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Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases

8. LEASES

MSCI leases office space, data centers and certain equipment under non-cancellable operating lease agreements and determines if an arrangement is a lease at inception. The Company’s leases have remaining lease terms of up to approximately 13 years. Some of these leases have options to extend which, if exercised, would extend the maximum term to approximately 23 years. Some of the leases also provide for early termination, the exercise of which would shorten the term of those leases by up to 5 years. The Company does not currently have any financing lease arrangements.

Operating lease assets, net of initial direct costs and accumulated amortization are reflected in “Right of use assets,” with the corresponding present value of operating lease liabilities included in “Other accrued liabilities” and “Long-term operating lease liabilities” in the Unaudited Condensed Consolidated Statement of Financial Condition. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. MSCI uses its incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. The incremental borrowing rate reflects the rate of interest that MSCI would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determined its incremental borrowing rates by starting with the rates on its currently outstanding Senior Notes and making adjustments for collateralization and the relevant duration of the associated leases. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.  

Lease expense is recognized on a straight-line basis over the lease term and is included in “Operating expenses” in the Unaudited Condensed Consolidated Statement of Income. Some of the Company’s lease agreements include rental payments adjusted periodically for inflation which are accounted for under ASC Subtopic 842-10, “Leases,” as variable lease amounts but are not reflected as a component of the Company’s lease liability. Certain leases also require the Company to pay real estate taxes, insurance, maintenance and other “Operating expenses” associated with the leased premises or equipment which are also not reflected as a component of the Company’s lease liability. While these expenses are also classified in “Operating expenses,” consistent with similar costs for office locations or equipment, they are not included as a component of the Company’s lease liability. The Company also subleases a small portion of its leased office space to third parties.

Under ASC Subtopic 842-10, the Company recognized a total of $7.2 million of operating lease expenses for the three months ended September 30, 2019 and $21.7 million of operating lease expenses for the nine months ended September 30, 2019. The amounts associated with variable lease costs, short-term lease costs and sublease income were not significant for both the three and nine months ended September 30, 2019.

For both the three and nine months ended September 30, 2018, the Company followed ASC Subtopic 840-10, “Leases,” which required the recognition of rent expense on a straight-line basis over the lease period. Rent expense for office space, including real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises, for the three and nine months ended September 30, 2018 was $6.0 million and $18.8 million, respectively.

Future minimum commitments for the Company’s operating leases accounted for in accordance with ASC Subtopic 842-10 in place as of September 30, 2019, the interest and other relevant line items in the Unaudited Condensed Consolidated Statement of Financial Condition are as follows:

 

Maturity of Lease Liabilities

 

Operating

 

(in thousands)

 

Leases

 

Remainder of 2019

 

$

5,417

 

2020

 

 

28,449

 

2021

 

 

26,232

 

2022

 

 

22,565

 

2023

 

 

21,931

 

After 2023

 

 

115,662

 

Total lease payments

 

$

220,256

 

Less: Interest

 

 

(35,865

)

Present value of lease liabilities

 

$

184,391

 

 

 

 

 

 

Other accrued liabilities

 

$

20,824

 

Long-term operating lease liabilities

 

$

163,567

 

 

Future minimum commitments for the Company’s office leases accounted for in accordance with ASC Subtopic 840-10 in place as of December 31, 2018 were as follows:

 

Years Ending December 31,

 

Amount

 

 

 

(in thousands)

 

2019

 

$

25,868

 

2020

 

 

24,619

 

2021

 

 

23,452

 

2022

 

 

21,832

 

2023

 

 

21,818

 

Thereafter

 

 

107,800

 

Total

 

$

225,389

 

 

Lease term and discount rate for the Company’s operating leases in place as of September 30, 2019 are as follows:

 

 

 

As of

 

 

 

September 30,

 

Lease Term and Discount Rate

 

2019

 

Weighted-average remaining lease term (years)

 

 

9.93

 

Weighted-average discount rate

 

 

3.50

%

 

Other information for the Company’s operating leases in place for the nine months ended September 30, 2019 are as follows:

 

 

 

Nine Months Ended

 

Other Information

 

September 30,

 

(in thousands)

 

2019

 

Operating cash flows from operating leases

 

$

22,573

 

Leased assets obtained in exchange for new operating lease liabilities(1)

 

$

205,202

 

 

(1) Includes the adjustment upon adoption of ASU 2016-02 of $197.5 million for leases recorded on January 1, 2019.