01—Abstract
Summary
Summary of the 10-K filed January 31, 2011. Cited figures are marked; the original filing is the authoritative source.
MSCI Inc. reported fiscal year 2010 (ended November 30, 2010) operating revenues of $662.9 milliona, up 49.7% from $442.9 million in fiscal 2009, with operating income of $206.1 million (up 36.5%) and net income of $92.2 million (up 12.7%).
Diluted EPS was $0.81b versus $0.80. The growth was driven largely by the June 2010 acquisition of RiskMetrics, a cash-and-stock transaction valued at approximately $1,572.4 million, and the July 2010 acquisition of Measurisk. Excluding the acquisitions, operating revenues and operating income increased 14.3% and 22.5%, respectively, per the filing.
Aggregate and Core Retention Rates were 87.2% and 88.1%, up from 83.7% and 84.3% in fiscal 2009. The balance sheet changed substantially. Total assets rose to $3,023.2 millionc from $1,200.3 million, goodwill and intangibles reached $2,422.9 million, and long-term debt rose to roughly $1.26 billion under a new $1,275.0 million six-year term loan and $100.0 million revolver.
Cash and cash equivalents were $226.6 milliond at year end. The company expects a roughly $56.0 million excess cash flow payment in the first quarter of 2011. Management reported that its leverage and interest coverage ratios were in compliance with its covenants.
The filing also announced a change in fiscal year end from November 30 to December 31, effective January 1, 2011. Key risks identified include dependence on ETF-linked asset-based fees, client concentration (the ten largest clients were 27.4% of revenue, and BlackRock alone was 9.9%), data supplier relationships, and the leverage added by the RiskMetrics acquisition.
02—Key points
Key Highlights
- Operating revenues rose 49.7% to $662.9 million in fiscal 2010, with approximately $156.7 million of the growth attributed to acquisitions made during the year.
- Operating income increased 36.5% to $206.1 million, and operating margin was 31.1% versus 34.1% in fiscal 2009.
- Net income was $92.2 million, or $0.81 per diluted share, compared with $81.8 million, or $0.80 per diluted share, in fiscal 2009.
- The RiskMetrics acquisition, completed June 1, 2010, was valued at approximately $1,572.4 million and was financed in part by a $1,275.0 million six-year senior secured term loan.
- Assets in ETFs linked to MSCI equity indices reached $311.0 billion at November 30, 2010, up 32.8% from $234.2 billion a year earlier, and asset-based fees were $105.8 million in index and ESG revenues.
- Aggregate Retention Rate improved to 87.2% from 83.7%, and Core Retention Rate improved to 88.1% from 84.3%, though both remained below pre-financial crisis peaks.
- The company changed its fiscal year end from November 30 to December 31, beginning January 1, 2011, with a December 2010 transition period to be reported separately.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed January 31, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $662.90M$442.95M | +49.7% |
| SG&A Expenses | $190.24M$135.78M | +40.1% |
| Operating Income | $206.12M$150.99M | +36.5% |
| Interest Expense | $51.34M$19.68M | +160.8% |
| Net Income | $92.17M$81.80M | +12.7% |
| EPS (Basic) | $0.82$0.80 | +2.5% |
| EPS (Diluted) | $0.81$0.80 | +1.3% |
| Shares Outstanding (Basic) | 112.07M100.61M | +11.4% |
| Shares Outstanding (Diluted) | 113.36M100.86M | +12.4% |
05—Questions
Frequently Asked Questions
What drove the large increase in MSCI's revenue and expenses in fiscal 2010?
The RiskMetrics acquisition on June 1, 2010, and the Measurisk acquisition on July 30, 2010, were the primary drivers. The filing states that approximately $156.7 million of the $220.0 million revenue increase came from acquisitions made during the year, and approximately $134.7 million of the $164.8 million operating expense increase was attributable to those acquisitions. Operating expenses also included $21.2 million of RiskMetrics transaction costs and $8.9 million of restructuring expense.
How much debt does MSCI carry, and what are the near-term repayment obligations?
At November 30, 2010, MSCI had $1,268.6 million of indebtedness under the New Credit Facility, including $56.0 million in current maturities. The filing states that the company will make a payment of approximately $56.0 million under the excess cash flow provision during the first quarter of 2011. The term loan matures in June 2016 and the revolver in June 2015. The effective combined rate on hedged and unhedged debt was 4.88% at year end.
How concentrated is MSCI's client base?
Revenues from the ten largest clients were 27.4% of total revenues in fiscal 2010, compared with 27.3% in fiscal 2009. BlackRock and its affiliates were the largest client organization, accounting for 9.9% of operating revenues, and approximately 82.9% of that revenue came from fees based on assets of ETFs linked to MSCI equity indices.
What are the main risks flagged by management for investors?
The filing highlights reliance on asset-based fees from index-linked products, which were 16.0% of revenues in fiscal 2010, and the possibility that clients negotiate lower fees or stop using MSCI indices. It also flags data supplier dependence and the risk that Broadridge may not renew the ISS data feed agreement when it expires in 2011. Other risks include integrating RiskMetrics, higher indebtedness, and goodwill and intangible assets of $2,422.9 million that could be impaired.
06—Continue