UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended February 29, 2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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 No.)
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Wall
Street Plaza, 88 Pine Street
New
York, NY
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10005
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(Address
of Principal
Executive
Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (212) 804-3900
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
Accelerated Filer ¨
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Accelerated Filer
o
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Non-Accelerated Filer x
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As
of March 31, 2008, there were 16,112,518 shares of the Registrant’s Class A
Common Stock, $0.01 par value, outstanding and 83,900,000 shares of Registrant’s
Class B Common Stock, $0.01 par value, outstanding.
FORM
10-Q
FOR
THE QUARTER ENDED FEBRUARY 29, 2008
TABLE
OF CONTENTS
Part
I
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Item
1.
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4
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Item
2.
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17
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Item
3.
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29
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Item
4.
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30
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Part
II
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32 |
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Item
1.
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32
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Item
1A.
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32
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Item
2.
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32
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Item
3.
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32
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Item
4.
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32
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Item
5.
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32
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Item
6.
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32
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We
own or have rights to use trademarks, trade names and service marks that we use
in conjunction with the operation of our business, including, but not limited
to: @CREDIT, @ENERGY, @INTEREST, ACWI, Aegis, Alphabuilder, Barra, Barra One,
BarraOne, Cosmos, EAFE, FEA, GICS, IndexMap, Market Impact Model, MSCI,
ProStorage, StructureTool, TotalRisk, VaRdelta and VaRworks. All other
trademarks, trade names and service marks included in this Quarterly Report on
Form 10-Q are property of their respective owners. For ease of reading,
designations of trademarks and registered marks have been omitted from the text
of this Quarterly Report on Form 10-Q.
AVAILABLE
INFORMATION
MSCI Inc.
files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the “SEC”). You may
read and copy any document we file 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
an internet site 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 internet site, www.sec.gov.
MSCI
Inc.’s internet site is www.mscibarra.com. You can
access MSCI Inc.’s Investor Relations webpage at www.mscibarra.com/about/ir.
MSCI Inc. makes available free of charge, on or through its Investor
Relations webpage, 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 webpage, via a link to the SEC’s
internet site, statements of beneficial ownership of MSCI Inc.’s equity
securities filed by its directors, officers, 10% or greater shareholders and
others under Section 16 of the Exchange Act.
MSCI Inc.
has a Corporate Governance webpage. You can access information about MSCI Inc.’s
corporate governance at www.mscibarra.com/about/company/governance.
MSCI Inc. posts the following on its Corporate Governance webpage:
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•
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Charters
for our Audit Committee, Compensation Committee and Nominating and
Governance Committee;
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•
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Corporate
Governance Policies; and
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•
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Code
of Ethics and Business Conduct.
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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, Inc. (“NYSE”) on its internet site. You
can request a copy of these documents, excluding exhibits, at no cost, by
contacting Investor Relations, Wall Street Plaza, 88 Pine Street, New York, NY
10005; (212) 804-1583. The information on MSCI Inc.’s internet site is not
incorporated by reference into this report.
PART
I
MSCI
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in
thousands, except share and per share data)
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As
of
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February
29,
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November
30,
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2008
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|
2007
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(unaudited)
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|
ASSETS
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Current
assets:
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|
|
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|
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Cash
and cash equivalents
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$
|
21,929
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$
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33,818
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Cash
deposited with related parties
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164,099
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137,625
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Trade
receivables (net of allowances of $1,086 and $1,584 as of
|
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|
February
29, 2008 and November 30, 2007, respectively)
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123,831
|
|
|
|
77,748
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|
|
Due
from related parties
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|
5,595
|
|
|
|
2,627
|
|
|
Deferred
taxes
|
|
17,831
|
|
|
|
17,425
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|
Prepaid
and other assets
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12,353
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|
|
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12,160
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Total
current assets
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345,638
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|
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281,403
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Property,
equipment and leasehold improvements, (net of accumulated depreciation
of
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$14,385
and $13,404 at February 29, 2008 and November 30, 2007,
respectively)
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4,723
|
|
|
|
4,246
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|
|
Investment
in unconsolidated company
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|
3,000
|
|
|
|
3,000
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|
|
Goodwill
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441,623
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|
|
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441,623
|
|
|
Intangible
assets (net of accumulated amortization of $101,668 and
$94,543
|
|
|
|
|
|
|
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|
at
February 29, 2008 and November 30, 2007, respectively)
|
|
167,282
|
|
|
|
174,407
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|
Total
assets
|
$
|
962,266
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|
|
$
|
904,679
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|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Payable
to related parties
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$
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41,327
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$
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17,143
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Income
taxes payable
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|
22,059
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|
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|
16,212
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Accrued
compensation and related benefits
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23,327
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|
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53,831
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|
|
Other
accrued liabilities
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12,138
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|
|
|
10,265
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Current
maturities of long term debt
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22,236
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|
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22,250
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Deferred
revenue
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167,336
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|
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|
125,230
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Total
current liabilities
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288,423
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244,931
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Long
term debt, net of current maturities
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397,202
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402,750
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Deferred
taxes
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|
54,472
|
|
|
|
56,977
|
|
|
Total
liabilities
|
|
740,097
|
|
|
|
704,658
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|
|
Commitments
and Contingencies (see Note 8)
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Shareholders'
equity:
|
|
|
|
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|
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|
|
Common
stock (par value $0.01; 500,000,000 class A shares authorized and
250,000,000 class B
|
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|
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|
|
|
shares
authorized; 16,112,090 class A shares and 83,900,000 class B shares issued
and outstanding)
|
1,000
|
|
|
|
1,000
|
|
|
Additional
paid in capital
|
|
269,952
|
|
|
|
265,098
|
|
|
Accumulated
deficit
|
|
(48,122
|
)
|
|
|
(65,884
|
)
|
|
Accumulated
other comprehensive loss
|
|
(661
|
)
|
|
|
(193
|
)
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|
Total
shareholders' equity
|
|
222,169
|
|
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|
200,021
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|
Total
liabilities and shareholders' equity
|
$
|
962,266
|
|
|
$
|
904,679
|
|
See
Notes to Condensed Consolidated Financial Statements
MSCI
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share
data)
|
|
|
Three
Months Ended
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
Operating
revenues (1)
|
|
$ |
104,951 |
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|
$ |
87,069 |
|
|
Cost
of services (1)
|
|
|
31,586 |
|
|
|
32,266 |
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|
Selling,
general and administrative (1)
|
|
|
31,550 |
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|
|
18,964 |
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Amortization
of intangible assets
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|
|
7,125 |
|
|
|
6,266 |
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|
Total
operating expenses
|
|
|
70,261 |
|
|
|
57,496 |
|
|
Operating
income
|
|
|
34,690 |
|
|
|
29,573 |
|
|
Interest
income (1)
|
|
|
2,372 |
|
|
|
5,062 |
|
|
Interest
expense (1)
|
|
|
(8,463
|
) |
|
|
(95
|
) |
|
Other
income
|
|
|
136 |
|
|
|
27 |
|
|
Interest
income (expense) and other, net
|
|
|
(5,955
|
) |
|
|
4,994 |
|
|
Income
before income taxes
|
|
|
28,735 |
|
|
|
34,567 |
|
|
Provision
for income taxes
|
|
|
10,801 |
|
|
|
12,925 |
|
|
Net
income
|
|
$ |
17,934 |
|
|
$ |
21,642 |
|
|
Earnings
per basic common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
|
Earnings
per diluted common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
|
Weighted
average shares outstanding used in computing earnings per
share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100,011 |
|
|
|
83,900 |
|
|
Diluted
|
|
|
100,728 |
|
|
|
83,900 |
|
|
(1)
Related party amounts:
|
|
|
|
|
Three
Months Ended
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
Operating
Revenues
|
|
$ |
3,150 |
|
|
$ |
4,108 |
|
|
Cost
of Services
|
|
$ |
3,406 |
|
|
$ |
3,552 |
|
|
Selling,
general and administrative
|
|
$ |
2,906 |
|
|
$ |
2,910 |
|
|
Interest
income
|
|
$ |
2,319 |
|
|
$ |
5,012 |
|
|
Interest
expense
|
|
$ |
191 |
|
|
$ |
95 |
|
See
Notes to Condensed Consolidated Financial Statements
MSCI
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
Three
Months Ended
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
17,934 |
|
|
$ |
21,642 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
of property, equipment and leasehold improvements
|
|
|
484 |
|
|
|
564 |
|
|
Amortization
of intangible assets
|
|
|
7,125 |
|
|
|
6,266 |
|
|
Gain
on sale of property, equipment and leasehold improvements,
net
|
|
|
- |
|
|
|
(5 |
) |
|
Share
based compensation
|
|
|
4,875 |
|
|
|
- |
|
|
Provision
for bad debts
|
|
|
(462
|
) |
|
|
(499
|
) |
|
Deferred
taxes
|
|
|
(2,911
|
) |
|
|
(5,592
|
) |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Trade
receivable
|
|
|
(45,621
|
) |
|
|
(35,426
|
) |
|
Due
from related parties
|
|
|
(2,968
|
) |
|
|
32,802 |
|
|
Prepaid
and other assets
|
|
|
(193
|
) |
|
|
1,281 |
|
|
Payable
to related parties
|
|
|
24,184 |
|
|
|
(20,919
|
) |
|
Deferred
revenue
|
|
|
42,106 |
|
|
|
37,624 |
|
|
Accrued
compensation and related benefits
|
|
|
(30,708
|
) |
|
|
(27,928 |
) |
|
Income
taxes payable
|
|
|
5,847 |
|
|
|
(993
|
) |
|
Other
accrued liabilities
|
|
|
1,049 |
|
|
|
1,305 |
|
|
Net
cash provided by operating activities
|
|
|
20,741 |
|
|
|
10,122 |
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Cash
deposited with related parties
|
|
|
(26,474
|
) |
|
|
(10,752
|
) |
|
Capital
expenditures
|
|
|
(961
|
) |
|
|
(58
|
) |
|
Proceeds
on sale of property, equipment and leasehold improvements
|
|
|
- |
|
|
|
154 |
|
|
Net
cash used in investing activities
|
|
|
(27,435
|
) |
|
|
(10,656
|
) |
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Repayment
of long term debt
|
|
|
(5,562
|
) |
|
|
- |
|
|
Net
cash used by financing activities
|
|
|
(5,562
|
) |
|
|
- |
|
|
Effect
of exchange rate changes
|
|
|
367 |
|
|
|
655 |
|
|
Net
increase (decrease) in cash
|
|
|
(11,889
|
) |
|
|
121 |
|
|
Cash
and cash equivalents, beginning of period
|
|
|
33,818 |
|
|
|
24,362 |
|
|
Cash
and cash equivalents, end of period
|
|
$ |
21,929 |
|
|
$ |
24,483 |
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
8,975 |
|
|
$ |
97 |
|
|
Cash
paid for income taxes
|
|
$ |
10,454 |
|
|
$ |
1,849 |
|
See Notes
to Condensed Consolidated Financial Statements
MSCI
INC.
(UNAUDITED)
1.
INTRODUCTION AND BASIS OF PRESENTATION
Organization
The
condensed consolidated financial statements include the accounts of MSCI Inc.
(formerly known as Morgan Stanley Capital International Inc.) and its
subsidiaries. MSCI Inc. and its subsidiaries are hereafter referred to
collectively as the “Company” or “MSCI.” In November 2007, MSCI completed an
initial public offering of 16.1 million class A common shares, representing
16.1% of the economic interest in the Company, and received net proceeds of
$265.0 million, net of underwriters discounts, commissions and other offering
expenses. The Company’s majority shareholder, Morgan Stanley (“Morgan Stanley”),
has approximately an 81.0% economic interest in the Company. Morgan Stanley is a
global financial services firm that, through its subsidiaries and affiliates,
provides its products and services to a large and diversified group of clients
and customers, including corporations, governments, financial institutions and
individuals.
MSCI is a
leading provider of investment decision support tools to investment institutions
worldwide. The Company produces indices and risk and return portfolio analytics
for use in managing investment portfolios. The Company’s products are used by
institutions investing in or trading equity, fixed income and multi-asset class
instruments and portfolios around the world. The Company’s flagship products are
its international equity indices marketed under the MSCI brand and its equity
portfolio analytics marketed under the Barra brand. The Company’s products are
used in many areas of the investment process, including portfolio construction
and optimization, performance benchmarking and attribution, risk management and
analysis, index-linked investment product creation, asset allocation, investment
manager selection and investment research.
The
Company’s primary products consist of equity indices, equity portfolio analytics
and multi-asset class portfolio analytics. The Company also has product
offerings in the areas of fixed income portfolio analytics; hedge fund indices
and risk models, and energy and commodity asset valuation analytics. The
Company’s products are generally comprised of proprietary index data, risk data
and sophisticated software applications. The Company’s index and risk data are
created by applying its models and methodologies to market data. The Company’s
clients can use its data together with its proprietary software
applications, third-party applications or their own applications in their
investment processes. The Company’s proprietary software applications offer its
clients sophisticated portfolio analytics to perform in-depth analysis of their
portfolios, using its risk data, the client’s portfolio data and fundamental and
market data.
Basis
of Presentation and Use of Estimates
These
condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and include all adjustments necessary to
present fairly the financial condition as of February 29, 2008 and November 30,
2007, and the results of operations for the three months ended February 29, 2008
and February 28, 2007, as well as cash flows for the three months ending
February 29, 2008 and February 28, 2007. The accompanying financial
statements should be read in conjunction with the consolidated financial
statements and notes included in MSCI’s Annual Report on Form 10-K for the
fiscal year ended November 30, 2007. The November 30, 2007
consolidated financial statement information has been derived from the 2007
audited consolidated financial statements.
The
condensed consolidated financial statements have been derived from the
financial statements and accounting records of Morgan Stanley using the
historical results of operations and historical bases of assets and liabilities
of the Company’s business. The condensed consolidated statements of income
reflect expense allocations for certain corporate functions historically
provided by Morgan Stanley, including human resources, information technology,
accounting, legal and compliance, corporate services, treasury and other
services. These allocations are based on what the Company and Morgan Stanley
considered reasonable reflections of the utilization levels of these services
required in support of the Company’s business and are based on methods that
include direct time tracking, headcount, inventory metrics and corporate
overhead. The
Company expects operating expense increases from initial set-up costs and
overlaps with the cost of Morgan Stanley services to continue until the Company
has replaced services currently provided by Morgan Stanley. Following
the Company’s separation from Morgan Stanley, these expenses may be higher or
lower than the amounts reflected on the condensed consolidated statements of
income.
Inter-company
balances and transactions are eliminated in consolidation.
Concentration
of Credit Risk
The Company licenses its
products and services to investment managers primarily in the United
States, Europe and Asia (primarily Hong Kong and Japan). The Company evaluates
the credit of its customers and does not require collateral. The Company
maintains reserves for estimated credit losses.
Financial
instruments that may potentially subject the Company to concentrations of credit
risk consist principally of cash investments and short-term investments. Excess
cash is held on deposit with Morgan Stanley and is unsecured. The Company
receives interest at Morgan Stanley’s internal prevailing rates. At February 29,
2008 and November 30, 2007, amounts held on deposit with Morgan Stanley
were $164.1 million and $137.6 million, respectively.
For the
three months ended February 29, 2008 and February 28, 2007, Barclays PLC and its
affiliates accounted for 11.8% and 10.9%, respectively, of the Company’s
operating revenues.
2.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”).
Among other items, SFAS No. 158 requires the measurement of defined
benefit and postretirement plan assets and obligations as of the end of the
fiscal year. SFAS No. 158’s requirement to use the fiscal year-end date as the
measurement date is effective for fiscal years ending after December 15, 2008.
Our employees currently participate in Morgan Stanley’s pension and
postretirement plans. Morgan Stanley has early adopted a fiscal
year-end measurement date for its fiscal year ending November 30, 2008 and
recorded an after-tax charge of approximately $13 million ($21 million pre-tax)
to Shareholders’ equity upon adoption. The Company also early adopted
the measurement date change. The impact of this change was not
significant.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 is effective beginning with an entity’s first
fiscal year that begins after November 15, 2007, or upon early adoption of
FASB Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS No. 159”). The Company
early adopted SFAS No. 159 as of December 1, 2006, and, in effect,
adopted SFAS No. 157 at the same time. The adoption of SFAS No. 157
did not have an impact on the Company’s condensed consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159. SFAS No. 159 permits
entities to elect to measure certain assets and liabilities at fair value with
changes in the fair values of those items (unrealized gains and losses)
recognized in the statement of income for each reporting period. Under this
Statement, fair value elections can be made on an instrument-by-instrument
basis, are irrevocable, and can only be made upon specified election date
events. In addition, new disclosure requirements apply with respect to
instruments for which fair value measurement is elected. The Company elected to
early adopt SFAS No. 159 as of December 1, 2006. Effective
December 1, 2006, the Company chose not to make any fair value elections
with respect to any of its eligible assets or liabilities as permitted under the
provisions of SFAS No. 159. The adoption did not have an impact to the
Company’s condensed consolidated financial statements.
In June
2007, the Emerging Issues Task Force (“EITF”) reached consensus on Issue
No. 06-11, “Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF
Issue No. 06-11 requires that the tax benefit related to dividend
equivalents paid on restricted stock units that are expected to vest be recorded
as an increase to additional paid-in capital. The Company currently accounts for
this tax benefit as a reduction to its income tax provision. EITF Issue
No. 06-11 is to be applied prospectively for tax benefits on dividends
declared in fiscal years beginning after December 15, 2007. The Company is
currently evaluating the potential impact of adopting EITF Issue No. 06-11.
The Company currently has no plans to pay a dividend.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 establishes, among other things, the
disclosure requirements for derivative instruments and for hedging
activities. SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently assessing the impact
that SFAS No. 161 will have on its condensed consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) requires the acquiring entity in a business
combination to recognize the full fair value of assets acquired and liabilities
assumed in the transaction (whether a full or partial acquisition); establishes
the acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to investors and
other users all of the information needed to evaluate and understand the nature
and financial effect of the business combination. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after December 1, 2009.
3.
EARNINGS PER COMMON SHARE
Basic and
diluted earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
weighted average common shares includes stock options and unvested restricted
stock awards. No stock options or restricted stock awards were excluded from the
calculation of diluted earnings per share for the three months ended February
29, 2008 or February 28, 2007.
The
following table sets forth the computation of earnings per share:
|
|
|
Three
Months Ended
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
Net
income
|
|
$ |
17,934 |
|
|
$ |
21,642 |
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100,011 |
|
|
|
83,900 |
|
|
Diluted
|
|
|
100,728 |
|
|
|
83,900 |
|
|
Earnings
per basic common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
|
Earnings
per diluted common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
4.
COMPREHENSIVE INCOME
The components of comprehensive income
are as follows:
|
|
|
Three
Months Ended
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
Net
income
|
|
$ |
17,934 |
|
|
$ |
21,642 |
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Net
changes in unrealized gains/(loss) on cash flow hedges
|
|
|
(803
|
) |
|
|
- |
|
|
Foreign
currency translation
|
|
|
367 |
|
|
|
655 |
|
|
Comprehensive
income
|
|
$ |
17,498 |
|
|
$ |
22,297 |
|
5.
RELATED PARTY TRANSACTIONS
Cash
Deposits, Receivables from Related Parties and Interest
Income. The Company deposits most of its excess funds
with Morgan Stanley. Related party receivables consist of amounts due to the
Company for sales of products and services to Morgan Stanley. The Company
receives interest at Morgan Stanley’s internal prevailing rates on its cash
deposits and related party receivables. Cash deposited with Morgan Stanley
and any receivable amounts are unsecured. As of February 29, 2008, excess
funds deposited with Morgan Stanley were approximately $164.1 million and
represented approximately 17.1% of total assets. Related party receivables as of
February 29, 2008, were approximately $5.6 million. Interest earned on both cash
on deposit with Morgan Stanley and related party receivables for the three
months ended February 29, 2008 and February 28, 2007 totaled approximately $2.3
million and $5.0 million, respectively.
Revenues. Morgan
Stanley or its affiliates subscribe to, in the normal course of business,
certain of the Company’s products. Revenues recognized by the Company from
subscription to the Company’s products
by Morgan
Stanley for the three months ended February 29, 2008 were $3.2
million. Revenues of $4.1 million recognized for the three months
ended February 28, 2007, include revenues from Morgan Stanley and also from
Capital Group International, which is
not a related party for the three months ended February 29,
2008.
Administrative Expenses.
Morgan Stanley affiliates have invoiced administrative expenses to the
Company relating to office space, equipment and staff services. The amount
invoiced by Morgan Stanley affiliates for staff services for the three months
ended February 29, 2008 and February 28, 2007 was $6.3 million and $6.5 million,
respectively.
Payables to Related Parties.
Payables to related parties consist of amounts due to Morgan Stanley
affiliates for the Company’s expenses, income taxes and prepayments for the
Company’s services. The amounts outstanding are unsecured, bear interest at
Morgan Stanley’s internal prevailing rates and are payable on demand. Amounts
payable to related parties as of February 29, 2008 were $41.3 million.
Interest expense on these payables for the three months ended February 29, 2008
and February 28, 2007 was $0.2 million and $0.1 million,
respectively.
The
Company amortizes definite-lived intangible assets over their estimated useful
lives. Amortizable intangible assets are tested for impairment when impairment
indicators are present, and, if impaired, written down to fair value based on
either discounted cash flows or appraised values. No impairment of intangible
assets has been identified during any of the periods presented. The Company has
no indefinite-lived intangibles.
Amortization
expense related to intangible assets for the three months ended February 29,
2008 and February 28, 2007, was approximately $7.1 million and $6.3 million,
respectively.
The gross
carrying amounts and accumulated amortization totals related to the Company’s
identifiable intangible assets are as follows:
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
As
of February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
Technology/software
|
|
$ |
140,800 |
|
|
$ |
73,740 |
|
|
$ |
67,060 |
|
|
Trademarks
|
|
|
102,220 |
|
|
|
18,238 |
|
|
|
83,982 |
|
|
Customer
relationships
|
|
|
25,880 |
|
|
|
9,640 |
|
|
|
16,240 |
|
|
Non-competes
|
|
|
50 |
|
|
|
50 |
|
|
|
- |
|
|
Total
intangible assets
|
|
$ |
268,950 |
|
|
$ |
101,668 |
|
|
$ |
167,282 |
|
7.
INVESTMENT IN UNCONSOLIDATED COMPANY
8.
COMMITMENTS AND CONTINGENCIES
The
Company leases facilities under non-cancelable operating lease
agreements. The terms of certain lease agreements provide for rental
payments on a graduated basis. The Company recognizes rent expense on
the straight-line basis over the lease period and has accrued for rent expense
incurred but not paid. Rent expense for the three months ended
February 29, 2008 was $2.6 million.
Long-term debt. On
November 14, 2007, the Company entered into a secured $500.0 million
revolving Credit Facility with Morgan Stanley Senior Funding, Inc. and Bank of
America, N.A., as agents for a syndicate of lenders, and other lenders party
thereto. Outstanding borrowings under the Credit Facility accrue interest at
(i) LIBOR plus a fixed margin of 2.50% in the case of the term loan A
facility and the revolving facility and 3.00% in the case of the term loan B
facility or (ii) the base rate plus a fixed margin of 1.50% in the
case of the term loan A facility and the revolving facility and 2.00% in the
case of the term loan B facility. As of February 29, 2008, the Credit Facility
was bearing interest at 5.59% in the case of the term loan A facility and 6.09%
in the case of the term loan B facility. The term loan A facility and the term
loan B facility will mature on November 20, 2012 and November 20,
2014, respectively. At February 29, 2008, $419.4 million was outstanding and
there was $75.0 million of unused credit under the revolving credit
facility.
Interest Rate Swaps and Derivative
Instruments. On February 13, 2008, the Company entered into
interest rate swap agreements through the end of November 2010 for an aggregate
notional principal amount of $251.7 million. By entering into these agreements,
the Company reduced interest rate risk by effectively converting floating-rate
debt into fixed-rate debt. This action reduces the Company’s risk of incurring
higher interest costs in periods of rising interest rates and improves the
overall balance between floating and fixed-rate debt. The effective fixed rate
on the notional principal amount swapped is approximately 5.65%. These swaps are
designated as cash flow hedges and qualify for hedge accounting treatment under
SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”).
The
Company's derivative instruments are recorded at fair value. Changes in fair
value derivatives that have been designated as cash flow hedges are included in
"Unrealized gains (loss) on cash flow hedges" as a component of other
comprehensive income to the extent of the effectiveness of such hedging
instruments. Any ineffective portion of the change in fair value of the
designated hedging instruments would be included in the Condensed Consolidated
Statements of Income. Gains and losses are reclassified from accumulated other
comprehensive income to the Consolidated Statement of Income in the period the
hedged transaction affects earnings.
For the
three months ended February 29, 2008, we recorded a pre-tax loss in other
comprehensive income of $1.3 million ($0.8 million after tax) as a result of the
fair value measurement of these swaps. The fair value of these swaps
is included in other accrued liabilities on the Company’s Condensed Consolidated
Statement of Financial Condition.
9.
EMPLOYEE BENEFITS
The
Company participates in defined benefit pension and other postretirement plans
sponsored by Morgan Stanley for eligible U.S. employees. A supplementary pension
plan covering certain executives is directly sponsored by Morgan Stanley. The
Company also participates in a separate defined contribution pension plan
maintained by Morgan Stanley that covers substantially all of its non-U.S.
employees. The assets and obligations under these plans were not separately
identifiable for the Company. Discrete, detailed information concerning costs of
these plans was not available for the Company, but is part of general and
administrative costs allocated by Morgan Stanley included in operating expenses
on the statement of income. Costs relating to pension and postretirement benefit
expenses allocated from Morgan Stanley included in cost of services were $0.5
million for each of the three months ended February 29, 2008 and the three
months ended February 28, 2007. The amounts included in selling,
general and administrative expense related to these pension and postretirement
expenses for the three months ended February 29, 2008 and February 28, 2007 were
not significant.
The
following discussion summarizes the Employee benefit plans.
Pension and Other Postretirement
Plans. Substantially all of the U.S. employees of the Company
hired before July 1, 2007 and its U.S. affiliates are covered by a
non-contributory, defined benefit pension plan that is qualified under
Section 401(a) of the Internal Revenue Code (the “Qualified Plan”).
Unfunded supplementary plans (the “Supplemental Plans”) cover certain
executives. These pension plans generally provide pension benefits that are
based on each employee’s years of credited service and on compensation levels
specified in the plans. Morgan Stanley’s policy is to fund at least the amounts
sufficient to meet minimum funding requirements under applicable employee
benefit and tax regulations. Liabilities for benefits payable under its
Supplemental Plans are accrued by the Company and are funded when paid to the
beneficiaries. Morgan Stanley’s Qualified Plan was closed to new participants
effective July 1, 2007. In lieu of a defined benefit pension plan, eligible
employees who were first hired, rehired or transferred to a U.S. benefits
eligible position on or after July 1, 2007, will receive a retirement
contribution into their 401(k) plan. The amount of the retirement contribution
is included in the Company’s 401(k) cost and will be equal to between 2% to 5%
of eligible pay based on years of service as of December 31.
The
Company also participates in an unfunded postretirement benefit plan that
provides medical and life insurance for eligible U.S. retirees and their
dependents.
Net Periodic Benefit Expense.
Net periodic benefit expense allocated to the Company related to
pension costs was $0.4 million for each of the three months ended
February 29, 2008 and February 28, 2007. The net periodic benefit
expense related to postretirement costs was not significant for the three
months ended February 29, 2008 and $0.1 million for the three months ended
February 28, 2007.
On
November 6, 2007, the Company’s Board of Directors approved the award of
founders grants to its employees in the form of restricted stock units and/or
options. The aggregate value of the grants, which were made on November 14,
2007, was approximately $68.0 million of restricted stock units and options. The
restricted stock units and options vest over a four-year period, with 50%
vesting on each of the second anniversary of the grant date and 25% vesting on
each of the third and fourth anniversary of the grant date. The options have an
exercise price per share of $18.00 and have a term of ten years subject to
earlier cancellation in certain circumstances. The aggregate value of the
options is calculated using the Black-Scholes valuation method consistent with
SFAS No. 123R.
All or a
portion of the award may be cancelled if employment is terminated before the end
of the relevant restriction period. All or a portion of the award also may be
cancelled in certain limited situations, including termination for cause, during
the restriction period.
The
pre-tax expense of the founders grant for the three months ended February 29,
2008, was approximately $6.6 million prior to any estimated and actual
forfeitures. After estimated forfeitures, the pre-tax expense of the founders
grant for the quarter was $4.8 million.
No awards
were granted to employees of MSCI during the three months ended February 29,
2008. However, the Company awarded 702 shares in MSCI common stock and 700
restricted stock units to directors who were not employees of the Company or
Morgan Stanley during the period.
11. INCOME
TAXES
On July
13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an entity’s financial statements in accordance with FASB Statement
109, “Accounting for Income
Taxes” and prescribes a comprehensive model for the recognition threshold
and measurement attributes for financial statement disclosure of tax positions
taken or expected to be taken on a tax return. Additionally, FIN 48 provides
guidance on the classification of unrecognized tax benefits; disclosures for
interest and penalties; accounting and disclosures for interim reporting
periods; and transition requirements. FIN 48 is effective for years beginning
after December 15, 2006.
Under FIN
48, the impact of an uncertain tax position on the income tax return must be
recognized at the largest amount that is more likely than not to be sustained
upon audit by the relevant taxing authority. The tax benefits
recognized are measured based on the largest benefit that has a greater than 50%
likelihood of being recognized upon ultimate settlement. Under FIN
48, a company can recognize the benefit of an income tax position only if it is
more likely than not (greater than 50%) that the tax position will be sustained
upon examination, based solely on the technical merits of the tax
position. Otherwise, no benefit can be recognized. Thus,
an uncertain tax position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally, companies are required
to accrue interest and related penalties, if applicable, on all tax exposures
for which reserves have been established consistent with jurisdictional tax
laws.
The
Company adopted the provisions of FIN 48 on December 1, 2007. The
adoption of FIN 48 had no financial impact on the Company. The total
amount of unrecognized tax benefits as of the date of adoption was approximately
$1.6 million. Included in this total was approximately $1.6 million
(net of federal benefit for state issues as well as competent authority and
foreign tax credit offsets) of unrecognized tax benefits, which if recognized
would favorably affect the effective tax rate. There were no
additional unrecognized tax benefits as a result of the implementation of FIN
48.
The
Company recognizes the accrual of interest related to unrecognized tax benefits
and penalties in its provision for income taxes in its Condensed Consolidated
Statement of Income. Interest expense accrued as part of
income tax expense as of December 1, 2007 was approximately $0.1 million, net of
federal and state
income tax
benefits. It is possible that significant changes in the gross balance of
unrecognized tax benefits may occur within the next 12 months. It is
difficult to estimate the range of such changes; however, the Company does not
expect that any change in the gross balance of unrecognized tax benefits would
have a material impact on its effective tax rate over the next 12
months.
The
Company is under continuous examination by the Internal Revenue Service (the
“IRS”) and other tax authorities in certain countries, such as Japan and the
United Kingdom, and states in which the Company has significant business
operations, such as New York. The Company regularly assesses the
likelihood of additional assessments in each of the taxing jurisdictions
resulting from these and subsequent years’ examinations. The Company
believes the resolution of tax matters will not have a material effect on the
consolidated financial condition of the Company, although a resolution could
have a material impact on the Company’s consolidated statement of income for a
particular future period and on the Company’s effective tax rate for any period
in which such resolution occurs.
The
following table summarizes the major taxing jurisdictions in which the Company
and its affiliates operate and the open tax years for each major
jurisdiction:
| |
Tax
Jurisdiction
|
Open
Tax Years
|
|
| |
United
States
|
1999-2007
|
|
| |
California
|
2004-2007
|
|
| |
New
York State and City
|
2002-2007
|
|
| |
Hong
Kong
|
2001-2007
|
|
| |
United
Kingdom
|
2005-2007
|
|
| |
Japan
|
2004-2007
|
|
12.
SEGMENT INFORMATION
FASB
Statement No. 131, “Disclosures about Segments of an
Enterprise and Related Information”, establishes standards for reporting
information about operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing
performance. Based on the Company’s integration and management strategies, the
Company leverages common production, development and client coverage teams to
create, produce and license investment decision support tools
to various types of investment organizations worldwide. On this basis, the
Company has determined that it operates in a single business
segment.
13.
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
adverse effect on its business, operating results, financial condition or cash
flows.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of MSCI Inc.:
We have
reviewed the accompanying condensed consolidated statement of financial
condition of MSCI Inc. and subsidiaries (the “Company”) as of February 29, 2008,
and the related condensed consolidated statements of income, comprehensive
income and cash flows for the three-month periods ended February 29, 2008 and
February 28, 2007. These interim financial statements are the
responsibility of the management of MSCI Inc.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to such condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statement of
financial condition of MSCI Inc. and subsidiaries as of November 30, 2007, and
the related consolidated statements of income, comprehensive income, cash flows
and shareholders’ equity for the fiscal year then ended (not presented herein)
included in the Company’s Annual Report on Form 10-K; and in our report dated
February 27, 2008, which report contains an explanatory paragraph relating to
the adoption, in fiscal 2007, of Statement of Financial Accounting Standards
(“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)”, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated statement of financial condition as of
November 30, 2007 is fairly stated, in all material respects, in relation to the
consolidated statement of financial condition from which it has been
derived.
/s/ Deloitte & Touche
LLP
New York,
New York
April 10,
2008
The
following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the condensed
consolidated financial statements and related notes included elsewhere in this
Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended
November 30, 2007 (the “Form 10-K”). This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed below. Factors that could cause or contribute to
such differences include, but are not limited to, those identified below and
those discussed in “Item 1A.—Risk Factors,” on our Form 10-K.
Overview
We are a
leading provider of investment decision support tools to investment institutions
worldwide. We produce indices and risk and return portfolio analytics for use in
managing investment portfolios. Our products are used by institutions investing
in or trading equity, fixed income and multi-asset class instruments and
portfolios around the world. Our flagship products are our international equity
indices marketed under the MSCI brand and our equity portfolio analytics
marketed under the Barra brand. Our products are used in many areas of the
investment process, including for portfolio construction and optimization,
performance benchmarking and attribution, risk management and analysis,
index-linked investment product creation, asset allocation, investment manager
selection and investment research.
Our
clients include asset owners such as pension funds, endowments, foundations,
central banks and insurance companies; institutional and retail asset managers,
such as managers of pension assets, mutual funds, ETFs, hedge funds and private
wealth; and financial intermediaries such as broker-dealers, exchanges,
custodians and investment consultants. We have a client base of nearly
3,000 clients across over 60 countries. As of February 29, 2008,
we had 19 offices in 15 countries to help serve our diverse client base and for
the three months ended February 29, 2008, approximately 52% of our operating
revenues came from the Americas, 33% from Europe, the Middle East and Africa
(“EMEA”), 8% from Japan and 7% from Asia-Pacific (not including
Japan).
We sell
our products through a common sales force, produce them on common data and
systems platforms and develop them in our global research and product management
organizations. In evaluating our results, we focus on revenues and revenue
growth by product category and operating margins encompassing the entire cost
structure supporting all our operations. Our current financial focus is on
accelerating our revenue growth to generate cash flow to expand our market
position and capitalize on the many growth opportunities before us. Our revenue
growth strategy includes: (a) expanding and deepening our relationships
with the large and increasing number of investment institutions worldwide,
(b) developing new and enhancing existing equity product offerings, as well
as further developing and growing our investment tools for multi-asset class and
fixed income investment institutions, and (c) actively seeking to acquire
products, technologies and companies that will enhance, complement or expand our
client base and our product offerings.
To maintain and accelerate
our revenue and operating income growth, we will continue to invest in and
expand our operating functions and infrastructure, including new sales and
client support staff and facilities in locations around the world; additional
staff and supporting technology for our research and our data management and
production functions; and additional personnel and supporting technology in our
general and administrative functions, particularly finance and human resources
personnel required to operate as a stand-alone public company. At the same time,
managing and controlling our operating expenses is very important to us and a
distinct part of our culture. Over time, our goal is to keep the rate of growth
of our operating expenses below the rate of growth of our revenues allowing us
to expand our operating margins. However, at times, because of significant
market opportunities, it may be more important to us to invest in our business
in order to support increased efforts to attract new clients and to develop new
product offerings, rather than emphasize short-term operating margin expansion.
Furthermore, in some periods our operating expense growth may exceed our
operating revenue growth due to the variability of revenues from licensing our
equity indices as the basis of ETFs and in the
near term, transition expenses as we separate from Morgan
Stanley.
The
discussion of the Company’s results of operations for the three months ended
February 29, 2008 and February 28, 2007, are discussed below. These
statements, which reflect management’s beliefs and expectations, are subject to
risks and uncertainties that may cause actual results to differ
materially. For a discussion of the risks and
uncertainties that may affect the Company’s future results, please
see “Forward-Looking Statements” immediately preceding
Part I, Item 1, “Risk Factors” in Part I, Item 1A, “Certain Factors Affecting
Results of Operations” in Part II, Item 7 and other items throughout the
Company’s Annual Report on Form 10-K for the fiscal year ended November 30,
2007. Income from interim periods may not be indicative of future
results.
Results of
Operations
Three
Months Ended February 29, 2008 Compared to the Three Months Ended February 28,
2007
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase/(Decrease)
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
104,951 |
|
|
$ |
87,069 |
|
|
$ |
17,882 |
|
|
|
20.5 |
|
% |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services
|
|
|
31,586 |
|
|
|
32,266 |
|
|
|
(680
|
) |
|
|
(2.1
|
) |
% |
|
Selling,
general and administrative
|
|
|
31,550 |
|
|
|
18,964 |
|
|
|
12,586 |
|
|
|
66.4 |
|
% |
|
Amortization
of intangible assets
|
|
|
7,125 |
|
|
|
6,266 |
|
|
|
859 |
|
|
|
13.7 |
|
% |
|
Total
operating expenses
|
|
|
70,261 |
|
|
|
57,496 |
|
|
|
12,765 |
|
|
|
22.2 |
|
% |
|
Operating
income
|
|
|
34,690 |
|
|
|
29,573 |
|
|
|
5,117 |
|
|
|
17.3 |
|
% |
|
Interest
income (expense) and other, net
|
|
|
(5,955
|
) |
|
|
4,994 |
|
|
|
(10,949
|
) |
|
|
(219.2
|
) |
% |
|
Provision
for income taxes
|
|
|
10,801 |
|
|
|
12,925 |
|
|
|
(2,124
|
) |
|
|
(16.4
|
) |
% |
|
Net
income
|
|
$ |
17,934 |
|
|
$ |
21,642 |
|
|
$ |
(3,708 |
) |
|
|
(17.1
|
) |
% |
|
Earnings
per basic common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
|
$ |
(0.08 |
) |
|
|
(30.8
|
) |
% |
|
Earnings
per diluted common share
|
|
$ |
0.18 |
|
|
$ |
0.26 |
|
|
$ |
(0.08 |
) |
|
|
(30.8
|
) |
% |
|
Operating
margin
|
|
|
33.1 |
% |
|
|
34.0 |
% |
|
|
|
|
|
|
|
|
|
Revenues
We group
our revenues into the following four product categories:
|
·
|
Equity
portfolio analytics
|
|
·
|
Multi-asset
class portfolio analytics
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase/(Decrease)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Equity
indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
index subscriptions
|
|
$ |
38,809 |
|
|
$ |
33,154 |
|
|
$ |
5,655 |
|
|
|
17.1 |
|
% |
|
Equity
index asset based fees
|
|
|
19,588 |
|
|
|
13,047 |
|
|
|
6,541 |
|
|
|
50.1 |
|
% |
|
Total
equity indices
|
|
|
58,397 |
|
|
|
46,201 |
|
|
|
12,196 |
|
|
|
26.4 |
|
% |
|
Equity
portfolio analytics
|
|
|
32,342 |
|
|
|
29,364 |
|
|
|
2,978 |
|
|
|
10.1 |
|
% |
|
Multi-asset
class portfolio analytics
|
|
|
7,892 |
|
|
|
4,283 |
|
|
|
3,609 |
|
|
|
84.3 |
|
% |
|
Other
products
|
|
|
6,320 |
|
|
|
7,221 |
|
|
|
(901
|
) |
|
|
(12.5
|
) |
% |
|
Total
operating revenues
|
|
$ |
104,951 |
|
|
$ |
87,069 |
|
|
$ |
17,882 |
|
|
|
20.5 |
|
% |
Total operating revenues
for the three months ended February 29, 2008 increased $17.9 million, or 20.5%
to $105.0 million compared to $87.1 million for the three months ended February
28, 2007. The growth was driven by an increase in our revenues related to both
subscriptions and equity index asset based fees. The increase in the
value of assets in ETFs linked to MSCI equity indices drove the increase in
asset based fees. Product enhancements completed throughout 2007, including the
releases of Aegis 4.1, BarraOne 1.9 and the introduction of the MSCI Global
Investable Market Indices (“GIMI”), drove the increase in subscription based
fees. Revenue
growth was 3.2% for the three months ended February 29, 2008 compared to the
three months ended November 30, 2007 due to lower growth in revenues from ETF
fees.
Revenues
for equity indices includes fees from MSCI equity index data subscriptions, fees
based on assets in investment products linked to our equity indices, fees from
one-time licenses of our equity index historical data, fees from custom MSCI
indices and, to a lesser extent, revenues based on the trading volume of futures
and options contracts linked to our indices. Revenues for this category were
$58.4 million, an increase of $12.2 million, or 26.4%, with growth of 17.1% and
50.1% in equity index subscriptions and asset based fees, respectively. The
increase in equity index subscriptions reflects growth in subscriptions for GIMI
with notable growth in our small cap indices. The global expansion of certain of
our clients has also resulted in increased demand for our equity index
subscription products.
The
increase in equity index asset based fees was primarily driven by an increase in
the value of assets in ETFs linked to MSCI equity indices of $43.8 billion,
or 32.4%, to $179.2 billion as of February 29, 2008 from $135.4 billion as of
February 28, 2007. Net asset inflows accounted for approximately 97% of the
increase and net asset appreciation accounted for approximately 3% of the
increase.
Revenue
growth from equity index ETF fees, while strong, only increased 4.9% for the
three months ended February 29, 2008 compared to the three months ended November
30, 2007 as a result of the declines in equity markets worldwide and increased
volatility. While the new ETFs continue to be introduced to the
market, the asset values linked to existing ETFs have been negatively impacted
by declines in a number of equity markets. Compared to fourth quarter 2007, the
value in assets in ETFs linked to MSCI’s equity indices decreased approximately
$12.5 billion, or 6.5%, from $191.7 billion as of November 30, 2007 to $179.2
billion as of February 29, 2008. The $12.5 billion decrease from November 30,
2007 was attributable to asset depreciation of approximately $15.2 billion which
was partially offset by an increase of approximately $2.7 billion in the value
of such assets as a result of asset inflows. A majority of the $2.7 billion
increase is due to new ETFs launched over the last 12 months.
The three
MSCI indices with the largest amount of ETF assets linked to them as of February
29, 2008 were the MSCI EAFE, Emerging Markets and Japan Indices with $47.1
billion, $36.2 billion and $10.0 billion in assets, respectively. If
the level of assets in ETFs linked to MSCI equity indices remains constant with
the closing balance as of February 29, 2008, the rate of revenue growth for ETF
asset based fees will be increasingly compressed for the remaining three
quarters of the fiscal year compared to the prior year.
ETF Assets
Linked to MSCI Indices
| |
|
QuarterEnded
|
|
| |
|
2007
|
|
|
|
2008 |
|
| $ in
Billions |
|
|
February
|
|
|
|
May
|
|
|
|
August
|
|
|
|
November
|
|
|
|
February
|
|
|
AUM
in ETFs linked to MSCI Indices
|
|
$ |
135.4 |
|
|
$ |
150.2 |
|
|
$ |
156.5 |
|
|
$ |
191.7 |
|
|
$ |
179.2 |
|
|
Sequential
Change ($ Growth in Billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation/Depreciation
|
|
$ |
9.8 |
|
|
$ |
5.9 |
|
|
$ |
(0.8 |
) |
|
$ |
11.2 |
|
|
$ |
(15.2 |
) |
|
Cash
Inflow/Outflow
|
|
|
13.3 |
|
|
|
8.9 |
|
|
|
7.1 |
|
|
|
24.0 |
|
|
|
2.7 |
|
|
Total
Change
|
|
$ |
23.1 |
|
|
$ |
14.8 |
|
|
$ |
6.3 |
|
|
$ |
35.2 |
|
|
$ |
(12.5 |
) |
Source:
Bloomberg
Note: The
assets under management (“AUM”) are as of quarter end.
Revenues
for equity portfolio analytics include annual recurring subscriptions to Barra
Aegis and our proprietary risk data, Equity Models Direct products and our
proprietary equity risk data incorporated in third-party software application
offerings (e.g., Barra
on Vendors). Revenues for this category were $32.3 million, an increase of $3.0
million, or 10.1%, for the three months ended February 29, 2008, compared to
$29.3 million for the three months ended February 28, 2007. Revenues
for this category increased 2.3% for the three months ended February 29, 2008
compared to the three months ended November 30, 2007. The
increase in revenues from our equity portfolio analytics is largely due
to subscriptions to our proprietary equity risk data accessed through our
Equity Models Direct and Barra on Vendors products. These results reflect
increased demand for our tools which aid in managing risk, developing
quantitative portfolio management expertise and enhancing clients’ equity
trading strategies.
Revenues
for multi-asset class portfolio analytics include revenues from
annual, recurring subscriptions to BarraOne and Barra TotalRisk and for our
proprietary risk data for multiple asset classes. Revenues for
this category were $7.9 million for the three months ended February 29, 2008, an
increase of $3.6 million, or 84.3%, compared to $4.3 million for the three
months ended February 28, 2007. The increase is largely attributable
to revenue growth from BarraOne. Typically,
our BarraOne new sales tend to be uneven throughout the year, resulting in
variability in revenue growth. Revenues related to multi-asset class portfolio
analytics increased 2.5% for the three months ended February 29, 2008 compared
to the three months ended November 30, 2007.
We continue to see strong demand from both asset owners and asset
managers, and we expect this trend to continue as we expand both the analytical
functionality and asset class coverage. During the three months ended February
29, 2008, we launched historical value at risk and performance attribution tools
within BarraOne which should contribute to revenues in coming quarters.
Currently,
we are in the process of decommissioning TotalRisk and transitioning clients to
BarraOne. As such, we are only selling subscriptions to BarraOne and are
migrating TotalRisk clients to BarraOne as features and functionality are added
to BarraOne. As this transition takes place, revenues from this product category
will increasingly come from BarraOne.
The other
products category includes revenues from Barra Cosmos for fixed income
analytics, MSCI hedge fund indices, Barra hedge fund risk model, and FEA energy
and commodity asset valuation analytics products. Revenues for this category
were $6.3 million for the three months ended February 29, 2008, a decline of
$0.9 million, or 12.5%, compared to the three months ended February 28, 2007.
The decline reflects decreased asset based fees from investment products linked
to MSCI hedge fund indices and the cancellation of a large fixed income index
subscription at the end of February 2007. Strong growth of our energy and
commodity analytics products partially offset this decline.
Run
Rate
At the end
of any period, we generally have subscription and investment product license
agreements in place for a large portion of our total revenues for the following
12 months. We measure the fees related to these agreements and refer to this as
our “Run Rate.” The Run Rate at a particular point in time represents the
forward-looking fees for the next 12 months from all subscriptions and
investment product licenses we currently provide to our clients under renewable
contracts assuming all contracts that come up for renewal are renewed and
assuming then-current exchange rates. For any license whose fees are linked to
an investment product’s assets or trading volume, the Run Rate calculation
reflects an annualization of the most recent periodic fee earned under such
license. The Run Rate does not include fees associated with “one-time” and other
non-recurring transactions. In addition, we remove from the Run Rate the fees
associated with any subscription or investment product license agreement with
respect to which we have
received a
notice of termination or non-renewal at the time we receive such notice, even if
the notice is not effective until a later date.
Because
the Run Rate represents potential future fees, there is typically a delayed
impact on our operating revenues from changes in our Run Rate. In addition, the
actual amount of revenues we will realize over the following 12 months will
differ from the Run Rate because of:
|
·
|
revenues
associated with new subscriptions and one-time
sales;
|
|
·
|
modifications,
cancellations and non-renewals of existing agreements, subject to
specified notice requirements;
|
|
·
|
fluctuations
in asset-based fees, which may result from market movements or from
investment inflows into and outflows from investment products linked to
our indices;
|
|
·
|
timing
differences under GAAP between when we receive fees and the realization of
the related revenues; and
|
|
·
|
fluctuations
in foreign exchange rates.
|
The
following tables set forth our Run Rates as
indicated:
Run
Rate1 by Product
Category
(Year-over-Year Comparison)
|
|
|
As
of
|
|
|
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
%
Change
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Year-over-Year
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Subscription
based fees:
|
|
|
|
|
|
|
|
|
|
|
Equity
indices
|
|
$ |
154,103 |
|
|
$ |
124,135 |
|
|
|
24.1
|
% |
|
Equity
portfolio analytics
|
|
|
131,349 |
|
|
|
111,604 |
|
|
|
17.7
|
% |
|
Multi-asset
class analytics
|
|
|
31,739 |
|
|
|
23,441 |
|
|
|
35.4
|
% |
|
Other
|
|
|
18,400 |
|
|
|
15,896 |
|
|
|
15.8
|
% |
|
Subscription
based fees total
|
|
|
335,591 |
|
|
|
275,076 |
|
|
|
22.0
|
% |
|
Asset
based fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
indices2
|
|
|
73,358 |
|
|
|
52,956 |
|
|
|
38.5
|
% |
|
Hedge
fund indices
|
|
|
4,371 |
|
|
|
6,880 |
|
|
|
(36.5
|
%) |
|
Asset
based fees total
|
|
|
77,729 |
|
|
|
59,836 |
|
|
|
29.9
|
% |
|
Total
Run Rate
|
|
$ |
413,320 |
|
|
$ |
334,912 |
|
|
|
23.4
|
% |
|
1
|
The
run rate at a particular point in time represents the forward-looking fees
for the next 12 months from all subscriptions and investment product
licenses we currently provide to our clients under renewable contracts
assuming all contracts that come up for renewal are renewed and assuming
then-current exchange rates. For any license whose fees are linked to an
investment product’s assets or trading volume, the run rate calculation
reflects an annualization of the most recent periodic fee earned under
such license. The run rate does not include fees associated with
“one-time” and other non-recurring transactions. In addition, we remove
from the run rate the fees associated with any subscription or investment
product license agreement with respect to which we have received a notice
of termination or non-renewal at the time we receive such notice, even if
the notice is not effective until a later
date.
|
|
2
|
Includes
transaction volume-based products, principally futures and options traded
on certain MSCI indices.
|
Run
Rate1 by Product
Category
(Sequential Comparison)
|
|
|
As
of
|
|
|
|
|
|
|
|
February
29,
|
|
|
November
30,
|
|
|
%
Change
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Sequential
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Subscription
based fees
|
|
|
|
|
|
|
|
|
|
|
Equity
index
|
|
$ |
154,103 |
|
|
$ |
143,718 |
|
|
|
7.2%
|
|
|
Equity
portfolio analytics
|
|
|
131,349 |
|
|
|
123,561 |
|
|
|
6.3%
|
|
|
Multi-asset
class analytics
|
|
|
31,739 |
|
|
|
30,638 |
|
|
|
3.6%
|
|
|
Other
|
|
|
18,400 |
|
|
|
17,728 |
|
|
|
3.8%
|
|
|
Subscription
based fees total
|
|
|
335,591 |
|
|
|
315,645 |
|
|
|
6.3%
|
|
|
Asset
based fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
index2
|
|
|
73,358 |
|
|
|
76,898 |
|
|
|
(4.6%)
|
|
|
Hedge
fund index
|
|
|
4,371 |
|
|
|
4,963 |
|
|
|
(11.9%)
|
|
|
Asset
based fees total
|
|
|
77,729 |
|
|
|
81,861 |
|
|
|
(5.0%)
|
|
|
Total
Run Rate
|
|
$ |
413,320 |
|
|
$ |
397,506 |
|
|
|
4.0%
|
|
|
1
|
The
run rate at a particular point in time represents the forward-looking fees
for the next 12 months from all subscriptions and investment product
licenses we currently provide to our clients under renewable contracts
assuming all contracts that come up for renewal are renewed and assuming
then-current exchange rates. For any license whose fees are linked to an
investment product’s assets or trading volume, the run rate calculation
reflects an annualization of the most recent periodic fee earned under
such license. The run rate does not include fees associated with
“one-time” and other non-recurring transactions. In addition, we remove
from the run rate the fees associated with any subscription or investment
product license agreement with respect to which we have received a notice
of termination or non-renewal at the time we receive such notice, even if
the notice is not effective until a later
date.
|
|
2
|
Includes
transaction volume-based products, principally futures and options traded
on certain MSCI indices.
|
Changes in
Run Rate between periods reflect increases from new subscriptions, decreases
from cancellations, increases or decreases, as the case may be, from the change
in the value of assets of investment products linked to MSCI indices, the change
in trading volumes of futures and options contracts linked to MSCI indices,
price changes and fluctuations in foreign exchange rates.
Retention
Rate
Because
subscription cancellations decrease our Run Rate and ultimately our operating
revenues, another key metric is our “Retention Rate.” Our Retention Rate for any
period represents the percentage of the Run Rate as of the beginning of the
period that is not cancelled during the period. The Retention Rate is computed
on a product-by-product basis. Therefore, if a client reduces the number of
products to which it subscribes or switches between our products, we treat it as
a cancellation. In addition, we treat any reduction in fees resulting from
renegotiated contracts as a cancellation in the calculation to the extent of the
reduction. We do not calculate Retention Rates for that portion of our Run Rate
attributable to assets in investment products linked to our indices or to
trading volumes of futures and options contracts linked to our indices.
Retention Rates for a non-annual period are annualized.
Our
aggregate Retention Rates for the three months ended February 29, 2008 and
February 28, 2007 were 97% and 95%, respectively. The Retention Rate for the
three months ended February 28, 2007 was
negatively
impacted by the cancellation of a large fixed income index subscription.
Excluding this cancellation, the Retention Rate was 96%.
In recent
years on average, approximately 40% of our subscription cancellations have
occurred in the fourth fiscal quarter. As a result, Retention Rates are
generally higher during the first three fiscal quarters and lower in the fourth
fiscal quarter.
Expenses
Operating expenses
increased 22.2% to $70.3 million in first
quarter 2008 compared to first quarter 2007. Excluding expenses
related to the founders grant, operating expenses increased 13.9% to $65.5
million in first quarter 2008. The increase reflects higher
compensation costs for existing staff, offset, in part, by a movement of
personnel to lower cost locations. The increase also reflects expenses
associated with being a pubic company and expenses related to replacing services
provided by Morgan Stanley. In addition, higher marketing and product
development costs contributed to the increase. The three months ended February
28, 2007 included a bad debt provision reversal and severance
expenses.
Compensation
and benefits expenses represent the majority of our expenses across all of our
operating functions, and typically have represented approximately 60% of our
total operating expenses. These expenses generally contribute to the majority of
our expense increases from period to period, reflecting existing staff
compensation and benefit increases and increased staffing levels. Continued
growth of our staff in lower cost locations around the world is an important
factor in our ability to manage and control the growth of our compensation and
benefit expenses. An important location for us is Mumbai, India, where we have
increased our staff levels significantly since commencing our operations there
in early 2004 with a small staff in data management and production.
Subsequently, we expanded the scale of our operations there by adding teams in
research and administration, as well as by continuing to expand the data
management and production team. Our office in Mumbai has grown from 12 employees
as of November 30, 2004 to 61 full-time employees as of February 29, 2008.
Another important location for us in the future is Budapest, Hungary, where we
opened an office in August 2007. We plan to develop this location as an
important information technology and software engineering center. Our Budapest
office had 22 employees as of February 29, 2008.
In fiscal
2007, no stock based compensation was granted to employees above and beyond
the one time founders grant. Similar to years prior to fiscal 2007, we expect to
pay stock based compensation to employees for fiscal 2008.
Another
significant expense for us is services provided by our principal shareholder,
Morgan Stanley. As a majority-owned subsidiary of Morgan Stanley, we have relied
on Morgan Stanley to provide a number of administrative support services and
facilities. Although we will continue to operate under a services agreement with
Morgan Stanley, the amount and composition of our expenses may vary from
historical levels as we replace these services with ones supplied by us or by
third parties. We are investing in expanding our own administrative functions,
including finance, legal and compliance and human resources, as well as
information technology infrastructure, to replace services currently provided by
Morgan Stanley. Because of initial set-up costs and overlaps with services
currently provided by Morgan Stanley, our expenses increased in the first
quarter. We expect operating expense increases from initial set-up costs and
overlaps with the cost of Morgan Stanley Services to continue until we have
replaced services currently provided by Morgan Stanley. In addition, we are
incurring additional costs as a public company, including directors’
compensation, audit, listing fees, investor relations, stock administration and
regulatory compliance costs.
Information
technology costs, which include market data, amortization of hardware and
software products, and telecommunications services, are also an important part
of our expense base.
We group our expenses into three
categories:
|
·
|
Selling,
general and administrative
(“SG&A”)
|
|
·
|
Amortization
of intangible assets
|
In both
the cost of services and SG&A expense categories, compensation and benefits
represent the majority of our expenses. Other costs associated with the number
of employees such as office space and professional services are included in both
the cost of services and SG&A expense categories consistent
with the
allocation of employees to those respective areas. The following
table shows operating expenses by each of the categories:
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
|
|
|
|
| |
|
2008
|
|
|
2007
|
|
|
Increase/(Decrease)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Costs
of services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
$ |
20,227 |
|
|
$ |
21,106 |
|
|
$ |
(879 |
) |
|
|
(4.2
|
) |
% |
|
Non-compensation
expenses
|
|
|
11,359 |
|
|
|
11,160 |
|
|
|
199 |
|
|
|
1.8 |
|
% |
|
Total
cost of services
|
|
|
31,586 |
|
|
|
32,266 |
|
|
|
(680
|
) |
|
|
(2.1
|
) |
% |
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
20,936 |
|
|
|
14,269 |
|
|
|
6,667 |
|
|
|
46.7 |
|
% |
|
Non-compensation
expenses
|
|
|
10,614 |
|
|
|
4,695 |
|
|
|
5,919 |
|
|
|
126.1 |
|
% |
|
Total
selling, general and administrative
|
|
|
31,550 |
|
|
|
18,964 |
|
|
|
12,586 |
|
|
|
66.4 |
|
% |
|
Amortization
of intangible assets
|
|
|
7,125 |
|
|
|
6,266 |
|
|
|
859 |
|
|
|
13.7 |
|
% |
|
Total
operating expenses
|
|
$ |
70,261 |
|
|
$ |
57,496 |
|
|
$ |
12,765 |
|
|
|
22.2 |
|
% |
Cost
of Services
Costs of
services includes costs related to our research, data management and production,
software engineering and product management functions. Costs in these areas
include staff compensation and benefits, allocated office space, market data
fees and certain information technology services provided by Morgan Stanley. The
largest expense in this category is compensation and benefits. As such, they
generally contribute to a majority of our expense increases from period to
period, reflecting compensation and benefits increases for existing staff and
increased staffing levels.
However,
for the three months ended February 29, 2008, total cost of services expenses
decreased by $0.7 million, or 2.1%, to $31.6 million, compared to $32.3 million
for the three months ended February 28, 2007, largely due to a decrease in
compensation expenses. Compensation expenses for the three months ended February
29, 2008 of $20.2 million were $0.9 million, or 4.2%, lower than the three
months ended February 28, 2007. The decline in compensation expenses reflects
lower headcount and the movement of personnel to lower cost centers as well as
the impact of high severance expenses during the three months ended February 28,
2007. Offsetting the decline was founders grant amortization expense of $1.3
million. No founders grant expense was incurred for the three months ended
February 28, 2007.
Non-compensation
expenses increased by $0.2 million, or 1.8%, to $11.4 million. The increase is
primarily due to increased information processing costs and occupancy
costs.
Selling,
General and Administrative
Selling,
general and administrative includes compensation expenses for our sales and
marketing staff, and our finance, human resources, legal and compliance,
information technology infrastructure and corporate administration personnel. As
with cost of services, the largest expense in this category is compensation and
benefits. As such, they generally contribute to a majority of our expense
increases from period to period, reflecting compensation and benefits increases
for existing staff and increased staffing levels. Other significant expenses are
for services provided by Morgan Stanley and office space.
Compensation
expenses of $20.9 million increased by $6.7 million, or 46.7%, for the three
months ended February 29, 2008, compared to $14.3 million for the three months
ended February 28, 2007. This increase was attributable to amortization of
founders grant expenses, higher compensation costs for existing staff, increased
staffing levels related to the preparation for the replacement of current Morgan
Stanley services and higher
bonus accruals. The amortization of the founders grant expense was $3.5 million
for the three months ended February 29, 2008. No founders grant
expense was incurred for the three months ended February 28, 2007.
Non-compensation
expenses increased for the three months ended February 29, 2008, by $5.9
million, or 126.1%, to $10.6 million. Approximately $2.5 million of this
increase is due to increased expenses related to the Company’s transition to a
public company and costs incurred to replace the services currently provided by
Morgan Stanley and approximately $1.0 million is due to higher information
technology and marketing and business development costs. In addition, for the
three months ended February 28, 2007, the Company recorded $2.1 million for the
recovery of bad debt expense.
Amortization
of Intangibles
Amortization
of intangibles expense relates to the intangible assets arising from the
acquisition of Barra in June 2004. At February 29, 2008, our intangible assets
totaled $167.3 million, net of accumulated amortization. For the quarter ended
February 29, 2008, amortization expense totaled $7.1 million, an increase of
$0.9 million, or 13.7%. This increase is due to a reduction in the useful life
of our TotalRisk product, which is consistent with our timeframe to transition
TotalRisk clients to BarraOne. (See Note 6 to the Notes to Condensed
consolidated Financial Statements, “Intangible Assets” for further
information.)
Interest
Income (Expense) and Other, net
Interest
income (expense) and other, net was an expense of $6.0 million for the
three months ended February 29, 2008, compared to interest income of $5.0
million for the three months ended February 28, 2007. The $10.9
million decrease is due to increased interest expense of $8.4 million
resulting from the interest on long-term debt related to borrowings under our
Credit Facility (as defined below). See “Liquidity and Capital
Resources” below for a discussion of the Credit Facility. There was
no debt outstanding during the three months ended February 28,
2007. Interest income also decreased by $2.7 million due to a
reduction in cash deposited with related parties.
Income
Taxes
The provision for income tax expense
decreased $2.1 million, or 16.4%, to $10.8 million for the three months ended
February 29, 2008, compared to the three months ended February 28, 2007, largely
a result of lower taxable income. The effective tax rate for the
three months ended February 29, 2008 increased by 0.2% to 37.6% from
37.4%. The increase is largely due to an increase in state and local
income tax rates.
Factors
Impacting Comparability of Our Financial Results
Our
historical results of operations for the periods presented may not be comparable
with prior periods or with our results of operations in the future for the
reasons discussed below.
|
|
Our
Relationship with Morgan Stanley
|
Our
condensed consolidated financial statements have been derived from the financial
statements and accounting records of Morgan Stanley using the historical results
of operations and historical bases of assets and liabilities of our business.
The historical costs and expenses reflected in our audited consolidated
financial statements include an allocation for certain corporate functions
historically provided by Morgan Stanley, including human resources, information
technology, accounting, legal and compliance, tax, office space leasing,
corporate services, treasury and other services. On November 20, 2007, we
entered into a services agreement with Morgan Stanley pursuant to which Morgan
Stanley and its affiliates agreed to provide us with certain of these services
for so long as Morgan Stanley owns more than 50% of our outstanding common stock
and for periods, varying for different services, of up to 12 months thereafter.
For the three months ended February 29, 2008 and February 28, 2007, direct cost
allocations related to these services were $6.3 million, and $6.5 million,
respectively. These allocations were based on what we and Morgan Stanley
considered to be reasonable reflections of the utilization levels of these
services required in support of our business and are based on methods that
include direct time tracking, headcount, inventory metrics and corporate
overhead. The historical information does not necessarily indicate what our
results of operations, financial condition or cash flows will be in the
future.
Historically,
we have experienced an increase in the allocation from Morgan Stanley. However,
for the three months ended February 29, 2008 compared to the three months ended
February 28, 2007, the Morgan Stanley allocation expense decreased by $0.2
million. This decline largely reflects typical increases offset by reduced
allocations of approximately $0.6 million as we in-sourced services previously
provided by Morgan Stanley. More specifically, we are now directly incurring
compensation expense associated with human resources personnel, which was
previously recognized as part of the Morgan Stanley allocation. While the Morgan
Stanley allocation decreased for the three months ended February 29, 2008, we
experienced an increase in compensation expense in selling, general and
administrative as we replaced the Morgan Stanley human resources
services.
As we
replace services currently provided by Morgan Stanley, our expenses will
increase in the near term. After we fully separate from Morgan
Stanley, these expenses may be higher or lower in total than the amounts
reflected in the Condensed Consolidated Statements of Income. Pursuant to the
services agreement, Morgan Stanley and its affiliates agreed to provide us with
services, including certain human resources, information technology, accounting,
legal and compliance, tax, office space leasing, corporate services, treasury
and other services. Payment for these services will be determined, consistent
with past practices, using an internal cost allocation methodology based on
fully loaded cost (i.e., allocated direct costs
of providing the services, plus all related overhead and out-of-pocket costs and
expenses). We are currently enhancing our own financial, administrative and
other support systems or contracting with third parties to replace Morgan
Stanley’s systems. We are also establishing our own accounting and internal
auditing functions separate from those provided to us by Morgan
Stanley.
Public
Company Expenses
As a
public company, we are subject to the reporting requirements of the Exchange Act
and the Sarbanes-Oxley Act. All of the procedures and practices required as a
majority-owned subsidiary of Morgan Stanley were previously established, but we
continue to add procedures and practices required as a public company. As a
result, we incurred legal, accounting and other expenses during the three months
ended February 29, 2008, that we did not incur during the three-month period
ended February 28, 2007.
Founders
Grant
On
November 6, 2007, our Board of Directors approved the award of founders
grants to our employees in the form of restricted stock units and/or options.
The aggregate value of the grants, which were made on November 14, 2007,
was approximately $68.0 million of restricted stock units and options. The
restricted stock units and options vest over a four-year period, with 50%
vesting on the second anniversary of the grant date and 25% vesting on the third
and fourth anniversary of the grant date. The options have an exercise price per
share of $18.00 and have a term of ten years subject to earlier cancellation in
certain circumstances. The aggregate value of the options is calculated using
the Black-Scholes valuation method consistent with SFAS
No. 123R.
The
pre-tax expense of the founders grant for the three months ended February 29,
2008, was approximately $6.6 million, prior to any estimated or actual
forfeitures. After estimated and actual forfeitures, the pre-tax expense of the
founders grant for the quarter was $4.8 million. No expenses related to the
founders grant were incurred during the quarter ended February 28,
2007. The pre-tax expense of the founders grant is estimated to be
approximately $26.9 million before estimated or actual forfeitures for the
fiscal year ended November 30, 2008.
Weighted
Shares Outstanding
In
November 2007, we completed our initial public offering in which we issued 16.1
million shares. As such, weighted average common shares outstanding for the
three months ended February 29, 2008 includes these additional
shares. Weighted average common shares outstanding for the three months
ended February 29, 2008 also includes actual shares and restricted stock awards
issued to non-employee directors during the quarter.
Credit
Facility
As of
February 29, 2008, we had borrowings of $419.4 million outstanding under our
Credit Facility. As of February 28, 2007, there was no debt
outstanding. (See Liquidity and Capital Resources discussed
below.)
Critical
Accounting Policies and Estimates
We
describe our significant accounting policies in Note 1, “Introduction and Basis
of Presentation,” of the Notes to Consolidated Financial Statements included in
our Form 10-K for the fiscal year ended November 30, 2007 and also in Note
2 in Notes to Condensed Consolidated Financial Statements included herein. We
discuss our critical accounting estimates in Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Form 10-K.
There were no significant changes in our accounting policies or critical
accounting estimates since the end of fiscal year 2007. There was no impact
related to the adoption of FIN 48.
Liquidity
and Capital Resources
We require
capital to fund ongoing operations, internal growth initiatives and
acquisitions. Our working capital requirements and funding for capital
expenditures, strategic investments and acquisitions have historically been part
of the corporate-wide cash management program of Morgan Stanley. We are solely
responsible for the provision of funds to finance our working capital and other
cash requirements.
Our
primary sources of liquidity are cash flows generated from our operations,
existing cash and cash equivalents and funds available under the Credit
Facility. We intend to use these sources of liquidity to service our debt and
fund our working capital requirements, capital expenditures, investments and
acquisitions. In connection with our business strategy, we regularly evaluate
acquisition opportunities. We believe our liquidity, along with other financing
alternatives, will provide the necessary capital to fund these transactions and
achieve our planned growth.
As fully
described in our Form 10-K, under “July 2007 Dividend and Credit Facility” in
Part II, Item 7, we paid a dividend of $973.0 million, consisting of $325.0
million in cash and $648.0 million of demand notes, on July 19, 2007.
Morgan Stanley was issued a demand note in the amount of $625.9 million and
Capital Group International was issued a demand note in the amount of $22.1
million. On July 19, 2007, we paid in full in cash the $22.1 million demand
note held by Capital Group International.
On November 14, 2007, we entered
into a $500.0 million Credit Facility with Morgan Stanley Senior Funding, Inc.
and Bank of America, N.A. as agents for a syndicate of lenders, and other
lenders party thereto. The Credit Facility is comprised of a $200.0 million term
loan A facility, a $225.0 million term loan B facility, which was issued at a
discount of 0.5% of the principal amount resulting in proceeds of approximately
$223.9 million, and a $75.0 million revolving credit facility (under which there
were no drawings as of February 29, 2008). Outstanding borrowings under the
Credit Facility accrue interest at (i) LIBOR plus a fixed margin of 2.50%
in the case of the term loan A facility and the revolving facility and 3.00% in
the case of the term loan B facility or (ii) the base rate plus a fixed
margin of 1.50% in the case of the term loan A facility and the revolving
facility and 2.00% in the case of the term loan B facility, in each case subject
to interest rate step downs based on the achievement of consolidated leverage
ratio (as defined in the Credit Facility) conditions. The term loan A facility
and the term loan B facility will mature on November 20, 2012 and
November 20, 2014, respectively. On November 20, 2007, we borrowed
$425.0 million (the full amount of the term loans) under the Credit Facility and
used the proceeds to pay a portion of the $625.9 million demand note held by
Morgan Stanley. The balance of the demand note was paid with the net
proceeds from our initial public offering. The revolving Credit Facility is
available for working capital requirements and other general corporate purposes
(including the financing of permitted acquisitions), subject to certain
conditions, and matures on November 20, 2012.
The Credit
Facility is guaranteed on a senior secured basis by each of our direct and
indirect wholly-owned domestic subsidiaries and secured by a valid and perfected
first priority lien and security interest in substantially all of the shares of
capital stock of our present and future domestic subsidiaries and up to 65%
of the
shares of capital stock of our foreign subsidiaries, substantially all of our
and our domestic subsidiaries’ present and future property and assets and the
proceeds thereof. In addition, the Credit Facility contains certain restrictive
covenants and requires us and our subsidiaries to achieve specified financial
and operating results and maintain compliance with the following financial
ratios on a consolidated basis: (1) the maximum total leverage ratio (as
defined in the Credit Facility) measured quarterly on a rolling four-quarter
basis shall not exceed (a) 3.75:1.0 through November 30, 2009,
(b) 3.50:1.0 from December 1, 2009 through November 30, 2010 and
(c) 3.25:1.0 thereafter; and (2) the minimum interest coverage ratio
(as defined in the Credit Facility) measured quarterly on a rolling four-quarter
basis shall be (a) 3.00:1.0 through November 30, 2009,
(b) 3.50:1.0 from December 1, 2009 through November 30, 2010 and
(c) 4.00:1.0 thereafter.
In
addition, the Credit Facility contains the following affirmative covenants,
among others: periodic delivery of financial statements, budgets and officer’s
certificates; payment of other obligations; compliance with laws and
regulations; payment of taxes and other material obligations; maintenance of
property and insurance; performance of material leases; right of the lenders to
inspect property, books and records; notices of defaults and other material
events and maintenance of books and records.
Currently,
we have $419.4 million outstanding under our Credit Facility. We have
$75 million available under the revolving credit facility. In
connection with our Credit Agreement, we entered into an interest rate swap
agreement on February 13, 2008. See “Item 3. Quantitative and
Qualitative Disclosures About Market Risk — Interest Rate Sensitivity”
below.
Cash
flows
Cash
and cash equivalents and cash deposited with related
parties
|
|
|
As
of
|
|
|
|
|
February
29,
|
|
|
November
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
Cash
and cash equivalents
|
|
$ |
21,929 |
|
|
$ |
33,818 |
|
|
Cash
deposited with related parties
|
|
|
164,099 |
|
|
|
137,625 |
|
|
Total
|
|
$ |
186,028 |
|
|
$ |
171,443 |
|
Cash and
cash equivalents were $21.9 million, and $33.8 million as of February 29, 2008
and November 30, 2007, respectively. This constituted approximately 2.3% of
total assets as of February 29, 2008 and 3.7% of total assets as of November 30,
2007. Excess cash is deposited with Morgan Stanley and is shown
separately on the balance sheet under cash deposited with related parties. Cash
deposited with Morgan Stanley was $164.1 million and $137.6 million as of
February 29, 2008 and November 30, 2007, respectively, representing
approximately 17.1% and 15.2% of total assets, respectively. Our cash, including
cash equivalents and cash deposited with related parties, increased from
November 30, 2007, primarily as a result of net cash provided by
operations. We believe that our cash flow from operations (including prepaid
subscription fees), together with existing cash balances, will be sufficient to
meet our cash requirements for capital expenditures and other cash needs for
ongoing business operations for at least the next 12 months and the foreseeable
future.
Cash
provided by operating activities and used in investing and financing
activities
|
|
|
For
the three months ended
|
|
|
|
|
February
29,
|
|
|
February
28,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
Cash
provided by operating activities
|
|
$ |
20,741 |
|
|
$ |
10,122 |
|
|
Cash
used in investing activities
|
|
$ |
(27,435 |
) |
|
$ |
(10,656 |
) |
|
Cash
used in financing activities
|
|
$ |
(5,562 |
) |
|
$ |
- |
|
Cash
flows from operating activities
Cash flow
from operating activities for the three months ended February 29, 2008 was $20.7
million compared to $10.1 million for the prior year. The increase reflects the
timing of amounts paid to Morgan Stanley offset by lower net income after
adjusting for non cash items.
Our
primary uses of cash from operating activities are for payment of cash
compensation expenses, office rent, technology costs and services provided by
Morgan Stanley. The payment of cash compensation expense is historically at its
highest level in the first quarter when we pay discretionary employee
compensation related to the previous fiscal year. In the future, we expect to
meet all interest obligations on outstanding borrowings under the Credit
Facility from cash generated by operations.
Cash
flows from investing activities
Cash flows
from investing activities include cash used for capital expenditures and cash
deposited with Morgan Stanley. During the three months ended February 29, 2008,
we had a net cash outflow of $27.4 million from investing activities primarily
due to cash deposited with Morgan Stanley of $26.5 million. Capital expenditures
totaled $1.0 million in the three months ended February 29, 2008, relating
primarily to the purchase of computer equipment and build-out costs of leased
office space. We anticipate funding any future capital expenditures from our
operating cash flows.
Cash
flows from financing activities
Cash flows
from financing activities was an outflow of $5.6 million, largely reflecting
scheduled repayments on the outstanding long-term debt.
Off-Balance
Sheet Arrangements
We do not
have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes.
Foreign
Currency Risk
We have
exposures to currency exchange fluctuation risk—revenues from index-linked
investment products, such as exchange traded funds, non-U.S. dollar invoiced
revenues and non-U.S. dollar operating expenses.
Revenues
from equity index-linked investment products represented approximately $19.6
million, or 18.7% of our operating revenues for the three months ended February
29, 2008. While our fees for index-linked investment products are generally
invoiced in U.S. dollars, the fees are based on the investment product’s assets,
substantially all of which are invested in securities denominated in currencies
other than the U.S. dollar. Accordingly, declines in such other currencies
against the U.S. dollar will decrease the fees payable to us under such
licenses. In addition, declines in such currencies against the U.S. dollar could
impact the attractiveness of such investment products resulting in net fund
outflows, which would further reduce the fees payable under such
licenses.
We
generally invoice our clients in U.S. dollars; however, we invoice a portion of
clients in euros, pounds sterling, Japanese yen and a limited number of other
non-U.S. dollar currencies. Approximately $15.4 million, or 14.7% of our
revenues for the three months ended February 29, 2008, are denominated in
foreign currencies, of which the majority are in euros, pounds sterling and
Japanese yen.
We are
exposed to additional foreign currency risk in certain of our operating costs.
Although our expenses are generally in U.S. dollars, some of our expenses are
incurred in non-U.S. dollar denominated currencies. Approximately $14.4 million,
or 20.6% of our expenses for the three months ended February 29, 2008, were
denominated in foreign currencies, the significant majority of which were
denominated in
Swiss
francs, pounds sterling, Hong Kong dollars, euros and Japanese yen. Expenses
paid in foreign currency may increase as we expand our business outside the U.S.
and replace services provided by Morgan Stanley internationally for which we
currently pay Morgan Stanley in U.S. dollars.
In
addition, a significant number of our senior personnel are compensated in U.S.
dollars as opposed to the local currency of their respective
locations. This exposes us to employee turnover in periods of U.S.
dollar weakness.
To the
extent that our international activities recorded in local currencies increase
in the future, our exposure to fluctuations in currency exchange rates will
correspondingly increase. Generally, we do not use derivative financial
instruments as a means of hedging this risk; however, we may do so in the
future. Foreign currency cash balances held overseas are generally kept at
levels necessary to meet current operating and capitalization
needs.
Interest
Rate Sensitivity
We had
unrestricted cash and cash equivalents totaling $21.9 million at February 29,
2008 and $33.8 million at November 30, 2007, respectively. These amounts
were held primarily in checking money market accounts in the countries where we
maintain banking relationships. The majority of excess cash is deposited with
Morgan Stanley. At February 29, 2008 and November 30, 2007, amounts held
with Morgan Stanley were $164.1 and $137.6 million, respectively. On our
Statement of Financial Condition, these amounts are shown as cash deposited with
related parties. We receive interest at Morgan Stanley’s internal prevailing
rates on these funds. The unrestricted cash and cash equivalents are held for
working capital purposes. We do not enter into investments for trading or
speculative purposes. We believe we do not have any material exposure to changes
in fair value as a result of changes in interest rates. Declines in interest
rates, however, will reduce future interest income.
Borrowings
under the Credit Facility will accrue interest at a variable rate equal to
(i) LIBOR plus a fixed margin of 2.50% in the case of the term loan A
facility and the revolving facility and 3.00% in the case of the term loan B
facility or (ii) the base rate plus a fixed margin of 1.50% in the
case of the term loan A facility and the revolving facility and 2.00% in the
case of the term loan B facility, in each case subject to interest rate step
downs based on the achievement of consolidated leverage ratio (as defined in the
Credit Facility) conditions. We expect to pay down the Credit Facility with cash
generated from our ongoing operations.
On
February 13, 2008, we entered into interest rate swap agreements effective
through the end of November 2010 for an aggregate notional principal amount of
$251.7 million. By entering into these agreements, we reduced interest rate risk
by effectively converting floating-rate debt into fixed-rate debt. This action
reduces our risk of incurring higher interest costs in periods of rising
interest rates and improves the overall balance between floating and fixed rate
debt. The effective fixed rate on the notional principal amount swapped is
approximately 5.65%. These swaps are designated as cash flow hedges and qualify
for hedge accounting treatment under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.
For the
three months ended February 29, 2008, we recorded a pre-tax loss in other
comprehensive income (loss) of $1.3 million ($0.8 million after tax) as a result
of the fair value measurement of these swaps. The fair value of these
swaps is included in other accrued liabilities on the Company’s Condensed
Consolidated Statement of Financial Condition.
Our Chief
Executive Officer and Chief Financial Officer have evaluated our disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended, (the “Exchange Act”) as of February 29, 2008 and have
concluded that these disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time specified in the SEC’s rules
and forms. These disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports we file or submit is accumulated and
communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
There were
no changes during the three months ended February 29, 2008 in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
Part
II
From time
to time we are party to various litigation matters incidental to the conduct of
our business. We are not presently party to any legal proceedings the
resolution of which we believe would have a material adverse effect on our
business, operating results, financial condition or cash flows.
For a
discussion of the risk factors affecting the Company, see “Risk Factors” in Part
I, Item 1A of the Form 10-K.
On
November 21, 2007, we completed the initial public offering of our class A
common stock, $0.01 par value, pursuant to our Registration Statement on Form
S-1, as amended (Reg. No. 333-144975) that was declared effective on November
14, 2007. We sold an aggregate of 16.1 million shares of our class A common
stock in the offering at a price to the public of $18.00 per share.
Our net
proceeds from the initial public offering were $265.0 million, after deducting
$20.3 million of underwriting discounts and commissions and other offering
expenses of $4.5 million. Morgan Stanley & Co. Incorporated, an
affiliate of Morgan Stanley, our parent and majority shareholder, acted as the
representative for the several underwriters for the offering.
The net
proceeds were used to repay approximately $200.9 million of the $625.9 million
demand note held by Morgan Stanley. The remainder of the $625.9
million demand note was paid with the net proceeds from the $425.0 million
borrowing under our Credit Facility. Except as discussed above, none
of the net proceeds were used to pay our directors or officers or their
associates, persons owning 10% or more of our common stock or any affiliates of
ours. The remaining proceeds were used for general corporate
purposes.
There have
been no unregistered sales of equity securities.
There have
been no purchases of equity securities.
None.
The annual
meeting of stockholders of the Company was held on April 9, 2008.
The
stockholders voted on proposals to (i) elect directors (“Item 1A”), (ii) approve
the MSCI Inc. Amended and Restated 2007 Equity Incentive Compensation Plan,
(iii) approve the MSCI Inc. Performance Formula and Incentive Plan, and (iv)
ratify the appointment of Deloitte & Touche LLP, as independent
auditor.
All
nominees for election to the Board set forth in Item 1A were elected to the
terms of office set forth in the Proxy Statement dated February 28,
2008. The stockholders’ vote also (i) approved the MSCI Inc. Amended
and Restated 2007 Equity Incentive Compensation Plan, (ii) approved the MSCI
Inc. Performance Formula and Incentive Plan, and (iii) ratified the appointment
of the independent auditors.
The number
of votes cast for, against or withheld, and the number of abstentions and broker
non-votes with respect to each proposal is set forth below. The
Company’s independent inspector of elections reported the vote of the
stockholders as follows:
|
Election
of Directors
|
|
For
|
|
Against/
Withheld
|
|
Abstain
|
|
Broker
Non-Vote
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth
M. deRegt
|
|
427,757,520
|
|
6,508,083
|
|
1,208
|
|
*
|
|
Benjamin
F. duPont
|
|
433,001,969
|
|
1,264,270
|
|
572
|
|
*
|
|
Henry
A. Fernandez
|
|
427,969,706
|
|
6,296,533
|
|
572
|
|
*
|
|
James
P. Gorman
|
|
427,779,915
|
|
6,486,325
|
|
571
|
|
*
|
|
Linda
H. Riefler
|
|
427,779,683
|
|
6,486,557
|
|
571
|
|
*
|
|
Robert
W. Scully
|
|
428,171,301
|
|
6,094,302
|
|
1,208
|
|
*
|
|
David
H. Sidwell
|
|
428,359,955
|
|
5,881,061
|
|
25,795
|
|
*
|
|
Scott
M. Sipprelle
|
|
433,001,251
|
|
1,264,988
|
|
572
|
|
*
|
|
Rodolphe
M. Vallee
|
|
433,001,219
|
|
1,264,920
|
|
672
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Approval
of MSCI Inc. Amended and Restated 2007 Equity Incentive Compensation
Plan
|
|
425,606,890
|
|
7,067,568
|
|
5,205
|
|
1,587,148
|
|
|
|
|
|
|
|
|
|
|
|
Approval
of MSCI Inc. Performance Formula and Incentive Plan
|
|
426,756,493
|
|
5,918,365
|
|
4,805
|
|
1,587,148
|
|
|
|
|
|
|
|
|
|
|
|
Ratification
of Independent Auditors
|
|
434,213,501
|
|
53,220
|
|
90
|
|
*
|
______
* Not
applicable
None.
An exhibit
index has been filed as part of this Report on page E-1.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: April
10, 2008
| |
|
MSCI
INC.
(Registrant)
|
|
| |
|
/s/
Michael
K. Neborak
|
|
| |
By: |
|
|
| |
|
Michael
K. Neborak
Principal
Financial Officer
|
|
QUARTER
ENDED FEBRUARY 29, 2008
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Company’s Form 10-K (File No. 001-33812), filed with the SEC on February
28, 2008)
|
|
|
|
|
|
|
3.2
|
Amended
and Restated By-laws (filed as Exhibit 3.2 to the Company’s Form 10-K
(File No. 001-33812), filed with the SEC on February 28,
2008)
|
|
|
|
|
| |
10.1
|
MSCI Inc. Amended and Restated
2007 Equity Incentive Compensation Plan (filed as Annex B to the Company’s
Proxy
Statement on Schedule 14A (File No. 001-33812), filed
with the SEC on February 28, 2008)
|
| |
|
|
| |
10.2
|
MSCI Inc. Performance Formula and
Incentive Plan (filed as Annex C to the Company’s Proxy
Statement on Schedule 14A (File No. 001-33812), filed with the
SEC on February 28, 2008)
|
| |
|
|
|
|
11
|
Statement
Re: Computation of Earnings Per Common share (The calculation per share
earnings is in Part I, Item I, Note 3 to the Condensed Consolidated
Financial Statements (Earnings Per Common Share) and is omitted in
accordance with Section (b)(11) of Item 601 of Regulation
S-K.
|
|
|
|
|
|
*
|
15
|
Letter
of awareness from Deloitte & Touche LLP, dated April 10, 2008,
concerning unaudited interim financial information
|
|
|
|
|
|
**
|
31.1
|
Rule
13a-14(a) Certification of the Chief Executive Officer
|
|
|
|
|
|
**
|
31.2
|
Rule
13a-14(a) Certification of the Chief Financial Officer
|
|
|
|
|
|
**
|
32.1
|
Section
1350 Certification of the Chief Executive Officer and the Chief Financial
Officer
|
** Furnished
herewith
E-1