Item 8. Financial Statements and Supplementary Data

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements	Page
Report of Independent Registered Public Accounting Firm		58
Consolidated Statements of Financial Condition as of December 31, 2020 and December 31, 2019		60
Consolidated Statements of Income for the Years Ended December 31, 2020, December 31, 2019, and December 31, 2018		61
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, December 31, 2019, and December 31, 2018		62
Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended December 31, 2020, December 31, 2019, and December 31, 2018		63
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, December 31, 2019, and December 31, 2018		64
Notes to Consolidated Financial Statements		65

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of MSCI Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of MSCI Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of shareholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Unrecognized tax benefits

As described in Note 11 to the consolidated financial statements, the Company has $16.6 million of gross unrecognized tax benefits as of December 31, 2020. Management regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions in which it files income tax returns. Once unrecognized tax benefits are established, management adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. As part of management’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 are remeasured. The Company is under examination by the Internal Revenue Service (“IRS”) and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and 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 2007 through 2019.

The principal considerations for our determination that performing procedures relating to unrecognized tax benefits is a critical audit matter are (i) the significant judgment by management when determining unrecognized tax benefits including a high degree of estimation uncertainty relative to the numerous and complex tax laws, frequency of tax examinations, and the nature of intercompany transactions and tax positions; (ii) a high degree of auditor judgment, effort, and subjectivity in performing procedures to evaluate the timely identification and accurate measurement of unrecognized tax benefits; (iii) the evaluation of audit evidence available to support the unrecognized tax benefits is complex and required significant auditor judgment as the nature of the evidence is often highly subjective; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the unrecognized tax benefits, including controls relating to the completeness of balances and measurement of the unrecognized tax benefits. These procedures also included, among others (i) testing the information used in the calculation of the unrecognized tax benefits, including intercompany agreements, international, federal and state filing positions, and reviewing the final tax returns; (ii) testing the calculation of the unrecognized tax benefits, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each uncertain tax position; and (iv) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s unrecognized tax benefits, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained and the amount of potential benefit to be realized, the application of relevant tax laws, and estimated interest and penalties.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 12, 2021

We have served as the Company’s auditor since 2014.

MSCI INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

		As of
		December 31,				December 31,
		2020				2019
		(In thousands, except per share and share data)
ASSETS
Current assets:
Cash and cash equivalents		$	1,300,521			$	1,506,567
Accounts receivable, net of allowances			558,569				499,268
Prepaid income taxes			20,097				31,590
Prepaid and other assets			46,411				44,352
Total current assets			1,925,598				2,081,777
Property, equipment and leasehold improvements, net			80,446				90,708
Right of use assets			153,330				166,406
Goodwill			1,566,022				1,562,868
Intangible assets, net			234,748				261,487
Equity method investment			190,898				—
Deferred tax assets			23,627				20,911
Other non-current assets			23,978				20,282
Total assets		$	4,198,647			$	4,204,439
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	14,253			$	6,498
Income taxes payable			26,195				14,210
Accrued compensation and related benefits			161,557				166,273
Other accrued liabilities			143,894				139,149
Deferred revenue			675,870				574,656
Total current liabilities			1,021,769				900,786
Long-term debt			3,366,777				3,071,926
Long-term operating lease liabilities			152,342				164,144
Deferred tax liabilities			12,774				66,639
Other non-current liabilities			88,219				77,658
Total liabilities			4,641,881				4,281,153
Commitments and Contingencies (see Note 5 and Note 9)
Shareholders' equity (deficit):
Preferred Stock (par value $0.01, 100,000,000 shares authorized, no shares issued)			—				—
Common stock (par value $0.01; 750,000,000 common shares authorized; 132,829,175 and 132,419,412 common shares issued and 82,573,407 and 84,794,930 common shares outstanding at December 31, 2020 and December 31, 2019, respectively)			1,328				1,324
Treasury shares, at cost (50,255,768 and 47,624,482 common shares held at December 31, 2020 and December 31, 2019, respectively)			(4,342,535	)			(3,565,784	)
Additional paid-in capital			1,402,537				1,351,031
Retained earnings			2,554,295				2,199,294
Accumulated other comprehensive loss			(58,859	)			(62,579	)
Total shareholders' equity (deficit)			(443,234	)			(76,714	)
Total liabilities and shareholders' equity (deficit)		$	4,198,647			$	4,204,439

See Notes to Consolidated Financial Statements.

MSCI INC.

CONSOLIDATED STATEMENTS OF INCOME

		Years Ended
		December 31,				December 31,				December 31,
		2020					2019			2018
		(In thousands, except per share data)
Operating revenues		$	1,695,390			$	1,557,796			$	1,433,984
Operating expenses:
Cost of revenues			291,704				294,961				287,335
Selling and marketing			216,496				219,298				192,923
Research and development			101,053				98,334				81,411
General and administrative			114,627				110,093				99,882
Amortization of intangible assets			56,941				49,410				54,189
Depreciation and amortization of property, equipment and leasehold improvements			29,805				29,999				31,346
Total operating expenses			810,626				802,095				747,086
Operating income			884,764				755,701				686,898
Interest income			(5,030	)			(16,403	)			(19,669	)
Interest expense			156,324				148,041				133,114
Other expense (income)			47,245				20,745				(56,443	)
Other expense (income), net			198,539				152,383				57,002
Income before provision for income taxes			686,225				603,318				629,896
Provision for income taxes			84,403				39,670				122,011
Net income		$	601,822			$	563,648			$	507,885
Earnings per basic common share		$	7.19			$	6.66			$	5.83
Earnings per diluted common share		$	7.12			$	6.59			$	5.66
Weighted average shares outstanding used in computing earnings per share:
Basic			83,716				84,644				87,179
Diluted			84,517				85,536				89,701

See Notes to Consolidated Financial Statements.

MSCI INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
		(in thousands)
Net income		$	601,822			$	563,648			$	507,885
Other comprehensive income (loss):
Foreign currency translation adjustments			4,771				2,037				(14,113	)
Income tax effect			(62	)			(776	)			—
Foreign currency translation adjustments, net			4,709				1,261				(14,113	)
Pension and other post-retirement adjustments			(1,675	)			(6,477	)			2,351
Income tax effect			686				1,036				(227	)
Pension and other post-retirement adjustments, net			(989	)			(5,441	)			2,124
Net investment hedge adjustments			—				—				1,937
Income tax effect			—				—				—
Net investment hedge adjustments, net			—				—				1,937
Other comprehensive income (loss), net of tax			3,720				(4,180	)			(10,052	)
Comprehensive income		$	605,542			$	559,468			$	497,833

See Notes to Consolidated Financial Statements.

MSCI INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

																		Accumulated
										Additional								Other
		Common				Treasury				Paid-in				Retained				Comprehensive
		Stock				Stock				Capital				Earnings				Income (Loss)				Total
		(in thousands)
Balance at December 31, 2017		$	1,295			$	(2,321,989	)		$	1,264,849			$	1,505,204			$	(48,347	)		$	401,012
Net income															507,885								507,885
ASC Topic 606 Retained Earnings Adjustment															16,135								16,135
Dividends declared ($1.92 per common share)							(77	)			119				(172,273	)							(172,231	)
Other comprehensive income (loss), net of tax																			(10,052	)			(10,052	)
Common stock issued			5																				5
Compensation payable in common stock and options											40,838												40,838
Common stock repurchased and held in treasury							(949,888	)															(949,888	)
Common stock issued to Directors and (held in)/released from treasury							(820	)			17												(803	)
Exercise of stock options											605												605
Balance at December 31, 2018		$	1,300			$	(3,272,774	)		$	1,306,428			$	1,856,951			$	(58,399	)		$	(166,494	)
Net income															563,648								563,648
Dividends declared ($2.52 per common share)											230				(221,305	)							(221,075	)
Other comprehensive income (loss), net of tax																			(4,180	)			(4,180	)
Common stock issued			23																				23
Compensation payable in common stock and options											41,138												41,138
Common stock repurchased and held in treasury							(292,075	)															(292,075	)
Common stock issued to Directors and (held in)/released from treasury							(935	)															(935	)
Exercise of stock options			1								3,235												3,236
Balance at December 31, 2019		$	1,324			$	(3,565,784	)		$	1,351,031			$	2,199,294			$	(62,579	)		$	(76,714	)
Net income															601,822								601,822
Cumulative-effect adjustment															631								631
Dividends declared ($2.92 per common share)															(247,452	)							(247,452	)
Dividends paid in shares											186												186
Other comprehensive income (loss), net of tax																			3,720				3,720
Common stock issued			4																				4
Compensation payable in common stock											51,320												51,320
Common stock repurchased and held in treasury							(778,519	)															(778,519	)
Common stock issued to Directors and (held in)/released from treasury							1,768																1,768
Balance at December 31, 2020		$	1,328			$	(4,342,535	)		$	1,402,537			$	2,554,295			$	(58,859	)		$	(443,234	)

See Notes to Consolidated Financial Statements.

MSCI INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
		(in thousands)
Cash flows from operating activities
Net income		$	601,822			$	563,648			$	507,885
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets			56,941				49,410				54,189
Stock-based compensation expense			51,094				41,199				38,897
Depreciation and amortization of property, equipment and leasehold improvements			29,805				29,999				31,346
Amortization of right of use assets			24,049				22,489				—
Amortization of debt origination fees			4,445				4,073				3,715
Loss on extinguishment of debt			44,930				16,794				—
Deferred taxes			(55,645	)			(20,767	)			(780	)
Gain on divestitures, net of costs			—				—				(61,402	)
Other adjustments			1,744				1,093				(188	)
Changes in assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable			(57,606	)			(25,923	)			(153,942	)
Prepaid income taxes			11,608				(13,200	)			(4,069	)
Prepaid and other assets			(410	)			(7,698	)			(2,015	)
Accounts payable			7,482				2,584				2,300
Accrued compensation and related benefits			(2,641	)			25,217				8,532
Income taxes payable			9,576				(2,240	)			(2,890	)
Other accrued liabilities			1,674				3,664				29,096
Deferred revenue			98,330				35,366				185,077
Long-term operating lease liabilities			(22,497	)			(20,244	)			—
Other			6,408				4,059				(22,989	)
Net cash provided by operating activities			811,109				709,523				612,762
Cash flows from investing activities
Acquisition of equity method investment			(190,816	)			—				—
Capital expenditures			(21,826	)			(29,116	)			(30,257	)
Capitalized software development costs			(29,149	)			(24,654	)			(18,704	)
Acquisitions, net of cash acquired			—				(18,177	)			—
Proceeds from the sale of capital equipment			—				10				10
Proceeds from divestitures			—				—				83,825
Net cash (used in) provided by investing activities			(241,791	)			(71,937	)			34,874
Cash flows from financing activities
Proceeds from borrowings			1,405,000				1,000,000				500,000
Repayment of borrowings			(1,142,382	)			(513,125	)			—
Proceeds from exercise of stock options			-				3,236				605
Repurchase of common stock held in treasury			(778,519	)			(292,075	)			(949,888	)
Payment of dividends			(246,444	)			(222,922	)			(170,938	)
Payment of debt issuance costs in connection with debt			(16,693	)			(11,781	)			(6,262	)
Net cash used in financing activities			(779,038	)			(36,667	)			(626,483	)
Effect of exchange rate changes			3,674				1,472				(6,479	)
Net (decrease) increase in cash			(206,046	)			602,391				14,674
Cash and cash equivalent, beginning of period			1,506,567				904,176				889,502
Cash and cash equivalent, end of period		$	1,300,521			$	1,506,567			$	904,176
Supplemental disclosure of cash flow information:
Cash paid for interest		$	163,391			$	141,484			$	125,986
Cash paid for income taxes, net of refunds received		$	113,646			$	72,935			$	143,215
Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements in other accrued liabilities		$	3,061			$	3,690			$	2,999
Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid		$	1,438			$	1,039			$	862

See Notes to Consolidated Financial Statements.

MSCI INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. INTRODUCTION AND BASIS OF PRESENTATION

Organization

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”) provides critical decision support tools and services that bring greater transparency to the global financial markets. MSCI’s tools and services include indexes; portfolio construction tools and risk-management analytics; environmental, social and governance (“ESG”) and climate solutions; and real estate benchmarks, return analytics and market insights; much of which can be accessed by clients through multiple channels and platforms.

Basis of Presentation

The consolidated financial statements and accompanying notes to financial statements, which include the accounts of MSCI Inc. and its wholly-owned subsidiaries, are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Certain prior period amounts have been reclassified to conform to the current period presentation.

Significant Accounting Policies

Basis of Financial Statements and Use of Estimates

GAAP requires the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the 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, assessment of impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.

Inter-company balances and transactions are eliminated in consolidation.

Revenue Recognition

MSCI adopted the revenue standard set forth under Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers,” or ASC Topic 606, as of January 1, 2018 using the Modified Retrospective Approach and as such, applied ASC Topic 606 only to contracts that were not completed at the January 1, 2018 adoption date and did not adjust prior reporting periods. An adjustment was recorded within the Consolidated Statement of Financial Condition as of January 1, 2018. The adoption resulted in more revenue being recognized upfront or earlier in the life of new client contracts for certain of the Company’s products and services, including fees related to the licensing of certain desktop applications as they relate to the energy and commodity analytics products, implementation services as they relate to Analytics products and services and the Company’s hosted applications and set-up fees as they relate to the Company’s custom index products. ASC Topic 606 also has the impact of ratably allocating revenue recognition as it relates to multi-year subscriptions. The adoption of ASC Topic 606 also resulted in higher accounts receivable and deferred revenue balances. Under the previous accounting guidance, MSCI generally recorded the value of an invoice to accounts receivable and deferred revenue at the beginning of the service period began. Under ASC Topic 606, MSCI records accounts receivable and a corresponding offset to deferred revenue when an invoice is issued prior to satisfaction of the performance obligation. When performance obligations are satisfied prior to issuance of an invoice, MSCI records accounts receivable and a corresponding offset to operating revenues. See Note 3, “Revenue Recognition,” for further discussion of the impact of the change upon adoption of ASC Topic 606.

Performance Obligations and Transaction Price

For revenue arrangements containing multiple products or services, the Company accounts for the individual products or services as a separate performance obligation if they are distinct. A product or service is distinct if a client can benefit from it either on its own or together with other resources that are readily available to the client, and the Company’s promise to transfer the product or service to the client is separately identifiable from other promises in the contract. If both criteria are not met, the promised products or services are accounted for as a combined performance obligation.

A transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring products or services to the customer in general. The Company allocates the transaction price to each performance obligation identified in the contract based on the best estimate of a relative standalone selling price of each distinct product or service in the contract. To allocate the transaction price to each performance obligation on a relative standalone selling price basis, the Company determines the standalone selling price at contract inception of the distinct product or service underlying each performance obligation in proportion to the standalone selling prices. This standalone selling price may be the contract price but is more often than not the best estimate of the price the Company would receive for selling the product or service separately in similar circumstances and to other similar customers. A client can receive a discount for purchasing a bundle of products or services if the sum of the standalone selling price of those promised products or services in the contract exceeds the promised consideration in the contract. In general, the discounts apply proportionally to all performance obligations in the contract.

For services where the transaction price is variable based upon assets under management (“AUM”), volume of trades, fee levels or number of investments linked to MSCI’s indexes, the transaction price is based upon pricing models and is not allocated at the inception of the contract but rather falls within the sales and usage-based royalty exception under which the price and associated revenue are based upon actual known performance or best estimates of actual performance during the performance period.

Revenue is recognized when a customer obtains control of promised products or services in an amount that reflects the consideration the entity expects to receive in exchange for those products or services. Determining when control has transferred can sometimes require management’s judgement (e.g., implementation services), which could affect the timing of revenue recognition. Revenue is recognized exclusive of any applicable sales or other indirect taxes.

Disaggregation of Revenue

Revenues are characterized by type, which broadly reflects the nature of how they are recognized or earned. Our revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. We also group our revenues by segment.

Revenues By Type

Recurring subscription revenues represent fees earned from clients primarily under renewable contracts or agreements and are generally paid annually or quarterly in advance and recognized in most cases ratably over the term of the license or service pursuant to the contract terms. Revenues from subscription agreements for the receipt of periodic benchmark reports, digests and other publications, which are most often associated with our real estate offerings, are generally billed and recognized upon delivery of such reports or data updates.

Asset-based fees are principally recognized based on the estimated AUM linked to our indexes from independent third-party sources or the most recently reported information provided by the client. Asset-based fees also include revenues related to futures and options contracts linked to our indexes, which are primarily based on trading volumes and fee levels. Asset-based fees are generally variable based upon AUM or the volume of trades or fee levels and are generally billed quarterly in arrears.

Non-recurring revenues primarily represent fees earned on products and services where we do not have renewal contracts and primarily include revenues for providing customized reports, historical data sets, certain derivative financial products and certain implementation and consulting services, as well as revenues from particular products and services that are purchased on a non-renewal basis. Based on the nature of the services provided, non-recurring revenues are generally billed upon delivery and recognized upon delivery or over the service period.

Revenues By Segment

For products within the Index segment, with respect to index data subscriptions, MSCI’s performance obligation to deliver the data is satisfied over time and, accordingly, revenue is recognized ratably over the term of the agreement pursuant to the contract terms. With respect to licenses to create indexed investment products, such as ETFs, passively managed funds, or licenses which allow certain exchanges to use MSCI’s indexes as the basis for futures and options contracts, MSCI’s performance obligation allows customers to use the Company’s intellectual property (e.g., the indexes) as the basis of the funds or other investment products the customers create over the term of the agreement. The fees earned for these rights are typically variable, in which case they are accrued under the sales and usage-based royalty exception pursuant to the level of performance achieved, which is measured based on AUM, volume of trades or other factors. The level of performance achieved is based on information obtained from independent third-party sources or best estimates taking into account the most recently reported information from the client.

For products within the Analytics segment, MSCI’s performance obligations include providing access to its proprietary models or hosted applications and, in some cases, delivery of managed services, which are typically satisfied over time, and accordingly, revenue is recognized ratably over the term of the service period. For implementation services, MSCI meets its performance obligation once the implementation service is complete and the related service is available for the client to use and revenue is recognized at the point in time when the implementation service is completed.

For products within the All Other segment, MSCI’s performance obligations with respect to its ESG products are satisfied over time for the majority of the data subscriptions as MSCI provides and updates the data to the customer throughout the term of the agreement and revenue is recognized ratably over the term of the agreement. For custom ESG research data, the performance obligation is typically complete, and revenue is recognized, at the point in time when the data is updated and available to the customer. MSCI’s Real Estate products primarily include periodic benchmark reports, Market Information and other publications. MSCI primarily satisfies its performance obligations, and revenue is recognized, at the point in time when the Company delivers reports or publications. For Market Information products, publications are delivered throughout the year, and the revenue is recognized over time.

Share-Based Compensation

Certain of the Company’s employees have received share-based compensation under various compensation programs. The Company’s compensation expense reflects the fair value method of accounting for share-based payments under ASC Subtopic 718-10, “Compensation—Stock Compensation.” ASC Subtopic 718-10 requires measurement of compensation cost for equity-based awards at fair value and recognition of compensation cost over the service period, net of estimated forfeitures.

The fair value of MSCI restricted stock units (“RSUs”) is measured using the price of MSCI’s common stock. Restricted stock units that are subject to the achievement of multi-year total shareholder return targets (“PSUs”) are performance awards with a market condition. The fair value of PSUs is determined using a Monte Carlo simulation model that creates a normal distribution of future stock prices, which is then used to value the awards based on their individual terms. From time to time, the Company awards restricted stock units subject to performance conditions that are not linked to a market condition but are based on performance measures that impact the amount of shares that each recipient will receive upon vesting. The fair value of such awards is measured using the price of MSCI’s common stock.

Research and Development

The Company accounts for research and development costs in accordance with several accounting pronouncements, including ASC Subtopic 730-10, “Research and Development.” ASC Subtopic 730-10 requires that research and development costs generally be expensed as incurred. The majority of the Company’s research and development costs are incurred in developing, reviewing and enhancing the methodologies and data models offered within its product portfolio by monitoring investment trends and drivers globally, as well as analyzing product-specific needs in areas such as capitalization-weighted, factor and specialized indexes, and instrument valuation, risk modeling, portfolio construction, asset allocation and value-at-risk simulation.

Internal Use Software

The Company applies the provisions of ASC Subtopic 350-40, “Internal Use Software,” and accounts for the cost of computer software developed for internal use by capitalizing qualifying costs, which are substantially incurred during the application development stage. The amounts capitalized are included in Intangible Assets on the Consolidated Statement of Financial Condition and include external direct costs of services used in developing internal-use software and payroll and payroll-related costs of employees directly associated with the development activities. Additionally, costs incurred relating to upgrades and enhancements to the software are capitalized if it is determined that these upgrades or enhancements provide additional functionality to the software.

During the years ended December 31, 2020 and 2019, the Company capitalized $29.1 million and $24.7 million, respectively, of costs related to software developed for internal use in the Consolidated Statement of Financial Condition.

Capitalized software development costs are typically amortized on a straight-line basis over the estimated useful life of the related product, which is typically three to five years, beginning with the date the software is placed into service.

Costs incurred in the preliminary and post-implementation stages of MSCI’s products are expensed as incurred.

Income Taxes

Provision for income taxes is provided for using the asset and liability method, under which deferred tax assets and deferred tax liabilities are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates. The Company elects to account for Global Intangible Low-Taxed Income (“GILTI”) in the year the tax is incurred. The Company recognizes interest and penalties related to income tax matters within “Provision for income taxes” in the Consolidated Statement of Income.

The Company regularly evaluates the likelihood of additional assessments in each of the taxing jurisdictions in which it is required to file income tax returns. The Company has recorded additional tax expense related to open tax years, which the Company’s management believes is adequate in relation to the potential for assessments. These amounts have been recorded in “Other non-current liabilities” on the Consolidated Statement of Financial Condition. The Company’s management believes the resolution of tax matters will not have a material effect on the Company’s consolidated financial condition. However, to the extent the Company is required to pay amounts in excess of its reserves, a resolution could have a material impact on its Consolidated Statement of Income for a particular future period. In addition, an unfavorable tax settlement could require use of cash and result in an increase in the effective tax rate in the period in which such resolution occurs.

Deferred Revenue

Deferred revenues represent both cash received and the amounts billed to customers for products and services in advance of being provided or before the service period has begun. Deferred revenue is generally amortized ratably over the service period as the performance obligations are satisfied.

Accounts Receivable

The Company’s clients generally pay subscription fees annually or quarterly in advance. MSCI’s policy is to record to a receivable when a customer is billed. For products and services that are provided in advance of billing, such as for our asset-based fee products, unbilled revenue (or a “contract asset”) is included in Accounts Receivable on the Company’s Consolidated Statement of Financial Condition.

Goodwill

Goodwill is recorded as part of the Company’s acquisitions of businesses when the purchase price exceeds the fair value of the net tangible and separately identifiable intangible assets acquired. The Company’s goodwill is not amortized, but rather is subject to an impairment test each year, or more often if conditions indicate impairment may have occurred, pursuant to ASC Subtopic 350-10, “Intangibles—Goodwill and Other.”

The Company tests goodwill for impairment on an annual basis on July 1st and on an interim basis when certain events and circumstances exist. The test for impairment is performed at the reporting unit level. Goodwill impairment is determined by comparing the fair value of a reporting unit with its carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below carrying value, an impairment charge will be recorded up to, but not more than, the total amount of goodwill allocated to the reporting unit.

The Company completed its annual goodwill impairment test as of July 1, 2020 on its Index, Analytics, ESG and Real Estate operating segments, which are the same as its reporting units, and no impairments were noted. The Company performed a step zero, qualitative impairment test on these four operating segments and determined that it was more likely than not that the fair value for each was not less than the carrying value.

As the estimated fair value of the Company’s reporting units exceeded their carrying value on the testing dates, and there were no impairment triggers identified as part of interim assessments, no impairment of goodwill was recorded during the years ended December 31, 2020, 2019 and 2018.

Intangible Assets

The Company amortizes definite-lived intangible assets over their estimated useful lives. Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company also reviews the useful lives on a quarterly basis to determine if the period of economic benefit has changed. If the carrying value of an intangible asset exceeds its fair value, an impairment charge would be recognized in an amount equal to the amount by which the carrying value of the intangible asset exceeds its fair value. There were no events or changes in circumstances that would indicate that the carrying value of the definite-lived intangible assets may not be recoverable during the years ended December 31, 2020, 2019 and 2018.

During the year ended December 31, 2018 management decided to discontinue the use of the IPD trade name utilized by the Real Estate segment. As a result, the remaining unamortized value of $7.9 million was written off.

The Company had no indefinite-lived intangible assets.

Foreign Currency Translation

Assets and liabilities of operations having non-U.S. dollar functional currencies are translated at year-end exchange rates, and income statement accounts are translated at weighted average exchange rates for the year. Gains or losses resulting from translating foreign currency financial statements, net of any related tax effects, are reflected in accumulated other comprehensive loss, a separate component of shareholders’ equity (deficit). Gains or losses resulting from foreign currency transactions incurred in currencies other than the local functional currency are included in non-operating “Other expense (income)” on the Consolidated Statement of Income.

Leases

MSCI adopted the leases standard set forth under Accounting Standards Codification Topic 842, “Leases,” or ASC Topic 842, as of January 1, 2019 using the optional transition method. The Company elected to apply the transition package of practical expedients permitted which, among other things, allowed the Company to carry forward the historical lease classification. In addition, MSCI elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an election to apply the exemption allowed for leases with an initial term of 12 months or less to not be recorded in the Consolidated Statement of Financial Condition and to only recognize the related amounts in the Consolidated Statement of Income on a straight-line basis over the lease term. As of the adoption of ASC Topic 842 on January 1, 2019, the Company recorded $197.5 million of total operating lease liabilities and right-of-use (“ROU”) assets on the Company’s Consolidated Statement of Financial Condition. The $197.5 million of ROU assets were offset by $22.1 million of lease related assets and liabilities previously carried on the Company’s Consolidated Statement of Financial Condition which resulted in the presentation of an initial $175.4 million ROU assets.

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 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 Consolidated Statement of Financial Condition. 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 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.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of furniture and fixtures, computer and communications equipment and leasehold improvements are accounted for using the straight-line method over the estimated useful life of the asset.

Treasury Stock

The Company holds repurchased shares of common stock as treasury stock. The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity (deficit).

Allowance for Doubtful Accounts

The Company periodically reviews receivable balances and records an allowance on customer accounts when it is probable and estimable that a receivable will not be collected. The Company does not require collateral.

Changes in the allowance for doubtful accounts from December 31, 2017 to December 31, 2020 were as follows:

		Amount
		(in thousands)
Balance as of December 31, 2017		$	1,700
Addition (reduction) to credit loss expense			(224	)
Write-offs, net of recoveries			(449	)
Balance as of December 31, 2018		$	1,027
Addition (reduction) to credit loss expense			1,024
Write-offs, net of recoveries			(336	)
Balance as of December 31, 2019		$	1,715
Addition (reduction) to credit loss expense			1,712
Adjustments and write-offs, net of recoveries			(1,844	)
Balance as of December 31, 2020		$	1,583

Accrued Compensation

A significant portion of the Company’s employee incentive compensation programs are discretionary. The Company makes significant estimates in determining its accrued compensation and benefits expenses. Accrued cash incentive estimates reflect an assessment of performance versus targets and other key performance indicators at the Company, operating segment and employee level. The Company also reviews compensation and benefits expenses throughout the year to determine how overall performance compares to management’s expectations. These and other factors, including historical performance, are taken into account in accruing discretionary cash compensation estimates quarterly.

Concentrations

For the years ended December 31, 2020, 2019 and 2018, BlackRock, Inc. accounted for 11.0%, 11.5%, and 11.9% of the Company’s consolidated operating revenues, respectively. For the years ended December 31, 2020, 2019 and 2018, BlackRock, Inc. accounted for 18.0%, 18.9% and 20.1%, respectively, of the Index segment’s operating revenues. No single customer accounted for 10.0% or more of operating revenues within the Analytics and All Other segments for the years ended December 31, 2020, 2019 and 2018.

2. RECENT ACCOUNTING STANDARDS UPDATES

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 estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

The FASB issued Accounting Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The amendments in these ASUs provide clarifications to ASU 2016-13.

The Company adopted ASU 2016-13 and the related clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” or ASU 2017-04. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity performed procedures to determine the fair value at the impairment testing date of its assets and liabilities. When applying the amendments in ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not more than the total amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 effective January 1, 2020.

3. REVENUE RECOGNITION

MSCI’s revenues are characterized by product type, which broadly reflects the nature of how they are recognized. The Company’s revenue types are recurring subscriptions, asset-based fees and non-recurring revenues. The Company also groups its revenues by segment.

The tables that follow present the disaggregated revenues for the periods indicated:

		For the Year Ended December 31, 2020
		Segments
(in thousands)		Index				Analytics				All Other				Total
Product Types
Recurring subscriptions		$	580,393			$	506,301			$	161,481			$	1,248,175
Asset-based fees			399,771				—				—				399,771
Non-recurring			36,331				7,507				3,606				47,444
Total		$	1,016,495			$	513,808			$	165,087			$	1,695,390

		For the Year Ended December 31, 2019
		Segments
(in thousands)		Index				Analytics				All Other				Total
Product Types
Recurring subscriptions		$	530,968			$	486,282			$	136,790			$	1,154,040
Asset-based fees			361,927				—				—				361,927
Non-recurring			28,042				10,643				3,144				41,829
Total		$	920,937			$	496,925			$	139,934			$	1,557,796

		For the Year Ended December 31, 2018
		Segments
(in thousands)		Index				Analytics				All Other				Total
Product Types
Recurring subscriptions		$	477,612			$	474,334			$	114,590			$	1,066,536
Asset-based fees			336,565				—				—				336,565
Non-recurring			21,298				5,605				3,980				30,883
Total		$	835,475			$	479,939			$	118,570			$	1,433,984

The table that follows presents the change in accounts receivable and deferred revenue between the dates indicated:

		Accounts receivable				Deferred revenue
		(in thousands)
Opening (1/1/2020)		$	499,268			$	574,656
Closing (12/31/2020)			558,569				675,870
Increase/(decrease)		$	59,301			$	101,214

		Accounts receivable				Deferred revenue
		(in thousands)
Opening (1/1/2019)		$	473,433			$	537,977
Closing (12/31/2019)			499,268				574,656
Increase/(decrease)		$	25,835			$	36,679

The amount of revenue recognized in the period that was included in the opening current deferred revenue, which reflects the contract liability amounts, was $555.8 million and $522.7 million for the years ended December 31, 2020 and 2019, respectively. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in billings, partially offset by the amortization of deferred revenue to operating revenues. MSCI had long-term deferred revenue balance as of December 31, 2020 and 2019, respectively, reflected as part of “Other non-current liabilities” on its Consolidated Statement of Financial Condition, which were not material.

For contracts that have a duration of one year or less, the Company has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:

		As of
		December 31,
		2020
		(in thousands)
First 12-month period		$	337,692
Second 12-month period			198,274
Third 12-month period			60,697
Periods thereafter			14,885
Total		$	611,548

4. EARNINGS PER COMMON SHARE

Basic earnings per share (“EPS”) is computed by dividing net income 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.

The following table presents the computation of basic and diluted EPS:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
(in thousands, except per share data)
Net income		$	601,822			$	563,648			$	507,885
Basic weighted average common shares outstanding			83,716				84,644				87,179
Effect of dilutive securities:
Stock options and restricted stock units			801				892				2,522
Diluted weighted average common shares outstanding			84,517				85,536				89,701
Earnings per basic common share		$	7.19			$	6.66			$	5.83
Earnings per diluted common share		$	7.12			$	6.59			$	5.66

5. 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.

Senior Notes. The Company had an aggregate of $3,400.0 million in senior unsecured notes (collectively, the “Senior Notes”) outstanding at December 31, 2020, consisting of five discrete private placement offerings presented in the table below:

				Principal amount outstanding at				Carrying value at				Carrying value at				Fair Value at				Fair Value at
		Maturity Date		December 31, 2020				December 31, 2020				December 31, 2019				December 31, 2020				December 31, 2019
		(in thousands)
Long-term debt
5.25% senior unsecured notes due 2024		November 15, 2024		$	-			$	-			$	297,835			$	-			$	309,225
5.75% senior unsecured notes due 2025		August 15, 2025			-				-				794,063				-				840,872
4.75% senior unsecured notes due 2026		August 1, 2026			500,000				496,257				495,587				522,325				525,800
5.375% senior unsecured notes due 2027		May 15, 2027			500,000				495,819				495,168				538,100				541,300
4.00% senior unsecured notes due 2029		November 15, 2029			1,000,000				990,364				989,273				1,073,040				1,018,820
3.625% senior unsecured notes due 2030		September 1, 2030			400,000				395,458				-				419,428				-
3.875% senior unsecured notes due 2031		February 15, 2031			1,000,000				988,879				-				1,063,430				-
Total debt				$	3,400,000			$	3,366,777			$	3,071,926			$	3,616,323			$	3,236,017

Interest payments attributable to the Senior Notes are due as presented in the following table:

		First semi-annual interest payment date		Second semi- annual interest payment date
Senior Notes
4.75% senior unsecured notes due 2026		February 1		August 1
5.375% senior unsecured notes due 2027		May 15		November 15
4.000% senior unsecured notes due 2029		May 15		November 15
3.625% senior unsecured notes due 2030(1)		March 1		September 1
3.875% senior unsecured notes due 2031(2)		June 1		December 1

(1)The first payment occurred on September 1, 2020.

(2)The first payment occurred on December 1, 2020.

The fair market value of the Company’s debt obligations 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.

The $500.0 million aggregate principal amount of 4.75% senior unsecured notes due 2026 (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.

The $500.0 million aggregate principal amount of 5.375% senior unsecured notes due 2027 (the “2027 Senior Notes”) are scheduled to mature and be paid in full on May 15, 2027. At any time prior to May 15, 2022, the Company may redeem all or part of the 2027 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 2027 Senior Notes, together with accrued and unpaid interest, on or after May 15, 2022, at redemption prices set forth in the indenture governing the 2027 Senior Notes. At any time prior to May 15, 2021, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2027 Senior Notes, including any permitted additional notes, at a redemption price equal to 105.375% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.

The $1,000.0 million aggregate principal amount of 4.000% senior unsecured notes due 2029 (the “2029 Senior Notes”) are scheduled to mature and be paid in full on November 15, 2029. At any time prior to November 15, 2024, the Company may redeem all or part of the 2029 Senior Notes 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 2029 Senior Notes, together with accrued and unpaid interest, on or after November 15, 2024, at redemption prices set forth in the indenture governing the 2029 Senior Notes. At any time prior to November 15, 2022, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2029 Senior Notes, including any permitted additional notes, at a redemption price equal to 104.000% of the principal amount plus accrued and unpaid interest, if any, to the redemption date.

On March 4, 2020, the Company issued $400.0 million aggregate principal amount of 3.625% senior unsecured notes due 2030 (the “2030 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2030 Senior Notes to redeem the $300.0 million aggregate principal amount that remained outstanding on its 5.250% senior unsecured notes due 2024 (the “2024 Senior Notes”). The early redemption of the 2024 Senior Notes resulted in a $10.0 million loss on debt extinguishment recorded in other expense (income), which included a redemption price of approximately $7.9 million (as set forth in the indenture governing the terms of the 2024 Senior Notes) and the write-off of approximately $2.1 million of unamortized debt issuance costs associated with the 2024 Senior Notes.

The 2030 Senior Notes are scheduled to mature and be paid in full on September 1, 2030. At any time prior to March 1, 2025, the Company may redeem all or part of the 2030 Senior Notes 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 2030 Senior Notes, together with accrued and unpaid interest, on or after March 1, 2025, at redemption prices set forth in the indenture governing the 2030 Senior Notes. At any time prior to March 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2030 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.625% of the principal amount plus accrued and unpaid interest, if any, to the redemption date, so long as at least 50% of the aggregate principal amount of all notes (excluding any additional notes, if any) issued under the indenture governing the 2030 Senior Notes remain outstanding after each such redemption occurs.

On May 26, 2020, the Company issued $1,000.0 million aggregate principal amount of 3.875% senior unsecured notes due 2031 (the “2031 Senior Notes”) in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended. The Company used a portion of the net proceeds from the 2031 Senior Notes for the early redemption of all of the outstanding $800.0 million aggregate principal amount of 5.75% senior unsecured notes due 2025 (the "2025 Senior Notes"). The early redemption of the 2025 Senior Notes resulted in an approximately $35.0 million loss on extinguishment recorded in other expense (income). The loss on extinguishment included an applicable premium of approximately $29.5 million (as defined in the indenture governing the terms of the 2025 Senior Notes) and the write-off of approximately $5.5 million unamortized debt issuance costs associated with the 2025 Senior Notes.

The 2031 Senior Notes are scheduled to mature and be paid in full on February 15, 2031. At any time prior to June 1, 2025, the Company may redeem all or part of the 2031 Senior Notes 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, if any, to, but excluding, the redemption date. In addition, the Company may redeem all or part of the 2031 Senior Notes, together with accrued and unpaid interest, on or after June 1, 2025, at redemption prices set forth in the indenture governing the 2031 Senior Notes. At any time prior to June 1, 2023, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2031 Senior Notes, including any permitted additional notes, at a redemption price equal to 103.875% of the principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 50% of the aggregate principal amount of all notes (excluding any additional notes, if any) issued under the indenture governing the 2031 Senior Notes remain outstanding after each such redemption occurs.

Revolver. On November 20, 2014, the Company entered into a $200.0 million senior unsecured revolving credit agreement (as amended, the “Revolving Credit Agreement”) with a syndicate of banks. The 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 “First Amendment”) to the Revolving Credit Agreement. The First Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $220.0 million, (ii) increased the maximum consolidated leverage ratio and (iii) extended the initial term to August 2021 with an option to extend for an additional one-year term. On May 15, 2018, the Company entered into Amendment No. 2 (the “Second Amendment”) to the Revolving Credit Agreement. The Second Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $250.0 million, (ii) extended the term to May 2023 with an option to extend for an additional one-year term and (iii) decreased the applicable rate and applicable fee rate for loans and commitments. On November 15, 2019, the Company entered into Amendment No. 3 (the “Third Amendment”) to the Revolving Credit Agreement. The Third Amendment, among other things, (i) increased aggregate commitments available to be borrowed to $400.0 million, (ii) extended the term to November 2024 with an option to extend for an additional one-year term, (iii) decreased the applicable rate and applicable fee rate for loans and commitments and (iv) amended certain restrictive covenants that limit, among other things, the Company’s financial flexibility. At December 31, 2020, the Revolving Credit Agreement was undrawn.

In connection with the closings of the Senior Notes offerings and entry into the Revolving Credit Agreement and the First, Second and Third Amendments, the Company paid certain financing fees which, together with the existing fees related to prior credit facilities, are being amortized over their related lives. At December 31, 2020, $35.0 million of the deferred financing fees remain unamortized, $0.5 million of which is included in “Prepaids and other assets,” $1.3 million of which is included in “Other non-current assets” and $33.2 million of which is grouped and presented as part of “Long-term debt” on the Consolidated Statement of Financial Condition.

6. LEASES

For the year ended December 31, 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 year ended December 31, 2018 was $25.3 million.

On January 1, 2019, the Company adopted ASU 2016-02 “Leases” and began following ASC Subtopic 842-10. Under ASC Subtopic 842-10, the Company recognized a total of $32.8 million and $35.6 million of operating lease expenses for the years ended December 31, 2020 and 2019. The amounts associated with variable lease costs, short-term lease costs and sublease income were not material for the years ended December 31, 2020 and 2019.

The Company’s leases have remaining lease terms of up to approximately 12 years. Some of these leases have options to extend which, if exercised, would extend the maximum term to approximately 22 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.

Future minimum commitments for the Company’s operating leases accounted for in accordance with ASC Subtopic 842-10 in place as of December 31, 2020, the interest and other relevant line items in the Consolidated Statement of Financial Condition are as follows:

Maturity of Lease Liabilities		Operating
(in thousands)		Leases
2021		$	28,201
2022			26,189
2023			25,022
2024			19,659
2025			19,170
Thereafter			86,361
Total lease payments		$	204,602
Less: Interest			(29,571	)
Present value of lease liabilities		$	175,031
Other accrued liabilities		$	22,689
Long-term operating lease liabilities		$	152,342

Lease term and discount rate for the Company’s operating leases in place as of December 31, 2020 are as follows:

		As of
		December 31,
Lease Term and Discount Rate		2020
Weighted-average remaining lease term (years)			8.93
Weighted-average discount rate			3.34	%

Other information for the Company’s operating leases in place for the year ended December 31, 2020 are as follows:

		Year Ended
Other Information		December 31,
(in thousands)		2020
Operating cash flows used for operating leases		$	30,061
Leased assets obtained in exchange for new operating lease liabilities		$	11,472

7. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

Property, equipment and leasehold improvements, net at December 31, 2020 and 2019 consisted of the following:

				As of
		Estimated		December 31,				December 31,
		Useful Lives		2020				2019
				(in thousands)
Computer & related equipment		2 to 5 years		$	186,786			$	185,794
Furniture & fixtures		7 years			15,276				12,478
Leasehold improvements		1 to 21 years			56,537				52,339
Work-in-process		—			2,996				8,667
Subtotal					261,595				259,278
Accumulated depreciation and amortization					(181,149	)			(168,570	)
Property, equipment and leasehold improvements, net				$	80,446			$	90,708

Depreciation and amortization expense of property, equipment and leasehold improvements was $29.8 million, $30.0 million and $31.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

8. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The change to the Company’s goodwill was as follows:

(in thousands)		Index				Analytics					All Other					Total
Goodwill at December 31, 2018		$	1,203,404			$	290,976				$	51,381				$	1,545,761
Changes to goodwill			—				—					14,567		(1)			14,567
Foreign exchange translation adjustment			1,290				—					1,250					2,540
Goodwill at December 31, 2019		$	1,204,694			$	290,976				$	67,198				$	1,562,868
Changes to goodwill			—				—					—					—
Foreign exchange translation adjustment			1,064				—					2,090					3,154
Goodwill at December 31, 2020		$	1,205,758			$	290,976				$	69,288				$	1,566,022

(1)	Reflects the impact of the Carbon Delta AG (“Carbon Delta”) acquisition.

Intangible Assets, Net

The following table presents the amount of amortization expense related to intangible assets by category for the periods indicated:

		Years Ended
		December 31,				December 31,				December 31,
(in thousands)		2020				2019				2018
Amortization expense of acquired intangible assets		$	34,049			$	34,773			$	43,981
Amortization expense of internally developed capitalized software			22,892				14,637				10,208
Total amortization of intangible assets expense		$	56,941			$	49,410			$	54,189

During the year ended December 31, 2018 management decided to discontinue the use of the IPD trade name utilized by the Real Estate segment. As a result, the remaining unamortized value associated with the trade name of $7.9 million was written off in the year ended December 31, 2018.

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

				As of
		Estimated		December 31,				December 31,
		Useful Lives		2020				2019
				(in thousands)
Gross intangible assets:
Customer relationships		13 to 21 years		$	356,700			$	356,700
Trademarks/trade names		10 to 21.5 years			207,300				207,300
Technology/software		3 to 8 years			290,908				263,719
Proprietary data		6 to 13 years			28,627				28,627
Subtotal					883,535				856,346
Foreign exchange translation adjustment					(5,262	)			(7,615	)
Total gross intangible assets				$	878,273			$	848,731
Accumulated amortization:
Customer relationships				$	(253,465	)		$	(231,665	)
Trademarks/trade names					(143,207	)			(133,305	)
Technology/software					(231,496	)			(209,878	)
Proprietary data					(15,730	)			(13,963	)
Subtotal					(643,898	)			(588,811	)
Foreign exchange translation adjustment					373				1,567
Total accumulated amortization				$	(643,525	)		$	(587,244	)
Net intangible assets:
Customer relationships				$	103,235			$	125,035
Trademarks/trade names					64,093				73,995
Technology/software					59,412				53,841
Proprietary data					12,897				14,664
Subtotal					239,637				267,535
Foreign exchange translation adjustment					(4,889	)			(6,048	)
Total net intangible assets				$	234,748			$	261,487

Estimated amortization expense for succeeding years is presented below:

Years Ending December 31,		Amortization Expense
		(in thousands)
2021		$	59,605
2022			52,283
2023			41,618
2024			34,770
2025			20,697
Thereafter			25,775
Total		$	234,748

9. EMPLOYEE BENEFITS

The Company sponsors a 401(k) plan for eligible U.S. employees and defined contribution and defined benefit pension plans that cover substantially all of its non-U.S. employees. Eligible employees may participate in the MSCI 401(k) plan (or any other regional defined contribution plan sponsored by MSCI) immediately upon hire. Eligible employees receive 401(k) and other defined contribution plan matching contributions, which are subject to vesting and certain other limitations. Additionally, some non-US employees are eligible to participate in and receive contributions to defined benefit plans.

The following table reflects the employee benefits expense by cost, type and location in the Statement of Income for the periods indicated:

		Years Ended
		December 31,				December 31,				December 31,
(in thousands)		2020				2019				2018
Employee benefit cost type
401(k) and other defined contribution plans			21,804				19,909				19,228
Pension related net period benefit expense			4,671				4,135				3,570
Total		$	26,475			$	24,044			$	22,798
Location in the Statement of Income
Cost of revenues		$	9,913			$	9,387			$	10,162
Selling and marketing			7,910				7,368				6,946
Research and development			5,328				4,705				3,840
General and administrative			2,289				1,844				1,796
Other expense (income)			1,035				740				54
Total		$	26,475			$	24,044			$	22,798

The Company uses a measurement date of December 31 to calculate obligations under its pension and postretirement plans. As of December 31, 2020 and 2019, the Company carried a net liability of $36.1 million and $30.4 million, respectively, in “Other non-current liabilities” on the Consolidated Statement of Financial Condition related to its future pension obligations. The fair value of the defined benefit plan assets were $28.5 million and $25.0 million at December 31, 2020 and 2019, respectively.

The Company’s retiree benefit plans include defined benefit plans for employees in Switzerland, as well as other countries where MSCI maintains an operating presence.

Our Switzerland plans are government-mandated retirement funds that provide employees with a minimum investment return, which is determined annually by the Swiss government and was 1.00% in the years ended December 31, 2020, 2019 and 2018. Under the Switzerland plans, the Company and our employees are required to make contributions into a fund managed by an independent investment fiduciary. Employer contributions must be in an amount at least equal to the employee’s contribution. Minimum employee contributions are based on the respective employee’s age, salary and gender. As of December 31, 2020 and 2019, the Switzerland plans had a gross pension liability of $34.8 million and $32.6 million, respectively, and plan assets that totaled $24.6 million and $21.9 million, respectively. In the years ended December 31, 2020, 2019 and 2018, we recognized net periodic benefit expense of $0.5 million, $1.0 million and $1.3 million, respectively, related to our Switzerland plans. The discount rate for the Switzerland defined benefit pension plan was 0.10% as of December 31, 2020 and 0.30% as of December 31, 2019.

The investment strategies of the non-U.S. defined benefit plans vary according to the plan provisions and local laws. The majority of the assets in the non-U.S. plans are in the Switzerland plans. The Switzerland plans are associated with an insured collective retirement foundation, whereby assets are held in trust and the assets are comingled with those of other participating companies. Investment decisions are made by a board of the collective retirement foundation, comprised of participating company representatives and representatives from the insurer. The overall strategy is to manage risk while maximizing total returns.

10. SHAREHOLDERS’ EQUITY (DEFICIT)

This note reflects the share repurchases and related activity as well as share-based compensation activity recognized by the Company, for all periods referenced.

Return of capital

On October 29, 2020, the Board of Directors authorized a stock repurchase program for the purchase of up to $1,000.0 million worth of shares of MSCI’s common stock in addition to the $804.5 million of authorization then remaining under a previously existing share repurchase program (the “2020 Repurchase Program”) for a total of $1,804.5 million of stock repurchase authorization.

Share repurchases made pursuant to the 2020 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. As of December 31, 2020, there was $1,728.8 million of available authorization remaining under the 2020 Repurchase Program.

The following table provides information with respect to repurchases of the Company’s common stock pursuant to open market repurchases:

Year Ended		Average Price Paid Per Share				Total Number of Shares Repurchased				Dollar Value of Shares Repurchased
		(in thousands, except per share data)
December 31, 2020		$	291.76				2,493			$	727,344
December 31, 2019		$	147.97				690			$	102,081
December 31, 2018		$	148.34				6,236			$	924,989

The following table presents cash dividends declared and distributed per common share for the periods indicated:

		Dividends
		Per Share				Declared				Distributed				(Released)/ Deferred
2020		(in thousands, except per share data)
Three Months Ended March 31,		$	0.68			$	59,233			$	59,455			$	(222	)
Three Months Ended June 30,			0.68				57,360				57,068				292
Three Months Ended September 30,			0.78				65,830				65,454				376
Three Months Ended December 31,			0.78				65,029				64,653				376
Year Ended December 31,		$	2.92			$	247,452			$	246,630			$	822
2019
Three Months Ended March 31,		$	0.58			$	55,339			$	57,988			$	(2,649	)
Three Months Ended June 30,			0.58				49,613				49,365				248
Three Months Ended September 30,			0.68				58,176				57,882				294
Three Months Ended December 31,			0.68				58,176				57,916				260
Year Ended December 31,		$	2.52			$	221,304			$	223,151			$	(1,847	)
2018
Three Months Ended March 31,		$	0.38			$	34,848			$	34,900			$	(52	)
Three Months Ended June 30,		0.38					34,254				33,935				319
Three Months Ended September 30,		0.58					52,264				51,764				500
Three Months Ended December 31,		0.58					50,907				50,434				473
Year Ended December 31,		$	1.92			$	172,273			$	171,033			$	1,240

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, 2017			129,543,856				(39,438,971	)			90,104,885
Dividend payable/paid			734				(579	)			155
Common stock issued and exercise of stock options			479,277				—				479,277
Shares withheld for tax withholding and exercises			—				(174,991	)			(174,991	)
Shares repurchased under stock repurchase programs			—				(6,235,629	)			(6,235,629	)
Shares issued to Directors			6,059				(5,618	)			441
Balance At December 31, 2018			130,029,926				(45,855,788	)			84,174,138
Dividend payable/paid			1,064				(585	)			479
Common stock issued and exercise of stock options			2,387,145				—				2,387,145
Shares withheld for tax withholding and exercises			—				(1,077,815	)			(1,077,815	)
Shares repurchased under stock repurchase programs			—				(689,891	)			(689,891	)
Shares issued to Directors			1,277				(403	)			874
Balance At December 31, 2019			132,419,412				(47,624,482	)			84,794,930
Dividend payable/paid			553				(337	)			216
Common stock issued			406,960				—				406,960
Shares withheld for tax withholding and exercises			—				(165,239	)			(165,239	)
Shares repurchased under stock repurchase programs			—				(2,492,994	)			(2,492,994	)
Shares issued to Directors			2,250				27,284				29,534
Balance At December 31, 2020			132,829,175				(50,255,768	)			82,573,407

Share-Based Compensation

The Company regularly issues share-based compensation to its employees and directors who are not employees of the Company. The accounting guidance for share-based compensation requires measurement of compensation cost for share-based awards at fair value and recognition of compensation cost over the service period, net of estimated forfeitures.

In February 2021, the Company granted a portion of its employees awards in the form of RSUs and PSUs. The total number of units granted was 182,971. The aggregate fair value of the awards was $65.9 million. A portion of the awards granted consisted of RSUs vesting over a three-year period, with one-third vesting on each anniversary of the grant in 2022, 2023 and 2024. A smaller portion of the awards granted consisted of PSUs that will time-vest over a three-year period and a five-year period and are subject to the achievement of the applicable absolute total shareholder return compounded annual growth rate measured over a three-year and five-year performance period, respectively. The PSUs that will time-vest over a three-year period are subject to a one-year sale restriction. All of these awards are subject to forfeiture under specific criteria set in the award agreements.

In connection with awards under its equity-based compensation and benefit plans, the Company is authorized to use newly-issued shares or certain shares of common stock held in treasury.

The following table presents the amount of share-based compensation expense by category for the periods indicated:

		Years Ended
		December 31,				December 31,				December 31,
(in thousands)		2020				2019				2018
Cost of revenues		$	14,523			$	11,190			$	10,334
Selling and marketing			13,545				14,943				12,851
Research and development			7,344				5,966				4,175
General and administrative			19,826				11,991				13,203
Other expense (income)			379				—				—
Total share-based compensation expense		$	55,617			$	44,090			$	40,563

The windfall tax benefits for share-based compensation expense related to RSUs, PSUs and other restricted stock unit awards (together, the “Share-based Awards”) as well as stock options granted to Company employees and to directors who are not employees of the Company were $20.9 million, $82.5 million and $8.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, $43.9 million of compensation cost related to MSCI unvested share-based awards granted to the Company’s employees and to directors who are not employees of the Company had not yet been recognized. The unrecognized compensation cost relating to unvested stock-based awards expected to vest will be recognized primarily over the next one to five years.

In connection with awards under its equity-based compensation and benefit plans, the Company is authorized to issue shares of common stock. As of December 31, 2020, 4.8 million shares of common stock were available for future grants under these plans.

Share-based Awards. Certain Company employees have been granted Share-based Awards pursuant to a share-based compensation plan. The plan provides for the deferral of a portion of certain employees’ discretionary compensation with awards made in the form of Share-based Awards. Recipients of Share-based Awards generally have rights to receive dividend equivalents that are subject to vesting. The Company reports the target number of PSUs granted unless it has determined, based on the actual achievement of performance measures, that an employee will receive a different amount of shares underlying the PSUs, in which case the Company reports the amount of shares employees are likely to receive.

The fair value of the PSUs on the award dates were estimated under the Monte Carlo method using the following assumptions:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
Risk free interest rate			1.28	%			2.46	%			2.30	%
Historical stock price volatility			25.42	%			21.98	%			20.51	%
Term (in years)			3.8				3.7				3.5

The risk-free interest rate was determined based on the yields available on U.S. Constant Maturity Treasury yield curve as of the valuation dates with a maturity commensurate with the terms. The expected stock price volatility was determined using historical volatility. Since the PSU awards are dividend-protected, the assumed dividend yield applied in the valuation was 0.0%.

The following table presents activity concerning the Company’s vested and unvested Share-based Awards applicable to its employees (share data in thousands) for the period indicated:

						Weighted
						Average
						Grant
		Number of				Date Fair
For the Year Ended December 31, 2020		Shares				Value
Vested and unvested Share-based Awards at December 31, 2019			757			$	122.42
Granted			454			$	170.57
Conversion to common stock			(417	)		$	97.79
Canceled			(55	)		$	147.49
Vested and unvested Share-based Awards at December 31, 2020 (1)			739			$	163.99

(1)	As of December 31, 2020, 670 Share-based Awards, with a weighted average grant date fair value of $165.61, were vested or expected to vest.

The total fair value of Share-based Awards held by the Company’s employees that converted to MSCI common stock during the years ended December 31, 2020, 2019 and 2018 was $133.6 million, $401.7 million and $63.6 million, respectively.

The following table presents activity concerning the Company’s unvested Share-based Awards related to its employees (share data in thousands):

						Weighted
						Average
						Grant
		Number of				Date Fair
For the Year Ended December 31, 2020		Shares				Value
Unvested Share-based Awards at December 31, 2019			727			$	123.21
Granted			437			$	174.25
Vested			(382	)		$	99.24
Canceled			(55	)		$	147.49
Unvested Share-based Awards at December 31, 2020			727			$	164.58
Unvested Share-based Awards expected to vest			658			$	166.29

There were no remaining stock options outstanding that could be exercised during the year ended December 31, 2020. The intrinsic value of the stock options exercised by the Company’s employees during the years ended December 31, 2019 and 2018 was $22.1 million and $4.8 million, respectively.

11. INCOME TAXES

The provision for income taxes (benefits) by taxing jurisdiction consisted of:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
		(in thousands)
Current
U.S. federal		$	39,665			$	31,493			$	51,316
U.S. state and local			29,942				6,841				31,680
Non U.S.			70,441				22,103				39,795
			140,048				60,437				122,791
Deferred
U.S. federal			(44,507	)			(11,941	)			(1,406	)
U.S. state and local			(8,911	)			(4,001	)			5,566
Non U.S.			(2,227	)			(4,825	)			(4,940	)
			(55,645	)			(20,767	)			(780	)
Provision for income taxes		$	84,403			$	39,670			$	122,011

The following table reconciles the U.S. federal statutory income tax rate to the effective income tax rate:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
U.S. federal statutory income tax rate			21.00	%			21.00	%			21.00	%
U.S. state and local income taxes, net of U.S. federal income tax benefits			3.14	%			2.51	%			4.66	%
Change in tax rates applicable to non-U.S. earnings			(3.30	%)			(3.74	%)			(2.20	%)
Foreign Derived Intangible Income (FDII), net of GILTI (1)			(3.84	%)			1.05	%			(0.13	%)
Domestic tax credits and incentives			(0.59	%)			(0.31	%)			(0.30	%)
Net tax charge related to Tax Reform			—	%			—	%			(1.78	%)
Valuation allowance			—	%			(0.10	%)			(1.41	%)
Excess share-based compensation			(3.24	%)			(13.94	%)			(1.14	%)
Other			(0.87	%)			0.11	%			0.67	%
Effective income tax rate			12.30	%			6.58	%			19.37	%

(1)	Current period includes (3.00%) released during the year related to the favorable impact on prior years from final regulations clarifying certain provisions of Tax Reform. Certain prior period amounts have been reclassified to conform to the current period presentation.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform”). Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” (“SAB 118”), which allowed registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations.

Tax Reform significantly revised the U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a one-time tax on deemed repatriation of historic earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The provisions of Tax Reform began impacting the Company for the annual reporting periods, including interim periods within those periods, beginning after December 31, 2017 as well as during the three months ended December 31, 2017. The U.S. federal income tax rate reduction was effective as of January 1, 2018.

In the year ended December 31, 2018, the Company finalized the Toll Charge and determined the final impact of Tax Reform, resulting in a net benefit of $11.2 million that included a benefit of $5.7 million on the change to the provisional estimate of the Toll Charge and a benefit of $2.6 million for a reduction in the expected withholding taxes from Switzerland. The Company also recorded a benefit of $2.9 million related to the revaluation of deferred taxes at the lower statutory rate as a result of tax planning. The cumulative net charge of Tax Reform was $23.3 million as of December 31, 2018.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019, were as follows:

		As of
		December 31,				December 31,
		2020				2019
		(in thousands)
Deferred tax assets:
Unearned revenue		$	46,530			$	—
Lease liabilities			40,786				43,584
Employee compensation and benefit plans			20,602				17,438
Interest expense carryforwards			7,901				19,028
Loss carryforwards			3,071				2,928
Pension			3,066				2,558
Subtotal			121,956				85,536
Less: valuation allowance			—				—
Total deferred tax assets		$	121,956			$	85,536
Deferred tax liabilities:
Intangible assets		$	(51,862	)		$	(57,155	)
Right of use assets			(35,634	)			(38,666	)
Property, equipment and leasehold improvements, net			(20,197	)			(20,531	)
Unremitted foreign earnings			(1,279	)			(12,996	)
Unearned revenue			—				(1,079	)
Other			(2,131	)			(837	)
Total deferred tax liabilities		$	(111,103	)		$	(131,264	)
Net deferred tax assets (deferred tax liabilities)		$	10,853			$	(45,728	)

As presented in the table above, the Company has certain loss and interest carryforward items. The tax value of the U.S. portion of the interest carryforward was $0.7 million and $13.2 million as of December 31, 2020 and December 31, 2019, respectively. The tax value of the non-U.S. portion of the interest carryforward was $7.2 million and $5.8 million as of December 31, 2020 and December 31, 2019, respectively. These carryforwards are subject to annual limitations on utilization over an indefinite life.

Net operating loss carryforwards in the U.S. were $8.7 million with a tax value of $1.8 million and $13.8 million with a tax value of $1.9 million as of December 31, 2020 and December 31, 2019, respectively. These carryforwards are subject to annual limitations and will begin to expire in 2026. The tax value of the non-U.S. portion of the net operating loss was $1.2 million and $1.0 million as of December 31, 2020 and December 31, 2019 respectively. These carryforwards are subject to annual limitations and will begin to expire in 2021.

The Company believes the total deferred tax assets at December 31, 2020 are more likely than not to be realized based on expectations as to future taxable income in the jurisdictions in which it operates. The Company has determined that there is no requirement to establish a valuation allowance as of December 31, 2020.

The following table presents changes in the Company’s deferred tax asset valuation allowance for the periods indicated:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
		(in thousands)
Beginning balance		$	—			$	632			$	11,575
Additions charged to cost and expenses			—				—				—
Deductions			—				(632	)			(10,943	)
Ending balance		$	—			$	—			$	632

The following table presents the components of income before provision for income taxes generated by domestic or foreign operations for the periods indicated:

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
		(in thousands)
Domestic		$	353,049			$	351,177			$	399,000
Foreign (1)			333,176				252,141				230,896
Total income before provision for income taxes		$	686,225			$	603,318			$	629,896

(1)	Foreign income before provision for income taxes is defined as income generated from operations located outside the U.S., which includes income from foreign branches of U.S. companies.

As of December 31, 2020, the Company is no longer maintaining the indefinite reinvestment assertion on the undistributed earnings in its India subsidiary accumulated after January 1, 2018. As of December 31, 2020, the Company has provided for applicable state income and foreign withholding taxes on all undistributed earnings on its foreign subsidiaries.

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 are remeasured. Based on the current status of income tax audits, the total amount of unrecognized benefits may decrease by approximately $14.8 million in the next twelve months as a result of the resolution of tax examinations.

The Company believes the resolution of tax matters will not have a material effect on the Consolidated Statement of Financial Condition of the Company, although a resolution could have a material impact on the Company’s Consolidated Statement of Income for a particular future period and on the Company’s effective tax rate for any period in which such resolution occurs.

The following table presents a reconciliation of the beginning and ending amount of the gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2020, 2019 and 2018:

		Years Ended
Gross unrecognized tax benefits		December 31,				December 31,				December 31,
(in thousands)		2020				2019				2018
Beginning balance		$	15,841			$	14,091			$	10,022
Increases based on tax positions related to the current period			292				2,413				3,928
Increases based on tax positions related to prior periods			2,099				—				1,892
Decreases based on tax positions related to prior periods			—				—				(297	)
Decreases related to settlements with taxing authorities			—				—				—
Decreases related to a lapse of applicable statute of limitations			(1,611	)			(663	)			(1,454	)
Ending balance		$	16,621			$	15,841			$	14,091

The total amount of unrecognized tax benefits was $16.6 million, $15.8 million and $13.8 million, net of federal benefit of state issues, competent authority and foreign tax credit offsets, as of December 31, 2020, 2019 and 2018, respectively, which, if recognized, would favorably affect the effective tax rate in future periods. The Company recognizes the accrual of interest and penalties related to unrecognized tax benefits in the “Provision for income taxes” in the Consolidated Statement of Income. For the years ended December 31, 2020, 2019 and 2018, the Company recognized zero, $0.4 million and $0.2 million, respectively, of interest in the Consolidated Statement of Income with respect to unrecognized tax benefits. Penalties of $0.4 million were recognized in the Consolidated Statement of Income and the Consolidated Statement of Financial Position for the year ended December 31, 2020. No penalties were recognized in the Consolidated Statement of Income and the Consolidated Statement of Financial Position for the years ended December 31, 2019 and 2018. The amount of accrued interest, which includes interest related to uncertain tax positions and accrued income tax expense, recorded on the Consolidated Statement of Financial Condition as of December 31, 2020, 2019 and 2018 was $0.9 million.

The Company is under examination by the IRS and other tax authorities in certain jurisdictions, including foreign jurisdictions, such as the United Kingdom, Switzerland and India, and states within the United 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 2007 through 2019.

12. DIVESTITURES

Divestiture of FEA

On April 9, 2018, MSCI completed the FEA divestiture for $21.0 million in cash. The sale included $2.9 million of goodwill, $2.7 million of fully amortized identifiable intangible assets, $6.1 million of other net assets and $1.4 million of transaction costs, which resulted in a gain of $10.6 million included in “Other expense (income)” within the Consolidated Statement of Income. FEA was included as a component of the Analytics segment through the date of divestiture. The results of operations from FEA were not material to the Company.

Divestiture of InvestorForce

On October 12, 2018, the Company completed the InvestorForce divestiture for $62.0 million in cash plus an additional $0.8 million for working capital adjustment, $8.7 million of allocated goodwill, $4.0 million of identifiable intangible assets, net of accumulated amortization, $0.7 million of other net assets and $2.8 million of transaction costs, which resulted in a gain of approximately $46.6 million included in “Other expense (income)” within the Consolidated Statement of Income. InvestorForce was included as a component of the Analytics segment through the date of divestiture. The results of operations from InvestorForce were not material to the Company.

13. 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 maker, or CODM, in deciding how to allocate resources and assess performance. MSCI’s Chief Executive Officer and its President and Chief Operating Officer, who are together 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 operating revenues as well as Adjusted EBITDA and other measures. The Company excludes the following items from segment Adjusted EBITDA: 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, including the impact related to the vesting of multi-year restricted stock units granted in 2016 to certain senior executives that are subject to the achievement of multi-year total shareholder return targets, which are performance targets with a market condition (the “2016 Multi-Year PSUs”), that the CODM does not 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.

Operating 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 based upon allocation methodologies, including time estimates, revenue, headcount, sales targets, data center consumption and other relevant usage measures. Due to the integrated structure of MSCI’s 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 revenues, 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 five operating segments: Index, Analytics, ESG, Real Estate and The Burgiss Group, LLC (“Burgiss”).

The Index operating segment is a provider of primarily equity indexes. The indexes are used in many areas of the investment process, including for indexed product creation (e.g., ETFs, mutual funds, annuities, futures, options, structured products, over-the-counter derivatives), performance benchmarking, portfolio construction and rebalancing, and asset allocation.

The Analytics operating segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and tools for analyzing market, credit, liquidity and counterparty risk across all major asset classes, spanning short-, medium- and long-term time horizons. Clients access our Analytics tools and content through MSCI’s proprietary applications and application programming interfaces, third-party applications or directly through their own platforms. Additionally, the Analytics operating segment also provides various managed services to help clients operate more efficiently, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting.

The ESG operating segment offers products and services that help institutional investors understand how ESG and climate considerations can impact the long-term risks and opportunities in financial markets. In addition, MSCI ESG Research data and ratings are used in the construction of equity and fixed income indexes from our Index operating segment to help institutional investors more effectively benchmark ESG investment performance, issue indexed investment products, as well as manage, measure and report on ESG mandates.

The Real Estate operating segment offers research, reporting, market data and benchmarking offerings that provide real estate performance analytics for funds, investors and managers. Real Estate performance and risk analytics range from enterprise-wide to property-specific analysis. The Real Estate operating segment also provides business intelligence to real estate owners, managers, developers and brokers worldwide.

The Burgiss operating segment represents the Company’s equity method investment in Burgiss, a global provider of investment decision support tools for private capital. See Note 14, “Equity Method Investment,” for further information.

The operating segments of ESG, Real Estate and Burgiss do not individually meet the segment reporting thresholds and have been combined and presented as part of All Other for disclosure purposes. Burgiss is an equity-method investment, therefore, the All Other segment does not include the Company’s proportionate share of operating revenues and Adjusted EBITDA related to Burgiss. The Company’s proportionate share of Burgiss’s equity earnings is not a component of Adjusted EBITDA as it is reported as a component of other (expense) income, net.

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

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
	(in thousands)
Operating revenues
Index		$	1,016,495			$	920,937			$	835,475
Analytics			513,808				496,925				479,939
All Other			165,087				139,934				118,570
Total		$	1,695,390			$	1,557,796			$	1,433,984

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

		Years Ended
		December 31,				December 31,				December 31,
		2020				2019				2018
	(in thousands)
Index Adjusted EBITDA		$	766,493			$	670,188			$	607,853
Analytics Adjusted EBITDA			172,924				152,113				143,645
All Other Adjusted EBITDA			32,093				28,198				20,935
Total operating segment profitability			971,510				850,499				772,433
2016 Multi-Year PSUs grant payroll tax expense			—				15,389				—
Amortization of intangible assets			56,941				49,410				54,189
Depreciation and amortization of property, equipment and leasehold improvements			29,805				29,999				31,346
Operating income			884,764				755,701				686,898
Other expense (income), net			198,539				152,383				57,002
Provision for income taxes			84,403				39,670				122,011
Net income		$	601,822			$	563,648			$	507,885

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

		Years Ended
		December 31,				December 31,				December 31,
(in thousands)		2020					2019			2018
Operating revenues
Americas:
United States		$	723,962			$	698,105			$	662,345
Other			71,408				65,997				58,065
Total Americas			795,370				764,102				720,410
Europe, the Middle East and Africa ("EMEA"):
United Kingdom			262,188				234,926				214,204
Other			364,547				325,221				293,252
Total EMEA			626,735				560,147				507,456
Asia & Australia:
Japan			80,591				71,629				67,100
Other			192,694				161,918				139,018
Total Asia & Australia			273,285				233,547				206,118
Total		$	1,695,390			$	1,557,796			$	1,433,984

Long-lived assets consist of property, equipment and leasehold improvements, right of use assets and internally developed capitalized software, net of accumulated depreciation and amortization. The following table presents long-lived assets by geographic area on the dates indicated:

		As of
		December 31,				December 31,
		2020				2019
		(in thousands)
Long-lived assets
Americas:
United States		$	182,776			$	199,022
Other			13,949				16,343
Total Americas			196,725				215,365
EMEA:
United Kingdom			19,678				20,480
Other			33,561				36,121
Total EMEA			53,239				56,601
Asia & Australia:
Japan			1,896				2,351
Other			37,946				32,326
Total Asia & Australia			39,842				34,677
Total		$	289,806			$	306,643

Certain prior period amounts in the preceding table have been reclassified to conform to the current period presentation.

14. EQUITY METHOD INVESTMENT

In January 2020, MSCI entered into a strategic relationship with Burgiss, a global provider of investment decision support tools for private capital. The Company acquired a 40% non-controlling interest for $190.8 million, including capitalized costs, which is accounted for as an equity method investment with the Company’s share of Burgiss’ earnings being recognized in “Other expense (income), net” in the Consolidated Statements of Income. The Company is applying a policy election to recognize its share of Burgiss’ earnings on a three-month lag. For the year ended December 31, 2020, the Company has recognized in its results of operations an immaterial amount in earnings related to its investment in Burgiss. MSCI has also elected to apply the nature of the distribution approach to determine the classification of the distributions it receives from its equity method investee. In the year ended December 31, 2020, MSCI received an immaterial amount in distributions from its equity method investee.

The Company’s investment substantially exceeds the Company’s share of the underlying equity of Burgiss. A portion of this excess, representing the excess of the fair value of Burgiss’ intangible assets over their book value, is amortized into “Other expense (income), net” over the useful lives of the respective intangible assets

15. QUARTERLY RESULTS OF OPERATIONS (unaudited):

		2020																2019
		First				Second				Third				Fourth				First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter
		(in thousands, except per share data)
Operating revenues		$	416,780			$	409,616			$	425,333			$	443,661			$	371,381			$	385,558			$	394,251			$	406,606
Cost of revenues			74,609				70,456				70,704				75,935				82,346				71,975				70,486				70,154
Selling and marketing			55,549				51,617				52,668				56,662				56,048				51,657				52,107				59,486
Research and development			26,562				22,534				24,901				27,056				23,172				23,752				24,310				27,100
General and administrative			30,833				28,309				27,613				27,872				27,497				26,378				26,559				29,659
Amortization of intangible assets			13,776				14,062				14,333				14,770				11,793				12,013				12,361				13,243
Depreciation and amortization of property, equipment and leasehold improvements			7,567				7,463				7,494				7,281				7,850				7,405				7,209				7,535
Total operating expenses			208,896				194,441				197,713				209,576				208,706				193,180				193,032				207,177
Operating income			207,884				215,175				227,620				234,085				162,675				192,378				201,219				199,429
Interest income			(3,483	)			(771	)			(475	)			(301	)			(4,086	)			(3,345	)			(3,673	)			(5,299	)
Interest expense			40,231				41,227				37,536				37,330				35,915				35,915				35,922				40,289
Other expense (income)			8,287				35,552				1,516				1,890				2,554				63				222				17,906
Other expense (income), net			45,035				76,008				38,577				38,919				34,383				32,633				32,471				52,896
Income before provision for income taxes			162,849				139,167				189,043				195,166				128,292				159,745				168,748				146,533
Provision for income taxes			14,724				24,044				6,685				38,950				(49,900	)			34,055				31,765				23,750
Net income		$	148,125			$	115,123			$	182,358			$	156,216			$	178,192			$	125,690			$	136,983			$	122,783
Earnings per basic common share		$	1.75			$	1.38			$	2.18			$	1.89			$	2.11			$	1.48			$	1.62			$	1.45
Earnings per diluted common share		$	1.73			$	1.36			$	2.16			$	1.87			$	2.08			$	1.47			$	1.60			$	1.44
Weighted average shares outstanding used in computing per share data
Basic			84,870				83,666				83,602				82,737				84,253				84,750				84,765				84,802
Diluted			85,548				84,349				84,479				83,707				85,649				85,393				85,550				85,546

16. SUBSEQUENT EVENTS

On January 25, 2021, the Board of Directors of the Company declared a quarterly dividend of $0.78 per share of common stock to be paid on February 26, 2021 to shareholders of record as of the close of trading on February 19, 2021.

Effective January 1, 2021, the Company will present the ESG operating segment as a separate reportable segment and will be renamed ESG and Climate. In addition, the All Other reportable segment will be renamed to All Other – Private Assets and will be comprised of the Real Estate and Burgiss operating segments. These changes will be reflected in subsequent filings.