $3,167 39.3% $1,570 38.2% $225 0.4% 7% 1% $1,597 1.1% 102% 3% ($113) $25 ($46) ($138) * $71 * $2,239 $11.85 31.7% $2,139 $10.94 33.0% $1,021 $7.13 33.0% $100 $0.91 (1.3%) 5% 8% (4%) $1,118 $3.81 —% 110% 53% —% Assets under management (end of period) $3,512,681 Diluted weighted-average common shares outstanding(e) 187,116,410 Shares outstanding (end of period) 178,309,109 Book value per share** $140.07 Cash dividends declared and paid per share $5.50 $3,560,968 $3,346,256 ($48,287) (1%) $214,712 6% (3%) 53,210,598 (7%) 2,385,257 3% $7.23 38% 1% 6% 38% 28% Total revenue Total expenses Operating income Operating margin Non-operating income (expense), less net income (loss) attributable to non-controlling interests Net income attributable to BlackRock, Inc. Diluted earnings per common share(e) Effective tax rate As adjusted: Operating income(a) Operating margin(a) Non-operating income (expense), less net income (loss) attributable to non-controlling interests(b) Net income attributable to BlackRock, Inc.(c), (d) Diluted earnings per common share(c), (d), (e) Effective tax rate Other: 192,692,047 191,191,553 $136.09 139,481,449 (5,575,637) 188,806,296 (12,882,444) $128.86 $3.98 $4.00 $3.12 $1.50 $0.88 ** – 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. 28 (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 25 65 90 — — 58 10 60 123 183 — 22 59 10 (3) 3,392 26 3 $3,421 $9,081 11 3,167 15 2 $3,184 $8,612 18 1,570 2 1 $1,573 $4,700 (386) (81) $8,614 35.8% 39.7% (408) (102) $8,102 34.8% 39.3% (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. 29 (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 (1) Year ended December 31, 2010 $23 (13) 36 2009 ($6) 22 (28) 3 (11) (18) ($113) $25 ($46) 2011 ($114) 2 (116) 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 Year ended December 31, 2010 $2,063 2009 $875 — 43 22 30 5 (198) $2,239 59 — — 40 7 (30) $2,139 129 — 14 41 7 (45) $1,021 $2,218 21 $2,239 187,116,410 $12.37 $11.85 $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. 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. In the United States, retail offerings include various open-end and closed-end funds, including iShares, the global product BlackRock’s client base consists of financial institutions and other corporate clients, pension plans, charities, official 30 institutions, such as central banks, sovereign wealth funds, supranational authorities and other government entities, high net worth individuals and retail investors around the world. BlackRock maintains a significant sales and marketing presence both inside and outside the United States that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships. BlackRock also distributes its products and services through Merrill Lynch under a global distribution agreement in effect until January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met. 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 pre-determined percentages of the market value of AUM or percentages of committed capital during investment periods of certain alternative products and are affected by changes in AUM, including market appreciation or depreciation, foreign exchange translation and net subscriptions or redemptions. Net subscriptions or redemptions represent the sum of new client assets, additional fundings from existing clients (including dividend reinvestment), withdrawals of assets from, and termination of, client accounts and distributions to investors representing return of capital and return on investments to investors. Market appreciation or depreciation includes current income earned on, and changes in the fair value of, securities held in client accounts. Foreign exchange translation reflects the impact of converting non-U.S. dollardenominated AUM into U.S. dollars for reporting purposes. BlackRock also earns revenue by lending securities on behalf of clients, primarily to brokerage institutions. The securities loaned are secured by collateral in the form of cash or securities, with minimums generally ranging from approximately 102% to 112% of the value of the loaned securities. The revenue earned is shared between BlackRock and the funds or other third-party accounts managed by the Company from which the securities are borrowed. Investment advisory agreements for certain separate accounts and investment funds provide for performance fees, based upon relative and/or absolute investment performance, in addition to base fees based on AUM. Investment advisory performance fees generally are earned after a given period of time and when investment performance exceeds a contractual threshold. As such, the timing of recognition of performance fees may increase the volatility of BlackRock’s revenue and earnings. Historically, the magnitude of performance fees in the third and fourth quarters generally exceeds the first two calendar quarters in a year due to the greater number of products with performance measurement periods that end on either September 30 or December 31. BlackRock provides a variety of risk management, investment analytic and investment system and advisory services to financial institutions, pension funds, asset managers, foundations, consultants, mutual fund sponsors, real estate investment trusts and government agencies. These services are provided under the brand name BlackRock Solutions and include a wide array of risk management services, valuation services related to illiquid securities, disposition and workout assignments (including long-term portfolio liquidation assignments), strategic planning and execution, and enterprise investment system outsourcing to clients. Approximately $10 trillion of positions are processed on the Company’s Aladdin operating platform, which serves as the investment/ risk solutions system for BlackRock and other institutional investors. Fees earned for BlackRock Solutions and advisory services are determined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of various attributes of advisory AUM or value of positions on the Aladdin platform and (iii) performance fees if contractual thresholds are met. BlackRock builds upon its leadership position to meet the growing need for investment and risk management solutions. Through its scale and diversity of products, it is able to provide its clients with customized solutions including fiduciary outsourcing for liability-driven investments and overlay strategies for pension plan sponsors, balance sheet management and related services for insurance companies and target date and target return funds, as well as asset allocation portfolios for retail investors. BlackRock is also able to service these clients via its Aladdin platform to provide risk management and other outsourcing services for institutional investors, and custom and tailored solutions to address complex risk exposures. The Company earns fees for transition management services comprised of commissions from acting as an introducing broker-dealer in buying and selling securities on behalf of its customers. Commissions related to transition management services are recorded on a trade-date basis as securities transactions occur. Operating expenses reflect employee compensation and benefits, distribution and servicing costs, amortization of deferred sales commissions, direct fund expenses, general and administration expenses and amortization of finite-lived intangible assets. > Employee compensation and benefits expense includes salaries, commissions, temporary help, deferred and incentive compensation, employer payroll taxes and related benefit costs. > Distribution and servicing costs, which are primarily AUM driven, include payments made to Merrill Lynch-affiliated entities under a global distribution agreement, to PNC and Barclays, as well as other third parties, primarily associated with obtaining and retaining client investments in certain BlackRock products. > Direct fund expenses primarily consist of third-party nonadvisory expenses incurred by BlackRock related to certain funds for the use of index trademarks, reference data for indices, custodial services, fund administration, fund accounting, transfer agent services, shareholder reporting services, legal expenses, audit and tax services as well as other fund-related expenses directly attributable to the non-advisory operations of the fund. These expenses may vary over time with fluctuations in AUM, number of shareholder accounts, or other attributes directly related to volume of business. >G  eneral and administration expenses include marketing and promotional, occupancy and office-related costs, portfolio services (including clearing expenses related to transition management services), technology, professional services, 31 communications, closed-end fund launch costs and other general and administration expenses, including foreign currency remeasurement costs. purposes, including Federal Reserve Bank stock. BlackRock does not engage in proprietary trading or other investment activities that could conflict with the interests of its clients. Non-operating income (expense) includes the effect of changes in the valuations on investments (excluding available-for-sale investments) and earnings on equity method investments, as well as interest and dividend income and interest expense. Other comprehensive income includes changes in valuations related to available-for-sale investments. BlackRock primarily holds seed and co-investments in sponsored investment products that invest in a variety of asset classes, including private equity, distressed credit/ mortgage debt securities, hedge funds and real estate. Investments generally are made for co-investment purposes, to establish a performance track record, to hedge exposure to certain deferred compensation plans, or for regulatory In addition, non-operating income (expense) includes the impact of changes in the valuations of consolidated sponsored investment funds and consolidated collateralized loan obligations. The portion of non-operating income (expense) not attributable to BlackRock is allocated to non-controlling interests on the consolidated statements of income. Assets Under Management AUM for reporting purposes is generally based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM. Assets Under Management December 31, (Dollar amounts in millions) 2011 2010 2009 Equity: Active $275,156 $334,532 $348,574 Institutional index 865,299 911,775 806,082 iShares 419,651 448,160 381,399 Fixed income: Active 614,804 592,303 595,580 Institutional index 479,116 425,930 357,557 iShares 153,802 123,091 102,490 Multi-asset class 225,170 185,587 142,029 Alternatives(1): Core 63,647 63,603 66,058 Currency and commodities 41,301 46,135 36,043 Long-term 3,137,946 3,131,116 2,835,812 Cash management 254,665 279,175 349,277 Sub-total 3,392,611 3,410,291 3,185,089 Advisory(2) 120,070 150,677 161,167 Total $3,512,681 $3,560,968 $3,346,256 Variance 2011 vs. 2010 2010 vs. 2009 (18%) (5%) (6%) (4%) 13% 18% 4% 12% 25% 21% (1%) 19% 20% 31% —% (10%) —% (9%) (1%) (20%) (1%) (4%) 28% 10% (20%) 7% (7%) 6% Mix of Assets Under Management – by Asset Class December 31, 2011 2010 Equity: Active 8% 9% Institutional index 25% 26% iShares 12% 13% Fixed income: Active 18% 17% Institutional index 14% 12% iShares 4% 3% Multi-asset class 6% 5% Alternatives(1): Core 2% 2% Currency and commodities 1% 1% Long-term 90% 88% Cash management 7% 8% Sub-total 97% 96% Advisory(2) 3% 4% Total 100% 100% (1) Data reflects the reclassification of prior period AUM into the current period presentation. (2) Advisory AUM represents long-term portfolio liquidation assignments. 32 2009 10% 25% 11% 18% 11% 3% 4% 2% 1% 85% 10% 95% 5% 100% The following table presents the component changes in BlackRock’s AUM for the years ended December 31, 2011, 2010 and 2009. 2011 $3,560,968 (Dollar amounts in millions) Beginning assets under management Net subscriptions/(redemptions)(1) Long-term Cash management Advisory(2) Total net subscriptions/(redemptions) BGI merger-related outflows(3) Acquisitions(4) Market appreciation/(depreciation) Foreign exchange(5) Total change Ending assets under management 67,349 (22,899) (29,903) 14,547 (28,251) — (27,513) (7,070) (48,287) $3,512,681 Year ended December 31, 2010 2009 $3,346,256 $1,307,151 131,206 (61,424) (12,021) 57,761 (120,969) (6,160) 266,981 17,099 214,712 $3,560,968 84,436 (49,122) 11,642 46,956 (2,894) 1,850,252 143,706 1,085 2,039,105 $3,346,256 (1) Amounts include planned distributions representing return of capital and return on investment to investors. (2) Advisory AUM represents long-term portfolio liquidation assignments. (3) Amounts include outflows due to manager concentration considerations prior to third quarter 2011 and outflows from scientific active equity performance prior to second quarter 2011. (4) Amounts include AUM acquired from Barclays in December 2009 and R3 Capital Management, LLC in April 2009, and BGI acquisition adjustments in 2010. (5) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. BlackRock has historically grown aggregate AUM through organic growth and acquisitions. Management believes that the Company will be able to continue to grow AUM by focusing on strong investment performance, the efficient delivery of beta for index products, client service and by developing new products and new distribution capabilities. The following table presents the component changes in BlackRock’s AUM for the year ended December 31, 2011. Net (Dollar amounts December 31, subscriptions in millions) 2010 (redemptions) (2) Equity: Active $334,532 ($22,876) Institutional index 911,775 22,403 iShares 448,160 24,612 Fixed income: Active 592,303 (17,398) Institutional index 425,930 (5,152) iShares 123,091 26,876 Multi-asset class 185,587 42,654 Alternatives(1): Core 63,603 48 Currency and commodities 46,135 (3,818) Long-term 3,131,116 67,349 Cash management 279,175 (22,899) Sub-total 3,410,291 44,450 Advisory(5) 150,677 (29,903) Total $3,560,968 $14,547 BGI mergerrelated outflows(3) Market appreciation (depreciation) Foreign exchange (4) December 31, 2011 ($6,943) (20,630) — ($29,793) (48,402) (49,863) $236 153 (3,258) $275,156 865,299 419,651 (413) (113) — — 40,366 55,463 4,824 (401) (54) 2,988 (989) (2,670) 614,804 479,116 153,802 225,170 (152) — (28,251) — (28,251) — ($28,251) 179 (1,462) (29,089) 128 (28,961) 1,448 ($27,513) (31) 446 (3,179) (1,739) (4,918) (2,152) ($7,070) 63,647 41,301 3,137,946 254,665 3,392,611 120,070 $3,512,681 (1) Data reflects the reclassification of prior period AUM to the current period presentation. (2) Amounts include planned distributions representing return of capital and return on investment to investors. (3) Amounts include outflows due to manager concentration considerations prior to third quarter 2011 and outflows from scientific active equity performance prior to second quarter 2011. (4) Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes. (5) Advisory AUM represents long-term portfolio liquidation assignments. AUM decreased approximately $48.3 billion, or 1%, to $3.513 trillion at December 31, 2011 from $3.561 trillion at December 31, 2010. The decline in AUM was primarily attributable to $34.6 billion in net market and foreign exchange valuation declines, $29.9 billion of advisory distributions and $22.9 billion of cash management net outflows, partially offset by $67.3 billion of long-term net new business, before giving effect to the final BGI merger-related outflows of $28.3 billion recorded in the first half of 2011. Net market depreciation of $27.5 billion included $128.1 billion of depreciation in equity products resulting from the decline in global equity, partially offset by appreciation in fixed income products of $100.7 billion. The $7.1 billion net decrease in AUM from converting nonU.S. dollar denominated AUM into U.S. dollars was primarily due to the strengthening of the U.S. dollar against the euro, pound sterling and Canadian dollar, partially offset by weakening of the U.S. dollar against the Japanese yen. 33 Business Outlook The diversity of the Company’s business model, which offers a significant breadth of asset classes along with alpha and beta management styles, and its global reach, allows BlackRock to capture asset flows as investor sentiment shifts. BlackRock finished 2011 with strong index flows as clients continued to rebalance their portfolios from active products due to volatile market conditions. BlackRock expects such conditions to continue into 2012 due to the European sovereign debt crisis, global political elections in 2012, and continued unrest in the Middle East. In early 2012, BlackRock continues to see signs of economic strength in the United States as the pace of expansion accelerates and the unemployment rate declines. During 2012, BlackRock expects emerging economies to outperform, while the United States and Japan grow at lower rates and Europe faces a slow economic recovery. BlackRock will actively monitor global monetary policies (including quantitative easing and the direction of interest rates), bank lending policies, the Euro crisis, global political elections, and the U.S. debt ceiling and housing market along with the effects on global corporate earnings growth. The Company offers a broad range of equity, fixed income, multi-asset and alternative products designed to track various indices, target returns in excess of specified benchmarks or focus on absolute returns. BlackRock’s broad set of product offerings, risk skills and tools allow the Company to work with clients in meeting their investment objectives over both shortand long-term horizons. While investing for stable income continues to be a core objective of many clients, BlackRock expects clients to trend toward indexing, retirement and income, alternatives and multi-asset class solutions along with risk management tools and advisory services. The following items could impact the Company’s results in 2012 and beyond: AUM and Flows: > As investors shift preferences between asset classes, and active and passive investment styles, the Company’s broad product profile, including a wide array of offerings in asset types and management styles, should enable it to retain and capture revenue. As equity markets improve and with no sign of rising interest rates from their historic lows in the near term, BlackRock expects clients who in the latter half of 2011 were delaying investment decisions, to re-risk into beta and alpha equity and alternative products. >B  lackRock’s unique combination of index and active capabilities positions it well to assist companies in narrowing the gap on underfunded pension plans by implementing barbell strategies using a combination of index, alpha and alternative products. In addition, as retirement money moves away from defined benefit plans into defined contribution plans and ultimately to individuals, BlackRock is well positioned to offer individual investment options with its LifePath® target date portfolios and wide array of ETFs and other mutual fund products. >B  lackRock has a leading global market share in exchange traded products (“ETP”) due to its large array of products and AUM in this market. The global growth of the ETP market reflects both continued adoption and new product 34 introduction with investor product preferences driven to varying degrees by performance (as measured by tracking error, which is the difference between net returns on the ETP and the corresponding targeted index), liquidity (bid-ask spread), tax efficiency, transparency and client service. Industry asset growth has historically been linked to positive markets, with investors looking to capitalize on strong market returns. In the continued environment of ultra-low interest rates, industry flows shifted toward fixed income oriented products and, within equities, to developed markets and away from broad and single-country emerging market funds. Additional asset managers may enter the marketplace and offer similar exchange traded products at lower fee structures; however, the Company believes that many factors beyond pricing influence investor preferences. >B  lackRock believes alternative products will become more important for both institutional and retail clients to invest in alpha-generating products to generate higher returns. The Company significantly invested in its alternatives platform during 2011 for products expected to be introduced in 2012, which will invest in private equity, renewable power, real estate as well as other opportunistic asset classes. > Cash management assets may continue to decline from year-end levels if clients begin to re-risk their portfolios in search of yield or equity return opportunities as rates remain low, including those in the United States as the Federal Reserve currently expects U.S. rates to remain low until 2014. The Company’s diversified global product offerings, client service and independent advice may enable it to retain a portion of these assets. Regulatory Reform: > The regulatory environment in 2011 continued to evolve for financial institutions as well as money market funds with the intent of the reform supported by BlackRock, to protect the industry and our clients. Regulatory reform continues to evolve and may affect the competitive environment, including liquidity and trading costs, and may provide BlackRock and its clients with risks as well as opportunities. Performance fees and BRS/advisory fees: >W  hile most of BlackRock’s absolute return AUM products eligible for performance fees are marginally below “high water marks,” a return to higher market levels may enable the Company’s alternative investment products to contribute additional performance fee revenue. > The sovereign uncertainty in 2011 across Europe and an increasing focus on risk management led to unique opportunities for BlackRock’s risk tools and advisory services, combining the Company’s extensive capital markets and structuring expertise with rigorous modeling and analytical capabilities across an increasingly global client base. In 2012, the Company expects continuing strong global demand for its Aladdin operating platform and its comprehensive risk reporting from sophisticated institutional investors and governmental agencies investing in longer term risk management solutions as well as strong demand for financial market advisory services. Future opportunities: > The Company plans to continue to invest in its people, its platform and its global BlackRock brand. In addition, it will build out key products and geographic locations as well as an internal trading platform on its enterprise systems to cross trades within its platform and potentially among other client transactions, which is expected to result in lower portfolio transaction costs and ultimately increased performance returns for clients. Operating results for the year ended December 31, 2011 compared with the year ended December 31, 2010 Operating Income and Operating Margin Overview GAAP (Dollar amounts in millions) Revenue Expenses Operating income Operating margin The increase in operating income and operating margin for the year ended December 31, 2011 was attributable to the $469 million increase in revenue primarily due to higher base fees associated with growth in long-term average AUM, which included the benefit of higher average markets and the benefit of net new business, and higher BlackRock Solutions and advisory revenue, partially offset by lower performance fees. The increase in revenue was partially offset by a $218 million including an increase in the number of employees, professional fees Year ended December 31, Variance 2011 2010 Amount % Change $9,081 $8,612 $469 5% 5,832 5,614 218 4% $3,249 $2,998 $251 8% 35.8% 34.8% 1.0% 3% and average long-dated AUM growth, which affects certain expenses, including direct fund expenses. In addition, operating income and operating margin for the year ended December 31, 2011 included $63 million of U.K. lease exit costs related to the Company’s exit from two London locations and $32 million of restructuring charges. Operating income and operating margin for the year ended December 31, 2010 included $90 million of BGI integration costs. Each of these items are excluded from the as adjusted results below. As Adjusted (Dollar amounts in millions) Revenue Expenses Operating income(1) Operating margin(1) (1) Year ended December 31, Variance 2011 2010 Amount % Change $9,081 $8,612 $469 5% 5,689 5,445 244 4% $3,392 $3,167 $225 7% 39.7% 39.3% 0.4% 1% Operating income, as adjusted, and operating margin, as adjusted, are described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations. The increase in operating income and operating margin, as adjusted, for the year ended December 31, 2011 was attributable to the $469 million increase in revenue as discussed above. The increase was partially offset by a $244 million net increase in operating expenses as discussed above as well as higher marketing and promotional costs. 35