Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2013 |
Commitments And Contingencies Disclosure [Abstract] | ' |
Commitments and Contingencies | ' |
8. 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 September 30, 2013 and 2012 was $6.5 million and $6.0 million, respectively. Rent expense for the nine months ended September 30, 2013 and 2012 was $18.9 million and $19.0 million, respectively. |
Share repurchase. 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”). As part of this authorization, on December 13, 2012, the Company entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to initiate share repurchases aggregating $100.0 million (the “December 2012 ASR Program”). The December 2012 ASR Program was structured as a capped ASR in which the Company paid $100.0 million and received approximately 2.2 million shares on December 14, 2012, representing the minimum number of common shares to be repurchased based on a calculation using a specific capped price per share. On July 31, 2013, the Company completed the December 2012 ASR Program, receiving an additional 0.8 million shares. In total, 3.0 million shares were delivered to MSCI for an average purchase price of $33.47 per share. The repurchased shares are held in treasury. |
On August 1, 2013, MSCI entered into a new ASR agreement to initiate share repurchases aggregating $100.0 million (the “August 2013 ASR Program”). The August 2013 ASR Program is structured as a capped ASR in which, on August 2, 2013, MSCI paid $100.0 million and received approximately 1.9 million shares, representing the minimum number of common shares to be repurchased based on a calculation using a specific capped price per share. This price is capped such that only under limited circumstances may the Company be required to deliver shares or pay cash at settlement. The repurchased shares are held in treasury. The Company anticipates that all repurchases under the August 2013 ASR Program will be completed no later than the final repurchase date in December 2013, although settlement of the August 2013 ASR Program may be accelerated under certain circumstances. Additionally, depending on the average share price through the completion date in December 2013, MSCI may receive additional shares under the August 2013 ASR Program. |
The $100.0 million payment for the August 2013 ASR Program was initially split and recorded as a $70.0 million increase to “Treasury stock” and a $30.0 million decrease to “Additional paid in capital” on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition to reflect the initial estimate of the value of shares received. The 2012 Repurchase Program, except for the ASR, may be modified, suspended, terminated or extended by the Company at any time without prior notice. The remaining $100.0 million balance authorized under the 2012 Repurchase Program will be available for utilization through December 31, 2014 at the Company’s discretion. |
Long-term debt. On June 1, 2010, the Company entered into a senior secured credit agreement comprised of (i) a six-year term loan facility (the “2010 Term Loan”) and (ii) a five-year revolving credit facility (the revolving credit facility, together with the 2010 Term Loan, the “2010 Credit Facility”). |
On March 14, 2011, the Company completed the repricing of the 2010 Credit Facility pursuant to Amendment No. 2 to the 2010 Credit Facility (“Amendment No. 2”). Amendment No. 2 provided for the incurrence of a new senior secured term loan (the “2011 Term Loan”). The proceeds of the 2011 Term Loan, together with cash on hand, were used to repay the remaining outstanding balance of the 2010 Term Loan in full. The 2011 Term Loan was to mature in March 2017. |
On May 4, 2012, the Company amended and restated its 2010 Credit Facility (the credit agreement as so amended and restated, the “Amended and Restated Credit Facility”). The Amended and Restated Credit Facility provides for the incurrence of a new senior secured five-year Term Loan A Facility in an aggregate amount of $880.0 million (the “2012 Term Loan”) and a $100.0 million senior secured revolving facility (the “2012 Revolving Credit Facility”). The proceeds of the Amended and Restated Credit Facility, together with cash on hand, were used to repay the remaining outstanding principal of the then-existing 2011 Term Loan. The 2012 Term Loan and the 2012 Revolving Credit Facility mature on May 4, 2017. The Company is required to repay 5.00% per annum of the 2012 Term Loan in quarterly payments over the first two years, 10.00% per annum of the 2012 Term Loan in quarterly payments over the next two years, and 70.00% of the 2012 Term Loan in quarterly payments over the final year. |
The 2012 Term Loan bears interest equal to the London Interbank Offered Rate (“LIBOR”) plus a margin. As of September 30, 2013, the 2012 Term Loan bore interest at LIBOR plus a margin of 2.00%, or 2.18%. In March 2013, the Company made a $15.0 million prepayment on the 2012 Term Loan. |
Current maturities of long-term debt at September 30, 2013 was $54.1 million, net of a $0.9 million discount. Long-term debt, net of current maturities at September 30, 2013 was $753.3 million, net of a $1.7 million discount. |
Current maturities of long-term debt at December 31, 2012 was $43.1 million, net of a $0.9 million discount. Long-term debt, net of current maturities at December 31, 2012 was $811.6 million, net of a $2.4 million discount. |
In connection with entering into the Amended and Restated Credit Facility, the Company paid $5.7 million in fees, $3.9 million of which are being deferred. These financing fees, together with the existing fees related to prior credit facilities, are being amortized over the life of the Amended and Restated Credit Facility. At September 30, 2013, $8.4 million of the deferred financing fees remain unamortized, $2.7 million of which is included in “Prepaid and other assets” and $5.7 million of which is included in “Other non-current assets” on the Company’s Unaudited Condensed Consolidated Statement of Financial Condition. |
The Company amortized $0.7 million and $0.5 million of deferred financing fees in interest expense during the three months ended September 30, 2013 and 2012, respectively. The Company amortized $2.2 million and $17.1 million of deferred financing fees in interest expense during the nine months ended September 30, 2013 and 2012, respectively. Approximately $0.2 million of debt discount was amortized in interest expense during each of the three months ended September 30, 2013 and 2012. Approximately $0.7 million and $5.1 million of debt discount were amortized in interest expense during the nine months ended September 30, 2013 and 2012, respectively. |
At September 30, 2013 and December 31, 2012, the fair market value of the Company’s debt obligations were $813.0 million and $862.3 million, respectively. The fair market value is determined in accordance with accounting standards related to the determination of fair value as discussed in Note 9, “Fair Value Measures,” and represents Level 2 valuations. 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. |
The Amended and Restated Credit Facility also amended certain negative covenants, including financial covenants. |
As of September 30, 2013, the Company’s retained earnings of $723.0 million were restricted as to the payments of dividends. As outlined in the Amended and Restated Credit Facility, the Company cannot pay or declare any dividends except out of amounts available for restricted payments. As of September 30, 2013, the amount available for restricted payments was $355.7 million, reflecting the Company’s cumulative retained excess cash flows (“CRECF”), as defined in the Amended and Restated Credit Facility, through December 31, 2012 and adjusted for any restricted payments made during the nine months ended September 30, 2013. To the extent the CRECF is utilized for other actions restricted under the Amended and Restated Credit Facility, including stock repurchases, the amount available for restricted payments will be reduced. |
|
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. Specifically, the Company had previously entered into derivative financial instruments to manage exposures that arose from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, and may do so again in the future. The Company’s derivative financial instruments were used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. |
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. |
Cash Flow Hedges of Interest Rate Risk. As a result of the repayment of the 2011 Term Loan on May 4, 2012 and the 2010 Term Loan on March 14, 2011, the Company discontinued prospective hedge accounting on its then-existing interest rate swaps as they no longer met hedge accounting requirements. The Company has not entered into new interest rate swaps to hedge its debt and it is not required to do so under the Amended and Restated Credit Facility. The Company continued to report the net loss related to the discontinued cash flow hedges in Accumulated Other Comprehensive Income (Loss) and reclassified this amount into earnings through the contractual term of the swap agreements which ended in August 2013. |
Non-designated Hedges of Foreign Exchange Risk. Derivatives not designated as hedges are not speculative and are used to manage the Company’s 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 September 30, 2013, the Company had three outstanding foreign currency forwards with a combined notional amount of $40.5 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: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Unaudited Condensed | | | As of | | | As of | | | | | | | | | | | | | | | | | |
Consolidated Statements of | September 30, 2013 | December 31, 2012 | | | | | | | | | | | | | | | | |
Financial Condition Location | | | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liability derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | | Other accrued liabilities | | | $ | (1,349 | ) | | $ | (203 | ) | | | | | | | | | | | | | | | | |
Asset derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | | Prepaid and other assets | | | $ | — | | | $ | 3 | | | | | | | | | | | | | | | | | |
|
The following tables present 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 Income: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging | | Amount of Gain or | | | Location of Gain or | | Amount of Gain or | | | Location of Gain or | | Amount of Gain or | |
Relationships | (Loss) Recognized | (Loss) Reclassified | (Loss) Reclassified | (Loss) Recognized | (Loss) Recognized |
| in Accumulated | from Accumulated | from Accumulated | in Income on | in Income on |
| Other | Other | Other | Derivatives | Derivatives |
| Comprehensive | Comprehensive | Comprehensive | (Ineffective Portion | (Ineffective Portion |
| Income (Loss) | Income into | Income (Loss) | and Amount | and Amount |
| on Derivatives | Income | into Income | Excluded from | Excluded from |
| (Effective Portion) | (Effective Portion) | (Effective Portion) | Effectiveness | Effectiveness |
| for the | | for the | Testing) | Testing) for the |
| Three Months Ended | | Three Months Ended | | Three Months Ended |
| September 30, | | September 30, | | September 30, |
(in thousands) | | 2013 | | | 2012 | | | | | 2013 | | | 2012 | | | | | 2013 | | | 2012 | |
Interest rate swaps | | $ | — | | | $ | — | | | Interest expense | | $ | (197 | ) | | $ | (610 | ) | | Interest expense | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging | | Amount of Gain or | | | Location of Gain or | | Amount of Gain or | | | Location of Gain or | | Amount of Gain or | |
Relationships | (Loss) Recognized | (Loss) Reclassified | (Loss) Reclassified | (Loss) Recognized | (Loss) Recognized |
| in Accumulated | from Accumulated | from Accumulated | in Income on | in Income on |
| Other | Other | Other | Derivatives | Derivatives |
| Comprehensive | Comprehensive | Comprehensive | (Ineffective Portion | (Ineffective Portion |
| Income (Loss) | Income (Loss) into | Income (Loss) | and Amount | and Amount |
| on Derivatives | Income | into Income | Excluded from | Excluded from |
| (Effective Portion) | (Effective Portion) | (Effective Portion) | Effectiveness | Effectiveness |
| for the | | for the | Testing) | Testing) for the |
| Nine Months Ended | | Nine Months Ended | | Nine Months Ended |
| September 30, | | September 30, | | September 30, |
(in thousands) | | 2013 | | | 2012 | | | | | 2013 | | | 2012 | | | | | 2013 | | | 2012 | |
Interest rate swaps | | $ | — | | | $ | (695 | ) | | Interest expense | | $ | (1,364 | ) | | $ | (1,827 | ) | | Interest expense | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain or | | Amount of Gain or (Loss) Recognized | | | | | | | | | | | | | | | | | | | |
(in thousands) | (Loss) Recognized in | in Income on Derivatives for the | | | | | | | | | | | | | | | | | | |
| Income on Derivatives | Three Months Ended | | | | | | | | | | | | | | | | | | |
| | September 30, | | | | | | | | | | | | | | | | | | |
| | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | Other expense | | $ | (1,472 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain or | | Amount of Gain or (Loss) Recognized | | | | | | | | | | | | | | | | | | | |
(in thousands) | (Loss) Recognized in | in Income on Derivatives for the | | | | | | | | | | | | | | | | | | |
| Income on Derivatives | Nine Months Ended | | | | | | | | | | | | | | | | | | |
| | September 30, | | | | | | | | | | | | | | | | | | |
| | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts | | Other expense | | $ | (185 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
|