UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20152016

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-33812

MSCI INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 13-4038723
(State of Incorporation) 

(I.R.S. Employer

Identification Number)

7 World Trade Center

250 Greenwich Street, 49th Floor

New York, New York

 10007
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 804-3900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x  Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)  Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 22, 2015,2016, there were 112,425,35896,501,685 shares of the registrant’s common stock, par value $0.01, outstanding.


MSCI INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 20152016

TABLE OF CONTENTS

 

     Page 
 Part I  

Item 1.

 

Condensed Consolidated Financial Statements

   4  

Item 2.

 

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

   1820   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   2935   

Item 4.

 

Controls and Procedures

   3036   
 Part II  

Item 1.

 

Legal Proceedings

   3036   

Item 1A.

 

Risk Factors

   3036   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   3037   

Item 3.

 

Defaults Upon Senior Securities

   3137   

Item 4.

 

Mine Safety Disclosures

   3137   

Item 5.

 

Other Information

   3137   

Item 6.

 

Exhibits

   3137   

AVAILABLE INFORMATION

MSCI Inc. files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document MSCI Inc. files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including MSCI Inc.) file electronically with the SEC. MSCI Inc.��s’s electronic SEC filings are available to the public at the SEC’s website,www.sec.gov.

MSCI Inc.’s website iswww.msci.com. You can access MSCI Inc.’s Investor Relations homepage athttp://ir.msci.com. MSCI Inc. makes available free of charge, on or through its Investor Relations homepage, its proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. MSCI Inc. also makes available, through its Investor Relations homepage, via a link to the SEC’s website, statements of beneficial ownership of MSCI Inc.’s equity securities filed by its directors, officers, 5% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about MSCI Inc.’s corporate governance athttp://ir.msci.com/corporate-governance.cfm, including copies of the following:

 

Charters for MSCI Inc.’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee;

 

Corporate Governance Policies;

 

Procedures for Submission of Ethical Accounting Related Complaints; and

 

Code of Ethics and Business Conduct.

MSCI Inc.’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer (the “CEO”) and its Chief Financial Officer. MSCI Inc. will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC on its website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, MSCI Inc., 7 World Trade Center, 250 Greenwich Street, 49th49th Floor, New York, NY 10007; (212) 804-1583. The information on MSCI Inc.’s website is not incorporated by reference into this report or any other report filed or furnished by us with the SEC.

FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause MSCI Inc.’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”“potential” or “continue,” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond MSCI Inc.’s control and that could materially affect actual results, levels of activity, performance or achievements.

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in MSCI Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on February 27, 2015 and as amended and filed with the SEC on March 2, 2015 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI Inc. projected. Any forward-looking statement in this report reflects MSCI Inc.’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI Inc.’s operations, results of operations, growth strategy and liquidity. MSCI Inc. assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

WEBSITE AND SOCIAL MEDIA DISCLOSURE

MSCI Inc. uses its website and corporate Twitter account (@MSCI_Inc) as channels of distribution of company information. The information MSCI Inc. posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following MSCI Inc.’s press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about MSCI Inc. when you enroll your email address by visiting the “Email Alert Subscription” section of our Investor Relations homepage athttp://ir.msci.com/alerts.cfm?. The contents of MSCI Inc.’s website and social media channels are not, however, incorporated by reference into this report or any other report filed or furnished by us with the SEC.

PART I

 

Item 1.Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except per share and share data)

 

                                                                  
  As of   As of 
  March 31, December 31,   March 31, December 31, 
  2015 2014   2016 2015 
  (unaudited)   (unaudited) 

ASSETS

      

Current assets:

      

Cash and cash equivalents

  $537,751   $508,799    $445,014   $777,706  

Accounts receivable (net of allowances of $822 and $857 at March 31, 2015 and December 31, 2014, respectively)

   184,827   178,717  

Deferred taxes

   17,792   22,209  

Accounts receivable (net of allowances of $1,247 and $1,117 at March 31, 2016 and December 31, 2015, respectively)

   260,168   208,239  

Prepaid income taxes

   16,344   29,180     27,648   46,115  

Prepaid and other assets

   31,918   31,727     30,981   31,211  
  

 

  

 

   

 

  

 

 

Total current assets

 788,632   770,632     763,811   1,063,271  

Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $99,230 and $92,808 at March 31, 2015 and December 31, 2014, respectively)

 97,498   94,074  

Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $118,753 and $114,680 at March 31, 2016 and December 31, 2015, respectively)

   96,007   98,926  

Goodwill

 1,561,852   1,564,904     1,564,186   1,565,621  

Intangible assets (net of accumulated amortization of $383,487 and $372,209 at March 31, 2015 and December 31, 2014, respectively)

 417,610   433,628  

Intangible assets (net of accumulated amortization of $430,060 and $418,512 at March 31, 2016 and December 31, 2015, respectively)

   380,860   391,490  

Non-current deferred tax assets

   8,507   9,180  

Other non-current assets

 30,935   30,937     18,263   18,499  
  

 

  

 

   

 

  

 

 

Total assets

$2,896,527  $2,894,175    $2,831,634   $3,146,987  
  

 

  

 

 
  

 

  

 

   

 

  

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

Current liabilities:

   

Accounts payable

$1,139  $2,835    $1,514   $2,512  

Accrued compensation and related benefits

 41,328   111,408     45,198   116,619  

Other accrued liabilities

 65,026   47,894     61,886   61,433  

Deferred revenue

 344,267   310,775     359,870   317,552  
  

 

  

 

   

 

  

 

 

Total current liabilities

 451,760   472,912     468,468   498,116  

Long-term debt

 800,000   800,000     1,579,960   1,579,404  

Deferred taxes

 136,793   137,838     106,000   110,937  

Other non-current liabilities

 52,274   50,592     61,550   57,043  
  

 

  

 

   

 

  

 

 

Total liabilities

 1,440,827   1,461,342     2,215,978   2,245,500  
  

 

  

 

   

 

  

 

 

Commitments and Contingencies (see Note 7)

Commitments and Contingencies (see Note 6 and Note 7)

   

Shareholders’ equity:

   

Preferred stock (par value $0.01; 100,000,000 shares authorized; no shares issued)

 —     —             

Common stock (par value $0.01; 750,000,000 common shares authorized; 127,165,535 and 126,637,390 common shares issued and 112,408,627 and 112,072,469 common shares outstanding at March 31, 2015 and December 31, 2014, respectively)

 1,272   1,266  

Treasury shares, at cost (14,756,908 and 14,564,921 common shares held at March 31, 2015 and December 31, 2014, respectively)

 (598,735 (588,378

Common stock (par value $0.01; 750,000,000 common shares authorized; 128,789,695 and 128,200,189 common shares issued and 96,535,358 and 101,013,148 common shares outstanding at March 31, 2016 and December 31, 2015, respectively)

   1,288   1,282  

Treasury shares, at cost (32,254,337 and 27,187,041 common shares held at March 31, 2016 and December 31, 2015, respectively)

   (1,742,417 (1,395,695

Additional paid in capital

 1,038,635   1,022,221     1,195,740   1,173,183  

Retained earnings

 1,046,098   1,022,695     1,196,783   1,158,462  

Accumulated other comprehensive loss

 (31,570 (24,971   (35,738 (35,745
  

 

  

 

   

 

  

 

 

Total shareholders’ equity

 1,455,700   1,432,833     615,656   901,487  
  

 

  

 

   

 

  

 

 

Total liabilities and shareholders’ equity

$2,896,527  $2,894,175    $2,831,634   $3,146,987  
  

 

  

 

   

 

  

 

 
  

 

  

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

  Three Months Ended
March 31,
                                                                   
  Three Months Ended
March 31,
 
  2015 2014   2016 2015 
  (unaudited)   (unaudited) 

Operating revenues

  $262,769   $239,688    $278,828   $262,769  

Operating expenses:

      

Cost of services

   82,653   75,427  

Selling, general and administrative

   72,465   67,658  

Cost of revenues

   63,172   69,904  

Selling and marketing

   41,689   41,648  

Research and development

   18,928   23,189  

General and administrative

   21,890   20,377  

Amortization of intangible assets

   11,702   11,270     11,840   11,702  

Depreciation and amortization of property, equipment and leasehold improvements

   7,207   5,828     8,168   7,207  
  

 

  

 

   

 

  

 

 

Total operating expenses

 174,027   160,183     165,687   174,027  
  

 

  

 

   

 

  

 

 

Operating income

 88,742   79,505     113,141   88,742  
  

 

  

 

 
  

 

  

 

 

Interest income

 (204 (156   (621 (204

Interest expense

 11,108   5,059     22,904   11,108  

Other expense (income)

 178   1,071     81   178  
  

 

  

 

   

 

  

 

 

Other expense (income), net

 11,082   5,974     22,364   11,082  
  

 

  

 

 
  

 

  

 

 

Income from continuing operations before provision for income taxes

 77,660   73,531     90,777   77,660  

Provision for income taxes

 28,036   26,385     30,410   28,036  
  

 

  

 

   

 

  

 

 

Income from continuing operations

 49,624   47,146     60,367   49,624  

Income (loss) from discontinued operations, net of income taxes

 (5,797 33,253        (5,797
  

 

  

 

   

 

  

 

 

Net income

$43,827  $80,399    $60,367   $43,827  
  

 

  

 

   

 

  

 

 
  

 

  

 

 

Earnings per basic common share:

   

Earnings per basic common share from continuing operations

$0.44  $0.40    $0.61   $0.44  

Earnings per basic common share from discontinued operations

 (0.05 0.28        (0.05
  

 

  

 

   

 

  

 

 

Earnings per basic common share

$0.39  $0.68    $0.61   $0.39  
  

 

  

 

 
  

 

  

 

 
  

 

  

 

 

Earnings per diluted common share:

   

Earnings per diluted common share from continuing operations

$0.44  $0.40    $0.60   $0.44  

Earnings per diluted common share from discontinued operations

 (0.05 0.28        (0.05
  

 

  

 

   

 

  

 

 

Earnings per diluted common share

$0.39  $0.68    $0.60   $0.39  
  

 

  

 

   

 

  

 

 
  

 

  

 

 

Weighted average shares outstanding used in computing earnings per share:

   

Basic

 112,520   117,582     99,425   112,520  
  

 

  

 

   

 

  

 

 
  

 

  

 

 

Diluted

 113,522   118,597     99,998   113,522  
  

 

  

 

 
  

 

  

 

 
  

 

  

 

 

Dividend declared per common share

$0.18  $—      $0.22   $0.18  
  

 

  

 

   

 

  

 

 
  

 

  

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

  Three Months Ended
March 31,
   Three Months Ended
March 31,
 
  2015 2014   2016      2015 
  (unaudited)   (unaudited) 

Net income

  $43,827   $80,399    $60,367       $43,827  
  

 

  

 

   

 

      

 

 

Other comprehensive (loss) income:

       

Foreign currency translation adjustments

 (6,590 1,032     304        (6,590

Income tax effect

 (132 (400   (67      (132
  

 

  

 

   

 

      

 

 

Foreign currency translation adjustments, net

 (6,722 632     237        (6,722
  

 

  

 

   

 

      

 

 

Pension and other post-retirement adjustments

 174   (7   (313      174  

Income tax effect

 (51 4     82        (51
  

 

  

 

   

 

      

 

 

Pension and other post-retirement adjustments, net

 123   (3   (231      123  
  

 

  

 

   

 

      

 

 

Other comprehensive (loss) income, net of tax

 (6,599 629     6        (6,599
  

 

  

 

   

 

      

 

 

Comprehensive income

$37,228  $81,028    $                      60,373       $                      37,228  
  

 

  

 

   

 

      

 

 
  

 

      

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

  Three Months Ended 
  Three Months Ended
March 31,
   March 31, 
  2015 2014   2016      2015 
  (unaudited)   (unaudited) 

Cash flows from operating activities

          

Net income

  $43,827   $80,399    $60,367       $43,827  

Adjustments to reconcile net income to net cash provided by operating activities:

          

Amortization of intangible assets

   11,702   14,010     11,840        11,702  

Stock-based compensation expense

   7,350   5,171     7,080        7,350  

Depreciation and amortization of property, equipment and leasehold improvements

   7,207   6,047     8,168        7,207  

Amortization of debt origination fees

   446   445     709        446  

Deferred taxes

   3,433   (26,271   (3,769      3,433  

Amortization of discount on long-term debt

   —     121  

Excess tax benefits from share-based compensation

   (2,990 (1,174   (3,857      (2,990

Other non-cash adjustments

   3,700   (102   359        3,700  

Changes in assets and liabilities, net of assets and liabilities assumed:

   

Changes in assets and liabilities, net of assets acquired and liabilities assumed:

       

Accounts receivable

   (7,181 (38,879   (51,664      (7,181

Prepaid income taxes

   15,533   10,385     22,246        15,533  

Prepaid and other assets

   (517 (618   270        (517

Accounts payable

   (1,681 349     (1,006      (1,681

Accrued compensation and related benefits

   (63,351 (68,646   (62,258      (63,351

Other accrued liabilities

   11,331   3,480     (1,325      11,331  

Deferred revenue

   34,717   46,167     42,039        34,717  

Other

   3,157   (5,635   3,831        3,157  
  

 

  

 

   

 

      

 

 

Net cash provided by operating activities

 66,683   25,249     33,030        66,683  
  

 

  

 

   

 

      

 

 

Cash flows from investing activities

       

Capital expenditures

 (4,934 (8,501   (3,135      (4,934

Capitalized software development costs

 (1,386 (1,559   (2,325      (1,386

Proceeds from the sale of capital equipment

 —     7  

Acquisitions, net of cash acquired

   (60        
  

 

  

 

   

 

      

 

 

Net cash used in investing activities

 (6,320 (10,053   (5,520      (6,320
  

 

  

 

   

 

      

 

 

Cash flows from financing activities

       

Repayment of long-term debt

 —     (5,063

Repurchase of treasury shares

 (10,352 (107,159   (346,715      (10,352

Proceeds from exercise of stock options

 632   1,710     2,438        632  

Excess tax benefits from stock-based compensation

 2,990   1,174     3,857        2,990  

Payment of dividends

 (20,406 —       (21,889      (20,406
  

 

  

 

   

 

      

 

 

Net cash used in financing activities

 (27,136 (109,338   (362,309      (27,136
  

 

  

 

   

 

      

 

 

Effect of exchange rate changes

 (4,275 566     2,107        (4,275
  

 

  

 

   

 

      

 

 

Net increase (decrease) in cash and cash equivalents

 28,952   (93,576

Net (decrease) increase in cash and cash equivalents

   (332,692      28,952  

Cash and cash equivalents, beginning of period

 508,799   358,434     777,706        508,799  

Less: Cash and cash equivalents attributed to discontinued operations

 —     (4,408
  

 

  

 

   

 

      

 

 

Cash and cash equivalents, end of period

$537,751  $260,450    $                    445,014       $                    537,751  
  

 

      

 

 
  

 

      

 

 
  

 

  

 

 

Supplemental disclosure of cash flow information:

       

Cash paid for interest

$161  $4,542    $23,451       $161  
  

 

  

 

   

 

      

 

 
  

 

      

 

 

Cash paid for income taxes

$13,976  $21,131    $11,242       $13,976  
  

 

      

 

 
  

 

      

 

 
  

 

  

 

 

Supplemental disclosure of non-cash investing activities:

       

Property, equipment and leasehold improvements in other accrued liabilities

$12,970  $2,842    $5,077       $12,970  
  

 

  

 

   

 

      

 

 
  

 

      

 

 

Supplemental disclosure of non-cash financing activities:

       

Cash dividends declared, but not yet paid

  $157       $13  
  

 

      

 

 
  

 

      

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. INTRODUCTION AND BASIS OF PRESENTATION

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”), is a global provideroffers content, applications and services to support the needs of institutional investors throughout their investment decision support tools, including indexes, portfolio risk and performance analytics and multi-asset class market risk analytics products and services.processes. The Company’s flagship products are its global equity indexes, custom indexes, factor indexes and environmental, socialESG indexes; its analytics products, including multi-factor models, pricing models, methodologies for performance attribution, models for statistical analysis, and governance (“ESG”) products marketed under the MSCItools for portfolio optimization, back testing and MSCIstress testing; its ESG Research brands,research and ratings; and its private real estate benchmarks, marketed under the IPD brand, its portfolio riskindexes, business intelligence and performance analytics covering global equity markets marketed under the Barra brand, its multi-asset class, market and credit risk analytics marketed under the RiskMetrics and Barra brands and its performance reporting products and services offered to the investment consultant community marketed under the InvestorForce brand.analytics.

On March 17, 2014, MSCI entered into a definitive agreement to sell Institutional Shareholder Services Inc. (“ISS”). As a result, the Company reported the operating results of ISS in “IncomeIncome (loss) from discontinued operations, net of income taxes”taxes in the Unaudited Condensed Consolidated StatementsStatement of Income for the three months ended March 31, 2015 and 2014. Unless otherwise indicated,represents the disclosures accompanying these unaudited condensed consolidated financial statements reflect the Company’s continuing operations.

The Company completedimpact of an out-of-period income tax charge associated with tax obligations triggered upon the sale of ISSInstitutional Shareholder Services Inc. (“ISS”), which was completed on April 30, 2014. See Note 3, “Disposition and Discontinued Operations,” for further details.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements include the accounts of MSCI Inc. and its subsidiaries and include all adjustments of a normal, recurring nature necessary to present fairly the financial condition as of March 31, 20152016 and December 31, 2014,2015, the results of operations and comprehensive income for the three months ended March 31, 20152016 and 20142015 and cash flows for the three months ended March 31, 20152016 and 2014.2015. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K as amended, for the year ended December 31, 2014.2015. The unaudited condensed consolidated financial statement information as of December 31, 20142015 has been derived from the 20142015 audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of results for the entire year.

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles require the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, the allowance for doubtful accounts, impairment of long-lived assets, accrued compensation, income taxes and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.

Intercompany balances and transactions are eliminated in consolidation.

Concentrations

No single customer represented 10.0% or more of the Company’s consolidated operating revenues for the three months ended March 31, 2016, while BlackRock, Inc. accounted for 10.1% of the Company’s consolidated operating revenues for the three months ended March 31, 2015. For the three months ended March 31, 20152016 and 2014,2015, BlackRock, Inc. accounted for 10.1%17.0% and 10.4%, respectively,19.2% of the Company’sIndex segment operating revenues.revenues, respectively. No single customer represented 10.0% or more of revenues within the Analytics and All Other segments for the three months ended March 31, 2016 and 2015.

2. RECENT ACCOUNTING STANDARDS UPDATES

In May 2014, the FASB issued Accounting Standards Update No. 2014-09,“Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. On April 1, 2015, the FASB voted to

propose a deferral of the effective date of the new revenue standard by one year, but to permit entities to adopt it one year earlier if they choose (that is, annual reporting periods beginning after December 15, 2016). The FASB has proposed to issue an Accounting Standards Update to defer the effective date such that the new date would be for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. Companies have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. In August 2015, the FASB issued Accounting Standards Update No. 2015-14,“Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” or ASU 2015-14. The amendments in ASU 2015-14 defer the effective date of the new revenue standard by one year by changing the effective date to be for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017 from December 15, 2016, with early adoption at the prior date permitted. The Company is evaluatingcontinuing to evaluate the potential impact that the update will have on its unaudited condensed consolidated financial statements.

In April 2015,February 2016, the FASB issued Accounting Standards Update No. 2015-03,2016-02,Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs,Leases (Topic 842), or ASU 2015-03.2016-02. The objective ofFASB issued ASU 2015-03 is2016-02 in order to simplifyincrease the presentation of debt issuance costs requiring that debt issuance costs related to a recognized debt liability be presentedtransparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet as a direct deduction fromand disclosing key information about leasing arrangements. To meet that objective, the carrying amount of that debt liability, consistent with debt discounts. Currently, debt issuance costs are recognizedFASB amended the FASB Accounting Standards Codification and presented as a deferred charge (that is, an asset). The new guidancecreated Topic 842, Leases. ASU 2016-02 is effective for annual reporting periods, (includingincluding interim periods within those periods)periods, beginning after December 15, 2015,2018, with early adoption permitted for financial statements that have not been previously issued.permitted. ASU 2016-02 requires reporting organizations to take a modified retrospective transition approach (as opposed to a full retrospective transition approach). The Company is evaluating the adoption ofpotential impact that ASU 2015-03 but does not expect the adoption to2016-02 will have a material effect on its unaudited condensed consolidated financial statements.

In April 2015,March 2016, the FASB issued Accounting Standards Update No. 2015-05,2016-08, ““Intangibles – Goodwill and Other – Internal-Use Software,Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” or ASU 2015-05.2016-08. ASU 2016-08 does not change the core principle of current accounting guidance related to principle versus agent considerations, but rather intended to add clarification to the implementation guidance. ASU 2016-08 affects the guidance in Accounting Standards Update No. 2014-09,“Revenue from Contracts with Customers (Topic 606),” which is not yet effective. The amendmentseffective date and transition requirements for ASU 2016-08 are the same as the effective date and transition requirements of ASU 2014-09. The Company is evaluating the potential impact that the adoption of ASU 2016-08 will have on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” or ASU 2016-09. The FASB issued ASU 2016-09 as part of its Simplification Initiative. The areas for simplification in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license elementASU 2016-09 involve several aspects of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The new guidanceshare-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods, (includingincluding interim periods within those periods)periods, beginning after December 15, 2015,2017, with early adoption permitted. The Company is evaluating the adoption ofpotential impact that ASU 2015-05 but does not expect the adoption to2016-09 will have a material effect on its unaudited condensed consolidated financial statements.

3. DISPOSITION AND DISCONTINUED OPERATIONSIn April 2016, the FASB issued Accounting Standards Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” or ASU 2016-10. The amendments in ASU 2016-10 clarify both the process for identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas included in Topic 606, which is not yet effective. The effective date and transition requirements for ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09, which is not yet effective. The Company is evaluating the potential impact that ASU 2016-10 will have on its condensed consolidated financial statements.

On March 17, 2014, MSCI entered into a definitive agreement to sell ISS which was completed on April 30, 2014. The results of operations from ISS are reflected in “Income (loss) from discontinued operations, net of income taxes” in the Unaudited Condensed Consolidated Statements of Income.

ISS was classified as a discontinued operation during the three months ended March 31, 2014 at which time MSCI segregated the operating results of ISS in “Income (loss) from discontinued operations, net of income taxes” in the Unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and 2014.

Amounts associated with discontinued operations reflected in the Unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2015 and 2014 are as follows:

   Three Months Ended
March 31,
 
   2015   2014 
   (in thousands) 

Revenue from discontinued operations

  $—      $32,210  
  

 

 

   

 

 

 

Income from discontinued operations before provision for income taxes

$—    $6,217  

Provision for (benefit from) income taxes

 5,797   (27,036)
  

 

 

   

 

 

 

Income (loss) from discontinued operations, net of income taxes

$(5,797)$33,253  
  

 

 

   

 

 

 

The three months ended March 31, 2015 reflects the impact of an out-of-period income tax charge associated with tax obligations triggered upon the sale of ISS. The three months ended March 31, 2014 included a $30.6 million income tax benefit associated with establishing a net deferred tax asset on the difference between the ISS tax basis and book basis.

4.3. EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is computed by dividing income available to MSCI common shareholders by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements.

Diluted EPS reflects the assumed conversion of all dilutive securities. There were no stock options or restricted stock units excluded from the calculation of diluted EPS for both the three months ended March 31, 2016 and 2015 because of their anti-dilutive effect. There were 104,272 stock options excluded from the calculation of diluted EPS for the three months ended March 31, 2014 because of their anti-dilutive effect.

The Company computes EPS using the two-class method and determines whether instruments granted in share-based payment transactions are participating securities. The following table presents the computation of basic and diluted EPS:

 

   Three Months Ended 
  March 31,   March 31, 
   2015   2014 

(in thousands, except per share data)

  

Income from continuing operations, net of income taxes

  $49,624    $47,146  

Income (loss) from discontinued operations, net of income taxes

   (5,797   33,253  
  

 

 

   

 

 

 

Net income

 43,827   80,399  

Less: Allocations of earnings to unvested restricted stock units(1)

 (17 (132
  

 

 

   

 

 

 

Earnings available to MSCI common shareholders

$43,810  $80,267  
  

 

 

   

 

 

 

Basic weighted average common shares outstanding

 112,520   117,582  
  

 

 

   

 

 

 

Effect of dilutive securities:

Stock options and restricted stock units

 1,002   1,015  
  

 

 

   

 

 

 

Diluted weighted average common shares outstanding

 113,522   118,597  
  

 

 

   

 

 

 

Earnings per basic common share from continuing operations

$0.44  $0.40  

Earnings per basic common share from discontinued operations

 (0.05 0.28  
  

 

 

   

 

 

 

Earnings per basic common share

$0.39  $0.68  
  

 

 

   

 

 

 

Earnings per diluted common share from continuing operations

$0.44  $0.40  

Earnings per diluted common share from discontinued operations

 (0.05 0.28  
  

 

 

   

 

 

 

Earnings per diluted common share

$0.39  $0.68  
  

 

 

   

 

 

 
   Three Months Ended
March 31,
 
   2016   2015 
(in thousands, except per share data)        

Income from continuing operations, net of income taxes

  $60,367    $49,624  

Income (loss) from discontinued operations, net of income taxes

        (5,797)
  

 

 

   

 

 

 

Net income

   60,367     43,827  

Less: Allocations of earnings to unvested restricted stock units(1)

        (17)
  

 

 

   

 

 

 

Earnings available to MSCI common shareholders

  $              60,367    $                43,810  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

Basic weighted average common shares outstanding

   99,425     112,520  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

Effect of dilutive securities:

    

Stock options and restricted stock units

   573     1,002  
  

 

 

   

 

 

 

Diluted weighted average common shares outstanding

                 99,998                   113,522  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

Earnings per basic common share from continuing operations

  $0.61    $0.44  

Earnings per basic common share from discontinued operations

        (0.05)
  

 

 

   

 

 

 

Earnings per basic common share

  $0.61    $0.39  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

Earnings per diluted common share from continuing operations

  $0.60    $0.44  

Earnings per diluted common share from discontinued operations

        (0.05)
  

 

 

   

 

 

 

Earnings per diluted common share

  $0.60    $0.39  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

 

(1)Restricted stock units granted to employees prior to 2013 and all restricted stock units granted to independent directors of the Company haveprior to April 30, 2015 had a right to participate in all of the earnings of the Company in the computation of basic EPS and, therefore, these restricted stock units arewere not included as incremental shares in the diluted EPS computation.

5.4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements at March 31, 20152016 and December 31, 20142015 consisted of the following:

 

      As of 

Type

  Estimated
Useful Lives
  March 31,
2015
   December 31,
2014
 
      
      (in thousands) 

Computer & related equipment

  3 to 5 years  $124,544    $118,537  

Furniture & fixtures

  7 years   9,431     9,569  

Leasehold improvements

  1 to 21 years   49,671     49,756  

Work-in-process

     13,082     9,020  
    

 

 

   

 

 

 

Subtotal

 196,728   186,882  

Accumulated depreciation and amortization

 (99,230 (92,808
    

 

 

   

 

 

 

Property, equipment and leasehold improvements, net

$97,498  $94,074  
    

 

 

   

 

 

 

   As of 

Type

  March 31,
2016
  December 31,
2015
 
   (in thousands) 

Computer & related equipment

  $149,716   $              143,499  

Furniture & fixtures

                 10,304    9,870  

Leasehold improvements

   48,126    47,579  

Work-in-process

   6,614    12,658  
  

 

 

  

 

 

 

Subtotal

   214,760    213,606  

Accumulated depreciation and amortization

   (118,753  (114,680
  

 

 

  

 

 

 

Property, equipment and leasehold improvements, net

  $96,007   $98,926  
  

 

 

  

 

 

 
  

 

 

  

 

 

 

Depreciation and amortization expense of property, equipment and leasehold improvements was $7.2$8.2 million and $5.8$7.2 million for the three months ended March 31, 20152016 and 2014,2015, respectively.

6. GOODWLL5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company carriesfollowing table presents goodwill as reflected in the table below:by reportable segment:

 

  Goodwill   Index Analytics   All Other Total 

(in thousands)

      

Goodwill at December 31, 2014

  $1,564,904  

Goodwill at December 31, 2015

  $          1,210,366   $          302,551    $            52,704   $          1,565,621  

Changes to goodwill(1)

      60        60  

Foreign exchange translation adjustment

   (3,052   (923       (572 (1,495
  

 

   

 

  

 

   

 

  

 

 

Goodwill at March 31, 2015

$1,561,852  
  

 

 

Goodwill at March 31, 2016

   1,209,443   302,611     52,132   1,564,186  
  

 

  

 

   

 

  

 

 
  

 

  

 

   

 

  

 

 

(1)Changes to goodwill reflect the final working capital adjustment payment made during the three months ended March 31, 2016 to complete the acquisition of Insignis, Inc.

Intangible Assets

Amortization expense related to intangible assets for the three months ended March 31, 2016 and 2015 and 2014 was $11.7$11.8 million and $11.3$11.7 million, respectively.

The gross carrying amounts and accumulated amortization totalsamounts related to the Company’s identifiable intangible assets arewere as follows:

 

      As of 
   Estimated
Useful Lives
  March 31,
2015
   December 31,
2014
 
      (in thousands) 

Gross intangible assets:

      

Customer relationships

  5 to 21 years  $360,835    $360,835  

Trademarks/trade names

  5 to 21.5 years   223,382     223,382  

Technology/software

  3 to 8.5 years   191,677     193,681  

Proprietary data

  13 years   28,627     28,627  

Covenant not to compete

  2 years   900     900  
    

 

 

   

 

 

 

Subtotal

 805,421   807,425  

Foreign exchange translation adjustment

 (4,324 (1,588
    

 

 

   

 

 

 

Total gross intangible assets

$801,097  $805,837  
    

 

 

   

 

 

 

Accumulated amortization:

Customer relationships

$(125,121$(119,058

Trademarks/trade names

 (84,534 (81,545

Technology/software

 (169,097 (167,083

Proprietary data

 (5,112 (4,589

Covenant not to compete

 (300 (187
    

 

 

   

 

 

 

Subtotal

 (384,164 (372,462

Foreign exchange translation adjustment

 677   253  
    

 

 

   

 

 

 

Total accumulated amortization

$(383,487$(372,209
    

 

 

   

 

 

 

Net intangible assets:

Customer relationships

$235,714  $241,777  

Trademarks/trade names

 138,848   141,837  

  As of 
  March 31,
2016
     December 31,
2015
 

Gross intangible assets:

   (in thousands)  

Customer relationships

  $361,746     $361,746  

Trademarks/trade names

   223,382      223,382  

Technology/software

 22,580   26,598     202,203      199,889  

Proprietary data

 23,515   24,038     28,627      28,627  

Covenant not to compete

 600   713     1,225      1,225  
    

 

   

 

   

 

    

 

 

Subtotal

 421,257   434,963     817,183      814,869  

Foreign exchange translation adjustment

 (3,647 (1,335)   (6,263    (4,867
    

 

   

 

   

 

    

 

 

Total gross intangible assets

  $810,920     $810,002  
  

 

    

 

 

Accumulated amortization:

     

Customer relationships

  $(149,386   $(143,325

Trademarks/trade names

   (96,354    (93,476

Technology/software

   (177,462    (175,209

Proprietary data

   (7,193    (6,698

Covenant not to compete

   (818              (665
  

 

    

 

 

Subtotal

   (431,213    (419,373

Foreign exchange translation adjustment

   1,153      861  
  

 

    

 

 

Total accumulated amortization

  $(430,060   $(418,512
  

 

    

 

 

Net intangible assets:

     

Customer relationships

  $212,360     $218,421  

Trademarks/trade names

   127,028      129,906  

Technology/software

   24,741      24,680  

Proprietary data

   21,434      21,929  

Covenant not to compete

   407      560  
  

 

    

 

 

Subtotal

   385,970      395,496  

Foreign exchange translation adjustment

   (5,110    (4,006)
  

 

    

 

 

Total net intangible assets

$417,610  $433,628    $                    380,860     $                    391,490  
    

 

   

 

   

 

    

 

 
  

 

    

 

 

The following table presents the estimated amortization expense for the remainder of 20152016 and succeeding years is presented below:years:

 

Years Ending December 31,

  Amortization Expense      Amortization Expense    
  (in thousands)   (in thousands) 

Remainder 2015

  $35,020  

2016

   46,279  

Remainder 2016

  $36,107  

2017

   41,013     43,493  

2018

   37,970     40,269  

2019

   36,609     38,227  

2020

   36,422  

Thereafter

   220,719     186,342  
  

 

 
  

 

 

Total

$417,610    $380,860  
  

 

   

 

 
  

 

 

7.

6. COMMITMENTS AND CONTINGENCIES

Legal matters.From time to time, the Company is party to various litigation matters incidental to the conduct of its business. The Company is not presently party to any legal proceedings the resolution of which the Company believes would have a material effect on its business, operating results, financial condition or cash flows.

Leases.The Company leases facilities under non-cancelable operating lease agreements. The terms of certain lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on the straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense for the three months ended March 31, 2016 and 2015 was $6.1 million and 2014 was $6.8 million, and $6.3 million, respectively.

Return of capital.On December 13, 2012, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of MSCI’s common stock beginning immediately and continuing through December 31, 2014 (the “2012 Repurchase Program”).

Prior to 2014, the Company repurchased an aggregate of $200.0 million worth of shares through multiple accelerated share repurchase (“ASR”) agreements under the 2012 Repurchase Program. On February 6, 2014, MSCI utilized the remaining $100.0 million repurchase authorization provided by the 2012 Repurchase Program.

On February 4, 2014, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of MSCI’s common stock (the “2014 Repurchase Program”). On September 17, 2014, the Board of Directors increased the approval under the 2014 Repurchase Program from $300.0 million to $850.0 million. Share repurchases made pursuant to the 2014 Repurchase Program may take place through December 31, 2016 in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended, terminated or extended by the Board of Directors at any time without prior notice.

On September 18, 2014, as part of the 2014 Repurchase Program, the Company entered into an ASR agreement to initiate share repurchases aggregating $300.0 million (the “September 2014 ASR Agreement”). On September 19, 2014, the Company paid $300.0 million in cash and received approximately 4.5 million shares of MSCI’s common stock under the September 2014 ASR Agreement. The total number of shares to be repurchased will be based primarily on an arithmetic average of the volume-weighted average prices

of MSCI’s common stock on each trading day during the repurchase period. This average price will be capped such that only under limited circumstances will MSCI be required to deliver shares or pay cash at settlement. The Company may also receive additional shares at or prior to maturity of the September 2014 ASR Agreement in May 2015.

The $300.0 million payment for the September 2014 ASR Program was initially split and recorded as a $210.0 million increase to “Treasury stock” and a $90.0 million decrease to “Additional paid in capital” on the Company’s Consolidated Statement of Financial Condition to reflect the initial estimate of the value of shares received.

Since the introduction of the initial 2012 Repurchase Program, the Company has paid $600.0 million and has received an aggregate of approximately 12.3 million shares under the programs.

On September 17, 2014, the Board of Directors approved a plan to initiate a regular quarterly cash dividend. We expect the initial annual dividend rate to be $0.72 per share. Subsequent to the initial approval of the regular quarterly cash dividend, the Board of Directors has since approved two quarterly dividend payments of $0.18 per share of common stock.

Long-term debt. On November 20, 2014, the Company completed its first private offering of $800.0 million in aggregate principal amount of 5.25% senior unsecured notes due 2024 (the “Senior“2024 Senior Notes”) and also entered into a $200.0 million senior unsecured revolving credit agreement (the “2014 Revolving Credit Agreement”) by and among the Company, as borrower, certain of its subsidiaries, as guarantors (the “subsidiary guarantors”), the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Company used the net proceeds from the offering of the 2024 Senior Notes, together with cash on hand, to prepayrepay in full its then outstanding term loan indebtedness of $794.8 million.

On August 13, 2015, the Company completed its second private offering of $800.0 million which bore interest at LIBOR plus a marginaggregate principal amount of 2.25%5.75% senior unsecured notes due 2025 (the “2025 Senior Notes”). The $789.5 million of net proceeds from the offering of the 2025 Senior Notes were allocated for general corporate purposes.

The 2024 Senior Notes are scheduled to mature and be paid in full on November 20, 2024. At any time prior to November 15, 2019, the Company may redeem all or part of the 2024 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2024 Senior Notes, together with accrued and unpaid interest, on or after November 15, 2019, at redemption prices set forth in the Indenture dated as of November 20, 2014, amongindenture governing the Company, the subsidiary guarantors and Wells Fargo Bank, National Association, as trustee.2024 Senior Notes. At any time prior to November 15, 2017, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2024 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.25% of the principal amount.

The 2014 Revolving Credit Agreement has an initial term of five years that may be extended, at the Company’s request, for two additional one year terms.

Interest on theThe 2025 Senior Notes accruesare scheduled to mature and be paid in full on August 15, 2025. At any time prior to August 15, 2020, the Company may redeem all or part of the 2025 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a fixed rateredemption price equal to the sum of 5.25% per annum(i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and is payable semiannuallyunpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2025 Senior Notes, together with accrued and unpaid interest, on or after August 15, 2020, at redemption prices set forth in arrearsthe indenture governing the 2025 Senior Notes. At any time prior to August 15, 2018, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2025 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.75% of the principal amount.

Interest payments attributable to the 2024 Senior Notes are due on May 15 and November 15 of each year, commencingyear. The first interest payment was made on May 15, 2015. The Company will make interestInterest payments attributable to holders of record of the 2025 Senior Notes are due on the immediately preceding May 1February 15 and November 1.August 15 of each year. The first interest payment was made on February 16, 2016.

Long-term debt was $800.0 million at both March 31, 2015 and2016 was $1,580 million, net of $20.0 million in deferred financing fees. Long-term debt at December 31, 2014.2015 was $1,579.4 million, net of $20.6 million in deferred financing fees.

In connection with the closing of the 2024 Senior Notes offeringand 2025 Senior Notes offerings and entering into the 2014 Revolving Credit Agreement, the Company paid certain fees which, together with the existing fees related to prior credit facilities, are being amortized over the life of the Senior Notes and the 2014 Revolving Credit Agreement.related lives. At March 31, 2015, $14.22016, $22.2 million of the deferred financing fees remain unamortized, $1.8$0.6 million of which isare included in “Prepaid and other assets” and $12.4assets,” $1.6 million of which isare included in “Other non-current assets” and $20.0 million of which are grouped and presented as part of “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.

The Company amortized $0.7 million and $0.4 million of deferred financing fees in interest expense during each of the three months ended March 31, 2016 and 2015, and 2014. Approximately $0.1 million of debt discount was amortized in interest expense during the three months ended March 31, 2014. There was no debt discount outstanding as of March 31, 2015.respectively.

At March 31, 20152016 and December 31, 2014,2015, the fair market value of the Company’s debt obligations was $828.0$1,671.0 million and $831.0$1,638.0 million, respectively. The fair market value is determined in accordance with accounting standards related to the determination of fair value and represents Level 2 valuations, which are based on one or more quoted prices in markets that are not considered to be active or for which all significant inputs are observable, either directly or indirectly. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.

Derivatives and Hedging Activities.The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments.

Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency, the U.S. dollar. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency.

Non-designated Hedges of Foreign Exchange Risk. Derivatives not designated as hedges are not speculative and are used to manage the Company’s economic exposure to foreign exchange rate movements but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of March 31, 2015,2016, the Company had outstanding foreign currency forwards with a notional amount of $32.2$22.5 million that were not designated as hedges in qualifying hedging relationships.

The following table presents the fair values of the Company’s derivative instruments and the location in which they are presented on the Company’s Unaudited Condensed Consolidated Statements of Financial Condition:

 

  Unaudited Condensed
Consolidated Statements of
  As of 

(in thousands)

  Unaudited Condensed
Consolidated Statements of
Financial Condition Location
   As of
March 31, 2015
   As of
December 31, 2014
     Financial Condition Location        March 31, 2016       December 31, 2015   

Non-designated hedging instruments:

           

Asset derivatives:

           

Foreign exchange contracts

   Prepaid and other assets    $602     —        Prepaid and other assets  $   $640  

Liability derivatives:

           

Foreign exchange contracts

   Other accrued liabilities    $(57  $(243    Other accrued liabilities  $(138 $(2

The Company’s foreign exchange forward contracts were classified withinrepresent Level 2 valuations, as they were valued using pricing models that took into account the contract terms as well as multiple observable inputs where applicable, such as prevailing spot rates and forward points.

The following tables presenttable presents the effect of the Company’s financial derivatives and the location in which they are presented on the Company’s Unaudited Condensed Consolidated Statements of Financial Condition and Unaudited Condensed Consolidated Statements of IncomeIncome:

Derivatives Not Designated as Hedging Instruments  

Location of Gain or

(Loss) Recognized in

  Amount of Gain or (Loss) Recognized
in Income on Derivatives for the
Three Months Ended March 31,
 

(in thousands)

                  Income on Derivatives                                   2016                                    2015                  

Foreign exchange contracts

  Other expense (income)  $214            $1,412        

7. SHAREHOLDERS’ EQUITY

Return of capital. On February 4, 2014, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of MSCI’s common stock, which was increased to $850.0 million on September 17, 2014 (the “2014 Repurchase Program”). On October 14, 2015, the Company exhausted the $850.0 million share repurchase authorization under the 2014 Repurchase Program.

On October 28, 2015, the Board of Directors approved a new stock repurchase program authorizing the purchase of up to $1.0 billion worth of shares of MSCI’s common stock (the “2015 Repurchase Program”). Share repurchases made pursuant to the 2015 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

On June 2, 2015, the Company began purchasing shares of its common stock on the open market in accordance with SEC Rule 10b5-1. Through December 31, 2015, the Company paid $670.8 million to receive approximately 10.7 million shares pursuant to open market repurchases under the 2014 Repurchase Program and the 2015 Repurchase Program at an average purchase price of $62.63 per share.

For the three months ended March 31, 2016, the Company paid $333.3 million to receive approximately 4.9 million shares at an average purchase price of $68.45 per share under the 2015 Repurchase Program.

Since 2012 and through March 31, 2016, approximately $1.7 billion has been returned through share repurchases and payment of cash dividends.

The following table presents cash dividends declared, deferred and distributed per common share for the periods indicated:

 

Derivatives Not Designated as Hedging Instruments

(in thousands)

  Location of Gain or
(Loss) Recognized in
Income on Derivatives
   Amount of Gain or (Loss) Recognized
in Income on Derivatives for the
Three Months Ended March 31,
 
    2015   2014 

Foreign exchange contracts

   Other expense & income    $1,412    $160  
   Dividends 
(in thousands)            Per Share                       Declared                       Distributed                       Deferred           

2016:

        

Three months ended March 31,

  $0.22    $22,046    $21,889    $157  
  

 

 

   

 

 

   

 

 

   

 

 

 
  

 

 

   

 

 

   

 

 

   

 

 

 

2015:

        

Three months ended March 31,

  $0.18    $20,424    $20,411    $13  
  

 

 

   

 

 

   

 

 

   

 

 

 
  

 

 

   

 

 

   

 

 

   

 

 

 

Common Stock.

The following table presents activity related to shares of common stock issued and repurchased for the periods indicated:

   Common
    Stock Issued    
   Treasury
Stock
  Common
Stock
Outstanding
 

Balance At December 31, 2015

   128,200,189     (27,187,041  101,013,148  

Dividend payable/paid

   104     (104    

Common stock issued and exercise of stock options

   589,402         589,402  

Shares withheld for tax withholding and exercises

        (197,769  (197,769

Shares repurchased under stock repurchase programs

        (4,869,423  (4,869,423
  

 

 

   

 

 

  

 

 

 

Balance At March 31, 2016

           128,789,695           (32,254,337            96,535,358  
  

 

 

   

 

 

  

 

 

 
  

 

 

   

 

 

  

 

 

 

8. INCOME TAXES

The Company’s provision for income taxes was $28.0$30.4 million and $26.4$28.0 million for the three months ended March 31, 20152016 and 2014,2015, respectively. These amounts reflect effective tax rates of 36.1%33.5% and 35.9%36.1% for the three months ended March 31, 2016 and 2015, and 2014, respectively. The reduction in the effective tax rate is primarily due to higher income generated in lower tax jurisdictions.

The Company is under examination by the Internal Revenue ServiceIRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as India, and states in which the Company has significant business operations, such as New York. The tax years currently under examination vary by jurisdiction but include years ranging from 20052004 through 2014.2015. As a result of having previously been a member of the Morgan Stanley consolidated group, the Company may have future settlements with Morgan Stanley related to the ultimate disposition of their New York State and New York City examination relating to the tax years 2007 throughand 2008 and their IRS examination relating to the tax years 2006 through 2008. The Company does not believe it has any material exposure to the New York State and New York City examination.examinations. Additionally, the Company believes it has adequate reserves for any tax issues that may arise out of the IRS examination relating to the tax years 2006 through 2008 and therefore does not believe any related settlement with Morgan Stanley will have a material impact.

The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. As part of the Company’s periodic review of unrecognized tax benefits and based on new information regarding the status of federal and state examinations, the Company’s unrecognized tax benefits were remeasured. It is reasonably possible that significant changes in the balance of unrecognized tax benefits may occur within the next 12 months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on the effective tax rate over the next 12 months.

9. SEGMENT INFORMATION

ASC Subtopic 280-10,“Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or CODM,makers (“CODM”) in deciding how to allocate resources and in assessingassess performance. MSCI’s Chief Executive Officer and Chief Operating Officer, who istogether are considered to be its CODM, reviewsreview financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

MSCI operatesThe CODM measures and reportsevaluates reportable segments based on segment operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: income (loss) from discontinued operations, net of income taxes, provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and certain transactions or adjustments that the CODM does not primarily consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment Adjusted EBITDA, they are included in reported consolidated net income and are included in the reconciliation that follows.

The Company’s computation of segment Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because all companies do not calculate segment adjusted EBITDA in the same fashion.

Revenues and expenses directly associated with each segment are included in determining its operating results. Other expenses that are not directly attributable to a particular segment are allocated based upon various methodologies, including time estimates, headcount, sales targets, data center consumption and other relevant usage measures. Due to the integrated structure of our business, certain costs incurred by one segment may benefit other segments. A segment may use the content and data produced by another segment without incurring an arm’s-length intersegment charge.

The CODM does not review any information regarding total assets on an operating segment basis. Operating segments do not record intersegment revenue, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for MSCI as a single business segment.whole.

The Company has four operating segments: Index, Analytics, ESG and Real Estate.

The Index operating segment is a provider of investment decision support tools, including equity indexes and equity index benchmarks. The products are used in many areas of the investment process, including portfolio construction and rebalancing, asset allocation, performance benchmarking and attribution, regulatory and client reporting and index-linked investment product creation.

The Analytics operating segment consists of products and services used for portfolio construction, risk management and reporting. The products enable institutional investors to monitor, analyze and report on the risk and return of investments across a variety of asset classes. They are based on proprietary, integrated fundamental multi-factor risk models, value-at-risk methodologies, performance attribution frameworks and asset valuation models. In addition, the Analytics segment includes products that help investors value, model and hedge physical assets and derivatives across a number of market segments, including energy and commodity assets.

The ESG operating segment offers products institutional investors use for assessing risks and opportunities arising from environmental, social and governance issues. ESG tools are used to evaluate both individual securities and investment portfolios.

The Real Estate operating segment is a provider of real estate performance analysis for funds, investors, managers, lenders and occupiers. It provides index products and offers services that include research, reporting and benchmarking.

The operating segments of ESG and Real Estate do not individually meet the segment reporting thresholds and have been combined and presented as part of the All Other segment for disclosure purposes.

The following table presents operating revenue by the reportable segment for the periods indicated:

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 

Operating revenues

    

Index

  $144,613    $133,554  

Analytics

   110,263     106,845  

All Other

   23,952     22,370  
  

 

 

   

 

 

 

Total

  $                278,828    $                262,769  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

The following table presents segment profitability and a reconciliation to net income for the periods indicated:

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 

Index Adjusted EBITDA

  $100,049    $93,053  

Analytics Adjusted EBITDA

   30,360     14,080  

All Other Adjusted EBITDA

   2,740     518  
  

 

 

   

 

 

 

Total operating segment profitability

   133,149     107,651  
  

 

 

   

 

 

 

Amortization of intangible assets

   11,840     11,702  

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207  
  

 

 

   

 

 

 

Operating income

                   113,141                       88,742  

Other expense (income), net

   22,364     11,082  

Provision for income taxes

   30,410     28,036  
  

 

 

   

 

 

 

Income from continuing operations

   60,367     49,624  

Income (loss) from discontinued operations, net of income taxes

        (5,797
  

 

 

   

 

 

 

Net income

  $60,367    $43,827  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

Revenue by geography is based on the shipping address of the customer.ultimate customer utilizing the product. The following table sets forthpresents revenue for the periods indicated by geographic area:

 

Revenues  Three Months Ended
March 31,
 
  Three Months Ended
March 31,
 
Revenues 2015   2014   2016   2015 
  (in thousands)   (in thousands) 

Americas:

        

United States

  $125,616    $110,832    $137,645    $125,616  

Other

   9,855     9,427     10,582     9,855  
  

 

   

 

   

 

   

 

 

Total Americas

 135,471   120,259     148,227     135,471  
  

 

   

 

   

 

   

 

 

EMEA:

Europe, the Middle East and Africa (“EMEA”):

    

United Kingdom

 40,241   37,476     42,610     40,241  

Other

 54,929   51,128     53,439     54,929  
  

 

   

 

   

 

   

 

 

Total EMEA

 95,170   88,604     96,049     95,170  
  

 

   

 

 
  

 

   

 

 

Asia & Australia:

    

Japan

 11,602   11,960     12,640     11,602  

Other

 20,526   18,865     21,912     20,526  
  

 

   

 

   

 

   

 

 

Total Asia & Australia

 32,128   30,825     34,552     32,128  
  

 

   

 

 
  

 

   

 

 

Total

$262,769  $239,688    $                278,828    $                262,769  
  

 

   

 

   

 

   

 

 
  

 

   

 

 

Long-lived assets consist of property, equipment, leasehold improvements, goodwill and intangible assets, net of accumulated depreciation and amortization.

The following table sets forthpresents long-lived assets on the dates indicated by geographic area:

 

   As of 
   March 31,
2015
   December 31,
2014
 
Long-lived assets  (in thousands) 

Americas:

    

United States

  $1,936,158    $1,944,433  

Other

   3,019     3,293  
  

 

 

   

 

 

 

Total Americas

 1,939,177   1,947,726  
  

 

 

   

 

 

 

EMEA:

United Kingdom

 114,044   120,781  

Other

 12,521   13,345  
  

 

 

   

 

 

 

Total EMEA

 126,565   134,126  
  

 

 

   

 

 

 

Asia & Australia:

Japan

 771   837  

Other

 10,447   9,917  
  

 

 

   

 

 

 

Total Asia & Australia

 11,218   10,754  
  

 

 

   

 

 

 

Total

$2,076,960  $2,092,606  
  

 

 

   

 

 

 

   As of 
   March 31,
2016
   December 31,
2015
 
Long-lived assets  (in thousands) 

Americas:

    

United States

  $1,905,066    $1,916,689  

Other

   2,171     2,279  
  

 

 

   

 

 

 

Total Americas

   1,907,237     1,918,968  
  

 

 

   

 

 

 

EMEA:

    

United Kingdom

                   106,851                     110,261  

Other

   17,564     16,849  
  

 

 

   

 

 

 

Total EMEA

   124,415     127,110  
  

 

 

   

 

 

 

Asia & Australia:

    

Japan

   540     570  

Other

   8,861     9,389  
  

 

 

   

 

 

 

Total Asia & Australia

   9,401     9,959  
  

 

 

   

 

 

 

Total

  $2,041,053    $2,056,037  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

10. SUBSEQUENT EVENTS

On April 29, 2015,27, 2016, the Board of Directors declared a cash dividend of $0.18$0.22 per share for second quarter 2015.2016. The second quarter 20152016 dividend is payable on May 29, 201527, 2016 to shareholders of record as of the close of trading on May 15, 2015.13, 2016.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of MSCI Inc.

We have reviewed the accompanying condensed consolidated statement of financial condition of MSCI Inc. and its subsidiaries as of March 31, 2015,2016, and the related condensed consolidated statements of income and of comprehensive income for the three-month periods ended March 31, 20152016 and March 31, 20142015 and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 20152016 and March 31, 2014.2015. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition as of December 31, 2014, and the related consolidated statements of income and of comprehensive income, and of shareholder’s equity and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet information as of December 31, 2014 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition as of December 31, 2015, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated February 26, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition information as of December 31, 2015, is fairly stated in all material respects in relation to the consolidated statement of financial condition from which it has been derived.

 

/s/ PricewaterhouseCoopers LLP
New York, New York
May 1, 2015April 29, 2016

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K as amended, for the fiscal year ended December 31, 20142015 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in theour Form 10-K.

Except as the context otherwise indicates, the terms “MSCI,” the “Company,” “we,” “our” and “us” refer to MSCI Inc. together with its subsidiaries.

Overview

For more than 40 years, our research-based models and methodologies have helped the world’s leading investors build and manage better portfolios. We believe clients rely on our productsMSCI offers content, applications and services for deeper insights intoto support the driversneeds of performance and risk in their portfolios, broad asset class coverage and innovative research and can use our products to help design and implementinstitutional investors throughout their investment strategies. Our line of products and services includes indexes, analytical tools, data, real estate benchmarks and environmental, social and governance (“ESG”) research. We serve 98 of the top 100 global asset managers, according to the most recent P&I ranking. Our products and services address multiple markets, asset classes and geographies and are sold to a diverse client base, includingprocesses. MSCI clients include asset owners, such as pension funds, endowments, foundations, central banks, family offices and insurance companies; institutional and retail asset managers,management firms, such as managers of pension assets, mutual funds, exchange tradedhedge funds, providers of exchange-traded funds (“ETFs”), real estate, hedge funds and; private wealth;wealth managers; and financial intermediaries, such as banks, broker-dealers, exchanges, custodians, trust companies and investment consultants.

Our products and services include indexes and analytical models; ratings and analysis that enable institutional investors to integrate environmental, social and governance (“ESG”) factors into their investment strategies; and analysis of real estate in both privately and publicly owned portfolios. Clients use our content and applications to help construct portfolios and allocate assets. Our analytical tools help them measure and manage risk across all major asset classes. MSCI products and services can also be customized to meet the specific needs of our clients. As of March 31, 2015,2016, we had approximately 6,7006,400 clients across 83 countries. To calculate the number of clients, we may count certain affiliates, user locations, or business units within a single organization as separate clients. If we aggregate all related clients under their respective parent entity, the number of clients would be approximately 3,850, as of March 31, 2016. We had offices in 3735 cities in 2322 countries to help serve our diverse client base, with 51.6%53.2% of our revenues coming from clients in the Americas, 36.2%34.4% in Europe, the Middle East and Africa (“EMEA”) and 12.2%12.4% in Asia and Australia.

Our principal salesbusiness model is to license annual, recurring subscriptions to our products and services for use at specified locations, often by a given number of users or for a certain volume of services, for an annual fee paid up-front. Additionally, our recurring subscriptions include our managed services offering, whereby we oversee the production of risk and performance reports on behalf of our clients. Fees attributable to annual, recurring subscriptions are recorded as deferred revenues on our Unaudited Condensed Consolidated Statement of Financial Condition and are recognized on our Unaudited Condensed Consolidated Statement of Income as the service is rendered. Additionally,Furthermore, a portion of our revenues comes from clients who use our indexes as the basis for index-linked investment products such as ETFs or as the basis for passively managed funds and separate accounts. These clients commonly pay us a license fee for the use of our intellectual property based on the investment product’s assets. We also generate a limited amount of our revenues from certain exchanges that use our indexes as the basis for futures and options contracts and pay us a license fee for the use of our intellectual property based on their volume of trades. In addition, we generate revenues from subscription agreements for the receipt of periodic benchmarksbenchmark reports, digests and other publications, which are most often associated with our real estate products that are recognized upon delivery of such reports or data updates. We also receive revenues from one-time fees related to certain implementation services, historical or customized reports, advisory and consulting services and from certain products and services that are designed for one-time usage.

In evaluating our financial performance, we focus on revenue and profit growth, including GAAP and non-GAAP measures, for the Company in totalas a whole and by product category as well as operating profit growth.segment. In addition, we focus on operating metrics, including Run RatesRate, subscription sales and retention ratesAggregate Retention Rate to manage the business. Our business is not highly capital intensive and, as such, we expect to continue to convert a high percentage of our operating profits into excess cash in the future. Our revenue growth strategy includes: (a) expanding and deepening our relationships with investment institutions worldwide; (b) developing new and enhancing existing product offerings, including combining existing product features or data derived from our products to create new products; and (c) actively seeking to acquire products, technologies and companies that will enhance, complement or expand our client base and our product offerings.

To maintain and accelerate our revenue and operating income growth, in recent yearsIn the discussion that follows, we have significantly invested in and expanded our operating functions and infrastructure, including additional product management, sales and client support staff and facilities in locations aroundprovide certain variances excluding the world and additional staff and supporting technology for our research and our data operations and technology functions (the “Enhanced Investment Program”).

The purposeimpact of this Enhanced Investment Program was to maximize our medium-term revenue and operating income growth, while atforeign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the same time ensuring that MSCI would remain a leading provider of investment decision support tools intodifference between the future. As a result, the rate of growth of our investments had, in recent years, exceeded that of our revenues, which had slowed the growth of, or even reduced, our operating profit. For example, for the year ended December 31, 2014, our revenues grew by 9.1% but our operating income decreased by 0.9%current period results as reported compared to the year ended December 31, 2013 due,current period results recalculated using the foreign currency exchange rates in part, to increased investment in our business. We have completed our Enhanced Investment Program and have achieved operating margin expansion in first quarter 2015. We expect margin expansion to continue throughout 2015, exclusive of any non-recurring charges we may incur.effect for the comparable prior period.

Factors Affecting the Comparability of Results

Share Repurchases

On December 13, 2012, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of MSCI’s common stock beginning immediately and continuing through December 31, 2014 (the “2012 Repurchase Program”).

On February 6, 2014, MSCI utilized the remaining $100.0 million repurchase authorization provided by the 2012 Repurchase Program.

On February 4, 2014, our Board of Directors approved a stock repurchase program authorizing the purchase of up to $300.0 million worth of shares of our common stock, which was subsequently increased to $850.0 million (the “2014 Repurchase Program”). On October 14, 2015, we exhausted the $850.0 million share repurchase authorization under the 2014 Repurchase Program.

On October 28, 2015, our Board of Directors approved a new stock repurchase program authorizing the purchase of up to $1.0 billion worth of shares of our common stock (the “2015 Repurchase Program”). Share repurchases made pursuant to the 20142015 Repurchase Program may take place through December 31, 2016 in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by our Board of Directors at any time without prior notice.

On September 18, 2014, as part of the 2014 Repurchase Program, the Companywe entered into an ASR agreement to initiate share repurchases aggregating $300.0 million (the “September 2014 ASR Agreement”). OnAs a result of the September 19, 2014 ASR Agreement, we paid $300.0 million in cash and received approximately 4.5 million shares of MSCI’sour common stock. The total number ofstock on September 19, 2014 and approximately 1.2 million shares to be repurchased will be based primarily on an arithmetic average of the volume-weighted average prices of our common stock on each trading day during the repurchase period. ThisMay 21, 2015 for a combined average price will be capped such that onlyof $52.79 per share.

On June 2, 2015, we began purchasing shares of our common stock in the open market in accordance with SEC Rule 10b5-1. Through December 31, 2015, we paid $670.8 million to receive approximately 10.7 million shares of our common stock pursuant to open market repurchases under limited circumstances willthe 2014 Repurchase Program and the 2015 Repurchase Program.

For the three months ended March 31, 2016, we be requiredpaid $333.3 million to deliverreceive approximately 4.9 million shares or pay cash at settlement. We may also receive additional shares at or prior to maturityas part of the September 2014 ASR Agreement in May 2015.2015 Repurchase Program at an average purchase price of $68.45 per share.

Since 2012 and through March 31, 2016, approximately $1.7 billion has been returned through share repurchases and the introductionpayment of the initial 2012 Repurchase Program, the Company has paid $600.0 million and has received an aggregate of approximately 12.3 million shares under the programs.cash dividends.

These share repurchase programs have effectively decreased theThe weighted average shares outstanding used in calculating our basic and diluted earnings per share.share decreased by 11.9% for the three months ended March 31, 2016, reflecting the impact of the share repurchase programs, partially offset by the impact of restricted stock units and stock options converting to shares.

Senior Notes

On August 13, 2015, we completed a private offering of $800.0 million aggregate principal amount of 5.75% Senior Notes due 2025 (the “2025 Senior Notes”) and received $789.5 million, net of $10.5 million of debt issuance costs. As a result of this offering, our interest expense for the current period has increased, with the annual interest expense expected to be approximately $91.5 million.

The discussion of our results of operations for the three months ended March 31, 20152016 and 20142015 are presented below. The results of operations for interim periods may not be indicative of future results.

Results of Operations

Three Months Ended March 31, 20152016 Compared to the Three Months Ended March 31, 20142015

The following table presents the results of operations for the periods indicated:

 

   Three Months Ended
March 31,
    
      

 

  2015  2014  Increase/(Decrease) 
   (in thousands, except per share data) 

Operating revenues

  $262,769   $239,688   $23,081    9.6

Operating expenses:

     

Cost of services

   82,653    75,427    7,226    9.6

Selling, general and administrative

   72,465    67,658    4,807    7.1

Amortization of intangible assets

   11,702    11,270    432    3.8

Depreciation and amortization of property, equipment and leasehold improvements

   7,207    5,828    1,379    23.7
  

 

 

  

 

 

  

 

 

  

Total operating expenses

 174,027   160,183   13,844   8.6
  

 

 

  

 

 

  

 

 

  

Operating income

 88,742   79,505   9,237   11.6

Other expense (income), net

 11,082   5,974   5,108   85.5
  

 

 

  

 

 

  

 

 

  

Income from continuing operations before provision for income taxes

 77,660   73,531   4,129   5.6

Provision for income taxes

 28,036   26,385   1,651   6.3
  

 

 

  

 

 

  

 

 

  

Income from continuing operations

 49,624   47,146   2,478   5.3

Income (loss) from discontinued operations, net of income taxes

 (5,797 33,253   (39,050 (117.4%) 
  

 

 

  

 

 

  

 

 

  

Net income

$43,827  $80,399  $(36,572 (45.5%) 
  

 

 

  

 

 

  

 

 

  

Earnings per basic common share:

From continuing operations

$0.44  $0.40  $0.04   10.0

From discontinued operations

 (0.05 0.28   (0.33 (117.9%) 
  

 

 

  

 

 

  

 

 

  

Earnings per basic common share

$0.39  $0.68  $(0.29 (42.6%) 
  

 

 

  

 

 

  

 

 

  

Earnings per diluted common share:

From continuing operations

$0.44  $0.40  $0.04   10.0

From discontinued operations

 (0.05 0.28   (0.33 (117.9%) 
  

 

 

  

 

 

  

 

 

  

Earnings per diluted common share

$0.39  $0.68  $(0.29 (42.6%) 
  

 

 

  

 

 

  

 

 

  

Operating margin

 33.8 33.2
   Three Months Ended        
   March 31,        
   2016   2015     Increase/(Decrease)   
   (in thousands, except per share data) 

Operating revenues

  $278,828    $262,769    $16,059    6.1

Operating expenses:

   

Cost of revenues

   63,172     69,904     (6,732  (9.6%) 

Selling and marketing

   41,689     41,648     41    0.1

Research and development

   18,928     23,189     (4,261  (18.4%) 

General and administrative

   21,890     20,377     1,513    7.4

Amortization of intangible assets

   11,840     11,702     138    1.2

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207     961    13.3
  

 

 

   

 

 

   

 

 

  

Total operating expenses

           165,687             174,027             (8,340        (4.8%) 
  

 

 

   

 

 

   

 

 

  

Operating income

           113,141               88,742             24,399             27.5

Other expense (income), net

   22,364     11,082    11,282     101.8
  

 

 

   

 

 

  

 

 

   

Income from continuing operations before provision for income taxes

   90,777     77,660    13,117     16.9

Provision for income taxes

   30,410     28,036    2,374     8.5
  

 

 

   

 

 

  

 

 

   

Income from continuing operations

   60,367     49,624    10,743     21.6

Income (loss) from discontinued operations, net of income taxes

        (5,797  5,797     (100.0%) 
  

 

 

   

 

 

  

 

 

   

Net income

  $60,367    $43,827   $16,540     37.7
  

 

 

   

 

 

  

 

 

   
  

 

 

   

 

 

  

 

 

   

Earnings per basic common share:

       

From continuing operations

  $0.61    $0.44   $0.17     38.6

From discontinued operations

        (0.05  0.05     (100.0%) 
  

 

 

   

 

 

  

 

 

   

Earnings per basic common share

  $0.61    $0.39   $0.22     56.4
  

 

 

   

 

 

  

 

 

   
  

 

 

   

 

 

  

 

 

   

Earnings per diluted common share:

       

From continuing operations

  $0.60    $0.44   $0.16     36.4

From discontinued operations

        (0.05  0.05     (100.0%) 
  

 

 

   

 

 

  

 

 

   

Earnings per diluted common share

  $0.60    $0.39   $0.21     53.8
  

 

 

   

 

 

  

 

 

   
  

 

 

   

 

 

  

 

 

   

Operating margin

   40.6%     33.8%     

Operating Revenues

Our revenues are grouped intoby the following twotypes: recurring subscription, asset-based fees and non-recurring revenues. We also group revenues by major product categories:

Performance products, consisting of index, real estateor reportable segment as follows: Index, Analytics and All Other, which includes ESG products

Analytics products, consisting of risk management analytics and portfolio management analytics
Real Estate products.

The following table summarizespresents operating revenues by product categorytype for the periods indicated:

 

   Three Months Ended
March 31,
         
  2015   2014   Increase/(Decrease) 
   (in thousands) 

Performance products:

        

Subscriptions

  $110,044    $97,343    $12,701     13.0

Asset-based fees

   45,880     40,900     4,980     12.2
  

 

 

   

 

 

   

 

 

   

Total performance products

 155,924   138,243   17,681   12.8

Analytics products:

Risk management analytics

 80,476   75,580   4,896   6.5

Portfolio management analytics

 26,369   25,865   504   1.9
  

 

 

   

 

 

   

 

 

   

Total analytics products

 106,845   101,445   5,400   5.3

Total operating revenues

$262,769  $239,688  $23,081   9.6
  

 

 

   

 

 

   

 

 

   

Recurring subscriptions

$212,286  $194,972  $17,314   8.9

Asset-based fees

 45,880   40,900   4,980   12.2

Non-recurring subscription revenue

 4,603   3,816   787   20.6
  

 

 

   

 

 

   

 

 

   

Total operating revenues

$262,769  $239,688  $23,081   9.6
  

 

 

   

 

 

   

 

 

   
   Three Months Ended
March 31,
         
   2016   2015     Increase/(Decrease)   
   (in thousands)     

Recurring subscription

  $225,338    $212,286    $13,052     6.1

Asset-based fees

   48,699     45,880     2,819     6.1

Non-recurring revenue

   4,791     4,603     188     4.1
  

 

 

   

 

 

   

 

 

   

Total operating revenues

  $            278,828    $            262,769    $         16,059                6.1
  

 

 

   

 

 

   

 

 

   
  

 

 

   

 

 

   

 

 

   

Our performance products primarily consist of equity and real estate index subscriptions, equity index asset-based fees products and real estate and ESG products. Our performance products are used for performance benchmarking and attribution, index-linked investment product creation, the assessment of corporate management of ESG risks and opportunities, investment manager selection and investment research. We deriveTotal operating revenues from our performance products through index data and ESG subscriptions, fees based on assets in investment products linkedgrew 6.1% to our indexes and non-recurring licenses of our historical index data. We also generate a limited amount of revenues based on the trading volume of futures and options contracts linked to our indexes. Revenues related to performance products increased $17.7 million, or 12.8%, to $155.9$278.8 million for the three months ended March 31, 20152016 compared to $138.2$262.8 million for the three months ended March 31, 2014.2015.

Subscription revenuesRevenues from the performance products were up 13.0%recurring subscription increased 6.1% to $110.0$225.3 million for the three months ended March 31, 20152016 compared to $97.3$212.3 million for the three months ended March 31, 2014. Excluding2015. Overall, year-over-year revenue growth was negatively impacted by several factors, including market volatility in the impact of the acquisition of GMI Ratings, subscription revenues grew by 11.2%. The increase was primarily driven byquarter, which reduced growth in revenuesaverage assets under management (“AUM”) linked to MSCI indexes, and the timing of revenue recognition on deals in Analytics, which drove Run Rate higher by 7.0% but did not yet have a significant impact on revenues.

Revenues from equity index benchmark and ESG products.

Asset-based fee revenues attributableasset-based fees increased 6.1% to performance products increased $5.0$48.7 million or 12.2%,for the three months ended March 31, 2016 compared to $45.9 million for the three months ended March 31, 2015 compared to $40.9 million for the three months ended March 31, 2014.2015. The 6.1% increase in asset-based fees was primarily driven by anhigher revenues from non-ETF institutional passive funds, strong increases in futures and options contracts linked to MSCI indexes and a slight increase of $61.7 billion, or 18.7%, in therevenue from ETFs linked to MSCI indexes. The 3.9% increase in average value of assets under management (“AUM”)AUM in ETFs linked to MSCI indexes. Higher trading volumesindexes was mostly offset by lower average basis point fees, primarily due to changes in futures and options contracts based on MSCI indexes and growththe product mix. Approximately two-thirds of the underlying securities included in assets from non-ETF passive funds also contributed to the increase.AUM of our index-linked investment products are denominated in currencies other than the U.S. dollar.

As of March 31, 2015,

The following table presents the value of assets in ETFs linked to MSCI equity indexes was $418.0 billion, up $77.2 billion, or 22.7%, from $340.8 billion as of March 31, 2014. Of the $418.0 billion of assets in ETFs linked to MSCI equity indexes as of March 31, 2015, 54.4% were linked to indexes related to developed markets outside of the U.S., 21.1% were linked to emerging market indexes, 19.3% were linked to U.S. market indexes and 5.2% were linked to other global indexes.

The following table sets forth the value of assetsAUM in ETFs linked to MSCI indexes and the sequential change of such assets as of the end of each of the periods indicated:

 

  Period Ended   Period Ended(1) 

(in billions)

  March 31,
2014
   June 30,
2014
   September 30,
2014
 December 31,
2014
 March 31,
2015
   March 31,
2015
   June 30,
2015
 September 30,
2015
 December 31,
2015
   March 31,
2016
 

AUM in ETFs linked to MSCI Indexes(2)

  $340.8    $378.7    $377.9   $373.3   $418.0    $              418.0    $              435.4   $              390.2   $              433.4    $              438.3  

Sequential Change in Value

                        

Market Appreciation/(Depreciation)

  $1.3    $15.2    $(17.2 $(8.3 $13.0    $13.0    $(6.9 $(48.2 $14.5    $(1.7

Cash Inflow/(Outflow)

   6.6     22.7     16.4   3.7   31.7  

Cash Inflows

   31.7     24.3   3.0   28.7     6.6  
  

 

   

 

   

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

 

Total Change

$7.9  $37.9  $(0.8)$(4.6$44.7    $44.7    $17.4   $(45.2 $43.2    $4.9  
  

 

   

 

   

 

  

 

  

 

   

 

   

 

  

 

  

 

   

 

 
  

 

   

 

  

 

  

 

   

 

 

Source: Bloomberg and MSCI

        
(1)The historical values of the AUM in ETFs linked to our indexes as of the last day of the month and the monthly average balance can be found under the link “AUM in ETFs Linked to MSCI Indexes” on our Investor Relations homepage athttp://ir.msci.com. This information is updated on or about the second U.S. business day of each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed with the SEC.
(2)The value of AUM in ETFs linked to MSCI Indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.

Source: BloombergAs of March 31, 2016, the value of AUM in ETFs linked to MSCI equity indexes was $438.3 billion, up $20.3 billion, or 4.9%, from $418.0 billion as of March 31, 2015. Of the $438.3 billion of AUM in ETFs linked to MSCI equity indexes as of March 31, 2016, 54.6% were linked to developed markets outside of the U.S., 21.5% were linked to U.S. market indexes, 19.2% were linked to emerging market indexes and MSCI4.7% were linked to other global indexes.

The following table sets forthpresents the average value of assetsAUM in ETFs linked to MSCI indexes for the periods indicated:

 

  Quarterly Average 
  Quarterly Average   2015   2016 
  2014   2015 

(in billions)

  March   June   September   December   March   March   June   September   December   March 

AUM in ETFs linked to MSCI Indexes

  $330.8    $359.6    $385.9    $373.6    $392.5    $            392.5    $            441.4    $            418.2    $            423.3    $            407.9  

Source: Bloomberg and MSCI

          

Source: BloombergNon-recurring revenues increased 4.1% to $4.8 million for the three months ended March 31, 2016, compared to $4.6 million for the three months ended March 31, 2015, primarily resulting from higher one-time sales of Analytics products and MSCIReal Estate products within our All Other segment, offset, in part, by lower one-time Index sales.

The historical valuesfollowing table presents operating revenues by reportable segment and revenue type for the periods indicated:

   Three Months Ended        
   March 31,        
   2016   2015     Increase/(Decrease)   
   (in thousands)    

Operating revenues:

       

Index

       

Recurring subscription

  $93,645    $85,060    $8,585    10.1

Asset-based fees

   48,699     45,880     2,819    6.1

Non-recurring

   2,269     2,614     (345  (13.2%) 
  

 

 

   

 

 

   

 

 

  

Index total

   144,613     133,554     11,059    8.3
  

 

 

   

 

 

   

 

 

  

Analytics

       

Recurring subscription

           108,630                 105,434                     3,196    3.0

Non-recurring

   1,633     1,411     222      15.7
  

 

 

   

 

 

   

 

 

  

Analytics total

   110,263     106,845     3,418    3.2
  

 

 

   

 

 

   

 

 

  

All Other

        

Recurring subscription

   23,063     21,792     1,271     5.8

Non-recurring

   889     578     311       53.8
  

 

 

   

 

 

   

 

 

   

All Other total

   23,952     22,370     1,582     7.1
  

 

 

   

 

 

   

 

 

   

Total operating revenues

  $            278,828    $            262,769    $              16,059     6.1
  

 

 

   

 

 

   

 

 

   
  

 

 

   

 

 

   

 

 

   

Refer to the section that follows titled, “Segment Results” for further discussion of segment revenues.

Operating Expenses

We group our operating expenses into the following activity categories:

Cost of revenues;

Selling and marketing;

Research and development (“R&D”);

General and administrative (“G&A”);

Amortization of intangible assets; and

Depreciation and amortization of property, equipment and leasehold improvements.

Costs are assigned to these activity categories based on the nature of the expense or, when not directly attributable, an estimated allocation based on the type of effort involved.

The following table presents operating expenses by activity category for the periods indicated:

   Three Months Ended        
   March 31,        
   2016   2015   Increase/(Decrease) 
   (in thousands)    

Operating expenses:

       

Cost of revenues

  $63,172    $69,904    $(6,732  (9.6%) 

Selling and marketing

   41,689     41,648     41    0.1

Research and development

   18,928     23,189     (4,261  (18.4%)

General and administrative

   21,890     20,377                     1,513    7.4%

Amortization of intangible assets

   11,840     11,702     138    1.2

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207     961      13.3
  

 

 

   

 

 

   

 

 

  

Total operating expenses

  $            165,687    $            174,027    $(8,340  (4.8%) 
  

 

 

   

 

 

   

 

 

  
  

 

 

   

 

 

   

 

 

  

Operating expenses decreased 4.8% to $165.7 million for the three months ended March 31, 2016 compared to $174.0 million for the three months ended March 31, 2015, reflecting strong overall expense management and the ongoing improvement of our Analytics segment. In addition, the three months ended March 31, 2015 was higher by $3.4 million due to a non-cash charge recorded within R&D. Adjusting for the impact of foreign currency exchange rate fluctuations, operating expenses would have decreased 2.6% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Cost of Revenues

Cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support, maintain and rebalance existing products; costs of product management teams;

costs of client service and consultant teams to support customer needs; and other support costs directly attributable to the cost of revenues, including certain human resources, finance and legal costs. Cost of revenues decreased 9.6% to $63.2 million for the three months ended March 31, 2016 compared to $69.9 million for the three months ended March 31, 2015, primarily driven by strong expense management, particularly in our Analytics segment, as reflected by lower compensation and benefits costs associated with lower staffing levels and severance as well as a decrease primarily in non-compensation occupancy costs.

Selling and Marketing

Selling and marketing consists of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses were $41.7 million and $41.6 million for the three months ended March 31, 2016 and 2015, respectively.

Research and Development

R&D consists of the costs to develop new, or to enhance existing, products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily includes the costs of application development, research, product management, project management and the technology support associated with these efforts. R&D expenses decreased 18.4% to $18.9 million for the three months ended March 31, 2016 compared to $23.2 million for the three months ended March 31, 2015, primarily due to a non-cash charge of $3.4 million related to the termination of a technology project in the Analytics segment recognized during the three months ended March 31, 2015. While R&D costs were down, we continue to invest in the key areas driving our growth strategy.

General and Administrative

G&A consists of costs primarily related to finance operations, human resources, the office of the CEO, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service. G&A expenses increased 7.4% to $21.9 million for the three months ended March 31, 2016 compared to $20.4 million for the three months ended March 31, 2015, primarily driven by higher compensation and benefits costs, mainly related to severance, and an increase in non-compensation costs, primarily related to recruiting and other expenses.

The following table presents operating expenses using compensation and non-compensation categories, rather than using activity categories, for the periods indicated:

   Three Months Ended        
   March 31,        
   2016   2015   Increase/(Decrease) 
   (in thousands)    

Compensation and benefits

  $106,765    $115,471    $(8,706  (7.5%) 

Non-compensation expenses

   38,914     39,647     (733  (1.8%) 

Amortization of intangible assets

   11,840     11,702     138    1.2

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207                        961      13.3
  

 

 

   

 

 

   

 

 

  

Total operating expenses

  $            165,687    $            174,027    $(8,340  (4.8%) 
  

 

 

   

 

 

   

 

 

  
  

 

 

   

 

 

   

 

 

  

Compensation and benefits costs are our most significant expense and typically represent more than 60% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 2,746 and 2,889 employees as of March 31, 2016 and 2015, respectively. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses. As of March 31, 2016, 53.5% of our employees were located in emerging market centers compared to 50.9% as of March 31, 2015.

Compensation and benefits expenses decreased 7.5% to $106.8 million for the three months ended March 31, 2016 compared to $115.5 million for the three months ended March 31, 2015, driven by a decrease in headcount across several areas, primarily in technology and client coverage, as well as a non-cash charge of $2.9 million related to the termination of a technology project in the Analytics segment recognized during the three months ended March 31, 2015.

Non-compensation expenses decreased 1.8% to $38.9 million for the three months ended March 31, 2016 compared to $39.6 million for the three months ended March 31, 2015, primarily driven by a decrease in occupancy and information technology costs as well as a non-cash charge of $0.5 million related to the termination of a technology project in the Analytics segment recognized during the three months ended March 31, 2015. The decrease in non-compensation expenses was partially offset by increases in costs primarily related to recruiting, market data and other expense items.

Amortization of Intangible Assets

Amortization of intangible assets expense increased 1.2% to $11.8 million for the three months ended March 31, 2016 compared to $11.7 million for the three months ended March 31, 2015.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements increased 13.3% to $8.2 million for the three months ended March 31, 2016 compared to $7.2 million for the three months ended March 31, 2015, primarily reflecting higher depreciation of investments made in our information technology infrastructure.

Other Expense (Income), Net

Other expense (income), net increased 101.8% to $22.4 million for the three months ended March 31, 2016 compared to $11.1 million for the three months ended March 31, 2015, primarily driven by $11.8 million of higher interest expense resulting from the increased level of indebtedness.

Income Taxes

The provision for income tax expense increased 8.5% to $30.4 million for the three months ended March 31, 2016 compared to $28.0 million for the three months ended March 31, 2015. These amounts reflect effective tax rates of 33.5% and 36.1% for the three months ended March 31, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily driven by efforts to better align our tax profile with our global operating footprint.

Income (Loss) from Discontinued Operations, Net of Income Taxes

Loss from discontinued operations, net of income taxes, for the three months ended March 31, 2015 reflects the impact of a $5.8 million out-of-period income tax charge associated with tax obligations triggered upon the sale of Institutional Shareholder Services Inc., which was completed on April 30, 2014.

Adjusted EBITDA

“Adjusted EBITDA,” a measure used by management to assess operating performance, is defined as net income before income (loss) from discontinued operations, net of income taxes, plus provision for income taxes, other expense (income), net, depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments.

“Adjusted EBITDA expenses,” another measure used by management to assess operating performance, is defined as operating expenses less depreciation and amortization of property, equipment and leasehold improvements and amortization of intangible assets.

The Company believes Adjusted EBTIDA and Adjusted EBTIDA expenses are important measures because they highlight operating trends from continuing operations while excluding costs that are more fixed or are one-time, unusual or non-recurring in nature. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.

The following table presents the calculation of Adjusted EBITDA for the periods indicated:

   Three Months Ended
March 31,
       
   2016  2015  Increase/(Decrease) 
   (in thousands)    

Operating revenues

  $278,828   $262,769   $16,059    6.1%

Adjusted EBITDA expenses

   145,679    155,118    (9,439  (6.1%) 
  

 

 

  

 

 

  

 

 

  

Adjusted EBITDA

  $            133,149   $            107,651   $              25,498      23.7
  

 

 

  

 

 

  

 

 

  
  

 

 

  

 

 

  

 

 

  

Adjusted EBITDA margin %

   47.8  41.0  

Operating margin %

   40.6  33.8  

Adjusted EBITDA increased 23.7% to $133.1 million for the three months ended March 31, 2016 compared to $107.7 million for the three months ended March 31, 2015. Adjusted EBITDA margin increased to 47.8% for the three months ended March 31, 2016 compared to 41.0% for the three months ended March 31, 2015. The improvement in margin reflects solid growth in operating revenues, primarily attributable to growth in Index recurring subscription revenues, combined with lower Adjusted EBITDA expenses, reflecting strong expense management.

Reconciliation of Adjusted EBITDA to Net Income and Adjusted EBITDA Expenses to Operating Expenses

The following table presents the reconciliation of Adjusted EBITDA to net income for the periods indicated:

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 

Index Adjusted EBITDA

  $100,049    $93,053  

Analytics Adjusted EBITDA

   30,360     14,080  

All Other Adjusted EBITDA

   2,740     518  
  

 

 

   

 

 

 

Consolidated Adjusted EBITDA

                   133,149                     107,651  
  

 

 

   

 

 

 

Amortization of intangible assets

   11,840     11,702  

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207  
  

 

 

   

 

 

 

Operating income

   113,141     88,742  

Other expense (income), net

   22,364     11,082  

Provision for income taxes

   30,410     28,036  
  

 

 

   

 

 

 

Income from continuing operations

   60,367     49,624  

Income (loss) from discontinued operations, net of income taxes

        (5,797
  

 

 

   

 

 

 

Net income

  $60,367    $43,827  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

The following table presents the reconciliation of Adjusted EBITDA expenses to operating expenses for the periods indicated:

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 

Index Adjusted EBITDA expenses

  $44,564    $40,501  

Analytics Adjusted EBITDA expenses

   79,903     92,765  

All Other Adjusted EBITDA expenses

   21,212     21,852  
  

 

 

   

 

 

 

Consolidated Adjusted EBITDA expenses

                   145,679                     155,118  

Amortization of intangible assets

   11,840     11,702  

Depreciation and amortization of property, equipment and leasehold improvements

   8,168     7,207  
  

 

 

   

 

 

 

Total operating expenses

  $165,687    $174,027  
  

 

 

   

 

 

 
  

 

 

   

 

 

 

The discussion of our segment results for the three months ended March 31, 2016 and 2015 is presented below.

Segment Results

Index Segment

The following table presents the results for the Index segment for the periods indicated:

   Three Months Ended
March 31,
        
   2016   2015   Increase/(Decrease) 
   (in thousands)    

Operating revenues:

       

Recurring subscription

  $93,645    $85,060 ��  $8,585    10.1

Asset-based fees

   48,699     45,880     2,819    6.1

Non-recurring

   2,269     2,614     (345  (13.2%) 
  

 

 

   

 

 

   

 

 

  

Operating revenues total

               144,613                 133,554                   11,059    8.3

Adjusted EBITDA expenses

   44,564     40,501     4,063      10.0
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA

  $100,049    $93,053    $6,996    7.5
  

 

 

   

 

 

   

 

 

  
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA margin %

   69.2%     69.7%     

Revenues related to Index products increased 8.3% to $144.6 million for the three months ended March 31, 2016 compared to $133.6 million for the three months ended March 31, 2015.

Recurring subscription revenues were up 10.1% to $93.6 million for the three months ended March 31, 2016 compared to $85.1 million for the three months ended March 31, 2015. The increase was primarily driven by growth in benchmark and data products, including strong growth in revenue from Developed Market and Emerging Market small cap modules and custom, factor, thematic and ESG-based products.

Revenues from asset-based fees increased 6.1% to $48.7 million for the three months ended March 31, 2016 compared to $45.9 million for the three months ended March 31, 2015. The increase was primarily driven by higher revenues from non-ETF institutional passive funds, strong increases in futures and options contracts linked to MSCI indexes and a slight increase in revenue from ETFs linked to our indexes asMSCI indexes.

Index segment Adjusted EBITDA expenses increased 10.0% to $44.6 million for the three months ended March 31, 2016 compared to $40.5 million for the three months ended March 31, 2015, primarily reflecting higher compensation and benefits costs mainly within the selling and marketing, R&D and G&A areas. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 13.1% for the last day ofthree months ended March 31, 2016 compared to the month andthree months ended March 31, 2015.

Analytics Segment

The following table presents the monthly average balance can be found underresults for the link “AUM in ETFs Linked to MSCI Indexes” on our website at http://ir.msci.com. This information is updated onAnalytics segment for the second U.S. business day of each month. Information contained on our website is not incorporated by reference into this Quarterly Report on Form 10-Q or any other report filed by us with the SEC.periods indicated:

   Three Months Ended
March 31,
        
   2016   2015   Increase/(Decrease) 
   (in thousands)    

Operating revenues:

       

Recurring subscription

  $108,630    $105,434    $3,196    3.0

Non-recurring

   1,633     1,411     222    15.7
  

 

 

   

 

 

   

 

 

  

Operating revenues total

               110,263                 106,845                     3,418        3.2

Adjusted EBITDA expenses

   79,903     92,765     (12,862  (13.9%) 
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA

  $30,360    $14,080    $16,280    115.6
  

 

 

   

 

 

   

 

 

  
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA margin %

   27.5%     13.2%     

Our analytics products, which consist of risk management analytics and portfolio management analytics products,Analytics segment revenues increased $5.43.2% to $110.3 million or 5.3%,for the three months ended March 31, 2016 compared to $106.8 million for the three months ended March 31, 2015, comparedprimarily driven by higher recurring subscription revenues from our RiskManager, equity models, WealthBench and InvestorForce products, partially offset by lower recurring subscription revenues from our BarraOne products.

Analytics segment Adjusted EBITDA expenses decreased 13.9% to $101.4$79.9 million for the three months ended March 31, 2014.

Our risk management analytics products offer risk and performance assessment frameworks for managing and monitoring investments in organizations globally. These products allow clients2016 compared to analyze investments in a variety of asset classes and are based on our proprietary integrated fundamental multi-factor risk models, value-at-risk methodologies, performance attribution frameworks and asset valuation models. We also offer products for monitoring, analyzing and reporting on institutional assets. Additionally, we provide products consisting of software applications which help users value, model and hedge physical assets and derivatives across a number of market segments including energy and commodity assets.

Revenues related to risk management analytics products increased $4.9 million, or 6.5%, to $80.5$92.8 million for the three months ended March 31, 2015, primarily driven by lower compensation and benefits costs, reflecting lower staffing levels, a non-cash charge of $3.4 million related to the termination of a technology project recognized during the three months ended March 31, 2015, as well as lower non-compensation costs. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have decreased 12.1% for the three months ended March 31, 2016 compared to $75.6the three months ended March 31, 2015.

All Other Segment

The following table presents the results for the All Other segment for the periods indicated:

   Three Months Ended
March 31,
        
   2016   2015   Increase/(Decrease) 
   (in thousands)    

Operating revenues:

��      

Recurring subscription

  $23,063    $21,792    $1,271    5.8

Non-recurring

   889     578     311      53.8
  

 

 

   

 

 

   

 

 

  

Operating revenues total

   23,952     22,370                     1,582    7.1

Adjusted EBITDA expenses

                 21,212                   21,852     (640  (2.9%) 
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA

  $2,740    $518    $2,222    n/m  
  

 

 

   

 

 

   

 

 

  
  

 

 

   

 

 

   

 

 

  

Adjusted EBITDA margin %

   11.4%     2.3%     

 n/m: not meaningful.

       

All Other segment revenues increased 7.1% to $24.0 million for the three months ended March 31, 2014. The increase in risk management analytics revenues was due2016 compared to higher revenues from our RiskManager, BarraOne, HedgePlatform and InvestorForce products.

Our portfolio management analytics products consist primarily of equity portfolio analytics tools. Revenues related to portfolio management analytics products increased 1.9% to $26.4$22.4 million for the three months ended March 31, 2015, primarily driven by higher recurring subscription revenues from ESG products, which grew 20.5%, partially offset by lower recurring subscription revenues from Real Estate products, which declined 4.1%. Adjusting for the impact of foreign currency exchange rate fluctuations, Real Estate products would have increased 0.9% and the All Other segment would have increased 9.0% for the three months ended March 31, 2016 compared to $25.9the three months ended March 31, 2015.

All Other segment Adjusted EBITDA expenses decreased 2.9% to $21.2 million for the three months ended March 31, 2014. The increase was2016 compared to $21.9 million for the three months ended March 31, 2015, primarily driven by saleslower compensation and benefits costs attributable to Real Estate operations. Adjusting for the impact of new equity models.foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 0.6% for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Run Rate

At the end of any period, we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months. We measure the fees related to these agreements and refer to this as “Run Rate.” The Run Rate at a particular point in time primarily represents the forward-looking revenues for the next 12 months from allthen-current subscriptions and investment product licenses we then provide to our clients under renewable contracts or agreements assuming all contracts or agreements that come up for renewal are renewed and assuming then-current currency exchange rates. For any license where fees are linked to an investment product’s assets or trading volume, the Run Rate calculation reflects, for ETF fees,ETFs, the market value on the last trading day of the period, and for non-ETF funds and futures and options, the most recent periodic fee earnedquarterly volumes and for non-ETF funds, the most recent client reported assets under such license or subscription. The Run Rate does not include fees associated with “one-time” and other non-recurring transactions. In addition, we remove from the Run Rate the fees associated with any subscription or investment product license agreement with respect to which we have received a notice of termination or non-renewal during the period and determined that such notice evidences the client’s final decision to terminate or not renew the applicable subscription or agreement, even though such notice is not effective until a later date.

Because the Run Rate represents potential future revenues, there is typically a delayed impact on our operating revenues from changes in our Run Rate. In addition, the actual amount of revenues we will realize over the following 12 months will differ from the Run Rate because of:

 

fluctuations in revenues associated with new subscriptions and non-recurring sales;

 

modifications, cancellations and non-renewals of existing agreements, subject to specified notice requirements;

 

fluctuations in asset-based fees, which may result from changes in certain investment products’ total expense ratios, market movements, including foreign currency exchange rates, or from investment inflows into and outflows from investment products linked to our indexes;

 

fluctuations in fees based on trading volumes of futures and options contracts linked to our indexes;

 

fluctuations in the number of hedge funds for which we provide investment information and risk analysis to hedge fund investors;

 

price changes;

 

revenue recognition differences under U.S. GAAP, including those related to the timing of implementation and report deliveries;deliveries for certain of our products and services;

 

fluctuations in foreign exchange rates; and

 

the impact of acquisitions and dispositions.

The following table sets forthpresents the Run Rates as of the dates indicated and the growth percentages over the periods indicated:

 

   As of        
   March 31,   March 31,   December 31,   Year-Over-
Year
  Sequential 
   2015   2014   2014   Comparison  Comparison 
   (in thousands)        

Run Rates

         

Performance products

         

Subscription

  $422,581    $382,383    $414,490     10.5  2.0

Asset-based fees

   190,581     161,882     174,558     17.7  9.2
  

 

 

   

 

 

   

 

 

    

Performance products total

 613,162   544,265   589,048   12.7 4.1
  

 

 

   

 

 

   

 

 

    

Analytics products

Risk management analytics

 309,284   307,460   310,339   0.6 (0.3%) 

Portfolio management analytics

 108,364   103,531   107,338   4.7 1.0
  

 

 

   

 

 

   

 

 

    

Analytics products total

 417,648   410,991   417,677   1.6 
  

 

 

   

 

 

   

 

 

    

Total Run Rate

$1,030,810  $955,256  $1,006,725   7.9 2.4
  

 

 

   

 

 

   

 

 

    

Subscription total

$840,229  $793,374  $832,167   5.9 1.0

Asset-based fees total

 190,581   161,882   174,558   17.7 9.2
  

 

 

   

 

 

   

 

 

    

Total Run Rate

$1,030,810  $955,256  $1,006,725   7.9 2.4
  

 

 

   

 

 

   

 

 

    

   As of        
   March 31,
2016
   March 31,
2015
   December 31,
2015
     Year-Over-Year  
Comparison
  Sequential
     Comparison     
 
   (in thousands)     

Index:

         

Recurring subscription

  $378,622    $344,452    $368,855     9.9  2.6

Asset-based fees

   199,330     190,581     201,047     4.6  (0.9%) 
  

 

 

   

 

 

   

 

 

    

Index total

   577,952     535,033     569,902     8.0  1.4
  

 

 

   

 

 

   

 

 

    

Analytics

   447,024     417,648     436,671     7.0  2.4
  

 

 

   

 

 

   

 

 

    

All Other

   86,990     78,129     82,677     11.3  5.2
  

 

 

   

 

 

   

 

 

    

Total Run Rate

  $1,111,966    $1,030,810    $1,089,250     7.9  2.1
  

 

 

   

 

 

   

 

 

    
  

 

 

   

 

 

   

 

 

    

Recurring subscription total

  $912,636    $840,229    $888,203     8.6  2.8

Asset-based fees total

   199,330     190,581     201,047     4.6  (0.9%) 
  

 

 

   

 

 

   

 

 

    

Total Run Rate

  $    1,111,966    $    1,030,810    $    1,089,250     7.9  2.1
  

 

 

   

 

 

   

 

 

    
  

 

 

   

 

 

   

 

 

    

Total Run Rate grew by 7.9% to $1,112.0 million at March 31, 2016 compared to $1,030.8 million at March 31, 2015. Recurring subscription Run Rate grew 8.6% to $912.6 million at March 31, 2016 compared to $840.2 million at March 31, 2015.

Run Rate from asset-based fees increased 4.6% to $199.3 million at March 31, 2016 from $190.6 million at March 31, 2015, primarily driven by higher non-ETF passive funds and futures and options contracts, all linked to MSCI indexes. As of March 31, 2016, the value of AUM in ETFs linked to MSCI indexes was $438.3 billion, up $20.3 billion, or 4.9%, from $418.0 billion as of March 31, 2015 compared to $955.3 million as2015. The increase of March 31, 2014. Subscription$20.3 billion consisted of net inflows of $62.6 billion, partially offset by market depreciation of $42.3 billion.

Index recurring subscription Run Rate grew by $46.99.9% to $378.6 million or 5.9%,at March 31, 2016 compared to $840.2$344.5 million as ofat March 31, 2015 on growth in benchmark and data products.

Run Rate from Analytics products increased 7.0% to $447.0 million at March 31, 2016 compared to $417.6 million at March 31, 2014. Excluding2015, primarily driven by growth in RiskManager, equity models and InvestorForce products. Adjusting for the impact of foreign currency exchange rate fluctuations, and the acquisition of GMI Ratings, subscription Run Rate grew by 8.1%.for Analytics would have increased 6.2% at March 31, 2016 compared to March 31, 2015.

Total Run Rate from performanceAll Other products grew by 12.7%increased 11.3% to $613.2$87.0 million at March 31, 20152016 compared to $544.3$78.1 million at March 31, 2014.

Subscription2015. The increase was driven by a $7.6 million, or 21.6%, increase in ESG Run Rate from performance products grew by $40.2and a $1.3 million, or 10.5%2.9%, to $422.6 million at March 31, 2015 from $382.4 million at March 31, 2014. Excludingincrease in Real Estate Run Rate. Adjusting for the impact of foreign currency exchange rate changes and the acquisition of GMI Ratings, subscription Run Rate rose 10.9%. The growth in performance products subscription Run Rate was driven primarily by growth in equity index benchmark and data products, in addition to strong growth in ESG products.

Asset-based fee Run Rate from performance products increased by $28.7 million, or 17.7%, to $190.6 millionfluctuations, at March 31, 2015, from $161.9 million at2016 Real Estate Run Rate would have increased 3.0% and All Other Run Rate would have increased 11.0% compared to March 31, 2014. The increase was primarily driven by higher inflows into ETFs linked to MSCI indexes and non-ETF passive funds as well as higher trading volumes in futures and options contracts based on MSCI indexes.

As of March 31, 2015, AUM in ETFs linked to MSCI indexes were $418.0 billion, up $77.2 billion, or 22.7%, from March 31, 2014. The increase in AUM for MSCI-linked ETFs consisted of market increases of $2.7 billion and net inflows of $74.5 billion.

Our total Run Rate from analytics products increased 1.6% to $417.6 million for the three months ended March 31, 2015 compared to $411.0 million for the three months ended March 31, 2014.

Risk management analytics products Run Rate increased $1.8 million, or 0.6%, to $309.3 million at March 31, 2015 compared to $307.5 million at March 31, 2014. Excluding the impact of foreign currency rate changes, Run Rate increased 5.1%, driven by growth from sales of our RiskManager, HedgePlatform and InvestorForce products.

Portfolio management analytics products Run Rate increased 4.7% to $108.4 million at March 31, 2015 from $103.5 million at March 31, 2014. Excluding the impact of foreign currency rate changes, Run Rate increased 7.2%, driven by growth from sales of new equity models.2015.

Aggregate and Core Retention RatesSubscription Sales

The following table sets forthpresents our recurring subscription sales, cancellations and non-recurring sales by reportable segment for the periods indicated:

   Three Months Ended  Year-Over-    
   March 31,
2016
  March 31,
2015
  December 31,
2015
  Year
Comparison
  Sequential
Comparison
 
   (in thousands)    

New recurring subscription sales

      

Index

  $13,162   $11,550   $13,702    14.0  (3.9%) 

Analytics

   12,358    13,510    16,481    (8.5%)   (25.0%) 

All Other

   5,256    4,465    4,206    17.7  25.0
  

 

 

  

 

 

  

 

 

   

New recurring subscription sales total

   30,776    29,525    34,389    4.2  (10.5%) 
  

 

 

  

 

 

  

 

 

   

Subscription cancellations

      

Index

   (3,410  (2,384  (6,147  43.0  (44.5%) 

Analytics

   (5,911  (7,424  (10,593  (20.4%)   (44.2%) 

All Other

   (1,616  (1,842  (3,183  (12.3%)   (49.2%) 
  

 

 

  

 

 

  

 

 

   

Subscription cancellations total

   (10,937  (11,650  (19,923  (6.1%)   (45.1%) 
  

 

 

  

 

 

  

 

 

   

Net new recurring subscription sales

      

Index

   9,752    9,166    7,555    6.4  29.1

Analytics

   6,447    6,086    5,888    5.9  9.5

All Other

   3,640    2,623    1,023    38.8  255.8
  

 

 

  

 

 

  

 

 

   

Net new recurring subscription sales total

             19,839              17,875              14,466                    11.0                  37.1
  

 

 

  

 

 

  

 

 

   

Non-recurring

      

Index

   3,542    2,329    2,779    52.1  27.5

Analytics

   1,856    1,176    2,490    57.8  (25.5%) 

All Other

   1,202    910    1,592    32.1  (24.5%) 
  

 

 

  

 

 

  

 

 

   

Non-recurring sales total

   6,600    4,415    6,861    49.5  (3.8%) 
  

 

 

  

 

 

  

 

 

   

Total Index

  $13,294   $11,495   $10,334    15.7  28.6

Total Analytics

   8,303    7,262    8,378    14.3  (0.9%) 

Total All Other

   4,842    3,533    2,615    37.1  85.2
  

 

 

  

 

 

  

 

 

   

Total net sales

  $26,439   $22,290   $21,327    18.6  24.0
  

 

 

  

 

 

  

 

 

   
  

 

 

  

 

 

  

 

 

   

Aggregate Retention Rate

The following table presents our Aggregate Retention RatesRate by product categoryreportable segment for the indicated three months ended:periods indicated:

 

   March 31,  March 31, 
   2015  2014 

Performance products

   95.9  94.9

Analytics products

   

Risk management analytics

   93.1  91.0

Portfolio management analytics

   92.2  90.6

Analytics products total

   92.9  90.9

Total

   94.4  92.8

The following table sets forth our Core Retention Rates by product category for the indicated three months ended:

   March 31,  March 31, 
   2015  2014 

Performance products

   95.9  94.9

Analytics products

   

Risk management analytics

   93.1  91.0

Portfolio management analytics

   92.2  93.4

Analytics products total

   92.9  91.6

Total

   94.4  93.2
   Three Months Ended
March 31,
             2016                        2015          

Index

    96.3 %         97.2 %

Analytics

    94.6 %     92.9 %

All Other

    92.2 %     90.7 %

Total

    95.1 %     94.4 %

The Aggregate Retention RatesRate for a period areis calculated by annualizing the cancellations for which we have received a notice of termination or for which we believe there is an intention to not renew during the period and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Aggregate Retention Rate for the period. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction.

For the calculation of the Core Retention Rate, the same methodology is used except the cancellations in the period are reduced by the amount of product swaps. We do not calculate Aggregate or Core Retention Rates for that portion of our Run Rate attributable to assets in investment products linked to our indexes or to trading volumes of futures and options contracts linked to our indexes.

In our businesses, the Aggregate and Core Retention Rates areRate is generally higher during the first three fiscal quarters and lower in the fourth fiscal quarter.

Operating Expenses

We group our operating expenses into four categories:

Cost of services;

Selling, general and administrative (“SG&A”);

Amortization of intangible assets; and

Depreciation and amortization of property, equipment and leasehold improvements.

In both the cost of services and SG&A expense categories, compensation and benefits represent the majority of our expenses. Other costs associated with the number of employees such as office space and professional services are included in both the cost of services and SG&A expense categories and are consistent with the allocation of employees to those respective areas.

The following table shows operating expenses by each of the categories for the periods indicated:

   Three Months Ended
March 31,
         
      
   2015   2014   Increase/(Decrease) 
   (in thousands)         

Cost of services:

        

Compensation and benefits

  $65,261    $56,282    $8,979     16.0

Non-compensation expenses

   17,392     19,145     (1,753   (9.2%) 
  

 

 

   

 

 

   

 

 

   

Total cost of services

 82,653   75,427   7,226   9.6

Selling, general and administrative:

Compensation and benefits

 50,210   46,133   4,077   8.8

Non-compensation expenses

 22,255   21,525   730   3.4
  

 

 

   

 

 

   

 

 

   

Total selling, general and administrative

 72,465   67,658   4,807   7.1

Amortization of intangible assets

 11,702   11,270   432   3.8

Depreciation and amortization of property, equipment and leasehold improvements

 7,207   5,828   1,379   23.7
  

 

 

   

 

 

   

 

 

   

Total operating expenses

$174,027  $160,183  $13,844   8.6
  

 

 

   

 

 

   

 

 

   

Compensation and benefits

$115,471  $102,415  $13,056   12.7

Non-compensation expenses

 39,647   40,670   (1,023 (2.5%) 

Amortization of intangible assets

 11,702   11,270   432   3.8

Depreciation and amortization of property, equipment and leasehold improvements

 7,207   5,828   1,379   23.7
  

 

 

   

 

 

   

 

 

   

Total operating expenses

$174,027  $160,183  $13,844   8.6
  

 

 

   

 

 

   

 

 

   

Operating expenses were $174.0 million for the three months ended March 31, 2015, an increase of $13.8 million, or 8.6%, compared to $160.2 million for the three months ended March 31, 2014. The increase included a non-cash charge of $3.4 million attributable to the termination of a technology project related to the analytics products.

Compensation and benefits expenses represent the majority of our expenses across all of our operating functions and typically have represented more than 60% of total operating expenses. These costs generally contribute to the majority of our expense increases from period to period, reflecting increased compensation and benefits expenses for current staff and increased staffing levels from increased hiring. We had 2,889 and 2,623 employees as of March 31, 2015 and 2014, respectively, primarily driven by increased staffing levels. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and control the growth of our compensation and benefit expenses.

During the three months ended March 31, 2015, compensation and benefits costs were $115.5 million, an increase of 12.7% compared to $102.4 million for the three months ended March 31, 2014. The increase in compensation and benefits costs was driven by a 10.1% increase in headcount across several areas, including technology, client coverage and product management, as well as a non-cash charge of $2.9 million attributable to the termination of a technology project related to our analytics products.

Non-compensation expenses for the three months ended March 31, 2015 decreased $1.0 million, or 2.5%, to $39.6 million compared to $40.7 million for the three months ended March 31, 2014. The decrease was associated with decreased travel and entertainment costs, marketing and recruiting, market data fees and other costs. The decrease in costs was partially offset by an increase in costs related to information technology and professional services as well as a non-cash charge of $0.5 million attributable to the termination of a technology project related to our analytics products.

Cost of Services

Cost of services includes costs related to our research, data management and production, software engineering and product management functions. Costs in these areas include staff compensation and benefits, occupancy costs, market data fees and information technology services. Compensation and benefits generally contribute to a majority of our expense increases from period to period, reflecting increases for existing staff and increased staffing levels. For the three months ended March 31, 2015, total cost of services increased 9.6% to $82.7 million compared to $75.4 million for the three months ended March 31, 2014. The three-month period ended March 31, 2015 includes a non-cash charge of $3.4 million related to the termination of a technology project in analytics products.

Compensation and benefits expenses for the three months ended March 31, 2015 increased $9.0 million, or 16.0%, to $65.3 million compared to $56.3 million for the three months ended March 31, 2014. The increase in compensation and benefits expenses was primarily impacted by increased costs related to current staff and increased staffing levels as well as a non-cash charge of $2.9 million related to the termination of a technology project in analytics products.

Non-compensation expenses for the three months ended March 31, 2015 decreased 9.2% to $17.4 million compared to $19.1 million for the three months ended March 31, 2014. The decrease was primarily driven by lower costs related to marketing and recruiting, travel and entertainment, market data fees and other costs, as well as a non-cash charge of $0.5 million attributable to the termination of a technology project related to our analytics products.

Selling, General and Administrative

SG&A includes expenses for our sales and marketing staff and our finance, human resources, legal and compliance, information technology infrastructure and corporate administration personnel. As with cost of services, the largest expense in this category relates to compensation and benefits. Other significant expenses are for occupancy costs, third-party professional fees and information technology costs. For the three months ended March 31, 2015, SG&A increased 7.1% to $72.5 million compared to $67.7 million for the three months ended March 31, 2014.

Compensation and benefits expenses increased 8.8% to $50.2 million for the three months ended March 31, 2015 compared to $46.1 million for the three months ended March 31, 2014. Similar to compensation and benefits expenses in cost of services, the increase was primarily impacted by increased costs related to current staff and increased staffing levels.

Non-compensation expenses for the three months ended March 31, 2015 increased 3.4% to $22.3 million compared to $21.5 million for the three months ended March 31, 2014. The increase was primarily driven by higher costs related to information technology, professional services and other expenses. The increase in costs was partially offset by a decrease in costs related to travel and entertainment and recruiting, among other items.

Amortization of Intangible Assets

Amortization of intangible assets expense totaled $11.7 million and $11.3 million for the three months ended March 31, 2015 and 2014, respectively.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements totaled $7.2 million and $5.8 million for the three months ended March 31, 2015 and 2014, respectively. The increase was related to higher depreciation associated with continued investment in information technology infrastructure.

Other Expense (Income), Net

Other expense (income), net for the three months ended March 31, 2015 was $11.1 million, an increase of $5.1 million compared to $6.0 million for the three months ended March 31, 2014, primarily driven by higher interest expense resulting from higher interest rates resulting from the notes offering.

Income Taxes

The provision for income tax expense increased 6.3% to $28.0 million for the three months ended March 31, 2015 compared to $26.4 million for the three months ended March 31, 2014. These amounts reflect effective tax rates of 36.1% and 35.9% for the three months ended March 31, 2015 and 2014, respectively. The increase is primarily due to higher income generated in higher tax jurisdictions.

Income (Loss) from Discontinued Operations, Net of Income Taxes

Loss from discontinued operations, net of income taxes, for the three months ended March 31, 2015 reflects the impact of a $5.8 million out-of-period income tax charge associated with tax obligations triggered upon the sale of ISS. For the three months ended March 31, 2014, income from discontinued operations, net of income taxes, was $33.3 million. The three months ended March 31, 2014 included a $30.6 million income tax benefit associated with establishing a net deferred tax asset on the difference between the ISS tax basis and book basis. This net deferred tax asset was realized in the subsequent quarter upon the closing of the sale on April 30, 2014.

Critical Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, “Introduction and Basis of Presentation,” of the Notes to Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2014 and also in Note 2, “Recent Accounting Standards Updates,” in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2014.2015.

Liquidity and Capital Resources

We require capital to fund ongoing operations, internal growth initiatives and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, existing cash and cash equivalents and credit capacity under our existing credit facilities. In addition, we believe we have access to additional funding in the public and private markets. We intend to use these sources of liquidity to, among other things, service our existing and future debt obligations and fund our working capital requirements, capital expenditures, investments, acquisitions, dividend payments and repurchases of our common stock. In connection with our business strategy, we regularly evaluate acquisition opportunities. We believe our liquidity, along with other financing alternatives, will provide the necessary capital to fund these transactions and achieve our planned growth.

Senior Notes and Credit Agreement

We have issued an aggregate of $1.6 billion in senior unsecured notes in two discrete private offerings of $800.0 million each. On November 20, 2014, the Companywe completed itsour first private offering of $800.0 million in aggregate principal amount of 5.25% senior unsecured notes due 2024 (the “Senior“2024 Senior Notes”) and also entered into a $200.0 million senior unsecured revolving credit agreement (the “2014 Revolving Credit Agreement”) by and among the Company, as borrower, certain of itsMSCI’s subsidiaries, as guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The CompanyWe used the net proceeds from the offering of the 2024 Senior Notes, together with cash on hand, to prepayrepay in full our outstanding term loan indebtedness of $794.8 million.

On August 13, 2015, we completed the 2025 Senior Notes offering of $800.0 million which bore interest at LIBOR plus a marginaggregate principal amount of 2.25%5.75% senior unsecured notes due 2025 (together with the 2024 Senior Notes, the “Senior Notes”). The net proceeds from the offering of the 2025 Senior Notes were allocated for general corporate purposes.

The 2024 Senior Notes are scheduled to mature and be paid in full on November 20, 2024. At any time prior to November 15, 2019, we may redeem all or part of the 2024 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, we may redeem all or part of the 2024 Senior Notes, together with accrued and unpaid interest, on or after November 15, 2019, at redemption prices set forth in the Indenture (defined below)indenture governing theour 2024 Senior Notes, together with accrued and unpaid interest.Notes. At any time prior to November 15, 2017, we may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2024 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.25% of the principal amount.

The 2014 Revolving Credit Agreement replaced the 2012 Revolving Credit Facility.prior senior secured revolving credit facility. The 2014 Revolving Credit Agreement has an initial term of five years that may be extended up to twice, at our request, in each case by one additional year.

Interest on theThe 2025 Senior Notes accruesare scheduled to mature and be paid in full on August 15, 2025. At any time prior to August 15, 2020, we may redeem all or part of the 2025 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a fixed rateredemption price equal to the sum of 5.25% per annum(i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and is payable semiannuallyunpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, we may redeem all or part of the 2025 Senior Notes, together with accrued and unpaid interest, on or after August 15, 2020, at redemption prices set forth in arrearsthe indenture governing our 2025 Senior Notes. At any time prior to August 15, 2018, we may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2025 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.75% of the principal amount.

Interest payments attributable to the 2024 Senior Notes are due on May 15 and November 15 of each year, commencingyear. The first interest payment was made on May 15, 2015. We will make interestInterest payments attributable to holders of record of the 2025 Senior Notes are due on February 15 and August 15 of each year. The first interest payment was made on February 16, 2016. We paid $23.3 million of interest attributable to the immediately preceding May 1 and November 1.2025 Senior Notes during the three months ended March 31, 2016.

The Senior Notes and the 2014 Revolving Credit Agreement are fully and unconditionally, and jointly and severally, guaranteed by our direct or indirect wholly-owned domestic subsidiaries that account for more than 5% of our and our subsidiaries’ consolidated assets, other than certain excluded subsidiaries (the “subsidiary guarantors”). Amounts due under the 2014 Revolving Credit Agreement are our and the subsidiary guarantors’ senior unsecured obligations and rank equally with the Senior Notes and any of our other unsecured, unsubordinated debt, senior to any of our subordinated debt and effectively subordinated to our secured debt to the extent of the assets securing such debt.

The indentureIndentures governing our Senior Notes (the “Indenture”“Indentures”) among us, each of the subsidiary guarantors, and Wells Fargo Bank, National Association, as trustee, containscontain covenants that limit our and certain of our subsidiaries’ ability to, among other things, incur liens, enter into sale/leaseback transactions and consolidate, merge or sell all or substantially all of our assets. In addition, the Indenture restrictsIndentures restrict our non-guarantor subsidiaries’ ability to create, assume, incur or guarantee additional indebtedness without such non-guarantor subsidiaries guaranteeing the Senior Notes on apari passu basis.

The 2014 Revolving Credit Agreement contains affirmative and restrictive covenants that, among other things, limit our ability and the ability of our existing or future subsidiaries to:

 

incur liens and further negative pledges;

 

incur additional indebtedness or prepay, redeem or repurchase indebtedness;

 

make loans or hold investments;

 

merge, dissolve, liquidate, consolidate with or into another person;

 

enter into acquisition transactions;

 

enter into sale/leaseback transactions;

 

issue disqualified capital stock;

 

sell, transfer or dispose of assets;

 

pay dividends or make other distributions in respect of our capital stock or engage in stock repurchases, redemptions and other restricted payments;

 

create new subsidiaries;

 

permit certain restrictions affecting our subsidiaries;

 

change the nature of our business, accounting policies or fiscal periods;

 

enter into any transactions with affiliates other than on an arm’s lengtharm’s-length basis; and

 

amend our organizational documents or amend, modify or change the terms of certain agreements relating to our indebtedness.

The 2014 Revolving Credit Agreement and the IndentureIndentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events, invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business.

The 2014 Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the 2014 Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the 2014 Revolving Credit Agreement) measured

quarterly on a rolling four-quarter basis shall not exceed 3.75:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the 2014 Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of March 31, 2015,2016, our Consolidated Leverage Ratio (as defined in the 2014 Revolving Credit Agreement) was 1.72:2.97:1.00 and our Consolidated Interest Coverage Ratio (as defined in the 2014 Revolving Credit Agreement) was 10.92:7.50:1.00.

Our non-guarantor subsidiaries of the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $194.2$200.4 million, or 19.0%18.4%, of our total revenue for the threetrailing twelve months ended March 31, 2015,2016, approximately $41.1$89.9 million, or 11.9%21.0%, of our consolidated operating income for the threetrailing twelve months ended March 31, 20152016, and approximately $356.9$406.1 million, or 12.3%14.3%, of our consolidated total assets (excluding intercompany assets) and $119.9$133.2 million, or 8.3%6.0%, of our consolidated total liabilities, in each case as of March 31, 2015.2016.

Share Repurchases

On February 6, 2014, we entered intoFor the February 2014 ASR Programthree months ended March 31, 2016, the Company paid $333.3 million to initiate share repurchases aggregating $100.0 million. As a result, we received 1.7receive approximately 4.9 million shares on February 7, 2014 and 0.6 million shares on May 5, 2014 for a combinedat an average purchase price of $43.10$68.45 per share.

On September 18, 2014, we entered into the September 2014 ASR Program. On September 19, 2014, we paid $300.0 million in cash and received approximately 4.5 million shares of our common stockshare under the September 2014 ASR Agreement. The total number of shares to be repurchased will be based primarily on an arithmetic average of the volume-weighted average prices of our common stock on each trading day during the repurchase period. This average price will be capped such that only under limited circumstances will we be required to deliver shares or pay cash at settlement. We may also receive additional shares at or prior to maturity of the ASR Agreement in May 2015.2015 Repurchase Program.

Cash DividendsDividend

On September 17, 2014, the Board of Directors approved a plan to initiate a regular quarterly cash dividend. We expect the initial annual dividend rate to be $0.72 per share.

On April 29, 2015,27, 2016, the Board of Directors declared a cash dividend of $0.18$0.22 per share for second quarter 2015.2016. The second quarter 20152016 dividend is payable on May 29, 201527, 2016 to shareholders of record as of the close of trading on May 15, 2015.13, 2016.

Cash Flows

 

   As of 
   March 31,   December 31, 
   2015   2014 
   (in thousands) 

Cash and cash equivalents

  $537,751    $508,799  
   As of 
   March 31,   December 31, 
   2016   2015 
   (in thousands) 

Cash and cash equivalents

  $              445,014    $              777,706  

Cash and cash equivalents were $537.8$445.0 million and $508.8$777.7 million as of March 31, 20152016 and December 31, 2014,2015, respectively. As of March 31, 20152016 and December 31, 2014, $83.92015, $126.4 million and $102.3$128.1 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries, which could be subject to U.S. federal income taxation on repatriation to the U.S. and some of which could be subject to local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash is further restricted by local laws.

We believe that domestic cash flows from operations, together with existing cash and cash equivalents and short-term investments,funds available under our existing credit facility and our ability to access the debt and capital markets for additional funds, will continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as scheduled debt repayments and material capital expenditures and share repurchases, for at least the next 12 months and for the foreseeable future thereafter. In addition, we expect existing foreign cash flows from operations, together with existing cash and cash equivalents will continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and for the foreseeable future thereafter.

Cash Provided by (Used In) Operating, Investing and Financing Activities

 

  For the Three Months Ended   Three Months Ended 
  March 31,   March 31, 
  2015   2014   2016 2015 
  (in thousands)   (in thousands) 

Cash provided by operating activities

  $66,683    $25,249    $                33,030   $                66,683  

Cash used in investing activities

   (6,320   (10,053   (5,520 (6,320

Cash used in financing activities

   (27,136   (109,338   (362,309 (27,136

Effect of exchange rates on cash and cash equivalents

   (4,275   566     2,107   (4,275
  

 

   

 

   

 

  

 

 

Net increase (decrease) in cash and cash equivalents

$28,952  $(93,576

Net (decrease) increase in cash and cash equivalents

  $(332,692 $28,952  
  

 

   

 

   

 

  

 

 
  

 

  

 

 

Cash Flows From Operating Activities

Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was $66.7$33.0 million and $25.2$66.7 million for the three months ended March 31, 20152016 and 2014,2015, respectively. The year-over-year increasedecrease was primarily reflects improved billingsdriven by the impact of the timing of cash collections and collections from customers.higher interest payments.

Our primary uses of cash from operating activities are for the payment of cash compensation expenses, office rent, technology costs, market data costs, interest expenses and income taxes. The payment of cash for compensation and benefits is historically at its highest level in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.

Cash Flows From Investing Activities

Cash used in investing activities was $6.3$5.5 million and $10.1$6.3 million for the three months ended March 31, 20152016 and 2014,2015, respectively. The year-over-year decrease in cash used in investing activities primarily reflects a decrease in capital expenditures.

Cash Flows From Financing Activities

Cash used in financing activities was $27.1$362.3 million and $109.3$27.1 million for the three months ended March 31, 20152016 and 2014,2015, respectively. The year-over-year decrease primarily reflects lower purchases of treasury shares as well as lower repayments on our debt partially offsetincrease was substantially driven by payment of dividends.higher share repurchases.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

We are subject to foreign currency exchange fluctuation risk. Exchange rate movements can impact the U.S. dollar-reporteddollar reported value of our revenues, expenses, assets and liabilities denominated in non-U.S. dollar currencies or where the currency of such items is different than the functional currency of the entity where these items were recorded.

A significant portion of our revenues from our index-linked investment products are based on fees earned on the value of assets invested in securities denominated in currencies other than the U.S. dollar. For all operations outside the United StatesU.S. where the Company has designated the local non-U.S. dollar currency as the functional currency, revenuesrevenue and expenses are translated using average monthly exchange rates and assets and liabilities are translated into U.S. dollars using month-end exchange rates. For these operations, currency translation adjustments arising from a change in the rate of exchange between the functional currency and the U.S. dollar are accumulated in a separate component of shareholders’ equity. In addition, transaction gains and losses arising from a change in exchange rates for transactions denominated in a currency other than the functional currency of the entity are reflected in non-operating “Other expense (income), net” in our Unaudited Condensed Consolidated StatementsStatement of Income.

Revenues from index-linked investment products represented approximately $45.9 million, or 17.5%, and $40.9 million, or 15.0%,We generally invoice our clients in U.S. dollars; however, we invoice a portion of our totalclients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the three months ended March 31, 2016 and 2015, 17.9% and 18.7%, respectively, of our revenues are subject to foreign currency exchange rate risk and primarily includes clients billed in foreign currency as well as U.S. dollar exposures on non-U.S. dollar foreign operating entities. Of the 17.9% of non-U.S dollar exposure for the three months ended March 31, 2016, 35.7% was in British pounds sterling, 33.5% was in Euros and 22.7% was in Japanese yen. Of the 18.7% of non-U.S dollar exposure for the three months ended March 31, 2015, 35.8% was in Euros, 34.7% was in British pounds sterling and 2014, respectively.20.5% was in Japanese yen.

Revenues from index-linked investment products represented 17.5% of operating revenues for each of the three months ended March 31, 2016 and 2015. While a substantial portion of our fees for index-linked investment products are generally invoiced in U.S. dollars, the fees are based on the investment product’s assets, a large majority of which approximately two-thirds are invested in securities denominated in currencies other than the U.S. dollar. Accordingly, declines in such other currencies against the U.S. dollar will decrease the fees payable to us under such licenses. In addition, declines in such currencies against the U.S. dollar could impact the attractiveness of such investment products resulting in net fund outflows, which would further reduce the fees payable under such licenses.

We generally invoice our clients in U.S. dollars; however, we invoice a portion of clients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the three months ended March 31, 2015 and 2014, approximately 13.0% and 15.3% of our total revenues, respectively, were invoiced in currencies other than U.S. dollars. For the three months ended March 31, 2015, 51.3% of our foreign currency revenues were in Euros, 23.2% were in British pounds sterling and 12.7% were in Japanese yen. For the three months ended March 31, 2014, 50.4% of our foreign currency revenues were in Euros, 24.0% were in British pounds sterling and 11.6% were in Japanese yen.

We are exposed to additional foreign currency risk in certain of our operating costs. Approximately $71.2 million, or39.8% and 40.9%, and $83.3 million, or 44.7%, of our total operating costsexpenses, including operating expense attributable to income (loss) from discontinued operations, net of income taxes, for the three months ended March 31, 20152016 and 2014,2015, respectively, were denominated in foreign currencies, the significant majority of which were denominated in British pounds sterling, Indian rupees, Swiss francs, Hungarian forints, Euros, Hong Kong dollars, Mexican pesos and Chinese yuan and Mexican pesos.yuan. Expenses incurred in foreign currency may increase as we expand our business outside the United States.U.S.

We have certain monetary assets and liabilities denominated in currencies other than local functional amounts and when these balances were remeasured into their local functional currency, either a gain or a loss resulted from the change of the value of the functional currency as compared to the originating currencies. We manage foreign currency exchange rate risk, in part, through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the income statement impact associated with amounts denominated in certain foreign currencies. As a result of these positions, weWe recognized total foreign currency exchange losses of $1.6$0.1 million and $0.9$1.6 million for the three months ended March 31, 20152016 and 2014,2015, respectively. These amounts were recorded in “Other expense (income), net” in our Unaudited Condensed Consolidated Statements of Income.

 

Item 4.Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of March 31, 2015,2016, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 20152016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER FINANCIAL INFORMATION

The interim financial information included in this Quarterly Report on Form 10-Q for the three month periods ended March 31, 2016 and 2015 has not been audited by PricewaterhouseCoopers LLP (“PwC”). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Readers should restrict reliance on PwC’s reports on such information accordingly. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its reports on interim financial information, because such reports do not constitute “reports” or “parts” of registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933

PART II

 

Item 1.Legal Proceedings

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company which arise in the ordinary course of business. While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that MSCI’s business, operating results, financial condition or cash flows in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are currently pending or asserted will not, individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.

 

Item 1A.Risk Factors

There have been no material changes since December 31, 20142015 to the significant risk factors and uncertainties known to the Company that, if they were to materialize or occur, would individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.

For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

There have been no unregistered sales of equity securities.

The table below sets forth thepresents information with respect to purchases made by or on behalf of the Company of its common shares during the three months ended March 31, 2015.2016.

Issuer Purchases of Equity Securities

 

Period

 Total Number of
Shares Purchased(1)
  Average Price Paid
Per Share
  Total Number of
Shares Purchased As
Part of Publicly
Announced Plans or

Programs
  Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs(2)
 

Month #1

(January 1, 2015-January 31, 2015)

  23,215   $47.44    —     $550,000,000  

Month #2

(February 1, 2015-February 28, 2015)

  167,990   $54.83    —     $550,000,000  

Month #3

(March 1, 2015-March 31, 2015)

  782   $57.02    —     $550,000,000  
 

 

 

   

 

 

  

Total

 191,987  $53.94   —    $550,000,000  
 

 

 

   

 

 

  

Period

    Total Number of  
Shares
Purchased(1)
   Average Price
  Paid Per Share  
   Total Number of
Shares Purchased
As Part of Publicly
Announced Plans  or
Programs
   Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Plans
or Programs(2)
 

Month #1

(January 1, 2016-January 31, 2016)

   1,127,423       $68.12        1,085,438        $805,497,000  

Month #2

(February 1, 2016-February 29, 2016)

   1,895,954       $66.76        1,744,567        $689,014,000  

Month #3

(March 1, 2016-March 31, 2016)

   2,043,815       $70.13        2,039,418        $546,004,000  
  

 

 

     

 

 

   

Total

   5,067,192       $68.42        4,869,423        $546,004,000  
  

 

 

     

 

 

   
  

 

 

     

 

 

   

 

(1) Includes (i) shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying restricted stock unitsunits; (ii) shares withheld to satisfy tax withholding obligations and (ii)exercise price on behalf of employees that occur upon exercise and delivery of outstanding shares underlying stock options; and (iii) shares held in treasury under the MSCI Inc. Director Deferral Plan. The value of the shares withheld were determined using the fair market value of the Company’s common stock on the date of withholding, using a valuation methodology established by the Company. The amount also includes shares repurchased under the 2015 Repurchase Program.
(2) See Note 7, “Commitments And Contingencies”“Shareholders’ Equity” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding our stock repurchase programs.

 

Item 3.Defaults Upon Senior Securities

None.

 

Item 4.Mine Safety Disclosures

Not applicable.

 

Item 5.Other Information

None.

 

Item 6.Exhibits

An exhibit index has been filed as part of this report on page EX-1.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 1, 2015April 29, 2016

 

MSCI INC.

(Registrant)

By:

/s/ Robert Qutub

Robert Qutub

Chief Financial Officer,

(Principal Financial Officer)Officer

EXHIBIT INDEX

MSCI INC.

QUARTER ENDED MARCH 31, 20152016

 

   

Exhibit

Number

  

Description

  3.1  Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)
  3.2  Amended and Restated By-laws (filed as Exhibit 3.2 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)
*  10.1MSCI Inc. 2016 Omnibus Incentive Plan (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Registration No. 333-210987), filed with the SEC on April 28, 2016 and incorporated by reference herein)
10.2MSCI Inc. 2016 Non-Employee Directors Compensation Plan (filed as Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (Registration No. 333-210987), filed with the SEC on April 28, 2016 and incorporated by reference herein)
*†10.3  Form of Award Agreement for Restricted Stock Units for Directors under the MSCI Inc. Independent Directors’2016 Non-Employee Directors Compensation Plan
*†10.4Form of Annual Performance Award Agreement for Performance Stock Units for Managing Directors under the MSCI Inc. 2007 Amended and Restated Equity Incentive Compensation Plan (this exhibit supersedes and replaces Exhibit 10.100 to the Company’s Annual Report on Form 10-K (File No. 001-33812) filed with the SEC on February 26, 2016)
*†10.5Form of Award Agreement for Restricted Stock Units for Managing Directors under the MSCI Inc. 2007 Amended and Restated Equity Incentive Compensation Plan (this exhibit supersedes and replaces Exhibit 10.101 to the Company’s Annual Report on Form 10-K (File No. 001-33812) filed with the SEC on February 26, 2016)
*†10.6Form of 2016 Multi-Year Performance Award Agreement for Performance Stock Units for the Executive Committee under the MSCI Inc. 2007 Amended and Restated Equity Incentive Compensation Plan (this exhibit supersedes and replaces Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-33812) filed with the SEC on February 12, 2016)
*†10.7Form of 2016 Multi-Year Performance Award Agreement for Performance Stock Units for the Executive Committee under the MSCI Inc. 2016 Omnibus Incentive Plan (this exhibit supersedes and replaces Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-33812) filed with the SEC on February 12, 2016)
*†10.8Non-Employee Director Stock Ownership Guidelines
*†10.9MSCI Inc. Director Deferral Plan, as amended
*    10.210.10  ChangeLetter Agreement to Cooperation Agreement, dated as of Employment StatusMarch 10, 2016, by and Release Agreement for Roveen Bhansaliamong MSCI Inc., Value Act Capital Management, L.P. and D. Robert Hale.
    10.310.11  CooperationTransition and Release Agreement, dated as of January 29, 2015February 10, 2016, by and between MSCI Inc. and Robert Qutub (filed as Exhibit 99.110.123 to the Company’s Annual Report on Form 8-K10-K (File No. 001-33812), filed with the SEC on February 2, 201526, 2016 and incorporated by reference herein)
    10.410.12  

FormOffer Letter, effective as of Special Performance Award Agreement for Performance Stock Units under theMarch 15, 2016, by and between MSCI Inc. 2007 Amended and Restated Equity Incentive Compensation PlanKathleen A. Winters (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-33812), filed with the SEC on February 2, 2015April 27, 2016 and incorporated herein by reference)

reference herein)
*†10.13Offer Letter, effective as of October 15, 2014, by and between MSCI Inc. and Laurent Seyer
*†10.14Offer Letter, effective as of May 15, 2011, by and between MSCI Inc. and Peter Zangari
  11  Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, Note 43 to the Condensed Consolidated Financial Statements (Earnings Per Common Share) and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K)
*  15.1  Letter of awareness from PricewaterhouseCoopers LLP, dated May 1, 2015,April 29, 2016, concerning unaudited interim financial information

EX-1


*  31.1  Rule 13a-14(a) Certification of the Chief Executive Officer
*  31.2  Rule 13a-14(a) Certification of the Chief Financial Officer
**  32.1  Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer
*  101.INS  XBRL Instance Document
*  101.SCH  XBRL Taxonomy Extension Schema Document
*  101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
*  101.LAB  XBRL Taxonomy Extension Label Linkbase Document
*  101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document
*  101.DEF  XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith.
**Furnished herewith.
Indicates a management compensation plan, contract or arrangement.

 

EX-1EX-2