MSCI Inc. Reports Record Revenues for Third Quarter 2008

Business Wire, Oct 2, 2008

Our Aggregate Retention Rate remained at 93% for the year to date 2008 compared to 93% for year to date 2007.

In the nine months of 2008, we added 171 net new clients. At August 31, 2008, we had a total of 3,097 clients, excluding clients that only pay us asset based fees.

Operating Expenses

Operating expenses for year to date 2008 increased 21.7% to $218.0 million compared to year to date 2007. Excluding the founders grant, operating expenses increased 12.2% to $200.9 million for year to date 2008 with compensation expenses increasing 10.7% and non-compensation expenses increasing 15.0%. Expenses associated with replacing services currently provided by Morgan Stanley were $15.5 million in the first nine months of 2008. The allocation expense for cost of services provided by Morgan Stanley was $16.0 million for year to date 2008 compared to $19.8 million for year to date 2007.

Compensation expenses in the first nine months of 2008 includes $5.5 million of expenses attributable to staff hired to replace Morgan Stanley services. In addition, the increase compared to year to date 2007 reflects higher compensation costs for existing staff and new hires including personnel hired in emerging market centers. The increase in non-compensation expense reflects $10.1 million (including $0.6 million of depreciation expense) of expenses related to replacing Morgan Stanley services, $2.9 million of public company expenses, and $1.5 million of expenses associated with the May and July 2008 secondary equity offerings, partially offset by the decline in the expense allocation from Morgan Stanley of $3.8 million.

Interest Expense (Income) and Other, Net

Interest expense (income) and other, net was an expense of $16.3 million for year to date 2008 compared to income of $10.1 million for year to date 2007. The $26.4 million difference reflects an increase in interest expense due to interest paid on term loan borrowings under our credit facility, reduction of interest income resulting from lower cash balances and foreign currency losses. The foreign currency loss was $3.0 million for year to date 2008 compared to an insignificant loss for year to date 2007. The foreign currency loss for year to date 2008 primarily reflects the negative impact of the appreciation of the US dollar on our cash balances held in currencies other than the US dollar.

Provision for Income Taxes

The provision for income taxes decreased 6.9% to $33.8 million for year to date 2008 compared to year to date 2007 as a result of lower pre-tax income. The effective tax rate for year to date 2008 was 37.9% compared to 36.6% for year to date 2007. The increase is largely due to higher state taxes.

Net Income

Net income decreased 11.8% to $55.4 million for year to date 2008 from year to date 2007 and the net income margin decreased to 17.1% from 23.4%. The decline in net income primarily reflects higher compensation expense, founders grant expense incurred in year to date 2008, higher interest expense and lower interest income, which were offset, in part, by the increase in operating revenues. On a diluted per share basis, the decline was 26.7% which, in addition to the items cited above, also reflects a higher number of diluted shares for the first nine months of 2008 compared to the first nine months of 2007 due to the additional common shares issued in conjunction with our November 2007 IPO.