MSCI Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2016

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

For the transition period from to

Commission file number 001-33812

MSCI INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

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

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

Large accelerated filer	☒	Accelerated filer	☐

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

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

As of October 21, 2016, there were 94,123,892 shares of the registrant’s common stock, par value $0.01, outstanding.

MSCI INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS

		Page
	Part I
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45

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

AVAILABLE INFORMATION

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

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

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

•

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

•

Corporate Governance Policies;

•

Procedures for Submission of Ethical or Accounting Related Complaints; and

•

Code of Ethics and Business Conduct.

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

FORWARD-LOOKING STATEMENTS

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

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in MSCI Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 26, 2016 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI Inc. projected. Any forward-looking statement in this report reflects MSCI Inc.’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI Inc.’s operations, results of operations, growth strategy and liquidity. MSCI Inc. assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

WEBSITE AND SOCIAL MEDIA DISCLOSURE

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

PART I

Item 1.

Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except per share and share data)

	As of
	September 30,			December 31,
	2016			2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	974,062		$	777,706
Accounts receivable (net of allowances of $1,212 and $1,117 at September 30, 2016 and December 31, 2015, respectively)		235,803			208,239
Prepaid income taxes		20,585			46,115
Prepaid and other assets		31,913			31,211
Total current assets		1,262,363			1,063,271
Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $133,237 and $114,680 at September 30, 2016 and December 31, 2015, respectively)		99,259			98,926
Goodwill		1,558,431			1,565,621
Intangible assets (net of accumulated amortization of $451,990 and $418,512 at September 30, 2016 and December 31, 2015, respectively)		358,431			391,490
Deferred tax assets		9,793			9,180
Other non-current assets		18,807			18,499
Total assets	$	3,307,084		$	3,146,987

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,249		$	2,512
Accrued compensation and related benefits		96,428			116,619
Other accrued liabilities		75,836			61,433
Deferred revenue		343,264			317,552
Total current liabilities		516,777			498,116
Long-term debt		2,074,478			1,579,404
Deferred taxes		102,499			110,937
Other non-current liabilities		61,811			57,043
Total liabilities		2,755,565			2,245,500

Commitments and Contingencies (see Note 6 and Note 7)

Shareholders' equity:
Preferred Stock (par value $0.01, 100,000,000 share authorized, no shares issued)		—			—
Common stock (par value $0.01; 750,000,000 common shares authorized; 128,955,118 and 128,200,189 common shares issued and 94,672,958 and 101,013,148 common shares outstanding at September 30, 2016 and December 31, 2015, respectively)		1,290			1,282
Treasury shares, at cost (34,282,160 and 27,187,041 common shares held at September 30, 2016 and December 31, 2015, respectively)		(1,895,027	)		(1,395,695	)
Additional paid in capital		1,215,661			1,173,183
Retained earnings		1,280,497			1,158,462
Accumulated other comprehensive loss		(50,902	)		(35,745	)
Total shareholders' equity		551,519			901,487
Total liabilities and shareholders' equity	$	3,307,084		$	3,146,987

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(unaudited)
Operating revenues	$	288,433		$	268,771		$	857,857		$	802,120

Operating expenses:
Cost of revenues		62,986			65,593			188,288			202,891
Selling and marketing		41,514			38,809			125,057			122,485
Research and development		18,750			15,548			56,244			59,544
General and administrative		21,859			19,960			65,768			62,417
Amortization of intangible assets		11,752			11,710			35,535			35,107
Depreciation and amortization of property, equipment and leasehold improvements		8,312			8,049			24,873			23,321
Total operating expenses		165,173			159,669			495,765			505,765

Operating income		123,260			109,102			362,092			296,355

Interest income		(799	)		(285	)		(2,005	)		(674	)
Interest expense		26,790			17,267			72,612			39,491
Other expense (income)		(253	)		(6,922	)		2,642			(6,580	)

Other expense (income), net		25,738			10,060			73,249			32,237

Income from continuing operations before provision for income taxes		97,522			99,042			288,843			264,118
Provision for income taxes		32,241			34,644			96,238			94,079
Income from continuing operations		65,281			64,398			192,605			170,039
Income (loss) from discontinued operations, net of income taxes		—			—			—			(5,797	)
Net income	$	65,281		$	64,398		$	192,605		$	164,242

Earnings per basic common share:
Earnings per basic common share from continuing operations	$	0.69		$	0.59		$	1.99		$	1.53
Earnings per basic common share from discontinued operations		—			—			—			(0.05	)
Earnings per basic common share	$	0.69		$	0.59		$	1.99		$	1.48

Earnings per diluted common share:
Earnings per diluted common share from continuing operations	$	0.68		$	0.59		$	1.98		$	1.52
Earnings per diluted common share from discontinued operations		—			—			—			(0.05	)
Earnings per diluted common share	$	0.68		$	0.59		$	1.98		$	1.47

Weighted average shares outstanding used in computing earnings per share
Basic		94,823			108,773			96,879			111,131
Diluted		95,473			109,440			97,445			111,951

Dividend declared per common share	$	0.28		$	0.22		$	0.72		$	0.58

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(unaudited)
Net income	$	65,281		$	64,398		$	192,605		$	164,242
Other comprehensive (loss) income:
Foreign currency translation adjustments		(2,627	)		(6,830	)		(15,014	)		(7,269	)
Income tax effect		(101	)		156			44			790
Foreign currency translation adjustments, net		(2,728	)		(6,674	)		(14,970	)		(6,479	)

Pension and other post-retirement adjustments		(30	)		300			(262	)		203
Income tax effect		13			(80	)		75			(67	)
Pension and other post-retirement adjustments, net		(17	)		220			(187	)		136
Other comprehensive (loss) income, net of tax		(2,745	)		(6,454	)		(15,157	)		(6,343	)
Comprehensive income	$	62,536		$	57,944		$	177,448		$	157,899

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended
	September 30,
	2016			2015
	(unaudited)
Cash flows from operating activities
Net income	$	192,605		$	164,242
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		35,535			35,107
Stock-based compensation expense		23,591			20,552
Depreciation and amortization of property, equipment and leasehold improvements		24,873			23,321
Amortization of debt origination fees		2,219			1,427
Deferred taxes		(7,638	)		(6,095	)
Excess tax benefits from share-based compensation		(6,480	)		(13,706	)
Gain on disposition		(449	)		—
Other non-cash adjustments		1,124			(2,284	)
Changes in assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable		(31,021	)		(30,482	)
Prepaid income taxes		32,002			8,814
Prepaid and other assets		(981	)		(306	)
Accounts payable		(1,263	)		(1,012	)
Accrued compensation and related benefits		(11,177	)		(15,169	)
Other accrued liabilities		12,365			19,846
Deferred revenue		27,337			17,985
Other		4,388			2,432
Net cash provided by operating activities		297,030			224,672

Cash flows from investing activities
Disposition, net of cash divested		657			—
Proceeds from the sale of capital equipment		—			55
Capital expenditures		(24,144	)		(24,525	)
Capitalized software development costs		(7,949	)		(6,062	)
Acquisitions, net of cash acquired		(60	)		—
Net cash used in investing activities		(31,496	)		(30,532	)

Cash flows from financing activities
Proceeds from borrowing		500,000			800,000
Excess tax benefits from share-based compensation		6,480			13,706
Proceeds from exercise of stock options		4,221			2,433
Repurchase of treasury shares		(498,863	)		(444,640	)
Payment of dividends		(69,933	)		(64,989	)
Payment of debt issuance costs in connection with debt		(7,183	)		(10,477	)
Net cash (used in) provided by financing activities		(65,278	)		296,033

Effect of exchange rate changes		(3,900	)		(5,484	)

Net increase in cash		196,356			484,689
Cash and cash equivalent, beginning of period		777,706			508,799

Cash and cash equivalent, end of period	$	974,062		$	993,488

Supplemental disclosure of cash flow information:
Cash paid for interest	$	67,888		$	20,922
Cash paid for income taxes	$	69,471		$	92,461

Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements in other accrued liabilities	$	5,093		$	7,619

Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid	$	610		$	73

See Notes to Unaudited Condensed Consolidated Financial Statements

MSCI INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. INTRODUCTION AND BASIS OF PRESENTATION

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”), offers content, applications and services to support the needs of institutional investors throughout their investment processes. The Company’s flagship products are its global equity indexes, custom indexes, factor indexes and ESG indexes; its analytics products, including multi-factor models, pricing models, methodologies for performance attribution, models for statistical analysis, and tools for portfolio optimization, back testing and stress testing; its ESG research and ratings; and its real estate benchmarks, indexes, business intelligence and analytics.

Income (loss) from discontinued operations, net of income taxes in the Unaudited Condensed Consolidated Statement of Income for the nine months ended September 30, 2015 represents the impact of an out-of-period income tax charge associated with tax obligations triggered upon the sale of Institutional Shareholder Services Inc., which was completed on April 30, 2014.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements include the accounts of MSCI Inc. and its subsidiaries and include all adjustments of a normal, recurring nature necessary to present fairly the financial condition as of September 30, 2016 and December 31, 2015, the results of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2015 and cash flows for the nine months ended September 30, 2016 and 2015. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2015. The unaudited condensed consolidated financial statement information as of December 31, 2015 has been derived from the 2015 audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of results for the entire year.

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

Concentrations

No single customer represented 10.0% or more of the Company’s consolidated operating revenues for the nine months ended September 30, 2016, while BlackRock, Inc. accounted for 10.4% of the Company’s consolidated operating revenues for the nine months ended September 30, 2015. For the nine months ended September 30, 2016 and 2015, BlackRock, Inc. accounted for 17.1% and 19.5% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of revenues within the Analytics and All Other segments for the nine months ended September 30, 2016 and 2015.

2. RECENT ACCOUNTING STANDARDS UPDATES

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. Companies have the option of adopting ASU 2014-09 retrospectively to each prior period presented, or retrospectively with a cumulative-effect adjustment recognized as of the date of initial application. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” or ASU 2015-14. The amendments in ASU 2015-14 defer the effective date of the new revenue standard by one year by changing the effective date to be for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017 from December 15, 2016, with early

adoption at the prior date permitted. The Company is continuing to evaluate the potential impact that the update will have on its condensed consolidated financial statements.

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

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

In May 2016, the FASB issued Accounting Standards Update No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” or ASU 2016-12. The amendments in ASU 2016-12 clarify guidance in the new revenue standard related to collectability, noncash consideration, presentation of sales tax and contract transition matters. The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of ASU 2014-09 (described above), which is not yet effective. The Company is evaluating the potential impact that ASU 2016-12 will have on its condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. The FASB issued ASU 2016-02 in order to increase the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB amended the FASB Accounting Standards Codification and created Topic 842, Leases. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 requires reporting organizations to take a modified retrospective transition approach (as opposed to a full retrospective transition approach). The Company is evaluating the potential impact that ASU 2016-02 will have on its condensed consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” or ASU 2016-09. The FASB issued ASU 2016-09 as part of its Simplification Initiative. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2016, with early adoption permitted. The Company is evaluating the potential impact that ASU 2016-09 will have on its condensed consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in ASU 2016-13 introduce an approach based on expected losses to estimate credit losses on certain types of financial instruments, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted beginning after December 15, 2018. The adoption of ASU 2016-13 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” or ASU 2016-15. The amendments in ASU 2016-15 are intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. The adoption of ASU 2016-15 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

3. EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is computed by dividing income available to MSCI common shareholders by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. There were 1,593 and 531 anti-dilutive securities excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2016, respectively. There were 850 and 283 anti-dilutive securities excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2015, respectively.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
(in thousands, except per share data)
Income from continuing operations, net of income taxes	$	65,281	$	64,398	$	192,605	$	170,039
Income (loss) from discontinued operations, net of income taxes		—		—		—		(5,797	)
Net income	$	65,281	$	64,398	$	192,605	$	164,242

Basic weighted average common shares outstanding		94,823		108,773		96,879		111,131
Effect of dilutive securities:
Stock options and restricted stock units		650		667		566		820
Diluted weighted average common shares outstanding		95,473		109,440		97,445		111,951

Earnings per basic common share from continuing operations	$	0.69	$	0.59	$	1.99	$	1.53
Earnings per basic common share from discontinued operations		—		—		—		(0.05	)
Earnings per basic common share	$	0.69	$	0.59	$	1.99	$	1.48

Earnings per diluted common share from continuing operations	$	0.68	$	0.59	$	1.98	$	1.52
Earnings per diluted common share from discontinued operations		—		—		—		(0.05	)
Earnings per diluted common share	$	0.68	$	0.59	$	1.98	$	1.47

4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements at September 30, 2016 and December 31, 2015 consisted of the following:

	As of
	September 30,			December 31,
	2016			2015
	(in thousands)
Computer & related equipment	$	160,946		$	143,499
Furniture & fixtures		10,134			9,870
Leasehold improvements		47,924			47,579
Work-in-process		13,492			12,658
Subtotal		232,496			213,606
Accumulated depreciation and amortization		(133,237	)		(114,680	)
Property, equipment and leasehold improvements, net	$	99,259		$	98,926

Depreciation and amortization expense of property, equipment and leasehold improvements was $8.3 million and $8.0 million for the three months ended September 30, 2016 and 2015, respectively. Depreciation and amortization expense of property, equipment and leasehold improvements was $24.9 million and $23.3 million for the nine months ended September 30, 2016 and 2015, respectively.

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following table presents goodwill by reportable segment:

(in thousands)	Index			Analytics			All Other				Total
Goodwill at December 31, 2015	$	1,210,366		$	302,551		$	52,704			$	1,565,621
Changes to goodwill		—			60	⁽¹⁾		(110	)	⁽²⁾		(50	)
Foreign exchange translation adjustment		(4,408	)		—			(2,732	)			(7,140	)
Goodwill at September 30, 2016	$	1,205,958		$	302,611		$	49,862			$	1,558,431

⁽¹⁾	Reflects the final working capital adjustment payment made during the nine months ended September 30, 2016 to complete the acquisition of Insignis, Inc.

⁽²⁾	Reflects the value disposed in the sale of the Real Estate occupiers business.

Intangible Assets

Amortization expense related to intangible assets for the three months ended September 30, 2016 and 2015 was $11.8 million and $11.7 million, respectively. Amortization expense related to intangible assets for the nine months ended September 30, 2016 and 2015 was $35.5 million and $35.1 million, respectively.

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

	As of
	September 30,			December 31,
	2016			2015
	(in thousands)
Gross intangible assets:
Customer relationships	$	361,204		$	361,746
Trademarks/trade names		223,382			223,382
Technology/software		207,517			199,889
Proprietary data		28,627			28,627
Covenant not to compete		1,225			1,225
Subtotal		821,955			814,869
Foreign exchange translation adjustment		(11,534	)		(4,867	)
Total gross intangible assets	$	810,421		$	810,002
Accumulated amortization:
Customer relationships	$	(161,075	)	$	(143,325	)
Trademarks/trade names		(102,178	)		(93,476	)
Technology/software		(182,013	)		(175,209	)
Proprietary data		(8,141	)		(6,698	)
Covenant not to compete		(1,049	)		(665	)
Subtotal		(454,456	)		(419,373	)
Foreign exchange translation adjustment		2,466			861
Total accumulated amortization	$	(451,990	)	$	(418,512	)
Net intangible assets:
Customer relationships	$	200,129		$	218,421
Trademarks/trade names		121,204			129,906
Technology/software		25,504			24,680
Proprietary data		20,486			21,929
Covenant not to compete		176			560
Subtotal		367,499			395,496
Foreign exchange translation adjustment		(9,068	)		(4,006	)
Total net intangible assets	$	358,431		$	391,490

The following table presents the estimated amortization expense for the remainder of 2016 and succeeding years:

Years Ending December 31,	Amortization Expense
	(in thousands)
Remainder 2016	$	12,031
2017		44,183
2018		41,138
2019		39,100
2020		36,878
Thereafter		185,101
Total	$	358,431

6. COMMITMENTS AND CONTINGENCIES

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

Leases. The Company leases facilities under non-cancelable operating lease agreements. The terms of certain lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on the straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense for the three months ended September 30, 2016 and 2015 was $6.1 million and $6.3 million, respectively. Rent expense for the nine months ended September 30, 2016 and 2015 was $18.3 million and $19.8 million, respectively.

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

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

On August 13, 2015, the Company completed its private offering of $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 (the “2025 Senior Notes”). The $789.5 million of net proceeds from the offering of the 2025 Senior Notes were allocated for general corporate purposes.

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

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

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

The 2026 Senior Notes are scheduled to mature and be paid in full on August 1, 2026. At any time prior to August 1, 2021, the Company may redeem all or part of the 2026 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem all or part of the 2026 Senior Notes, together with accrued and unpaid interest, on or after August 1, 2021, at redemption prices set forth in the indenture governing the 2026 Senior Notes. At any time prior to August 1, 2019, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2026 Senior Notes, including any permitted additional notes, at a redemption price equal to 104.75% of the principal amount.

Interest payments attributable to the 2024 Senior Notes are due on May 15 and November 15 of each year. The first interest payment was made on May 15, 2015. Interest payments attributable to the 2025 Senior Notes are due on February 15 and August 15 of each year. The first interest payment was made on February 16, 2016. Interest payments attributable to the 2026 Senior Notes are due on February 1 and August 1 of each year. The first interest payment is due on February 1, 2017.

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

Long-term debt at September 30, 2016 was $2,074.5 million, net of $25.5 million in deferred financing fees. Long-term debt at December 31, 2015 was $1,579.4 million, net of $20.6 million in deferred financing fees.

In connection with the closing of the Senior Notes offerings and entry into the 2014 Revolving Credit Agreement and the Amendment, the Company paid certain fees which, together with the existing fees related to prior credit facilities, are being amortized over the related lives. At September 30, 2016, $28.0 million of the deferred financing fees remain unamortized, $0.5 million of which is included in “Prepaid and other assets,” $1.9 million of which is included in “Other non-current assets” and $25.5 million of which is grouped and presented as part of “Long-term debt” on the Unaudited Condensed Consolidated Statement of Financial Condition.

The Company amortized $0.8 million and $0.5 million of deferred financing fees in interest expense during the three months ended September 30, 2016 and 2015, respectively. The Company amortized $2.2 million and $1.4 million of deferred financing fees in interest expense during the nine months ended September 30, 2016 and 2015, respectively.

At September 30, 2016 and December 31, 2015, the fair market value of the Company’s debt obligations was $2,214.7 million and $1,638.0 million, respectively. The fair market value is determined in accordance with accounting standards related to the determination of fair value and represents Level 2 valuations, which are based on one or more quoted prices in markets that are not considered to be active or for which all significant inputs are observable, either directly or indirectly. The Company utilizes the market approach and obtains security pricing from a vendor who uses broker quotes and third-party pricing services to determine fair values.

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

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

Non-designated Hedges of Foreign Exchange Risk. Derivatives not designated as hedges are not speculative and are used to manage the Company’s economic exposure to foreign exchange rate movements but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of September 30, 2016, the Company had outstanding foreign currency forwards with a notional amount of $19.6 million that were not designated as hedges in qualifying hedging relationships.

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

	Unaudited Condensed	As of
	Consolidated Statements of	September 30,			December 31,
(in thousands)	Financial Condition Location	2016			2015
Non-designated hedging instruments:
Asset derivatives:
Foreign exchange contracts	Prepaid and other assets	$	211		$	640
Liability derivatives:
Foreign exchange contracts	Other accrued liabilities	$	(15	)	$	(2	)

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

The following table presents the effect of the Company’s financial derivatives and the location in which they are presented on the Company’s Unaudited Condensed Consolidated Statements of Income:

		Amount of Gain or (Loss) Recognized
Derivatives Not Designated as	Location of Gain or	in Income on Derivatives for the
Hedging Instruments	(Loss) Recognized	Three Months Ended September 30,
(in thousands)	in Income on Derivatives	2016		2015
Foreign exchange contracts	Other expense (income)	$	211	$	(125	)

		Amount of Gain or (Loss) Recognized
Derivatives Not Designated as	Location of Gain or	in Income on Derivatives for the
Hedging Instruments	(Loss) Recognized	Nine Months Ended September 30,
(in thousands)	in Income on Derivatives	2016		2015
Foreign exchange contracts	Other expense (income)	$	1,125	$	287

7. SHAREHOLDERS’ EQUITY

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

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

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

For the nine months ended September 30, 2016, the Company repurchased approximately 6.9 million shares at an average purchase price of $70.43 per share for a total value of $483.8 million under the 2015 Repurchase Program.

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

	Dividends
(in thousands)	Per Share		Declared		Distributed		Deferred
2016
Three Months Ended March 31,	$	0.22	$	22,046	$	21,889	$	157
Three Months Ended June 30,		0.22		21,588		21,391		197
Three Months Ended September 30,		0.28		26,936		26,680		256

Total	$	0.72	$	70,570	$	69,960	$	610

2015
Three Months Ended March 31,	$	0.18	$	20,424	$	20,411	$	13
Three Months Ended June 30,		0.18		20,443		20,441		2
Three Months Ended September 30,		0.22		24,210		24,152		58

Total	$	0.58	$	65,077	$	65,004	$	73

Common Stock.

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

	Common		Treasury			Common Stock
	Stock Issued		Stock			Outstanding
Balance At December 31, 2015		128,200,189		(27,187,041	)		101,013,148
Dividend payable/paid		104		(104	)		—
Common stock issued and exercise of stock options		589,402		—			589,402
Shares withheld for tax withholding and exercises		—		(197,769	)		(197,769	)
Shares repurchased under stock repurchase programs		—		(4,869,423	)		(4,869,423	)
Balance At March 31, 2016		128,789,695		(32,254,337	)		96,535,358
Dividend payable/paid		110		(110	)		—
Common stock issued and exercise of stock options		89,816		—			89,816
Shares withheld for tax withholding and exercises		—		(8,355	)		(8,355	)
Shares repurchased under stock repurchase programs		—		(1,626,450	)		(1,626,450	)
Shares issued to Directors		6,959		(6,273	)		686
Balance At June 30, 2016		128,886,580		(33,895,525	)		94,991,055
Dividend payable/paid		121		(121	)		—
Common stock issued and exercise of stock options		68,417		—			68,417
Shares withheld for tax withholding and exercises		—		(12,894	)		(12,894	)
Shares repurchased under stock repurchase programs		—		(373,620	)		(373,620	)
Balance At September 30, 2016		128,955,118		(34,282,160	)		94,672,958

8. INCOME TAXES

The Company’s provision for income taxes was $96.2 million and $94.1 million for the nine months ended September 30, 2016 and 2015, respectively. These amounts reflect effective tax rates of 33.3% and 35.6% for the nine months ended September 30, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily driven by efforts to better align our tax profile with our global operating footprint.

The effective tax rate of 33.3% for the nine months ended September 30, 2016 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $1.4 million related to interest received on tax refunds and additional deductions on filing the 2015 tax return, which decreased the Company’s effective tax rate by 0.5 percentage points.

The effective tax rate of 35.6% for the nine months ended September 30, 2015 reflected the Company’s estimate of the effective tax rate for the period and was impacted by a change in the mix of profits between tax jurisdictions as well as certain discrete items

totaling $0.7 million. These items relate to the benefit recognized on the sale of an investment in which the tax basis and book basis were permanently different, partially offset by an increased liability for state taxes.

The Company is under examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as India, and states in which the Company has significant operations, such as New York. The tax years currently under examination vary by jurisdiction but include years ranging from 2005 through 2015. As a result of having previously been a member of the Morgan Stanley consolidated group, the Company may have future settlements with Morgan Stanley related to the ultimate disposition of their New York State and New York City examination relating to the tax years 2007 and 2008 and their IRS examination relating to the tax years 2006 through 2008. The Company does not believe it has any material exposure to the New York State and New York City examinations. Additionally, the Company believes it has adequate reserves for any tax issues that may arise out of the IRS examination relating to the tax years 2006 through 2008 and therefore does not believe any related settlement with Morgan Stanley will have a material impact.

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

9. SEGMENT INFORMATION

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

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

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

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

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

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

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

The Analytics operating segment consists of products and services used for portfolio construction, risk management and reporting. The products enable institutional investors to monitor, analyze and report on the risk and return of investments across a

variety of asset classes. They are based on proprietary, integrated fundamental multi-factor risk models, value-at-risk methodologies, performance attribution frameworks and asset valuation models. In addition, the Analytics segment includes products that help investors value, model and hedge physical assets and derivatives across a number of market segments, including energy and commodity assets.

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

The Real Estate operating segment is a provider of real estate performance analysis for funds, investors, managers and lenders, as well as occupiers through its date of disposal. This segment provides index products and offers services that include research, reporting and benchmarking. During the three months ended September 30, 2016, the Company disposed of the occupiers business and recorded a gain on the disposition which was recorded in “Other expense (income),” in the Unaudited Condensed Consolidated Statement of Income.

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

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Operating revenues
Index	$	157,751	$	141,577	$	454,481	$	415,262
Analytics		111,291		108,341		333,947		322,756
All Other		19,391		18,853		69,429		64,102
Total	$	288,433	$	268,771	$	857,857	$	802,120

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016		2015			2016		2015
	(in thousands)
Index Adjusted EBITDA	$	111,750	$	102,927		$	318,317	$	293,997
Analytics Adjusted EBITDA		31,501		29,216			95,163		64,560
All Other Adjusted EBITDA		73		(3,282	)		9,020		(3,774	)
Total operating segment profitability		143,324		128,861			422,500		354,783
Amortization of intangible assets		11,752		11,710			35,535		35,107
Depreciation and amortization of property, equipment and leasehold improvements		8,312		8,049			24,873		23,321
Operating income		123,260		109,102			362,092		296,355
Other expense (income), net		25,738		10,060			73,249		32,237
Provision for income taxes		32,241		34,644			96,238		94,079
Income from continuing operations		65,281		64,398			192,605		170,039
Income (loss) from discontinued operations, net of income taxes		—		—			—		(5,797	)
Net income	$	65,281	$	64,398		$	192,605	$	164,242

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2016		2015	2016		2015
	(in thousands)
Revenues
Americas:
United States	$	139,376	$	128,770	$	411,740	$	384,443
Other		11,908		10,817		33,878		31,047
Total Americas		151,284		139,587		445,618		415,490

Europe, the Middle East and Africa ("EMEA"):
United Kingdom		44,689		42,249		131,275		124,645
Other		56,317		52,564		173,191		162,873
Total EMEA		101,006		94,813		304,466		287,518

Asia & Australia:
Japan		13,476		11,283		39,679		33,843
Other		22,667		23,088		68,094		65,269
Total Asia & Australia		36,143		34,371		107,773		99,112

Total	$	288,433	$	268,771	$	857,857	$	802,120

Long-lived assets consist of property, equipment, leasehold improvements, goodwill and intangible assets, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:

	As of
	September 30,		December 31,
	2016		2015
	(in thousands)
Long-lived assets
Americas:
United States	$	1,886,593	$	1,916,689
Other		1,702		2,279
Total Americas		1,888,295		1,918,968

EMEA:
United Kingdom		94,672		110,261
Other		24,637		16,849
Total EMEA		119,309		127,110

Asia & Australia:
Japan		477		570
Other		8,040		9,389
Total Asia & Australia		8,517		9,959

Total	$	2,016,121	$	2,056,037

10. SUBSEQUENT EVENTS

On October 26, 2016, the Board of Directors declared a cash dividend of $0.28 per share for fourth quarter 2016. The fourth quarter 2016 dividend is payable on November 30, 2016 to shareholders of record as of the close of trading on November 14, 2016.

On October 26, 2016, the Board of Directors approved an additional stock repurchase program authorizing the purchase of up to $750.0 million worth of shares of MSCI’s common stock (together with the authorization remaining under the 2015 Repurchase Program, the “2016 Repurchase Program”). Share repurchases made pursuant to the 2016 Repurchase Program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions. This authorization may be modified, suspended or terminated by the Board of Directors at any time without prior notice.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of MSCI Inc.

We have reviewed the accompanying condensed consolidated statement of financial condition of MSCI Inc. and its subsidiaries as of September 30, 2016, and the related condensed consolidated statements of income and of comprehensive income for the three-month and nine-month periods ended September 30, 2016 and September 30, 2015 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2016 and September 30, 2015. These interim financial statements are the responsibility of the Company’s management.

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

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

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

/s/ PricewaterhouseCoopers LLP

New York, New York

October 28, 2016

Item 2.

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

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A.—Risk Factors,” in our Form 10-K.

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

Overview

MSCI offers content, applications and services to support the needs of institutional investors throughout their investment processes. MSCI clients include asset owners, such as pension funds, endowments, foundations, central banks, family offices and insurance companies; asset management firms, such as mutual funds, hedge funds, providers of exchange-traded funds (“ETFs”); private wealth managers; and financial intermediaries, such as banks, broker-dealers, exchanges, custodians, trust companies and investment consultants.

Our products and services include indexes and analytical models; ratings and analysis that enable institutional investors to integrate environmental, social and governance (“ESG”) factors into their investment strategies; and research, data and analytics for portfolios of privately and publicly owned real estate. Clients use our content and applications to help construct portfolios and allocate assets. Our analytical tools help them measure and manage risk across all major asset classes. MSCI products and services can also be customized by clients to meet their specific needs. As of September 30, 2016, we had approximately 6,400 clients across 85 countries. To calculate the number of clients, we may count certain affiliates, user locations, or business units within a single organization as separate clients. If we aggregate all related clients under their respective parent entity, the number of clients would be over 3,800, as of September 30, 2016. We had offices in 33 cities in 22 countries to help serve our diverse client base, with 52.0% of our revenues coming from clients in the Americas, 35.4% in Europe, the Middle East and Africa (“EMEA”) and 12.6% in Asia and Australia.

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

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

In the discussion that follows, we provide certain variances excluding the impact of foreign currency exchange rate fluctuations. Foreign currency exchange rate fluctuations reflect the difference between the current period results as reported compared to the current period results recalculated using the foreign currency exchange rates in effect for the comparable prior period.

Factors Affecting the Comparability of Results

Share Repurchases

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

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

On September 18, 2014, as part of the 2014 Repurchase Program, we entered into an ASR agreement to initiate share repurchases aggregating $300.0 million (the “September 2014 ASR Agreement”). As a result of the September 2014 ASR Agreement, we repurchased approximately 4.5 million shares of our common stock on September 19, 2014 and approximately 1.2 million shares of our common stock on May 21, 2015 for a combined average price of $52.79 per share.

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

For the nine months ended September 30, 2016, we repurchased approximately 6.9 million shares at an average purchase price of $70.43 per share for a total value of $483.8 million under the 2015 Repurchase Program.

Since 2012 and through September 30, 2016, approximately $1.9 billion has been returned to shareholders through share repurchases and the payment of cash dividends.

The weighted average shares outstanding used to calculate our diluted earnings per share decreased by 12.8% and 13.0% for the three and nine months ended September 30, 2016, respectively, reflecting the impact of the share repurchase programs, partially offset by the impact of restricted stock units and stock options that converted to shares.

Senior Notes

On August 13, 2015, we completed a private offering of $800.0 million aggregate principal amount of 5.75% Senior Notes due 2025 (the “2025 Senior Notes”) and received $789.5 million, net of $10.5 million of debt issuance costs.

On August 4, 2016, we completed a private offering of $500.0 million aggregate principal amount of 4.75% Senior Notes due 2026 (the “2026 Senior Notes”) and received $493.3 million, net of $6.7 million of debt issuance costs.

As a result of these offerings, our interest expense for the current period has increased, with the interest expense for the year ending December 31, 2016 expected to be approximately $102 million. The annual interest expense related to these offerings in future years is expected to be approximately $116 million.

The discussion of our results of operations for the three months ended September 30, 2016 and 2015 are presented below. The results of operations for interim periods may not be indicative of future results.

Results of Operations

Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015

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

	Three Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands, except per share data)
Operating revenues	$	288,433		$	268,771		$	19,662			7.3	%
Operating expenses:
Cost of revenues		62,986			65,593			(2,607	)		(4.0	%)
Selling and marketing		41,514			38,809			2,705			7.0	%
Research and development		18,750			15,548			3,202			20.6	%
General and administrative		21,859			19,960			1,899			9.5	%
Amortization of intangible assets		11,752			11,710			42			0.4	%
Depreciation and amortization of property, equipment and leasehold improvements		8,312			8,049			263			3.3	%
Total operating expenses		165,173			159,669			5,504			3.4	%
Operating income		123,260			109,102			14,158			13.0	%
Other expense (income), net		25,738			10,060			15,678			155.8	%
Income from continuing operations before provision for income taxes		97,522			99,042			(1,520	)		(1.5	%)
Provision for income taxes		32,241			34,644			(2,403	)		(6.9	%)
Income from continuing operations		65,281			64,398			883			1.4	%
Income from discontinued operations, net of income taxes		—			—			—		—
Net income	$	65,281		$	64,398		$	883			1.4	%

Earnings per basic common share:
From continuing operations	$	0.69		$	0.59		$	0.10			16.9	%
From discontinued operations		—			—			—		—
Earnings per basic common share	$	0.69		$	0.59		$	0.10			16.9	%

Earnings per diluted common share:
From continuing operations	$	0.68		$	0.59		$	0.09			15.3	%
From discontinued operations		—			—			—		—
Earnings per diluted common share	$	0.68		$	0.59		$	0.09			15.3	%

Operating margin		42.7	%		40.6	%

Operating Revenues

Our revenues are grouped by the following types: recurring subscriptions, asset-based fees and non-recurring. We also group revenues by major product or reportable segment as follows: Index, Analytics and All Other, which includes the ESG and Real Estate product lines.

The following table presents operating revenues by type for the periods indicated:

	Three Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Recurring subscriptions	$	226,508	$	213,773	$	12,735	6.0	%
Asset-based fees		56,122		50,736		5,386	10.6	%
Non-recurring		5,803		4,262		1,541	36.2	%

Total operating revenues	$	288,433	$	268,771	$	19,662	7.3	%

Total operating revenues grew 7.3% to $288.4 million for the three months ended September 30, 2016 compared to $268.8 million for the three months ended September 30, 2015.

Revenues from recurring subscriptions increased 6.0% to $226.5 million for the three months ended September 30, 2016 compared to $213.8 million for the three months ended September 30, 2015, driven by an increase of $9.5 million, or 10.6%, in Index recurring subscriptions, an increase of $2.5 million, or 2.3%, in Analytics recurring subscriptions and an increase of $1.6 million, or 16.4%, in ESG recurring subscriptions, partially offset by a decrease of $0.8 million, or 9.9%, in Real Estate recurring subscriptions. The impact on total recurring subscriptions from foreign currency exchange rate fluctuations was negligible.

Revenues from asset-based fees increased 10.6% to $56.1 million for the three months ended September 30, 2016 compared to $50.7 million for the three months ended September 30, 2015. The increase in asset-based fees was driven by several items, including a 23.6% increase in revenue from non-ETF passive funds, which was primarily due to initial fund fees recognized in the current period, as well as a 3.6% growth in revenue from ETFs linked to MSCI indexes, which was the result of an 11.7% increase in average AUM, offset by the impact of a change in the product mix. In addition, revenues from futures and options contracts based on MSCI indexes grew 59.7%, driven by a 36.7% increase in total trading volumes. Approximately two-thirds of the underlying securities included in the AUM of our index-linked investment products are denominated in currencies other than the U.S. dollar and subject to foreign currency exchange rate fluctuations.

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

	Period Ended⁽¹⁾
	2015										2016
(in billions)	March 31,		June 30,			September 30,			December 31,		March 31,			June 30,			September 30,
AUM in ETFs linked to MSCI Indexes⁽²⁾	$	418.0	$	435.4		$	390.2		$	433.4	$	438.3		$	439.7		$	474.9

Sequential Change in Value
Market Appreciation/(Depreciation)	$	13.0	$	(6.9	)	$	(48.2	)	$	14.5	$	(1.7	)	$	(2.5	)	$	23.7
Cash Inflows		31.7		24.3			3.0			28.7		6.6			3.9			11.5
Total Change	$	44.7	$	17.4		$	(45.2	)	$	43.2	$	4.9		$	1.4		$	35.2

Source: Bloomberg and MSCI

⁽¹⁾

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

⁽²⁾	The value of AUM in ETFs linked to MSCI Indexes is calculated by multiplying the ETF net asset value by the number of shares outstanding.

The following table presents the average value of AUM in ETFs linked to MSCI indexes for the periods indicated:

	Quarterly Average
	2015								2016
(in billions)	March		June		September		December		March		June		September
AUM in ETFs linked to MSCI Indexes	$	392.5	$	441.4	$	418.2	$	423.3	$	407.9	$	438.8	$	467.3

Non-recurring revenues increased 36.2% to $5.8 million for the three months ended September 30, 2016 compared to $4.3 million for the three months ended September 30, 2015.

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

	Three Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	98,625	$	89,139	$	9,486		10.6	%
Asset-based fees		56,122		50,736		5,386		10.6	%
Non-recurring		3,004		1,702		1,302		76.5	%
Index total		157,751		141,577		16,174		11.4	%

Analytics
Recurring subscriptions		109,554		107,065		2,489		2.3	%
Non-recurring		1,737		1,276		461		36.1	%
Analytics total		111,291		108,341		2,950		2.7	%

All Other
Recurring subscriptions		18,329		17,569		760		4.3	%
Non-recurring		1,062		1,284		(222	)	(17.3	%)
All Other total		19,391		18,853		538		2.9	%

Total operating revenues	$	288,433	$	268,771	$	19,662		7.3	%

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

Operating Expenses

We group our operating expenses into the following activity categories:

•

Cost of revenues;

•

Selling and marketing;

•

Research and development (“R&D”);

•

General and administrative (“G&A”);

•

Amortization of intangible assets; and

•

Depreciation and amortization of property, equipment and leasehold improvements.

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

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

	Three Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Operating expenses:
Cost of revenues	$	62,986	$	65,593	$	(2,607	)	(4.0	%)
Selling and marketing		41,514		38,809		2,705		7.0	%
Research and development		18,750		15,548		3,202		20.6	%
General and administrative		21,859		19,960		1,899		9.5	%
Amortization of intangible assets		11,752		11,710		42		0.4	%
Depreciation and amortization of property, equipment and leasehold improvements		8,312		8,049		263		3.3	%
Total operating expenses	$	165,173	$	159,669	$	5,504		3.4	%

Total operating expenses increased 3.4% to $165.2 million for the three months ended September 30, 2016 compared to $159.7 million for the three months ended September 30, 2015. Adjusting for the impact of foreign currency exchange rate fluctuations, total operating expenses would have increased 5.4% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

Cost of Revenues

Cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related information technology costs, including data center, platform and infrastructure costs; costs to acquire, produce and maintain market data information; costs of research to support, maintain and rebalance existing products; costs of product management teams; costs of client service and consultant teams to support customer needs; and other support costs directly attributable to the cost of revenues including certain human resources, finance and legal costs. Cost of revenues decreased 4.0% to $63.0 million for the three months ended September 30, 2016 compared to $65.6 million for the three months ended September 30, 2015, primarily driven by lower compensation and benefits costs, as well as a decrease in non-compensation information technology costs and professional fees.

Selling and Marketing

Selling and marketing consists of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams, as well as costs incurred in other groups associated with acquiring new business, including product management, research, technology and sales operations. Selling and marketing expenses increased 7.0% to $41.5 million for the three months ended September 30, 2016 compared to $38.8 million for the three months ended September 30, 2015, primarily driven by higher incentive compensation, partially offset by lower salary expense and severance, as well as higher marketing and other costs.

Research and Development

R&D consists of the costs to develop new, or to enhance existing, products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily includes the costs of development, research, product management, project management and the technology support associated with these efforts. R&D expenses increased 20.6% to $18.8 million for the three months ended September 30, 2016 compared to $15.5 million for the three months ended September 30, 2015, primarily driven by higher compensation and benefits costs and higher non-compensation technology costs and professional fees, primarily within the Analytics segment.

General and Administrative

G&A consists of costs primarily related to finance operations, human resources, the office of the Chief Executive Officer, legal, corporate technology, corporate development and certain other administrative costs that are not directly attributed, but are instead allocated, to a product or service. G&A expenses increased 9.5% to $21.9 million for the three months ended September 30, 2016 compared to $20.0 million, primarily driven by higher compensation and benefits costs, partially offset by lower non-compensation recruiting costs.

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

	Three Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Compensation and benefits	$	102,725	$	98,490	$	4,235	4.3	%
Non-compensation expenses		42,384		41,420		964	2.3	%
Amortization of intangible assets		11,752		11,710		42	0.4	%
Depreciation and amortization of property, equipment and leasehold improvements		8,312		8,049		263	3.3	%
Total operating expenses	$	165,173	$	159,669	$	5,504	3.4	%

Compensation and benefits costs are our most significant expense and typically represent more than 60% of operating expenses or more than 70% of Adjusted EBITDA expenses. We had 2,802 and 2,743 employees as of September 30, 2016 and 2015, respectively. Continued growth of our emerging market centers around the world is an important factor in our ability to manage and

control the growth of our compensation and benefit expenses. As of September 30, 2016, 55.6% of our employees were located in emerging market centers compared to 52.2% as of September 30, 2015.

Compensation and benefits expenses increased 4.3% to $102.7 million for the three months ended September 30, 2016 compared to $98.5 million for the three months ended September 30, 2015 due to higher incentive compensation, partially offset by lower salary expense, driven by the higher percentage of employees in emerging market centers which have lower cost structures, as well as lower severance.

Non-compensation expenses increased 2.3% to $42.4 million for the three months ended September 30, 2016 compared to $41.4 million for the three months ended September 30, 2015, primarily driven by marketing, professional fees, travel & entertainment, partially offset by lower recruiting costs.

Amortization of Intangible Assets

Amortization of intangible assets expense increased 0.4% to $11.8 million for the three months ended September 30, 2016 compared to $11.7 million for the three months ended September 30, 2015.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements increased 3.3% to $8.3 million for the three months ended September 30, 2016 compared to $8.0 million for the three months ended September 30, 2015.

Other Expense (Income), Net

Other expense (income), net increased 155.8% to $25.7 million for the three months ended September 30, 2016 compared to $10.1 million for the three months ended September 30, 2015. The increase was driven by $9.5 million of higher interest expense resulting from the increased level of indebtedness as well as the impact from a $6.3 million gain on the sale of an investment realized in the three months ended September 30, 2015.

Income Taxes

The provision for income tax expense decreased 6.9% to $32.2 million for the three months ended September 30, 2016 compared to $34.6 million for the three months ended September 30, 2015 on lower income from continuing operations and a decline in the effective tax rate. These amounts reflect effective tax rates of 33.1% and 35.0% for the three months ended September 30, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily driven by efforts to better align our tax profile with our global operating footprint.

The effective tax rate of 33.1% for the three months ended September 30, 2016 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $1.0 million related to interest received on tax refunds and additional deductions on filing the 2015 tax return that decreased the Company’s effective tax rate by 1.0 percentage point.

Net Income

As a result of the factors described above, net income for the three months ended September 30, 2016 increased 1.4% to $65.3 million compared to $64.4 million for the three months ended September 30, 2015.

Adjusted EBITDA

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

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

Adjusted EBITDA and Adjusted EBITDA expenses are believed to be meaningful measures of the operating performance of the Company because they adjust for significant one-time, unusual or non-recurring items as well as eliminate the accounting effects of capital spending and acquisitions that do not directly affect what management considers to be the Company’s core operating

performance in the period. All companies do not calculate adjusted EBITDA and adjusted EBITDA expenses in the same way. These measures can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Accordingly, the Company’s computation of the Adjusted EBITDA and Adjusted EBITDA expenses measures may not be comparable to similarly titled measures computed by other companies.

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

	Three Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues	$	288,433		$	268,771		$	19,662	7.3	%
Adjusted EBITDA expenses		145,109			139,910			5,199	3.7	%
Adjusted EBITDA	$	143,324		$	128,861		$	14,463	11.2	%
Adjusted EBITDA margin %		49.7	%		47.9	%
Operating margin %		42.7	%		40.6	%

Adjusted EBITDA increased 11.2% to $143.3 million for the three months ended September 30, 2016 compared to $128.9 million for the three months ended September 30, 2015. Adjusted EBITDA margin increased to 49.7% for the three months ended September 30, 2016 compared to 47.9% for the three months ended September 30, 2015. The improvement in margin reflects higher rate of growth in operating revenues, primarily attributable to higher recurring subscriptions within the Index segment, as compared to the rate of growth to expenses.

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

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

	Three Months Ended
	September 30,
	2016		2015
	(in thousands)
Index Adjusted EBITDA	$	111,750	$	102,927
Analytics Adjusted EBITDA		31,501		29,216
All Other Adjusted EBITDA		73		(3,282	)
Consolidated Adjusted EBITDA		143,324		128,861
Amortization of intangible assets		11,752		11,710
Depreciation and amortization of property, equipment and leasehold improvements		8,312		8,049
Operating income		123,260		109,102
Other expense (income), net		25,738		10,060
Provision for income taxes		32,241		34,644
Income from continuing operations		65,281		64,398
Income (loss) from discontinued operations, net of income taxes		—		—
Net income	$	65,281	$	64,398

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

	Three Months Ended
	September 30,
	2016		2015
	(in thousands)
Index Adjusted EBITDA expenses	$	46,001	$	38,650
Analytics Adjusted EBITDA expenses		79,790		79,125
All Other Adjusted EBITDA expenses		19,318		22,135
Consolidated Adjusted EBITDA expenses		145,109		139,910
Amortization of intangible assets		11,752		11,710
Depreciation and amortization of property, equipment and leasehold improvements		8,312		8,049
Total operating expenses	$	165,173	$	159,669

The discussion of our segment results for the three months ended September 30, 2016 and 2015 is presented below.

Segment Results

Index Segment

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

	Three Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	98,625		$	89,139		$	9,486	10.6	%
Asset-based fees		56,122			50,736			5,386	10.6	%
Non-recurring		3,004			1,702			1,302	76.5	%
Operating revenues total		157,751			141,577			16,174	11.4	%
Adjusted EBITDA expenses		46,001			38,650			7,351	19.0	%
Adjusted EBITDA	$	111,750		$	102,927		$	8,823	8.6	%
Adjusted EBITDA margin %		70.8	%		72.7	%

Revenues related to Index products increased 11.4% to $157.8 million for the three months ended September 30, 2016 compared to $141.6 million for the three months ended September 30, 2015.

Recurring subscriptions were up 10.6% to $98.6 million for the three months ended September 30, 2016 compared to $89.1 million for the three months ended September 30, 2015, primarily driven by growth in benchmark and data products broadly, with growth in core products, factor and thematic products, usage fees and custom products.

Non-recurring revenues were $3.0 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively.

Index segment Adjusted EBITDA expenses increased 19.0% to $46.0 million for the three months ended September 30, 2016 compared to $38.7 million for the three months ended September 30, 2015, primarily reflecting higher selling and marketing costs and cost of revenues. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 21.3% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

Analytics Segment

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

	Three Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	109,554		$	107,065		$	2,489	2.3	%
Non-recurring		1,737			1,276			461	36.1	%
Operating revenues total		111,291			108,341			2,950	2.7	%
Adjusted EBITDA expenses		79,790			79,125			665	0.8	%
Adjusted EBITDA	$	31,501		$	29,216		$	2,285	7.8	%
Adjusted EBITDA margin %		28.3	%		27.0	%

Analytics segment revenues increased 2.7% to $111.3 million for the three months ended September 30, 2016 compared to $108.3 million for the three months ended September 30, 2015, primarily driven by higher revenues from equity models, as well as higher revenues from RiskManager and InvestorForce products. Adjusting for foreign currency exchange rate fluctuations, Analytics segment revenues would have increased 4.1% for the three months ended September 30, 2016.

Analytics segment Adjusted EBITDA expenses increased 0.8% to $79.8 million for the three months ended September 30, 2016 compared to $79.1 million for the three months ended September 30, 2015, primarily driven by higher R&D costs, partially offset by lower cost of revenues. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 2.4% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

All Other Segment

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

	Three Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues:
Recurring subscriptions	$	18,329		$	17,569		$	760		4.3	%
Non-recurring		1,062			1,284			(222	)	(17.3	%)
Operating revenues total		19,391			18,853			538		2.9	%
Adjusted EBITDA expenses		19,318			22,135			(2,817	)	(12.7	%)
Adjusted EBITDA	$	73		$	(3,282	)	$	3,355		102.2	%
Adjusted EBITDA margin %		0.4	%		(17.4	%)

All Other segment revenues increased 2.9% to $19.4 million for the three months ended September 30, 2016 compared to $18.9 million for the three months ended September 30, 2015. The increase in All Other revenues was driven by a $1.8 million, or 18.3%, increase in ESG revenues to $11.5 million, partially offset by a $1.2 million, or 13.5%, decrease in Real Estate revenues to $7.9 million. Adjusting for the impact of foreign currency exchange rate fluctuations and the divestiture of the Real Estate occupiers business, Real Estate products would have increased 5.5% and All Other operating revenues would have increased 12.4% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

All Other segment Adjusted EBITDA expenses decreased 12.7% to $19.3 million for the three months ended September 30, 2016 compared to $22.1 million for the three months ended September 30, 2015, primarily driven by lower compensation and benefits costs attributable to Real Estate operations. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have decreased 9.5% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2015

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

	Nine Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands, except per share data)
Operating revenues	$	857,857		$	802,120		$	55,737		6.9	%
Operating expenses:
Cost of revenues		188,288			202,891			(14,603	)	(7.2	%)
Selling and marketing		125,057			122,485			2,572		2.1	%
Research and development		56,244			59,544			(3,300	)	(5.5	%)
General and administrative		65,768			62,417			3,351		5.4	%
Amortization of intangible assets		35,535			35,107			428		1.2	%
Depreciation and amortization of property, equipment and leasehold improvements		24,873			23,321			1,552		6.7	%
Total operating expenses		495,765			505,765			(10,000	)	(2.0	%)
Operating income		362,092			296,355			65,737		22.2	%
Other expense (income), net		73,249			32,237			41,012		127.2	%
Income from continuing operations before provision for income taxes		288,843			264,118			24,725		9.4	%
Provision for income taxes		96,238			94,079			2,159		2.3	%
Income from continuing operations		192,605			170,039			22,566		13.3	%
Income from discontinued operations, net of income taxes		—			(5,797	)		5,797		(100.0	%)
Net income	$	192,605		$	164,242		$	28,363		17.3	%

Earnings per basic common share:
From continuing operations	$	1.99		$	1.53		$	0.46		30.1	%
From discontinued operations		—			(0.05	)		0.05		(100.0	%)
Earnings per basic common share	$	1.99		$	1.48		$	0.51		34.5	%

Earnings per diluted common share:
From continuing operations	$	1.98		$	1.52		$	0.46		30.3	%
From discontinued operations		—			(0.05	)		0.05		(100.0	%)
Earnings per diluted common share	$	1.98		$	1.47		$	0.51		34.7	%

Operating margin		42.2	%		36.9	%

The following table presents operating revenues by type for the periods indicated:

	Nine Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Recurring subscriptions	$	684,578	$	641,625	$	42,953	6.7	%
Asset-based fees		154,455		147,776		6,679	4.5	%
Non-recurring		18,824		12,719		6,105	48.0	%

Total operating revenues	$	857,857	$	802,120	$	55,737	6.9	%

Total operating revenues grew 6.9% to $857.9 million for the nine months ended September 30, 2016 compared to $802.1 million for the nine months ended September 30, 2015.

Revenues from recurring subscriptions increased 6.7% to $684.6 million for the nine months ended September 30, 2016 compared to $641.6 million for the nine months ended September 30, 2015, primarily driven by growth in Index products, which

increased $27.7 million, or 10.6%. The impact on total recurring subscriptions from foreign currency exchange rate fluctuations was negligible.

Revenues from asset-based fees increased 4.5% to $154.5 million for the nine months ended September 30, 2016 compared to $147.8 million for the nine months ended September 30, 2015, primarily driven by a 16.9% increase in revenue from non-ETF passive funds, which was primarily due to initial fund fees recognized in the current year and a 43.7% increase in revenues from futures and options contracts based on MSCI indexes, driven by a 46.0% increase in total trading volumes. These increases were partially offset by a 1.5% decrease in revenue from ETFs linked to MSCI indexes, resulting from a 5.0% increase in average AUM which was offset by the impact of a change in the product mix.

The following table presents the average value of AUM in ETFs linked to MSCI indexes for the year-to-date periods indicated:

	Year-to-Date Average
	2015								2016
	March		June		September		December		March		June		September
AUM in ETFs linked to MSCI Indexes	$	392.5	$	417.0	$	417.4	$	418.8	$	407.9	$	423.5	$	438.1

Non-recurring revenues increased 48.0% to $18.8 million for the nine months ended September 30, 2016, compared to $12.7 million for the nine months ended September 30, 2015, primarily due to a payment received for the use of our indexes in connection with derivative products.

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

	Nine Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Operating revenues:
Index
Recurring subscriptions	$	289,409	$	261,729	$	27,680		10.6	%
Asset-based fees		154,455		147,776		6,679		4.5	%
Non-recurring		10,617		5,757		4,860		84.4	%
Index total		454,481		415,262		39,219		9.4	%

Analytics
Recurring subscriptions		328,636		318,871		9,765		3.1	%
Non-recurring		5,311		3,885		1,426		36.7	%
Analytics total		333,947		322,756		11,191		3.5	%

All Other
Recurring subscriptions		66,533		61,025		5,508		9.0	%
Non-recurring		2,896		3,077		(181	)	(5.9	%)
All Other total		69,429		64,102		5,327		8.3	%

Total operating revenues	$	857,857	$	802,120	$	55,737		6.9	%

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

Operating Expenses

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

	Nine Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Operating expenses:
Cost of revenues	$	188,288	$	202,891	$	(14,603	)	(7.2	%)
Selling and marketing		125,057		122,485		2,572		2.1	%
Research and development		56,244		59,544		(3,300	)	(5.5	%)
General and administrative		65,768		62,417		3,351		5.4	%
Amortization of intangible assets		35,535		35,107		428		1.2	%
Depreciation and amortization of property, equipment and leasehold improvements		24,873		23,321		1,552		6.7	%
Total operating expenses	$	495,765	$	505,765	$	(10,000	)	(2.0	%)

Total operating expenses decreased 2.0% to $495.8 million for the nine months ended September 30, 2016 compared to $505.8 million for the nine months ended September 30, 2015. The nine months ended September 30, 2015 reflected a $3.4 million total non-cash charge recorded within R&D. Adjusting for the impact of foreign currency exchange rate fluctuations, operating expenses would have been flat for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Cost of Revenues

Cost of revenues decreased 7.2% to $188.3 million for the nine months ended September 30, 2016 compared to $202.9 million for the nine months ended September 30, 2015, primarily driven by strong expense management, particularly in the Analytics segment, as reflected by lower compensation and benefits costs associated with lower average staffing levels and severance, as well as a decrease in non-compensation information technology and occupancy costs.

Selling and Marketing

Selling and marketing expenses increased 2.1% to $125.1 million for the nine months ended September 30, 2016 compared to $122.5 million for the nine months ended September 30, 2015, primarily driven by higher incentive compensation, partially offset by lower salary expense and severance, as well as higher marketing and other costs.

Research and Development

R&D expenses decreased 5.5% to $56.2 million for the nine months ended September 30, 2016 compared to $59.5 million for the nine months ended September 30, 2015, primarily due to an increase in capitalized software development costs. This includes a non-cash charge of $3.4 million related to the termination of a technology project in the Analytics segment recognized during the nine months ended September 30, 2015.

General and Administrative

G&A expenses increased 5.4% to $65.8 million for the nine months ended September 30, 2016 compared to $62.4 million for the nine months ended September 30, 2015, primarily driven by higher compensation and benefits costs.

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

	Nine Months Ended
	September 30,
	2016		2015		Increase/(Decrease)
	(in thousands)
Compensation and benefits	$	312,917	$	324,827	$	(11,910	)	(3.7	%)
Non-compensation expenses		122,440		122,510		(70	)	(0.1	%)
Amortization of intangible assets		35,535		35,107		428		1.2	%
Depreciation and amortization of property, equipment and leasehold improvements		24,873		23,321		1,552		6.7	%
Total operating expenses	$	495,765	$	505,765	$	(10,000	)	(2.0	%)

Compensation and benefits expenses decreased 3.7% to $312.9 million for the nine months ended September 30, 2016 compared to $324.8 million for the nine months ended September 30, 2015, primarily due to lower salary expense, severance and other benefits, as well as higher capitalized software development costs, partially offset by higher incentive compensation. The higher capitalized software development costs includes a non-cash charge of $2.9 million related to the termination of a technology project in the Analytics segment recognized during the nine months ended September 30, 2015.

Non-compensation expenses decreased 0.1% to $122.4 million for the nine months ended September 30, 2016 compared to $122.5 million for the nine months ended September 30, 2015, primarily driven by a decrease in occupancy and information technology costs, as well as a non-cash charge of $0.5 million related to the termination of a technology project in the Analytics segment recognized during the nine months ended September 30, 2015. These decreases were offset by increases in costs related to marketing, travel & entertainment and other expense items.

Amortization of Intangible Assets

Amortization of intangible assets expense increased 1.2% to $35.5 million for the nine months ended September 30, 2016 compared to $35.1 million for the nine months ended September 30, 2015.

Depreciation and Amortization of Property, Equipment and Leasehold Improvements

Depreciation and amortization of property, equipment and leasehold improvements increased 6.7% to $24.9 million for the nine months ended September 30, 2016 compared to $23.3 million for the nine months ended September 30, 2015, primarily reflecting higher depreciation of investments made in our information technology infrastructure.

Other Expense (Income), Net

Other expense (income), net increased 127.2% to $73.2 million for the nine months ended September 30, 2016 compared to $32.2 million for the nine months ended September 30, 2015, primarily driven by $33.1 million of higher interest expense resulting from the increased level of indebtedness, a $3.7 million charge for estimated losses associated with miscellaneous transactions, as well as the impact from a $6.3 million gain on the sale of an investment realized in the nine months ended September 30, 2015.

Income Taxes

The provision for income tax expense increased 2.3% to $96.2 million for the nine months ended September 30, 2016 compared to $94.1 million for the nine months ended September 30, 2015 on higher income from continuing operations, partially offset by a decline in the effective tax rate. These amounts reflect effective tax rates of 33.3% and 35.6% for the nine months ended September 30, 2016 and 2015, respectively. The decrease in the effective tax rate was primarily driven by efforts to better align our tax profile with our global operating footprint.

The effective tax rate of 33.3% for the nine months ended September 30, 2016 reflects the Company’s estimate of the effective tax rate for the period and was impacted by certain discrete items totaling $1.4 million related to interest received on tax refunds and additional deductions on filing the 2015 tax return that decreased the Company’s effective tax rate by 0.5 percentage points.

Net Income

As a result of the factors described above, net income for the nine months ended September 30, 2016 increased 17.3% to $192.6 million compared to $164.2 million for the nine months ended September 30, 2015.

Adjusted EBITDA

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

	Nine Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues	$	857,857		$	802,120		$	55,737		6.9	%
Adjusted EBITDA expenses		435,357			447,337			(11,980	)	(2.7	%)
Adjusted EBITDA	$	422,500		$	354,783		$	67,717		19.1	%
Adjusted EBITDA margin %		49.3	%		44.2	%
Operating margin %		42.2	%		36.9	%

Adjusted EBITDA increased 19.1% to $422.5 million for the nine months ended September 30, 2016 compared to $354.8 million for the nine months ended September 30, 2015. Adjusted EBITDA margin increased to 49.3% for the nine months ended September 30, 2016 compared to 44.2% for the nine months ended September 30, 2015. The improvement in margin reflects growth in operating revenues, primarily attributable to growth in Index subscriptions, combined with lower Adjusted EBITDA expenses, which reflects strong expense management.

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

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

	Nine Months Ended
	September 30,
	2016		2015
	(in thousands)
Index Adjusted EBITDA	$	318,317	$	293,997
Analytics Adjusted EBITDA		95,163		64,560
All Other Adjusted EBITDA		9,020		(3,774	)
Consolidated Adjusted EBITDA		422,500		354,783
Amortization of intangible assets		35,535		35,107
Depreciation and amortization of property, equipment and leasehold improvements		24,873		23,321
Operating income		362,092		296,355
Other expense (income), net		73,249		32,237
Provision for income taxes		96,238		94,079
Income from continuing operations		192,605		170,039
Income (loss) from discontinued operations, net of income taxes		—		(5,797	)
Net income	$	192,605	$	164,242

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

	Nine Months Ended
	September 30,
	2016		2015
	(in thousands)
Index Adjusted EBITDA expenses	$	136,164	$	121,265
Analytics Adjusted EBITDA expenses		238,784		258,196
All Other Adjusted EBITDA expenses		60,409		67,876
Consolidated Adjusted EBITDA expenses		435,357		447,337
Amortization of intangible assets		35,535		35,107
Depreciation and amortization of property, equipment and leasehold improvements		24,873		23,321
Total operating expenses	$	495,765	$	505,765

The discussion of our segment results for the nine months ended September 30, 2016 and 2015 is presented below.

Segment Results

Index Segment

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

	Nine Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues
Recurring subscriptions	$	289,409		$	261,729		$	27,680	10.6	%
Asset-based fees		154,455			147,776			6,679	4.5	%
Non-recurring		10,617			5,757			4,860	84.4	%
Operating revenues total		454,481			415,262			39,219	9.4	%
Adjusted EBITDA expenses		136,164			121,265			14,899	12.3	%
Adjusted EBITDA	$	318,317		$	293,997		$	24,320	8.3	%
Adjusted EBITDA margin %		70.0	%		70.8	%

Revenues related to Index products increased 9.4% to $454.5 million for the nine months ended September 30, 2016 compared to $415.3 million for the nine months ended September 30, 2015.

Recurring subscriptions increased 10.6% to $289.4 million for the nine months ended September 30, 2016 compared to $261.7 million for the nine months ended September 30, 2015, primarily driven by growth in benchmark and data products.

Revenues from asset-based fees increased 4.5% to $154.5 million for the nine months ended September 30, 2016 compared to $147.8 million for the nine months ended September 30, 2015, primarily driven by higher revenues from non-ETF passive funds and futures and options contracts based on MSCI indexes, partially offset by lower revenue from ETFs linked to MSCI indexes.

Non-recurring revenues increased 84.4% to $10.6 million for the nine months ended September 30, 2016, which includes a $2.3 million payment received for the use of our indexes in connection with derivative products, compared to $5.8 million for the nine months ended September 30, 2015.

Index segment Adjusted EBITDA expenses increased 12.3% to $136.2 million for the nine months ended September 30, 2016 compared to $121.3 million for the nine months ended September 30, 2015, primarily reflecting higher compensation and benefits costs mainly within selling and marketing, R&D and G&A. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have increased 14.8% for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Analytics Segment

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

	Nine Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues
Recurring subscriptions	$	328,636		$	318,871		$	9,765		3.1	%
Non-recurring		5,311			3,885			1,426		36.7	%
Operating revenues total		333,947			322,756			11,191		3.5	%
Adjusted EBITDA expenses		238,784			258,196			(19,412	)	(7.5	%)
Adjusted EBITDA	$	95,163		$	64,560		$	30,603		47.4	%
Adjusted EBITDA margin %		28.5	%		20.0	%

Analytics segment revenues increased 3.5% to $333.9 million for the nine months ended September 30, 2016 compared to $322.8 million for the nine months ended September 30, 2015, primarily driven by higher recurring subscriptions from RiskManager and equity models products. There was a negligible impact from foreign currency exchange rate fluctuations on Analytics operating revenues for the nine months ended September 30, 2016.

Analytics segment Adjusted EBITDA expenses decreased 7.5% to $238.8 million for the nine months ended September 30, 2016 compared to $258.2 million for the nine months ended September 30, 2015, primarily driven by lower compensation and benefits costs, attributable to growth in emerging market centers and higher capitalized software development costs, as well as lower non-compensation costs, including technology and occupancy costs. The decrease included the impact of a non-cash charge of $3.4 million related to the termination of a technology project recognized during the nine months ended September 30, 2015. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have decreased 6.0% for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

All Other Segment

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

	Nine Months Ended
	September 30,
	2016			2015			Increase/(Decrease)
	(in thousands)
Operating revenues
Recurring subscriptions	$	66,533		$	61,025		$	5,508		9.0	%
Non-recurring		2,896			3,077			(181	)	(5.9	%)
Operating revenues total		69,429			64,102			5,327		8.3	%
Adjusted EBITDA expenses		60,409			67,876			(7,467	)	(11.0	%)
Adjusted EBITDA	$	9,020		$	(3,774	)	$	12,794		339.0	%
Adjusted EBITDA margin %		13.0	%		(5.9	%)

All Other segment revenues increased 8.3% to $69.4 million for the nine months ended September 30, 2016 compared to $64.1 million for the nine months ended September 30, 2015. The increase in All Other revenues was primarily driven by a $5.5 million, or 19.7%, increase in ESG revenues to $33.2 million, while Real Estate revenues decreased $0.1 million, or 0.3%, to $36.3 million.

Adjusting for the impact of foreign currency exchange rate fluctuations and the divestiture of the Real Estate occupiers business, Real Estate products would have increased 7.4% and All Other operating revenues would have increased 12.9% for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

All Other segment Adjusted EBITDA expenses decreased 11.0% to $60.4 million for the nine months ended September 30, 2016 compared to $67.9 million for the nine months ended September 30, 2015, primarily driven by lower compensation and benefits costs attributable to Real Estate operations. Adjusting for the impact of foreign currency exchange rate fluctuations, Adjusted EBITDA expenses would have decreased 8.1% for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Run Rate

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

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

•

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

•

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

•

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

•

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

•

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

•

price changes;

•

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

•

fluctuations in foreign exchange rates; and

•

the impact of acquisitions and dispositions.

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

	As of
	September 30,		September 30,		June 30,		Year-Over-Year			Sequential
		2016		2015	2016		Comparison			Comparison
	(in thousands)
Index:
Recurring subscriptions	$	395,601	$	361,209	$	387,679		9.5	%		2.0	%
Asset-based fees		212,224		187,818		195,298		13.0	%		8.7	%
Index total		607,825		549,027		582,977		10.7	%		4.3	%

Analytics		452,323		430,377		449,062		5.1	%		0.7	%

All Other		86,738		82,877		86,924		4.7	%		(0.2	%)

Total Run Rate	$	1,146,886	$	1,062,281	$	1,118,963		8.0	%		2.5	%

Recurring subscriptions total	$	934,662	$	874,463	$	923,665		6.9	%		1.2	%
Asset-based fees		212,224		187,818		195,298		13.0	%		8.7	%
Total Run Rate	$	1,146,886	$	1,062,281	$	1,118,963		8.0	%		2.5	%

Total Run Rate grew 8.0% to $1,146.9 million at September 30, 2016 compared to $1,062.3 million at September 30, 2015. Recurring subscriptions Run Rate grew 6.9% to $934.7 million at September 30, 2016 compared to $923.7 million at September 30, 2015.

Run Rate from asset-based fees increased 13.0% to $212.2 million at September 30, 2016 from $187.8 million at September 30, 2015, primarily driven by higher growth in ETFs linked to MSCI indexes, non-ETF passive funds and futures and options contracts based on MSCI indexes. As of September 30, 2016, the value of AUM in ETFs linked to MSCI indexes was $474.9 billion, up $84.7 billion, or 21.7%, from $390.2 billion as of September 30, 2015. The increase of $84.7 billion consisted of net inflows of $50.7 billion and market appreciation of $34.0 billion.

Index recurring subscriptions Run Rate grew 9.5% to $395.6 million at September 30, 2016 compared to $361.2 million at September 30, 2015 driven by growth in core products, factor and thematic products, usage fees and custom products.

Run Rate from Analytics products increased 5.1% to $452.3 million at September 30, 2016 compared to $430.4 million at September 30, 2015, primarily driven by growth in sales of equity models, RiskManager and InvestorForce products.

Run Rate from All Other products increased 4.7% to $86.7 million at September 30, 2016 compared to $82.9 million at September 30, 2015, driven by an $8.0 million, or 20.6%, increase in ESG Run Rate, partially offset by a $4.2 million, or 9.4%, decrease in Real Estate Run Rate. The increase in ESG Run Rate was driven by higher sales of ESG Ratings products. Adjusting for the impact of foreign currency exchange rate fluctuations and the divestiture of the Real Estate occupiers business, at September 30, 2016 Real Estate Run Rate would have increased 1.9%, and All Other Run Rate would have increased 11.4% compared to September 30, 2015.

Subscription Sales

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

	Three Months Ended
	September 30,			September 30,			June 30,			Year Over			Sequential
	2016			2015			2016			Year Comparison			Comparison
	(in thousands)
New recurring subscription sales
Index	$	11,758		$	11,810		$	13,139			(0.4	%)		(10.5	%)
Analytics		13,131			10,390			11,149			26.4	%		17.8	%
All Other		3,877			3,308			4,481			17.2	%		(13.5	%)
New recurring subscription sales total		28,766			25,508			28,769			12.8	%		(0.0	%)

Subscription cancellations
Index		(3,840	)		(3,852	)		(4,096	)		(0.3	%)		(6.3	%)
Analytics		(10,530	)		(4,898	)		(9,015	)		115.0	%		16.8	%
All Other		(1,903	)		(2,165	)		(2,243	)		(12.1	%)		(15.2	%)
Subscription cancellations total		(16,273	)		(10,915	)		(15,354	)		49.1	%		6.0	%

Net new recurring subscription sales
Index		7,918			7,958			9,043			(0.5	%)		(12.4	%)
Analytics		2,601			5,492			2,134			(52.6	%)		21.9	%
All Other		1,974			1,143			2,238			72.7	%		(11.8	%)
Net new recurring subscription sales total		12,493			14,593			13,415			(14.4	%)		(6.9	%)

Non-recurring sales
Index		5,468			1,719			5,379			218.1	%		1.7	%
Analytics		2,330			1,381			1,429			68.7	%		63.1	%
All Other		774			1,054			1,132			(26.6	%)		(31.6	%)
Non-recurring sales total		8,572			4,154			7,940			106.4	%		8.0	%

Total Index	$	13,386		$	9,677		$	14,422			38.3	%		(7.2	%)
Total Analytics		4,931			6,873			3,563			(28.3	%)		38.4	%
Total All Other		2,748			2,197			3,370			25.1	%		(18.5	%)
Total net sales	$	21,065		$	18,747		$	21,355			12.4	%		(1.4	%)

Aggregate Retention Rate

The following table presents our Aggregate Retention Rate by reportable segment for the periods indicated:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2016		2015			2016		2015
Index		95.8	%	95.4	%		95.9	%	96.0	%
Analytics		90.4	%	95.3	%		92.2	%	94.0	%
All Other		90.8	%	89.1	%		90.7	%	90.1	%

Total		92.7	%	94.8	%		93.6	%	94.4	%

The Aggregate Retention Rate for a period is calculated by annualizing the cancellations for which (1) we have received a notice of termination or (2) we believe there is an intention to not renew during the period and we believe that such notice or intention evidences the client’s final decision to terminate or not renew the applicable agreement, even though such notice is not effective until a later date. This annualized cancellation figure is then divided by the subscription Run Rate at the beginning of the year to calculate a cancellation rate. This cancellation rate is then subtracted from 100% to derive the annualized Aggregate Retention Rate for the period. The Aggregate Retention Rate is computed on a product-by-product basis. Therefore, if a client reduces the number of products to which it subscribes or switches between our products, we treat it as a cancellation. In addition, we treat any reduction in fees resulting from renegotiated contracts as a cancellation in the calculation to the extent of the reduction.

In our product lines, the Aggregate Retention Rate is generally higher during the first three fiscal quarters and lower in the fourth fiscal quarter.

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 and also in Note 2, “Recent Accounting Standards Updates,” in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. There have been no significant changes in our accounting policies or critical accounting estimates since the end of the fiscal year ended December 31, 2015.

Liquidity and Capital Resources

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

Senior Notes and Credit Agreement

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

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

On August 13, 2015, we completed the 2025 Senior Notes offering of $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025. The net proceeds from the offering of the 2025 Senior Notes were allocated for general corporate purposes.

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

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

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

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

On November 20, 2014, we entered into a $200.0 million senior unsecured revolving credit agreement (the “2014 Revolving Credit Agreement”) with a syndicate of banks. The 2014 Revolving Credit Agreement had an initial term of five years with an option to extend for two additional one year terms. On August 4, 2016, we entered into Amendment No. 1 (the “Amendment”) to the 2014 Revolving Credit Agreement (the 2014 Revolving Credit Agreement as so amended, the “Revolving Credit Agreement”). The Amendment, among other things, (i) permits us to increase aggregate commitments available to be borrowed to $220.0 million, (ii) increases the maximum consolidated leverage ratio from 3.75:1.00 to 4.25:1.00 and (iii) extends the initial term to August 2021 with an option to extend for an additional one-year term.

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

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

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

•

incur liens and further negative pledges;

•

incur additional indebtedness or prepay, redeem or repurchase indebtedness;

•

make loans or hold investments;

•

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

•

enter into acquisition transactions;

•

enter into sale/leaseback transactions;

•

issue disqualified capital stock;

•

sell, transfer or dispose of assets;

•

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

•

create new subsidiaries;

•

permit certain restrictions affecting our subsidiaries;

•

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

•

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

•

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

The Revolving Credit Agreement and the Indentures also contain customary events of default, including those relating to non-payment, breach of representations, warranties or covenants, cross-default and cross-acceleration, bankruptcy and insolvency events,

invalidity or impairment of loan documentation or collateral, change of control and customary ERISA defaults. None of the restrictions above are expected to impact our ability to effectively operate the business.

The Revolving Credit Agreement also requires us and our subsidiaries to achieve financial and operating results sufficient to maintain compliance with the following financial ratios on a consolidated basis through the termination of the Revolving Credit Agreement: (1) the maximum Consolidated Leverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall not exceed 4.25:1.00 and (2) the minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) measured quarterly on a rolling four-quarter basis shall be at least 4.00:1.00. As of September 30, 2016, our Consolidated Leverage Ratio was 3.62:1.00 and our Consolidated Interest Coverage Ratio was 6.26:1.00. There were no amounts drawn under the Revolving Credit Facility since its November 20, 2014 inception.

Our non-guarantor subsidiaries of the Senior Notes consist of: (i) domestic subsidiaries of the Company that account for 5% or less of consolidated assets of the Company and its subsidiaries and (ii) any foreign or domestic subsidiary of the Company that is deemed to be a controlled foreign corporation within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended. Our non-guarantor subsidiaries accounted for approximately $206.9 million, or 18.3%, of our total revenue for the trailing 12 months ended September 30, 2016, approximately $127.5 million, or 27.2%, of our consolidated operating income for the trailing 12 months ended September 30, 2016, and approximately $456.6 million, or 13.8%, of our consolidated total assets (excluding intercompany assets) and $165.3 million, or 6.0%, of our consolidated total liabilities, in each case as of September 30, 2016.

Share Repurchases

Cash Dividend

Cash Flows

	As of
	September 30,		December 31,
		2016		2015
	(in thousands)
Cash and cash equivalents	$	974,062	$	777,706

Cash and cash equivalents were $974.1 million and $777.7 million as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016 and December 31, 2015, $187.6 million and $128.1 million, respectively, of the cash and cash equivalents were held by foreign subsidiaries, which could be subject to U.S. federal income taxation on repatriation to the U.S. and some of which could be subject to local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash is further restricted by local laws. The increase in cash and cash equivalents held by foreign subsidiaries since year end primarily reflects ongoing efforts to better align our tax profile with our global operating footprint. We expect the cash balance to continue to grow outside the U.S. over time.

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

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

	Nine Months Ended
	September 30,
		2016		2015
	(in thousands)
Cash provided by operating activities	$	297,030		$	224,672
Cash used in investing activities		(31,496	)		(30,532	)
Cash (used in) provided by financing activities		(65,278	)		296,033
Effect of exchange rate changes		(3,900	)		(5,484	)
Net increase in cash	$	196,356		$	484,689

Cash Flows From Operating Activities

Cash flows from operating activities consist of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was $297.0 million and $224.7 million for the nine months ended September 30, 2016 and 2015, respectively. The year-over-year increase reflects higher billings and collections from customers, a decrease in cash expenses and lower cash payments for income taxes, including the impact of refunds, partially offset by higher interest payments.

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

Cash Flows From Investing Activities

Cash used in investing activities was $31.5 million and $30.5 million for the nine months ended September 30, 2016 and 2015, respectively.

Cash Flows From Financing Activities

Cash used in financing activities was $65.3 million for the nine months ended September 30, 2016 compared to cash provided by financing activities of $296.0 million for the nine months ended September 30, 2016. The year-over-year decrease primarily reflects the impact of lower proceeds from borrowings and increased repurchases of treasury shares.

Off-Balance Sheet Arrangements

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

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

For all operations outside the U.S. where the Company has designated the local non-U.S. dollar currency as the functional currency, revenue and expenses are translated using average monthly exchange rates and assets and liabilities are translated into U.S. dollars using month-end exchange rates. For these operations, currency translation adjustments arising from a change in the rate of exchange between the functional currency and the U.S. dollar are accumulated in a separate component of shareholders’ equity. In addition, transaction gains and losses arising from a change in exchange rates for transactions denominated in a currency other than the functional currency of the entity are reflected in non-operating “Other expense (income), net” in our Unaudited Condensed Consolidated Statement of Income.

We generally invoice our clients in U.S. dollars; however, we invoice a portion of our clients in Euros, British pounds sterling, Japanese yen and a limited number of other non-U.S. dollar currencies. For the nine months ended September 30, 2016 and 2015, 17.3% and 18.2%, respectively, of our revenues are subject to foreign currency exchange rate risk and primarily includes clients billed in foreign currency as well as U.S. dollar exposures on non-U.S. dollar foreign operating entities. Of the 17.3% of non-U.S. dollar exposure for the nine months ended September 30, 2016, 35.1% was in British pounds sterling, 35.0% was in Euros and 24.7% was in Japanese yen. Of the 18.2% of non-U.S. dollar exposure for the nine months ended September 30, 2015, 36.5% was in British pounds sterling, 36.5% was in Euros and 21.0% was in Japanese yen.

Revenues from index-linked investment products represented 18.0% and 18.4% of operating revenues for the nine months ended September 30, 2016 and 2015, respectively. While a substantial portion of our fees for index-linked investment products are invoiced in U.S. dollars, the fees are based on the investment product’s assets, of which approximately two-thirds are invested in securities denominated in currencies other than the U.S. dollar. Accordingly, declines in such other currencies against the U.S. dollar will decrease the fees payable to us under such licenses. In addition, declines in such currencies against the U.S. dollar could impact the attractiveness of such investment products resulting in net fund outflows, which would further reduce the fees payable under such licenses.

We are exposed to additional foreign currency risk in certain of our operating costs. Approximately 38.9% and 41.4% of our operating expenses, including operating expense attributable to income (loss) from discontinued operations, net of income taxes, for the nine months ended September 30, 2016 and 2015, respectively, were denominated in foreign currencies, the significant majority of which were denominated in British pounds sterling, Indian rupees, Swiss francs, Hungarian forints, Hong Kong dollars, Euros, Mexican pesos and Chinese yuan. Expenses incurred in foreign currency may increase as we expand our business outside the U.S.

We have certain monetary assets and liabilities denominated in currencies other than local functional amounts and when these balances were remeasured into their local functional currency, either a gain or a loss resulted from the change of the value of the functional currency as compared to the originating currencies. We manage foreign currency exchange rate risk, in part, through the use of derivative financial instruments comprised principally of forward contracts on foreign currency which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the income statement impact associated with amounts denominated in certain foreign currencies. We recognized total foreign currency exchange gains of $0.6 million for the nine months ended September 30, 2016 compared to foreign currency exchange losses of $2.4 million for the nine months ended September 30, 2015.

Item 4.

Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of September 30, 2016, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER FINANCIAL INFORMATION

The interim financial information included in this Quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2016 and 2015 has not been audited by PricewaterhouseCoopers LLP (“PwC”). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Readers should restrict reliance on PwC’s reports on such information accordingly. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its reports on interim financial information, because such reports do not constitute “reports” or “parts” of registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.

PART II

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

There have been no material changes since December 31, 2015 to the significant risk factors and uncertainties known to the Company that, if they were to materialize or occur, would individually or in the aggregate, have a material effect on MSCI’s business, operating results, financial condition or cash flows.

For a discussion of the risk factors affecting the Company, see “Risk Factors” in Part I, Item 1A of our Form 10-K for fiscal year 2015.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

There have been no unregistered sales of equity securities.

The table below presents information with respect to purchases made by or on behalf of the Company of its common shares during the three months ended September 30, 2016.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Month #1
(July 1, 2016-July 31, 2016)		384,551	$	75.74		373,620	$	395,552,000

Month #2
(August 1, 2016- August 31, 2016)		935	$	87.23	—		$	395,552,000

Month #3
(September 1, 2016- September 30, 2016)		1,028	$	86.51	—		$	395,552,000

Total		386,514	$	75.80		373,620	$	395,552,000

⁽¹⁾

Includes (i) shares purchased by the Company on the open market; (ii) shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying restricted stock units; (iii) shares withheld to satisfy tax withholding obligations and exercise price on behalf of employees that occur upon exercise and delivery of outstanding shares underlying stock options; and (iv) shares held in treasury under the MSCI Inc. Non-Employee Directors Deferral Plan. The value of the shares withheld were determined using the fair market value of the Company’s common stock on the date of withholding, using a valuation methodology established by the Company. The amount also includes shares repurchased under the 2015 Repurchase Program.

⁽²⁾	See Note 7, “Shareholders’ Equity” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding our stock repurchase programs.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

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

SIGNATURES

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

Dated: October 28, 2016

MSCI INC. (Registrant)

By:	/s/ Kathleen A. Winters
	Kathleen A. Winters Chief Financial Officer, Principal Financial Officer

EXHIBIT INDEX

MSCI INC.

QUARTER ENDED SEPTEMBER 30, 2016

	Exhibit Number	Description

	3.1	Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)

	3.2	Amended and Restated By-laws (filed as Exhibit 3.2 to the Company’s Form 10-Q (File No. 001-33812), filed with the SEC on May 4, 2012 and incorporated by reference herein)

	4.1	Indenture, dated as of August 4, 2016, among MSCI Inc., each of the Subsidiary Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (filed as Exhibit 4.1 to the Company’s Form 8-K (File No. 001-33812), filed with the SEC on August 5, 2016 and incorporated by reference herein)

	4.2	Form of Note for MSCI Inc. 4.750% Senior Notes due August 1, 2026 (filed as Exhibit 4.2 to the Company’s Form 8-K (File No. 001-33812), filed with the SEC on August 5, 2016 and incorporated by reference herein)

	10.1	Amendment No. 1 to the Revolving Credit Agreement, dated August 4, 2016, among MSCI Inc., each of the Guarantors party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Company’s Form 8-K (File No. 001-33812), filed with the SEC on August 5, 2016 and incorporated by reference herein)

	11	Statement Re: Computation of Earnings Per Common Share (The calculation of per share earnings is in Part I, Item 1, 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)

*	15.1	Letter of awareness from PricewaterhouseCoopers LLP, dated October 28, 2016, 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

*	101.INS	XBRL Instance Document

*	101.SCH	XBRL Taxonomy Extension Schema Document

*	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

*	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

*	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

*	Filed herewith.
**	Furnished herewith.

EX-1