UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
OR
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o |
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)
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Delaware |
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13-4038723 |
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(State of Incorporation) |
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(I.R.S. Employer Identification Number) |
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7 World Trade Center 250 Greenwich Street, 49th Floor New York, New York |
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10007 |
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(Address of Principal Executive Offices) |
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(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 o
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 o
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.
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Large accelerated filer |
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Accelerated filer |
¨ |
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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 o No x
As of July 22, 2016, there were 94,628,529 shares of the registrant’s common stock, par value $0.01, outstanding.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2016
TABLE OF CONTENTS
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Page |
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Item 1. |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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43 |
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Item 4. |
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44 |
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Item 1. |
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45 |
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Item 1A. |
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45 |
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Item 2. |
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45 |
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Item 3. |
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45 |
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Item 4. |
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46 |
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Item 5. |
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46 |
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Item 6. |
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46 |
2
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 electronic SEC filings are available to the public at the SEC’s website, www.sec.gov.
MSCI Inc.’s website is www.msci.com. You can access MSCI Inc.’s Investor Relations homepage at http://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 at http://ir.msci.com/corporate-governance.cfm, including copies of the following:
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Charters for MSCI Inc.’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee; |
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Corporate Governance Policies; |
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Procedures for Submission of Ethical Accounting Related Complaints; and |
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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 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, 49th 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” 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, 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.
3
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 Alerts Subscription” section of our Investor Relations homepage at http://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.
4
MSCI INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share and share data)
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As of |
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June 30, |
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December 31, |
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2016 |
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2015 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
404,614 |
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$ |
777,706 |
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Accounts receivable (net of allowances of 1,369 and 1,117 at June 30, 2016 and |
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December 31, 2015, respectively) |
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247,497 |
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208,239 |
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Prepaid income taxes |
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56,158 |
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46,115 |
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Prepaid and other assets |
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28,788 |
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31,211 |
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Total current assets |
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737,057 |
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1,063,271 |
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Property, equipment and leasehold improvements (net of accumulated depreciation and amortization |
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of $125,325 and $114,680 at June 30, 2016 and December 31, 2015, respectively) |
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97,808 |
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98,926 |
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Goodwill |
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1,560,083 |
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1,565,621 |
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Intangible assets (net of accumulated amortization of $441,055 and $418,512 at June 30, 2016 and |
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December 31, 2015, respectively) |
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368,715 |
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391,490 |
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Non-current deferred tax assets |
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9,242 |
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9,180 |
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Other non-current assets |
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18,081 |
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18,499 |
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Total assets |
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$ |
2,790,986 |
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$ |
3,146,987 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,732 |
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$ |
2,512 |
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Accrued compensation and related benefits |
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67,911 |
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116,619 |
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Other accrued liabilities |
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74,819 |
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61,433 |
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Deferred revenue |
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365,242 |
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317,552 |
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Total current liabilities |
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509,704 |
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498,116 |
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Long-term debt |
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1,580,515 |
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1,579,404 |
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Deferred taxes |
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105,006 |
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110,937 |
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Other non-current liabilities |
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60,608 |
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57,043 |
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Total liabilities |
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2,255,833 |
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2,245,500 |
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Commitments and Contingencies (see Note 6 and Note 7) |
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Shareholders' equity: |
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Preferred Stock (par value $0.01, 100,000,000 share authorized, no shares issued) |
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— |
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— |
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Common stock (par value $0.01; 750,000,000 common shares authorized; 128,886,580 and |
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128,200,189 common shares issued and 94,991,055 and 101,013,148 common shares outstanding |
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at June 30, 2016 and December 31, 2015, respectively) |
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1,289 |
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1,282 |
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Treasury shares, at cost (33,895,525 and 27,187,041 common shares held at June 30, 2016 and |
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December 31, 2015, respectively) |
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(1,865,719 |
) |
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(1,395,695 |
) |
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Additional paid in capital |
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1,205,589 |
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1,173,183 |
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Retained earnings |
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1,242,151 |
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1,158,462 |
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Accumulated other comprehensive loss |
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(48,157 |
) |
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(35,745 |
) |
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Total shareholders' equity |
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535,153 |
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901,487 |
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Total liabilities and shareholders' equity |
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$ |
2,790,986 |
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$ |
3,146,987 |
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See Notes to Unaudited Condensed Consolidated Financial Statements
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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(unaudited) |
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Operating revenues |
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$ |
290,596 |
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$ |
270,580 |
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$ |
569,424 |
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$ |
533,349 |
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Operating expenses: |
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Cost of revenues |
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62,130 |
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67,394 |
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125,302 |
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137,298 |
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Selling and marketing |
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41,854 |
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42,028 |
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83,543 |
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83,676 |
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Research and development |
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18,566 |
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20,807 |
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37,494 |
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43,996 |
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General and administrative |
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22,019 |
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22,080 |
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43,909 |
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42,457 |
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Amortization of intangible assets |
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11,943 |
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11,695 |
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23,783 |
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|
23,397 |
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Depreciation and amortization of property, equipment and leasehold improvements |
|
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8,393 |
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8,065 |
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16,561 |
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15,272 |
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Total operating expenses |
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164,905 |
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|
172,069 |
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330,592 |
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|
346,096 |
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Operating income |
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|
125,691 |
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|
|
98,511 |
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238,832 |
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|
187,253 |
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Interest income |
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(585 |
) |
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(185 |
) |
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(1,206 |
) |
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(389 |
) |
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Interest expense |
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22,918 |
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|
11,116 |
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45,822 |
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|
|
22,224 |
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Other expense (income) |
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2,814 |
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|
164 |
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2,895 |
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|
342 |
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Other expense (income), net |
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25,147 |
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11,095 |
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47,511 |
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22,177 |
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Income from continuing operations before provision for income taxes |
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100,544 |
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87,416 |
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191,321 |
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165,076 |
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Provision for income taxes |
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33,587 |
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31,399 |
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63,997 |
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59,435 |
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Income from continuing operations |
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66,957 |
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56,017 |
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127,324 |
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105,641 |
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Income (loss) from discontinued operations, net of income taxes |
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— |
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— |
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— |
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(5,797 |
) |
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Net income |
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$ |
66,957 |
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$ |
56,017 |
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$ |
127,324 |
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$ |
99,844 |
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Earnings per basic common share: |
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Earnings per basic common share from continuing operations |
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$ |
0.69 |
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$ |
0.50 |
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$ |
1.30 |
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$ |
0.94 |
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Earnings per basic common share from discontinued operations |
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— |
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— |
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— |
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(0.05 |
) |
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Earnings per basic common share |
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$ |
0.69 |
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$ |
0.50 |
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$ |
1.30 |
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$ |
0.89 |
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Earnings per diluted common share: |
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Earnings per diluted common share from continuing operations |
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$ |
0.69 |
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$ |
0.50 |
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$ |
1.29 |
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$ |
0.93 |
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Earnings per diluted common share from discontinued operations |
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— |
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— |
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— |
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(0.05 |
) |
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Earnings per diluted common share |
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$ |
0.69 |
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$ |
0.50 |
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$ |
1.29 |
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$ |
0.88 |
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Weighted average shares outstanding used in computing earnings per share |
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Basic |
|
|
96,412 |
|
|
|
112,143 |
|
|
|
97,918 |
|
|
|
112,330 |
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Diluted |
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|
96,888 |
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|
|
112,931 |
|
|
|
98,443 |
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|
113,225 |
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Dividend declared per common share |
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$ |
0.22 |
|
|
$ |
0.18 |
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$ |
0.44 |
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$ |
0.36 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
Three Months Ended |
|
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Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2016 |
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2015 |
|
|
2016 |
|
|
2015 |
|
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|
(unaudited) |
|
|||||||||||||
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Net income |
|
$ |
66,957 |
|
|
$ |
56,017 |
|
|
$ |
127,324 |
|
|
$ |
99,844 |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(12,691 |
) |
|
|
6,151 |
|
|
|
(12,387 |
) |
|
|
(439 |
) |
|
Income tax effect |
|
|
212 |
|
|
|
766 |
|
|
|
145 |
|
|
|
634 |
|
|
Foreign currency translation adjustments, net |
|
|
(12,479 |
) |
|
|
6,917 |
|
|
|
(12,242 |
) |
|
|
195 |
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
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|
|
Pension and other post-retirement adjustments |
|
|
81 |
|
|
|
(271 |
) |
|
|
(232 |
) |
|
|
(97 |
) |
|
Income tax effect |
|
|
(20 |
) |
|
|
64 |
|
|
|
62 |
|
|
|
13 |
|
|
Pension and other post-retirement adjustments, net |
|
|
61 |
|
|
|
(207 |
) |
|
|
(170 |
) |
|
|
(84 |
) |
|
Other comprehensive (loss) income, net of tax |
|
|
(12,418 |
) |
|
|
6,710 |
|
|
|
(12,412 |
) |
|
|
111 |
|
|
Comprehensive income |
|
$ |
54,539 |
|
|
$ |
62,727 |
|
|
$ |
114,912 |
|
|
$ |
99,955 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(unaudited) |
|
|||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
127,324 |
|
|
$ |
99,844 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
23,783 |
|
|
|
23,397 |
|
|
Stock-based compensation expense |
|
|
15,273 |
|
|
|
14,539 |
|
|
Depreciation and amortization of property, equipment and leasehold improvements |
|
|
16,561 |
|
|
|
15,272 |
|
|
Amortization of debt origination fees |
|
|
1,417 |
|
|
|
893 |
|
|
Deferred taxes |
|
|
(4,756 |
) |
|
|
(3,541 |
) |
|
Excess tax benefits from share-based compensation |
|
|
(4,876 |
) |
|
|
(13,232 |
) |
|
Other non-cash adjustments |
|
|
511 |
|
|
|
3,849 |
|
|
Changes in assets and liabilities, net of assets acquired and liabilities assumed: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(40,381 |
) |
|
|
(36,181 |
) |
|
Prepaid income taxes |
|
|
(5,193 |
) |
|
|
(11,541 |
) |
|
Prepaid and other assets |
|
|
2,341 |
|
|
|
1,631 |
|
|
Accounts payable |
|
|
(790 |
) |
|
|
(669 |
) |
|
Accrued compensation and related benefits |
|
|
(39,388 |
) |
|
|
(37,711 |
) |
|
Other accrued liabilities |
|
|
7,724 |
|
|
|
1,087 |
|
|
Deferred revenue |
|
|
47,972 |
|
|
|
27,989 |
|
|
Other |
|
|
2,585 |
|
|
|
5,083 |
|
|
Net cash provided by operating activities |
|
|
150,107 |
|
|
|
90,709 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(13,277 |
) |
|
|
(15,550 |
) |
|
Capitalized software development costs |
|
|
(5,088 |
) |
|
|
(2,787 |
) |
|
Proceeds from the sale of capital equipment |
|
|
- |
|
|
|
55 |
|
|
Acquisitions, net of cash acquired |
|
|
(60 |
) |
|
|
- |
|
|
Net cash used in investing activities |
|
|
(18,425 |
) |
|
|
(18,282 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Repurchase of treasury shares |
|
|
(466,745 |
) |
|
|
(97,567 |
) |
|
Proceeds from exercise of stock options |
|
|
3,442 |
|
|
|
1,760 |
|
|
Excess tax benefits from share-based compensation |
|
|
4,876 |
|
|
|
13,232 |
|
|
Payment of dividends |
|
|
(43,281 |
) |
|
|
(40,843 |
) |
|
Net cash used in financing activities |
|
|
(501,708 |
) |
|
|
(123,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
(3,066 |
) |
|
|
(2,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(373,092 |
) |
|
|
(53,778 |
) |
|
Cash and cash equivalent, beginning of period |
|
|
777,706 |
|
|
|
508,799 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent, end of period |
|
$ |
404,614 |
|
|
$ |
455,021 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
44,660 |
|
|
$ |
20,747 |
|
|
Cash paid for income taxes |
|
$ |
72,293 |
|
|
$ |
78,347 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing activities |
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements in other accrued liabilities |
|
$ |
6,042 |
|
|
$ |
5,731 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities |
|
|
|
|
|
|
|
|
|
Treasury share repurchases awaiting settlement |
|
$ |
2,821 |
|
|
$ |
- |
|
|
Cash dividends declared, but not yet paid |
|
$ |
354 |
|
|
$ |
15 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
8
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”), offers content, applications and services to support the needs of institutional investors throughout their investment processes. The Company’s flagship products are its global equity indexes, custom indexes, factor indexes and ESG indexes; its analytics products, including multi-factor models, pricing models, methodologies for performance attribution, models for statistical analysis, and tools for portfolio optimization, back testing and stress testing; its ESG research and ratings; and its real estate benchmarks, indexes, business intelligence and analytics.
Income (loss) from discontinued operations, net of income taxes in the Unaudited Condensed Consolidated Statement of Income for the six months ended June 30, 2015 represents the impact of an out-of-period income tax charge associated with tax obligations triggered upon the sale of Institutional Shareholder Services Inc. (“ISS”), which was completed on April 30, 2014.
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 June 30, 2016 and December 31, 2015, the results of operations and comprehensive income for the three and six months ended June 30, 2016 and 2015 and cash flows for the six months ended June 30, 2016 and 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 for the year ended December 31, 2015. The unaudited condensed consolidated financial statement information as of December 31, 2015 has been derived from the 2015 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 six months ended June 30, 2016, while BlackRock, Inc. accounted for 10.5% of the Company’s consolidated operating revenues for the six months ended June 30, 2015. For the six months ended June 30, 2016 and 2015, BlackRock, Inc. accounted for 16.9% and 19.7% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of revenues within the Analytics and All Other segments for the six months ended June 30, 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. Companies have the option of adopting ASU 2014-09 retrospectively to each prior period presented, or retrospectively with a cumulative-effect adjustment recognized as of the date of initial application. 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
9
adoption at the prior date permitted. The Company is continuing to evaluate the potential impact that the update will have on its condensed consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. The FASB issued ASU 2016-02 in order to increase the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB amended the FASB Accounting Standards Codification and created Topic 842, Leases. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018, with early adoption 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 potential impact that ASU 2016-02 will have on its condensed consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” or ASU 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 ASU 2014-09 (described above), which is not yet effective. The effective 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 ASU 2016-09 involve several aspects of the accounting for share-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, including interim periods within those periods, beginning after December 15, 2016, with early adoption permitted. The Company is evaluating the potential impact that ASU 2016-09 will have on its condensed consolidated financial statements.
In 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 ASU 2014-09, 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 (described above), which is not yet effective. The Company is evaluating the potential impact that ASU 2016-10 will have on its condensed consolidated financial statements.
In May 2016, the FASB issued Accounting Standards Update No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” or ASU 2016-12. The amendments in ASU 2016-12 clarify guidance in the new revenue standard related to collectability, noncash consideration, presentation of sales tax and contract transition matters. The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of ASU 2014-09 (described above), which is not yet effective. The Company is evaluating the potential impact that ASU 2016-12 will have on its condensed consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimate credit losses on certain types of financial instruments, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted beginning after December 15, 2018. The adoption of ASU 2016-13 is not expected to have a material effect on the Company’s condensed consolidated financial statements.
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 any period presented.
10
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of income taxes |
|
$ |
66,957 |
|
|
$ |
56,017 |
|
|
$ |
127,324 |
|
|
$ |
105,641 |
|
|
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,797 |
) |
|
Net income |
|
$ |
66,957 |
|
|
$ |
56,017 |
|
|
$ |
127,324 |
|
|
$ |
99,844 |
|
|
Less: Allocations of earnings to unvested restricted stock units(1) |
|
|
— |
|
|
|
(18 |
) |
|
|
— |
|
|
|
(32 |
) |
|
Earnings available to MSCI common shareholders |
|
$ |
66,957 |
|
|
$ |
55,999 |
|
|
$ |
127,324 |
|
|
$ |
99,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
96,412 |
|
|
|
112,143 |
|
|
|
97,918 |
|
|
|
112,330 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
476 |
|
|
|
788 |
|
|
|
525 |
|
|
|
895 |
|
|
Diluted weighted average common shares outstanding |
|
|
96,888 |
|
|
|
112,931 |
|
|
|
98,443 |
|
|
|
113,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic common share from continuing operations |
|
$ |
0.69 |
|
|
$ |
0.50 |
|
|
$ |
1.30 |
|
|
$ |
0.94 |
|
|
Earnings per basic common share from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
Earnings per basic common share |
|
$ |
0.69 |
|
|
$ |
0.50 |
|
|
$ |
1.30 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted common share from continuing operations |
|
$ |
0.69 |
|
|
$ |
0.50 |
|
|
$ |
1.29 |
|
|
$ |
0.93 |
|
|
Earnings per diluted common share from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.05 |
) |
|
Earnings per diluted common share |
|
$ |
0.69 |
|
|
$ |
0.50 |
|
|
$ |
1.29 |
|
|
$ |
0.88 |
|
|
(1) |
Restricted stock units granted to employees prior to 2013 and restricted stock units granted to independent directors of the Company prior 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 were not included as incremental shares in the diluted EPS computation. |
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements at June 30, 2016 and December 31, 2015 consisted of the following:
|
|
|
As of |
|
|||||
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Computer & related equipment |
|
$ |
153,297 |
|
|
$ |
143,499 |
|
|
Furniture & fixtures |
|
|
10,158 |
|
|
|
9,870 |
|
|
Leasehold improvements |
|
|
47,781 |
|
|
|
47,579 |
|
|
Work-in-process |
|
|
11,897 |
|
|
|
12,658 |
|
|
Subtotal |
|
|
223,133 |
|
|
|
213,606 |
|
|
Accumulated depreciation and amortization |
|
|
(125,325 |
) |
|
|
(114,680 |
) |
|
Property, equipment and leasehold improvements, net |
|
$ |
97,808 |
|
|
$ |
98,926 |
|
Depreciation and amortization expense of property, equipment and leasehold improvements was $8.4 million and $8.1 million for the three months ended June 30, 2016 and 2015, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $16.6 million and $15.3 million for the six months ended June 30, 2016 and 2015, respectively.
11
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table presents goodwill by reportable segment:
|
(in thousands) |
|
Index |
|
|
Analytics |
|
|
All Other |
|
|
Total |
|
||||
|
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 |
|
|
(3,456 |
) |
|
|
— |
|
|
|
(2,142 |
) |
|
|
(5,598 |
) |
|
Goodwill at June 30, 2016 |
|
$ |
1,206,910 |
|
|
$ |
302,611 |
|
|
$ |
50,562 |
|
|
$ |
1,560,083 |
|
|
(1) |
Changes to goodwill reflect the final working capital adjustment payment made during the six months ended June 30, 2016 to complete the acquisition of Insignis, Inc. |
Intangible Assets
Amortization expense related to intangible assets for the three months ended June 30, 2016 and 2015 was $11.9 million and $11.7 million, respectively. Amortization expense related to intangible assets for the six months ended June 30, 2016 and 2015 was $23.8 million and $23.4 million, respectively.
The gross carrying and accumulated amortization amounts related to the Company’s identifiable intangible assets were as follows:
|
|
|
As of |
|
|||||
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Gross intangible assets: |
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
361,746 |
|
|
$ |
361,746 |
|
|
Trademarks/trade names |
|
|
223,382 |
|
|
|
223,382 |
|
|
Technology/software |
|
|||||||