msci-10q_20170930.htm

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 ☒ 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 ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 27, 2017, there were 90,068,843 shares of the registrant’s common stock, par value $0.01, outstanding.

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:

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.

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 MSCI Inc.’s 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, 2016 filed with the SEC on February 24, 2017 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.

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.

	As of
	September 30,			December 31,
	2017			2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	799,015		$	791,834
Accounts receivable (net of allowances of $1,689 and $1,035 at September 30, 2017 and December 31, 2016, respectively)		309,196			221,504
Prepaid income taxes		7,420			12,389
Prepaid and other assets		37,450			29,943
Total current assets		1,153,081			1,055,670
Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $164,804 and $136,841 at September 30, 2017 and December 31, 2016, respectively)		85,680			95,585
Goodwill		1,560,169			1,555,850
Intangible assets (net of accumulated amortization of $497,114 and $462,860 at September 30, 2017 and December 31, 2016, respectively)		328,326			347,640
Deferred tax assets		11,091			9,531
Other non-current assets		16,125			18,302
Total assets	$	3,154,472		$	3,082,578

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,385		$	568
Accrued compensation and related benefits		102,581			119,113
Other accrued liabilities		83,821			82,531
Deferred revenue		374,730			334,358
Total current liabilities		563,517			536,570
Long-term debt		2,077,370			2,075,201
Deferred taxes		84,432			94,067
Other non-current liabilities		68,839			59,135
Total liabilities		2,794,158			2,764,973

Commitments and Contingencies (see Note 6 and Note 7)

Shareholders' equity:
Preferred stock (par value $0.01, 100,000,000 share authorized; no shares issued)		—			—
Common stock (par value $0.01; 750,000,000 common shares authorized; 129,505,173 and 128,996,344 common shares issued and 90,067,232 and 91,279,590 common shares outstanding at September 30, 2017 and December 31, 2016, respectively)		1,295			1,290
Treasury shares, at cost (39,437,941 and 37,716,754 common shares held at September 30, 2017 and December 31, 2016, respectively)		(2,321,862	)		(2,170,739	)
Additional paid in capital		1,255,616			1,225,565
Retained earnings		1,475,347			1,322,224
Accumulated other comprehensive loss		(50,082	)		(60,735	)
Total shareholders' equity		360,314			317,605
Total liabilities and shareholders' equity	$	3,154,472		$	3,082,578

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(unaudited)
Operating revenues	$	322,097		$	288,433		$	939,393		$	857,857

Operating expenses:
Cost of revenues		68,491			62,986			204,607			188,288
Selling and marketing		44,918			41,514			129,526			125,057
Research and development		17,983			18,750			55,163			56,244
General and administrative		22,103			21,859			64,555			65,768
Amortization of intangible assets		10,614			11,752			32,987			35,535
Depreciation and amortization of property, equipment and leasehold improvements		9,325			8,312			27,322			24,873
Total operating expenses		173,434			165,173			514,160			495,765

Operating income		148,663			123,260			425,233			362,092

Interest income		(1,835	)		(799	)		(4,077	)		(2,005	)
Interest expense		29,020			26,790			87,071			72,612
Other expense (income)		675			(253	)		2,300			2,642

Other expense (income), net		27,860			25,738			85,294			73,249

Income before provision for income taxes		120,803			97,522			339,939			288,843
Provision for income taxes		35,650			32,241			100,569			96,238
Net income	$	85,153		$	65,281		$	239,370		$	192,605

Earnings per basic common share	$	0.94		$	0.69		$	2.65		$	1.99

Earnings per diluted common share	$	0.93		$	0.68		$	2.61		$	1.98

Weighted average shares outstanding used in computing earnings per share
Basic		90,112			94,823			90,406			96,879
Diluted		91,868			95,473			91,731			97,445

Dividend declared per common share	$	0.38		$	0.28		$	0.94		$	0.72

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(unaudited)
Net income	$	85,153		$	65,281		$	239,370		$	192,605
Other comprehensive income (loss):
Foreign currency translation adjustments		3,458			(2,627	)		11,362			(15,014	)
Income tax effect		—			(101	)		—			44
Foreign currency translation adjustments, net		3,458			(2,728	)		11,362			(14,970	)

Pension and other post-retirement adjustments		(69	)		(30	)		(343	)		(262	)
Income tax effect		(106	)		13			(366	)		75
Pension and other post-retirement adjustments, net		(175	)		(17	)		(709	)		(187	)
Other comprehensive income (loss), net of tax		3,283			(2,745	)		10,653			(15,157	)
Comprehensive income	$	88,436		$	62,536		$	250,023		$	177,448

	Nine Months Ended
	September 30,
	2017			2016
	(unaudited)
Cash flows from operating activities
Net income	$	239,370		$	192,605
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		32,987			35,535
Stock-based compensation expense		27,668			23,591
Depreciation and amortization of property, equipment and leasehold improvements		27,322			24,873
Amortization of debt origination fees		2,547			2,219
Deferred taxes		(11,452	)		(7,638	)
Gain on disposition		—			(449	)
Other non-cash adjustments		294			1,124
Changes in assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable		(87,168	)		(31,021	)
Prepaid income taxes		4,605			32,002
Prepaid and other assets		(7,132	)		(981	)
Accounts payable		1,806			(1,263	)
Accrued compensation and related benefits		(19,074	)		(11,177	)
Other accrued liabilities		756			12,365
Deferred revenue		38,932			27,337
Other		9,544			4,388
Net cash provided by operating activities		261,005			303,510

Cash flows from investing activities
Disposition, net of cash divested		—			657
Capital expenditures		(17,440	)		(24,144	)
Capitalized software development costs		(10,777	)		(7,949	)
Proceeds from sale of investments		771			—
Acquisitions, net of cash acquired		—			(60	)
Net cash used in investing activities		(27,446	)		(31,496	)

Cash flows from financing activities
Proceeds from borrowing		—			500,000
Proceeds from exercise of stock options		1,781			4,221
Repurchase of treasury shares		(150,350	)		(498,863	)
Payment of dividends		(85,306	)		(69,933	)
Payment of debt issuance costs in connection with debt		—			(7,183	)
Net cash used in financing activities		(233,875	)		(71,758	)

Effect of exchange rate changes		7,497			(3,900	)

Net increase in cash		7,181			196,356
Cash and cash equivalent, beginning of period		791,834			777,706

Cash and cash equivalent, end of period	$	799,015		$	974,062

Supplemental disclosure of cash flow information:
Cash paid for interest	$	91,264		$	67,888
Cash paid for income taxes	$	100,161		$	69,471

Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements accrued, but not yet paid	$	3,501		$	5,093

Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid	$	900		$	610

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”), offers products and services to support the needs of institutional investors throughout their investment processes. The Company’s products and services include the development and production of indexes and analytical models; the provision of ratings and analysis that identify environmental, social and governance risks and opportunities and the analysis of real estate in both privately and publicly owned portfolios.

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 state fairly the financial condition as of September 30, 2017 and December 31, 2016, the results of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016 and cash flows for the nine months ended September 30, 2017 and 2016. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2016 have been derived from the 2016 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). 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, 2016. 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 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, 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.

For the nine months ended September 30, 2017, BlackRock, Inc. accounted for 11.1% of the Company’s consolidated operating revenues while no single customer represented 10.0% or more of the Company’s consolidated operating revenues for the nine months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, BlackRock, Inc. accounted for 19.6% and 17.1% 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 nine months ended September 30, 2017 and 2016.

In May 2014, the FASB issued Accounting Standards Update 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. Entities 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 ASU 2015-14, “Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 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.

In March 2016, the FASB issued Accounting Standards Update 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net).” In April 2016, the FASB issued Accounting Standards Update 2016-10, “Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued Accounting Standards Update 2016-12, “Narrow-Scope Improvements and Practical Expedients.” In December 2016, the FASB issued Accounting Standards Update No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These updates provide supplemental adoption guidance

and clarification to ASU 2014-09 and must be adopted concurrently. The Company intends to adopt the new revenue guidance as of January 1, 2018 using the modified retrospective transition method. Under this adoption method, the Company will record a cumulative adjustment to retained earnings at January 1, 2018 and apply the provisions of the ASU prospectively. Currently, the Company expects that ASU 2014-09 will have an impact on a number of accounting practices, including but not limited to, the timing of revenue recognition and costs for implementation services; the timing of revenue recognition of licenses for desktop applications; and accounting for multi-year deals. In addition, the new standard will require enhanced disclosures in relation to (i) disaggregated revenue, (ii) reconciliations of contract balances, (iii) performance obligations, (iv) significant judgments and (v) cost to obtain or fulfill contracts. The Company has not yet determined the quantitative impact of the new standard on its condensed consolidated financial statements. The Company is in the process of upgrading its technology infrastructure in order to support the accounting under the new standard as well as assessing the impact that the new standard will have on its processes and internal controls.

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 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 continuing to evaluate 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. 2016-09, “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. Amendments related to accounting for the income tax consequences have been adopted prospectively, resulting in the recognition of $0.7 million and $4.8 million of excess tax benefits within income taxes rather than additional paid in capital for the three and nine months ended September 30, 2017, respectively. This increased diluted earnings per share by $0.01 and $0.05 per share for the three and nine months ended September 30, 2017, respectively. Excess tax benefits related to share-based compensation are now included in operating cash flows rather than financing cash flows. This change has been applied retrospectively in accordance with ASU 2016-09 and resulted in an increase of $6.5 million in net cash provided by operating activities with a matching decrease in net cash used in financing activities for the nine months ended September 30, 2016 compared to previously reported results. The Company has previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows, therefore there is no change related to this requirement. The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or to continue estimating forfeitures. The Company has elected to continue estimating forfeitures under the current guidance.

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.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” or ASU 2017-01. The amendments in ASU 2017-01 provide a screen to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Under ASU 2017-01, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 also narrows the definition of outputs by more closely aligning it with how outputs are described in Topic 606. ASU 2017-01 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. The adoption of ASU 2017-01 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” or ASU 2017-04. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities. Instead, under the amendments in ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the

fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not more than the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2017-04 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

In February 2017, the FASB issued Accounting Standards Update No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” or ASU 2017-07. The FASB issued ASU 2017-07 in order to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. ASU 2017-07 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. Entities should apply these amendments retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption of ASU 2017-07 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update No. 2017-09, “Compensation—Stock Compensation (Topic 718), Scope of Modification Accounting,” or ASU 2017-09. The FASB issued ASU 2017-09 in order to reduce the diversity in practice, as well as the cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, Compensation—Stock Compensation. ASU 2017-09 provides that an entity shall account for the effects of a modification of the terms or conditions of an equity award as an exchange of the original award for a new award, unless the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used), the vesting conditions and the classification of the modified award are the same as the original award immediately before the award is modified. ASU 2017-09 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 requires reporting organizations to apply the amendments prospectively to an award modified on or after the adoption date. The adoption of ASU 2017-09 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” or ASU 2017-12. The FASB issued ASU 2017-12 in order to expand and refine hedge accounting for both financial and non-financial risk components and align the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements. ASU 2017-12 also includes certain targeted improvements to simplify the application of current guidance related to the assessment of hedge accounting. ASU 2017-12 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2017-12 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

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 946 and 1,593 anti-dilutive securities excluded from the calculation of diluted EPS for the three months ended September 30, 2017 and 2016, respectively. There were 1,316 and 531 anti-dilutive securities excluded from the calculation of diluted EPS for the nine months ended September 30, 2017 and 2016, respectively.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
(in thousands, except per share data)
Net income	$	85,153	$	65,281	$	239,370	$	192,605

Basic weighted average common shares outstanding		90,112		94,823		90,406		96,879
Effect of dilutive securities:
Stock options and restricted stock units		1,756		650		1,325		566
Diluted weighted average common shares outstanding		91,868		95,473		91,731		97,445

Earnings per basic common share	$	0.94	$	0.69	$	2.65	$	1.99

Earnings per diluted common share	$	0.93	$	0.68	$	2.61	$	1.98

Property, equipment and leasehold improvements at September 30, 2017 and December 31, 2016 consisted of the following:

Depreciation and amortization expense of property, equipment and leasehold improvements was $9.3 million and $8.3 million for the three months ended September 30, 2017 and 2016, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $27.3 million and $24.9 million for the nine months ended September 30, 2017 and 2016, respectively.

⁽¹⁾The goodwill in All Other at September 30, 2017, consisted of $31.6 million in the ESG segment and $20.8 million in the Real Estate segment and at December 31, 2016 consisted of $31.6 million in the ESG segment and $19.2 million in the Real Estate segment.

The Company completed its annual goodwill impairment test as of July 1, 2017 on its four reporting units, which are the same as its four operating segments, and no impairments were noted. The Company performed a step zero, qualitative impairment test on each of its Index, Analytics and ESG operating segments and determined that it was more likely than not that the fair value for each of the Index, Analytics and ESG operating segments was not less than the carrying value for each. As revenues have been below

management’s expectations for the Real Estate segment, the Company performed a step 1, quantitative impairment test for this segment and determined that the fair value substantially exceeded its carrying value.

Amortization expense related to intangible assets for the three months ended September 30, 2017 and 2016 was $10.6 million and $11.8 million, respectively. Amortization expense related to intangible assets for the nine months ended September 30, 2017 and 2016 was $33.0 million and $35.5 million, respectively.

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

	As of
	September 30,			December 31,
	2017			2016
	(in thousands)
Gross intangible assets:
Customer relationships	$	361,199		$	361,199
Trademarks/trade names		223,382			223,382
Technology/software		220,575			210,013
Proprietary data		28,627			28,627
Covenant not to compete		1,225			1,225
Subtotal		835,008			824,446
Foreign exchange translation adjustment		(9,568	)		(13,946	)
Total gross intangible assets	$	825,440		$	810,500
Accumulated amortization:
Customer relationships	$	(183,562	)	$	(166,923	)
Trademarks/trade names		(113,784	)		(105,077	)
Technology/software		(190,460	)		(184,290	)
Proprietary data		(9,893	)		(8,571	)
Covenant not to compete		(1,211	)		(1,089	)
Subtotal		(498,910	)		(465,950	)
Foreign exchange translation adjustment		1,796			3,090
Total accumulated amortization	$	(497,114	)	$	(462,860	)
Net intangible assets:
Customer relationships	$	177,637		$	194,276
Trademarks/trade names		109,598			118,305
Technology/software		30,115			25,723
Proprietary data		18,734			20,056
Covenant not to compete		14			136
Subtotal		336,098			358,496
Foreign exchange translation adjustment		(7,772	)		(10,856	)
Total net intangible assets	$	328,326		$	347,640

The following table presents the estimated amortization expense for the remainder of the year ending December 31, 2017 and succeeding years:

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 was $6.1 million for both the three months ended September 30, 2017 and 2016. Rent expense for the nine months ended September 30, 2017 and 2016 was $18.0 million and $18.3 million, respectively.

Senior Notes. The Company has issued an aggregate of $2.1 billion in senior unsecured notes (collectively, the “Senior Notes”) in the three discrete private offerings described below.

On November 20, 2014, the Company completed its private offering of $800.0 million aggregate principal amount of 5.25% senior unsecured notes due 2024 (the “2024 Senior Notes”). The Company used the net proceeds from the offering of the 2024 Senior Notes, together with cash on hand, to repay in full its then outstanding term loan indebtedness of $794.8 million.

On August 13, 2015, the Company completed its private offering of $800.0 million aggregate principal amount of 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.

On August 4, 2016, the Company completed its private offering of $500.0 million aggregate principal amount of 4.75% senior unsecured notes due 2026 (the “2026 Senior Notes”). The $493.3 million of net proceeds from the offering of the 2026 Senior Notes were allocated for general corporate purposes, including, without limitation, buybacks of its common stock and potential acquisitions.

The 2024 Senior Notes are scheduled to mature and be paid in full on November 15, 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 governing the 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 2025 Senior Notes are 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 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 2025 Senior Notes, together with accrued and unpaid interest, on or after August 15, 2020, at redemption prices set forth in the 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.

The 2026 Senior Notes are scheduled to mature and be paid in full on August 1, 2026. At any time prior to August 1, 2021, the Company may redeem all or part of the 2026 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 2026 Senior Notes, together with accrued and unpaid interest, on or after August 1, 2021, at redemption prices set forth in the indenture governing the 2026 Senior Notes. At any time prior to August 1, 2019, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2026 Senior Notes, including any permitted additional notes, at a redemption price equal to 104.75% of the principal amount.

Interest payments attributable to the 2024 Senior Notes are due on May 15 and November 15 of each year. The first interest payment was made on May 15, 2015. Interest payments attributable to 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. Interest payments attributable to the 2026 Senior Notes are due on February 1 and August 1 of each year. The first interest payment was made on February 1, 2017.

Revolver. On November 20, 2014, the Company entered into a $200.0 million senior unsecured revolving credit agreement (the “2014 Revolving Credit Agreement”) with a syndicate of banks. The 2014 Revolving Credit Agreement had an initial term of five years with an option to extend for two additional one-year terms. On August 4, 2016, the Company entered into Amendment No. 1 (the “Amendment”) to the 2014 Revolving Credit Agreement (the 2014 Revolving Credit Agreement as so amended, the “Revolving Credit Agreement”). The Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $220.0 million, (ii) increased the maximum consolidated leverage ratio and (iii) extended the initial term to August 2021 with an option to extend for an additional one-year term. No amounts have ever been drawn under the Revolving Credit Agreement.

Long-term debt at September 30, 2017 was $2,077.4 million, net of $22.6 million in deferred financing fees. Long-term debt at December 31, 2016 was $2,075.2 million, net of $24.8 million in deferred financing fees.

In connection with the closings of the Senior Notes offerings and entry into the 2014 Revolving Credit Agreement and the Amendment, the Company paid certain fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At September 30, 2017, $24.5 million of the deferred financing fees remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.4 million of which is included in “Other non-current assets” and $22.6 million of which is grouped and presented as part of “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.

At September 30, 2017 and December 31, 2016, the fair market value of the Company’s debt obligations was $2,257.0 million and $2,192.5 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 exposures 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 September 30, 2017, the Company had outstanding foreign currency forwards with a notional amount of $35.6 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:

Delaware		13-4038723
(State of Incorporation)		(I.R.S. Employer Identification Number)

7 World Trade Center 250 Greenwich Street, 49^th Floor New York, New York		10007
(Address of Principal Executive Offices)		(Zip Code)

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Emerging growth company	☐

		Page
	Part I
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45

	Part II
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48

	As of
	September 30,			December 31,
	2017			2016
	(in thousands)
Computer & related equipment	$	186,487		$	162,306
Furniture & fixtures		10,316			9,724
Leasehold improvements		50,998			49,442
Work-in-process		2,683			10,954
Subtotal		250,484			232,426
Accumulated depreciation and amortization		(164,804	)		(136,841	)
Property, equipment and leasehold improvements, net	$	85,680		$	95,585

(in thousands)	Index		Analytics		All Other ⁽¹⁾		Total
Goodwill at December 31, 2016	$	1,202,448	$	302,611	$	50,791	$	1,555,850
Foreign exchange translation adjustment		2,672		—		1,647		4,319
Goodwill at September 30, 2017	$	1,205,120	$	302,611	$	52,438	$	1,560,169

Years Ending December 31,	Amortization Expense
	(in thousands)
Remainder 2017	$	10,784
2018		43,969
2019		42,233
2020		40,361
2021		38,117
Thereafter		152,862
Total	$	328,326

		Unaudited Condensed		As of
		Consolidated Statements of		September 30,				December 31,