MORNINGSTAR, INC., 10-Q filed on 10/30/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 24, 2014
Document and Entity Information Abstract
 
 
Entity Registrant Name
MORNINGSTAR, INC. 
 
Entity Central Index Key
0001289419 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
44,581,820 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue
$ 193,106 
$ 173,482 
$ 563,656 
$ 517,766 
Operating expense (1):
 
 
 
 
Cost of revenue
80,142 1
72,422 1
237,243 1
198,499 1
Sales and marketing
26,761 1
22,774 1
83,138 1
78,789 1
General and administrative
26,384 1
22,416 1
82,926 1
77,863 1
Depreciation and amortization
14,558 
11,257 
40,336 
33,858 
Litigation settlement
2
2
61,000 2
2
Total operating expense
147,845 1
128,869 1
504,643 1
389,009 1
Operating income (loss)
45,261 
44,613 
59,013 
128,757 
Non-operating income (expense):
 
 
 
 
Interest income (expense), net
515 
630 
1,734 
2,035 
Gain (loss) on sale of investments reclassified from other comprehensive income
158 
(42)
505 
1,106 
Equity Method Investments Holding Gain
(78)
5,168 
3,635 
Other income (expense), net
(971)
261 
(942)
(1,949)
Non-operating income (expense), net
(298)
771 
6,465 
4,827 
Income before income taxes and equity in net income of unconsolidated entities
44,963 
45,384 
65,478 
133,584 
Equity in net income of unconsolidated entities
337 
315 
1,433 
1,172 
Income tax expense
15,149 
14,265 
20,188 
42,647 
Consolidated net income
30,151 
31,434 
46,723 
92,109 
Net (income) loss attributable to the noncontrolling interest
29 
29 
64 
93 
Net income attributable to Morningstar, Inc.
$ 30,180 
$ 31,463 
$ 46,787 
$ 92,202 
Net income per share attributable to:
 
 
 
 
Basic (in dollars per share)
$ 0.67 
$ 0.68 
$ 1.04 
$ 1.99 
Diluted (in dollars per share)
$ 0.67 
$ 0.68 
$ 1.04 
$ 1.98 
Dividends declared per common share
$ 0.17 
$ 0 
$ 0.51 
$ 0.25 
Dividends paid per common share
$ 0.17 
$ 0.13 
$ 0.51 
$ 0.25 
Weighted average shares outstanding:
 
 
 
 
Basic (in shares)
44,734 
46,080 
44,763 
46,293 
Diluted (in shares)
44,889 
46,519 
44,990 
46,635 
Condensed Consolidated Statements of Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
(1) Includes stock-based compensation expense of:
 
 
 
 
Allocated Share-based Compensation Expense
$ 4,951 
$ 3,416 
$ 13,253 
$ 11,153 
Cost of Revenue
 
 
 
 
(1) Includes stock-based compensation expense of:
 
 
 
 
Allocated Share-based Compensation Expense
2,177 
1,471 
5,829 
4,863 
Sales and Marketing
 
 
 
 
(1) Includes stock-based compensation expense of:
 
 
 
 
Allocated Share-based Compensation Expense
607 
456 
1,634 
1,490 
General and Administrative
 
 
 
 
(1) Includes stock-based compensation expense of:
 
 
 
 
Allocated Share-based Compensation Expense
$ 2,167 
$ 1,489 
$ 5,790 
$ 4,800 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Consolidated net income
$ 30,151 
$ 31,434 
$ 46,723 
$ 92,109 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
(18,809)
11,247 
(13,476)
(4,952)
Unrealized gains (losses) on securities, net of tax:
 
 
 
 
Unrealized holding gains (losses) arising during period
(244)
774 
152 
1,774 
Reclassification of (gains) losses included in net income
(100)
28 
(318)
(706)
Other comprehensive income (loss)
(19,153)
12,049 
(13,642)
(3,884)
Comprehensive income
10,998 
43,483 
33,081 
88,225 
Comprehensive income
83 
40 
98 
246 
Comprehensive income attributable to Morningstar, Inc.
$ 11,081 
$ 43,523 
$ 33,179 
$ 88,471 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 189,318 
$ 168,160 
Investments
38,490 
130,407 
Accounts receivable, less allowance of $1,323 and $1,089, respectively
124,966 
114,131 
Deferred tax asset, net
7,524 
3,892 
Income tax receivable, net
4,427 
3,942 
Other
23,619 
26,361 
Total current assets
388,344 
446,893 
Property, equipment, and capitalized software, net
112,584 
104,986 
Investments in unconsolidated entities
30,428 
38,714 
Goodwill
378,969 
326,450 
Intangible assets, net
103,443 
103,909 
Other assets
6,407 
9,716 
Total assets
1,020,175 
1,030,668 
Current liabilities:
 
 
Accounts payable and accrued liabilities
38,495 
42,131 
Accrued compensation
67,692 
71,403 
Deferred revenue
150,051 
149,225 
Short-term debt
30,017 
Other
4,632 
6,786 
Total current liabilities
290,887 
269,545 
Accrued compensation
6,905 
8,193 
Deferred tax liability, net
17,565 
23,755 
Deferred rent
23,460 
23,938 
Other long-term liabilities
10,839 
13,947 
Total liabilities
349,656 
339,378 
Morningstar, Inc. shareholders' equity:
 
 
Common stock, no par value, 200,000,000 shares authorized, of which 44,661,350 and 44,967,423 shares were outstanding as of September 30, 2014 and December 31, 2013, respectively
Treasury stock at cost, 7,809,277 shares as of September 30, 2014 and 7,202,896 shares as of December 31, 2013
(493,642)
(449,054)
Additional paid-in capital
553,172 
539,507 
Retained earnings
618,484 
594,626 
Accumulated other comprehensive income (loss):
 
 
Currency translation adjustment
(8,833)
4,609 
Unrealized gain on available-for-sale securities
398 
564 
Total accumulated other comprehensive income (loss)
(8,435)
5,173 
Total Morningstar, Inc. shareholders' equity
669,584 
690,257 
Noncontrolling interest
935 
1,033 
Total equity
670,519 
691,290 
Total liabilities and equity
$ 1,020,175 
$ 1,030,668 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Allowance for Doubtful Accounts Receivable, Current
$ 1,323 
$ 1,089 
Common Stock, No Par Value
$ 0 
$ 0 
Common Stock, Shares Authorized
200,000,000 
200,000,000 
Common Stock, Shares, Outstanding
44,661,350 
44,967,423 
Treasury Stock, Shares
7,809,277 
7,202,896 
Condensed Consolidated Statement of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Non Controlling Interests
Balance at Dec. 31, 2013
$ 691,290 
$ 5 
$ (449,054)
$ 539,507 
$ 594,626 
$ 5,173 
$ 1,033 
Balance (in shares) at Dec. 31, 2013
44,967,423 
44,967,423 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income (loss)
46,723 
 
 
 
46,787 
 
(64)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax of $82
152 
   
   
   
   
152 
Reclassification of adjustments for gains included in net income, net of income tax of $187
(318)
   
   
   
   
(318)
Foreign currency translation adjustment, net
(13,476)
   
   
   
   
(13,442)
(34)
Other comprehensive income (loss)
(13,642)
   
   
   
   
(13,608)
(34)
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net
(1,356)
1,261 
(2,617)
   
   
   
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)
 
317,579 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
 
 
 
 
 
 
 
Stock-based compensation - restricted stock units
13,253 
   
   
 
   
   
   
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
 
 
 
13,253 
 
 
 
Excess tax benefit derived from stock-option exercises and vesting of restricted stock units
2,945 
   
   
2,945 
   
   
   
Common share repurchased
(45,849)
   
(45,849)
   
   
   
   
Common share repurchased (in shares)
 
(623,652)
 
 
 
 
 
Dividends declared - common shares outstanding
(22,779)
   
   
   
(22,779)
   
   
Dividends declared - restricted stock units
(66)
   
   
84 
(150)
   
   
Balance at Sep. 30, 2014
$ 670,519 
$ 5 
$ (493,642)
$ 553,172 
$ 618,484 
$ (8,435)
$ 935 
Balance (in shares) at Sep. 30, 2014
44,661,350 
44,661,350 
 
 
 
 
 
Condensed Consolidated Statement of Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Statement of Stockholders' Equity [Abstract]
 
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax
$ 82 
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax
$ 187 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Operating activities
 
 
Consolidated net income
$ 46,723 
$ 92,109 
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
 
 
Depreciation and amortization
40,336 
33,858 
Deferred income taxes
(5,367)
(2,315)
Stock-based compensation expense
13,253 
11,153 
Provision for bad debt
308 
730 
Equity in net income of unconsolidated entities
(1,433)
(1,172)
Excess tax benefits from stock-option exercises and vesting of restricted stock units
(2,945)
(4,093)
Holding gain upon acquisition of additional ownership of equity method investments
(5,168)
(3,635)
Other, net
200 
12 
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
Accounts receivable
(12,588)
(1,249)
Other assets
(3,333)
(2,887)
Accounts payable and accrued liabilities
(1,224)
(3,151)
Accrued compensation
3,376 
(8,404)
Income taxes- current
3,542 
17,205 
Deferred revenue
548 
6,004 
Deferred rent
33 
(1,273)
Other liabilities
(973)
(679)
Cash provided by operating activities
75,288 
132,213 
Investing activities
 
 
Purchases of investments
(10,612)
(113,824)
Proceeds from maturities and sales of investments
103,120 
108,599 
Capital expenditures
(42,756)
(27,950)
Acquisitions, net of cash acquired
(64,447)
(11,079)
Proceeds from sale of a business
957 
Purchases of equity- and cost-method investments
(2,751)
Other, net
229 
432 
Cash used for investing activities
(14,466)
(45,616)
Financing activities
 
 
Proceeds from stock-option exercises, net
3,766 
3,172 
Employee taxes withheld for restricted stock units
(5,122)
(5,276)
Excess tax benefits from stock-option exercises and vesting of restricted stock units
2,945 
4,093 
Common shares repurchased
(42,100)
(62,794)
Dividends paid
(22,912)
(11,657)
Proceeds from short-term debt
30,000 
Other, net
(9)
(54)
Cash provided by (used for) financing activities
(33,432)
(72,516)
Effect of exchange rate changes on cash and cash equivalents
(6,232)
(1,011)
Net increase (decrease) in cash and cash equivalents
21,158 
13,070 
Cash and cash equivalents-beginning of period
168,160 
163,889 
Cash and cash equivalents-end of period
189,318 
176,959 
Supplemental disclosure of cash flow information:
 
 
Cash paid for income taxes
22,044 
27,700 
Supplemental information of non-cash investing and financing activities:
 
 
Unrealized gain (loss) on available-for-sale investments
(270)
1,675 
Equipment obtained under long-term financing arrangement
$ 0 
$ 4,860 
Basis of Presentation of Interim Financial Information
Basis of Presentation of Interim Financial Information
Basis of Presentation of Interim Financial Information
 
The accompanying condensed consolidated financial statements of Morningstar, Inc. and subsidiaries (Morningstar, we, our, the company) have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (SEC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, and expenses. Actual results could differ from those estimates. In the opinion of management, the statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position, results of operations, equity, and cash flows. These financial statements and notes are unaudited and should be read in conjunction with our Audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 28, 2014.

Certain prior-period amounts have been reclassified to conform to the current period's presentation. We now include development expense, which was previously reported as a separate operating expense category, in the cost of revenue category. We have reclassified development expense to include it in cost of revenue for all periods presented.

Separately, as a result of our move to a more centralized structure in the third quarter of 2013 (including new positions created, changes in focus for some existing roles, and the refinement of employee cost categorizations as we moved to a more centralized structure), approximately 180 net positions shifted from the general and administrative and sales and marketing categories to cost of revenue. For the first nine months of 2014 as compared with the same period in 2013, changes related to our more centralized organizational structure added $14 million of compensation expense to cost of revenue, and reduced the compensation expense in our sales and marketing and general and administrative expense categories by $8 million and $6 million, respectively. These changes did not affect our total operating expense or operating income for any of the periods presented.

The acronyms that appear in the Notes to our Unaudited Condensed Consolidated Financial Statements refer to the following:
 
ASC: Accounting Standards Codification
ASU: Accounting Standards Update
FASB: Financial Accounting Standards Board
 
Correction
Correction
Correction

In 2014, we identified and corrected an immaterial classification error related to the current and long-term balance for deferred rent included on our Consolidated Balance Sheets as of December 31, 2013. The correcting entries had the effect of decreasing accounts payable and accrued liabilities by $10.7 million and increasing deferred rent (long-term) by the same amount. The financial statements have been corrected to reduce the current balance and increase the long-term balance as shown in the table below:
 
 
As of December 31, 2013
($000)
 
Previously Reported

 
Correction

 
As Corrected

Accounts payable and accrued liabilities
 
$
52,877

 
$
(10,746
)
 
$
42,131

Deferred rent
 
$
13,192

 
$
10,746

 
$
23,938

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

We discuss our significant accounting policies in Note 2 of our Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 28, 2014.

In addition, effective January 1, 2014, we adopted FASB ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). ASU No. 2013-05 specifies that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Additionally, the amendments in this update clarify that the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that results in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes referred to as a step acquisition). The currency translation adjustment should be released into net income upon the occurrence of those events. The adoption of ASU No. 2013-05 did not have a material effect on our consolidated financial statements.

We also adopted FASB ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force), effective January 1, 2014. This update requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The update does not require new recurring disclosures. The adoption of ASU No. 2013-11 did not have a material effect on our consolidated financial statements.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
Credit Arrangements (Notes)
Credit Arrangements
Credit Arrangements

In July 2014, the company entered into a one year, $75.0 million, single-bank revolving credit facility. The company drew on the credit facility during the third quarter and had an outstanding principal balance of $30.0 million at an interest rate of LIBOR plus 100 basis points as of September 30, 2014, leaving borrowing availability of $45.0 million.
Acquisitions, Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Acquisitions

Increased Ownership Interest in HelloWallet Holdings, Inc.

In June 2014, we acquired an additional 81.3% interest in HelloWallet Holdings, Inc. (HelloWallet), increasing our ownership to 100% from 18.7%. HelloWallet combines behavioral economics and the psychology of decision-making with sophisticated technology to provide personalized, unbiased financial guidance to U.S. workers and their families through their employer benefit plans. We began consolidating the financial results of this acquisition in our Consolidated Financial Statements on June 3, 2014.

HelloWallet's total preliminary estimated fair value of $54,006,000 includes $40,525,000 in cash paid to acquire the remaining 81.3% interest in HelloWallet and pay off HelloWallet's indebtedness as well as $13,481,000 related to the 18.7% of HelloWallet we previously held. We recorded a preliminary non-cash holding gain of $5,168,000 for the difference between the fair value and the book value of our previously held investment. The gain is included in non-operating income in our Unaudited Condensed Consolidated Statements of Income.

The purchase price valuation will be finalized upon the completion of the fair value analysis of the acquired assets and liabilities, including the preliminary intangible assets. We have not yet obtained all of the information related to the fair value of the acquired assets and liabilities to finalize the purchase price allocation. The primary areas that are not yet finalized relate to the valuation of the identifiable intangible assets and income taxes.

The following table summarizes our preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, all of which are preliminary pending completion of the final valuation:
 
 
($000)

Cash and cash equivalents
 
$
3,739

Accounts receivable and other current assets
 
150

Other current and non-current assets
 
318

Deferred tax asset
 
7,340

Intangible assets
 
9,460

Goodwill
 
40,472

Deferred revenue
 
(2,897
)
Deferred tax liability
 
(3,595
)
Other current and non-current liabilities
 
(981
)
Total fair value of HelloWallet
 
$
54,006



The preliminary allocation includes $9,460,000 of acquired intangible assets, as follows:
 
 
($000)

 
Weighted Average Useful Life (years)
Technology based assets
 
6,670

 
5
Intellectual property (trademarks and trade names)
 
169

 
3
Non-competition agreement
 
2,621

 
5
Total intangible assets
 
$
9,460

 
5


We recognized a preliminary deferred tax liability of $3,595,000 mainly because the amortization expense related to certain intangible assets is not deductible for income tax purposes. The fair value of the acquired intangible assets and the deferred tax liability are preliminary pending receipt of the final valuation for these assets.

We recognized a preliminary deferred tax asset of $7,340,000 mainly because of net operating losses of HelloWallet which will become available to Morningstar.

Preliminary goodwill of $40,472,000 represents the premium over the fair value of the net tangible and intangible assets acquired. We paid this premium for a number of reasons, including the opportunity to bring together HelloWallet's comprehensive financial wellness expertise with Morningstar's independent, research-based retirement advice to create a holistic retirement savings and advice offering.

ByAllAccounts, Inc.

In April 2014, we acquired ByAllAccounts, Inc. (ByAllAccounts), a provider of innovative data aggregation technology for financial applications for $27,949,000 in cash. ByAllAccounts uses a knowledge-based process, including patented artificial intelligence technology, to collect, consolidate, and enrich financial account data and deliver it to virtually any platform. We began including the financial results of this acquisition in our Consolidated Financial Statements on April 1, 2014.

The purchase price valuation will be finalized upon the completion of the fair value analysis of the acquired assets and liabilities, including the preliminary intangible assets. We have not yet obtained all of the information related to the fair value of the acquired assets and liabilities to finalize the purchase price allocation. The primary areas that are not yet finalized relate to the valuation of the identifiable intangible assets and income taxes.

The following table summarizes our preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition, all of which are preliminary pending completion of the final valuation:
 
 
($000)

Cash and cash equivalents
 
$
287

Accounts receivable and other current assets
 
152

Deferred tax asset
 
3,685

Other current and non-current assets
 
257

Intangible assets
 
8,681

Goodwill
 
18,778

Deferred revenue
 
(79
)
Deferred tax liability
 
(3,299
)
Other current and non-current liabilities
 
(513
)
Total purchase price
 
$
27,949



The preliminary allocation includes $8,681,000 of acquired intangible assets, as follows:

 
 
($000)

 
Weighted Average Useful Life (years)
Customer-related assets
 
$
5,506

 
24
Technology-based assets
 
3,020

 
4.5
Intellectual property (trademarks and trade names)
 
47

 
1
Non-competition agreement
 
108

 
3
Total intangible assets
 
$
8,681

 
19


We recognized a preliminary deferred tax liability of $3,299,000 mainly because the amortization expense related to certain intangible assets is not deductible for income tax purposes. The fair value of the acquired intangible assets and the deferred tax liability are preliminary pending receipt of the final valuation for these intangible assets.

We recognized a preliminary deferred tax asset of $3,685,000 mainly because of net operating losses of ByAllAccounts which will become available to Morningstar.

Preliminary goodwill value of $18,778,000 represents the premium we paid over the fair value of the acquired net tangible and intangible assets. We paid this premium for a number of reasons, including the opportunity to integrate the service into our offerings as well as expand and develop ByAllAccounts' third-party distribution relationships.

Goodwill
 
The following table shows the changes in our goodwill balances from December 31, 2013 to September 30, 2014:
 
 
 
($000)

Balance as of December 31, 2013
 
$
326,450

Acquisitions of HelloWallet and ByAllAccounts
 
59,250

Foreign currency translation
 
(6,731
)
Balance as of September 30, 2014
 
$
378,969



We did not record any impairment losses in the first nine months of 2014 or 2013. We perform our annual impairment reviews in the fourth quarter.

Intangible Assets

The following table summarizes our intangible assets: 
 
 
As of September 30, 2014
 
As of December 31, 2013
($000)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
29,539

 
$
(24,844
)
 
$
4,695

 
9
 
$
29,477

 
$
(23,128
)
 
$
6,349

 
9
Customer-related assets
 
144,359

 
(82,076
)
 
62,283

 
12
 
141,833

 
(74,311
)
 
67,522

 
12
Supplier relationships
 
240

 
(117
)
 
123

 
20
 
240

 
(108
)
 
132

 
20
Technology-based assets
 
89,789

 
(56,050
)
 
33,739

 
8
 
80,489

 
(50,673
)
 
29,816

 
9
Non-competition agreement
 
4,379

 
(1,776
)
 
2,603

 
5
 
1,661

 
(1,571
)
 
90

 
4
Total intangible assets
 
$
268,306

 
$
(164,863
)
 
$
103,443

 
11
 
$
253,700

 
$
(149,791
)
 
$
103,909

 
10
 
The following table summarizes our amortization expense related to intangible assets:
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

Amortization expense
 
$
5,912

 
$
5,287

 
$
16,555

 
$
16,249


 
We amortize intangible assets using the straight-line method over their expected economic useful lives.

We expect intangible amortization expense for 2014 and subsequent years as follows:
 
 
($000)

2014
 
$
22,059

2015
 
22,251

2016
 
17,693

2017
 
13,145

2018
 
10,965

Thereafter
 
33,885


 
Our estimates of future amortization expense for intangible assets may be affected by additional acquisitions, divestitures, changes in the estimated average useful life, and currency translations.

Income Per Share
Income Per Share
Income Per Share 

The following table shows how we reconcile our net income and the number of shares used in computing basic and diluted income per share:

 
 
Three months ended September 30
 
Nine months ended September 30
(in thousands, except per share amounts)
 
2014

 
2013

 
2014

 
2013

 
 
 
 
 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.:
 
 

 
 

 
 
 
 
Net income attributable to Morningstar, Inc.:
 
$
30,180

 
$
31,463

 
$
46,787

 
$
92,202

Less: Distributed earnings available to participating securities
 
(1
)
 

 
(6
)
 
(5
)
Less: Undistributed earnings available to participating securities
 
(4
)
 
(11
)
 
(4
)
 
(29
)
Numerator for basic net income per share — undistributed and distributed earnings available to common shareholders
 
$
30,175

 
$
31,452

 
$
46,777

 
$
92,168

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
44,734

 
46,080

 
44,763

 
46,293

 
 
 
 
 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.
 
$
0.67

 
$
0.68

 
$
1.04

 
$
1.99

 
 
 
 
 
 
 
 
 
Diluted net income per share attributable to Morningstar, Inc.:
 
 
 
 
 
 
 
 
Numerator for basic net income per share — undistributed and distributed earnings available to common shareholders
 
$
30,175

 
$
31,452

 
$
46,777

 
$
92,168

Add: Undistributed earnings allocated to participating securities
 
4

 
11

 
4

 
29

Less: Undistributed earnings reallocated to participating securities
 
(4
)
 
(11
)
 
(4
)
 
(29
)
Numerator for diluted net income per share — undistributed and distributed earnings available to common shareholders
 
$
30,175

 
$
31,452

 
$
46,777

 
$
92,168

 
 


 


 


 


Weighted average common shares outstanding
 
44,734

 
46,080
 
44,763

 
46,293
Net effect of dilutive stock options and restricted stock units
 
155

 
439

 
227

 
342
Weighted average common shares outstanding for computing diluted income per share
 
44,889

 
46,519

 
44,990

 
46,635

 
 


 
 
 


 


Diluted net income per share attributable to Morningstar, Inc.
 
$
0.67

 
$
0.68

 
$
1.04

 
$
1.98


The following table shows the number of restricted stock units and performance share awards excluded from our calculation of diluted earnings per share because their inclusion would have been anti-dilutive:

 
 
Three months ended September 30
 
Nine months ended September 30
(in thousands)
 
2014

 
2013

 
2014

 
2013

Weighted average restricted stock units
 
83

 
1

 
34

 
19

Weighted average performance share awards
 
9

 

 
7

 

Total
 
92

 
1

 
41

 
19


Stock options and restricted stock could be included in the calculation in the future.

Segment and Geographical Area Information
Segment and Geographical Area Information
Segment, Enterprise-Wide, and Geographical Area Information
 
Segment Information

Beginning with the third quarter of 2013, we revised our segment structure to reflect our shift to a more centralized organizational structure. We now report our results in a single reportable segment, which reflects how our chief operating decision maker allocates resources and evaluates our financial results.

Because we have one reportable segment, all required financial segment information can be found directly in the Unaudited Condensed Consolidated Financial Statements.

The accounting policies for our single reportable segment are the same as those described in “Note 2. Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2013. We evaluate the performance of our reporting segment based on revenue and operating income.

Products and Services Information

We derive revenue from two product groups. The investment information product group includes all of our data, software, and research products and services. These products are typically sold through subscriptions or license agreements. The investment management product group includes all of our asset management operations, which earn the majority of their revenue from asset-based fees. The table below summarizes our revenue by product group:

External revenue by product group
 
 
 
 
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

Investment information
 
$
152,252

 
$
137,216

 
$
443,049

 
$
412,332

Investment management
 
40,854

 
36,266

 
120,607

 
105,434

Consolidated revenue
 
$
193,106

 
$
173,482

 
$
563,656

 
$
517,766



Geographical Area Information

The tables below summarize our revenue and long-lived assets by geographical area:

External revenue by geographical area
 
 
 
 
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

United States
 
$
141,276

 
$
124,998

 
$
407,681

 
$
372,746

 
 
 
 
 
 
 
 
 
United Kingdom
 
15,190

 
14,148

 
46,071

 
41,316

Continental Europe
 
15,562

 
14,666

 
47,109

 
41,826

Australia
 
8,866

 
8,041

 
26,267

 
26,569

Canada
 
7,391

 
7,603

 
22,599

 
23,151

Asia
 
3,950

 
3,363

 
11,547

 
10,236

Other
 
871

 
663

 
2,382

 
1,922

Total International
 
51,830

 
48,484

 
155,975

 
145,020

 
 
 
 
 
 
 
 
 
Consolidated revenue
 
$
193,106

 
$
173,482

 
$
563,656

 
$
517,766



Long-lived assets by geographical area
 
 
 
 
 
 
As of September 30
 
As of December 31
($000)
 
2014

 
2013

United States
 
$
94,103

 
$
84,321

 
 
 
 
 
United Kingdom
 
6,994

 
6,873

Continental Europe
 
1,410

 
1,873

Australia
 
926

 
1,051

Canada
 
926

 
1,275

Asia
 
8,138

 
9,479

Other
 
87

 
114

Total International
 
18,481

 
20,665

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
112,584

 
$
104,986

Investments and Fair Value Measurements
Investments and Fair Value Measurements
Investments and Fair Value Measurements
 
We account for our investments in accordance with FASB ASC 320, Investments—Debt and Equity Securities. We classify our investments into three categories: available-for-sale, held-to-maturity, and trading. Our investment portfolio is primarily invested in proprietary Morningstar portfolios, exchange-traded funds that seek to track the performance of certain Morningstar proprietary indexes, and various mutual funds. We classify our investment portfolio as shown below:
 
 
 
As of September 30
 
As of December 31
($000)
 
2014

 
2013

Available-for-sale
 
$
12,226

 
$
91,461

Held-to-maturity
 
18,059

 
31,214

Trading securities
 
8,205

 
7,732

Total
 
$
38,490

 
$
130,407



The following table shows the cost, unrealized gains (losses), and fair values related to investments classified as available-for-sale and held-to-maturity:
 
 
 
As of September 30, 2014
 
As of December 31, 2013
($000)
 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

Available-for-sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Government obligations
 
$

 
$

 
$

 
$

 
$
19,693

 
$
8

 
$
(3
)
 
$
19,698

Corporate bonds
 

 

 

 

 
49,913

 
22

 
(124
)
 
49,811

Foreign obligations
 

 

 

 

 
505

 

 
(2
)
 
503

Commercial paper
 

 

 

 

 
9,482

 
7

 

 
9,489

Equity securities and exchange-traded funds
 
6,499

 
477

 
(81
)
 
6,895

 
8,872

 
1,011

 
(141
)
 
9,742

Mutual funds
 
5,097

 
372

 
(138
)
 
5,331

 
2,095

 
221

 
(98
)
 
2,218

Total
 
$
11,596

 
$
849

 
$
(219
)
 
$
12,226

 
$
90,560

 
$
1,269

 
$
(368
)
 
$
91,461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
18,059

 
$

 
$

 
$
18,059

 
$
31,214

 
$

 
$

 
$
31,214


 
As of September 30, 2014 and December 31, 2013, investments with unrealized losses for greater than a 12-month period were not material to the Condensed Consolidated Balance Sheets and were not deemed to have other than temporary declines in value.

The table below shows the cost and fair value of investments classified as available-for-sale and held-to-maturity based on their contractual maturities as of September 30, 2014 and December 31, 2013. The expected maturities of certain fixed-income securities may differ from their contractual maturities because some of these holdings have call features that allow the issuers the right to prepay obligations without penalties.
 
 
 
As of September 30, 2014
 
As of December 31, 2013
($000)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Due in one year or less
 
$

 
$

 
$
45,486

 
$
45,402

Due in one to two years
 

 

 
34,107

 
34,099

Equity securities, exchange-traded funds, and mutual funds
 
11,596

 
12,226

 
10,967

 
11,960

    Total
 
$
11,596

 
$
12,226

 
$
90,560

 
$
91,461

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
18,054

 
$
18,054

 
$
31,210

 
$
31,210

Due in one to three years
 
5

 
5

 
4

 
4

Total
 
$
18,059

 
$
18,059

 
$
31,214

 
$
31,214


 
As of September 30, 2014 and December 31, 2013, held-to-maturity investments included a $1.5 million certificate of deposit held primarily as collateral against bank guarantees for our office leases, primarily in Australia.

The following table shows the realized gains and losses arising from sales of our investments classified as available-for-sale recorded in our Condensed Consolidated Statements of Income: 
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

Realized gains
 
$
158

 
$
94

 
$
731

 
$
2,320

Realized losses
 

 
(136
)
 
(226
)
 
(1,214
)
Realized gains (losses), net
 
$
158

 
$
(42
)
 
$
505

 
$
1,106


 
We determine realized gains and losses using the specific identification method.

The following table shows the net unrealized gains (losses) on trading securities as recorded in our Condensed Consolidated Statements of Income:
 
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

Unrealized gains (losses), net
 
$
272

 
$
(741
)
 
$
117

 
$
(468
)


The table below shows the fair value of our assets subject to fair value measurements that are measured at fair value on a recurring basis using the fair value hierarchy and the necessary disclosures under FASB ASC 820, Fair Value Measurement:
 
 
 
Fair Value
 
Fair Value Measurements as of September 30, 2014
 
 
as of
 
Using Fair Value Hierarchy
($000)
 
September 30, 2014
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Government obligations
 
$

 
$

 
$

 
$

Corporate bonds
 

 

 

 

Foreign obligations
 

 

 

 

Commercial paper
 

 

 

 

Equity securities and exchange-traded funds
 
6,895

 
6,895

 

 

Mutual funds
 
5,331

 
5,331

 

 

Trading securities
 
8,205

 
8,205

 

 

Cash equivalents
 
428

 
428

 

 

Total
 
$
20,859

 
$
20,859

 
$

 
$

 
 
 
Fair Value
 
Fair Value Measurements as of December 31, 2013
 
 
as of
 
Using Fair Value Hierarchy
($000)
 
December 31, 2013
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Government obligations
 
$
19,698

 
$

 
$
19,698

 
$

Corporate bonds
 
49,811

 

 
49,811

 

Foreign obligations
 
503

 

 
503

 

Commercial paper
 
9,489

 

 
9,489

 

Equity securities and exchange-traded funds
 
9,742

 
9,742

 

 

Mutual funds
 
2,218

 
2,218

 

 

Trading securities
 
7,732

 
7,732

 

 

Cash equivalents
 
925

 
925

 

 

Total
 
$
100,118

 
$
20,617

 
$
79,501

 
$


 
Level 1:
Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2:
Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3:
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Based on our analysis of the nature and risks of our investments in equity securities and mutual funds, we have determined that presenting each of these investment categories in the aggregate is appropriate.

We measure the fair value of money market funds, mutual funds, equity securities, and exchange-traded funds based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from observable market data. We did not hold any securities categorized as Level 3 as of September 30, 2014 and December 31, 2013.
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities
 
Our investments in unconsolidated entities consist primarily of the following:
 
 
As of September 30


As of December 31

($000)
 
2014


2013

Investment in MJKK
 
$
22,615

 
$
21,782

Other equity method investments
 
5,440

 
6,166

Investments accounted for using the cost method
 
2,373

 
10,766

Total investments in unconsolidated entities
 
$
30,428

 
$
38,714


 
Morningstar Japan K.K. Morningstar Japan K.K. (MJKK) develops and markets products and services customized for the Japanese market. MJKK’s shares are traded on the Tokyo Stock Exchange under the ticker 47650. We account for our investment in MJKK using the equity method. The following table summarizes our ownership percentage in MJKK and the market value of this investment based on MJKK’s publicly quoted share price: 
 
 
As of September 30

 
As of December 31

 
 
2014

 
2013

Morningstar’s approximate ownership of MJKK
 
34
%
 
34
%
 
 
 
 
 
Approximate market value of Morningstar’s ownership in MJKK:
 
 

 
 

Japanese yen (¥000)
 
¥
7,264,858

 
¥
9,824,068

Equivalent U.S. dollars ($000)
 
$
66,401

 
$
94,999



Other Equity Method Investments. As of September 30, 2014 and December 31, 2013, other equity method investments consist of our investment in Inquiry Financial Europe AB (Inquiry Financial) and YCharts, Inc. (YCharts). Inquiry Financial is a provider of sell-side consensus estimate data. Our ownership interest in Inquiry Financial was approximately 34% as of September 30, 2014 and December 31, 2013. YCharts is a technology company that provides stock research and analysis. Our ownership interest in YCharts was approximately 22% as of September 30, 2014 and December 31, 2013.

We did not record any impairment losses on our equity method investments in the first nine months of 2014 or 2013.
 
Cost Method Investments. As of September 30, 2014 and December 31, 2013, our cost method investments consist of a minority investment in Pitchbook Data, Inc. (Pitchbook). Pitchbook offers detailed data and information about private equity transactions, investors, companies, limited partners, and service providers.

As of December 31, 2013, our cost method investments also included a minority investment in HelloWallet LLC (HelloWallet). In June 2014, we purchased the remaining interest in HelloWallet. See Note 5 for additional information concerning our acquisition of HelloWallet.

We did not record any impairment losses on our cost method investments in the first nine months of 2014 or 2013.
Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
 
Stock-Based Compensation Plans
 
Our shareholders approved the Morningstar 2011 Stock Incentive Plan (the 2011 Plan) on May 17, 2011. As of that date, we stopped granting awards under the Morningstar 2004 Stock Incentive Plan (the 2004 Plan). The 2004 Plan amended and restated the Morningstar 1993 Stock Option Plan, the Morningstar 2000 Stock Option Plan, and the Morningstar 2001 Stock Option Plan.

The 2011 Plan provides for a variety of stock-based awards, including, among other things, stock options, performance share awards, restricted stock units, and restricted stock. We granted stock options, restricted stock units, and restricted stock under the 2004 Plan.

All of our employees and our non-employee directors are eligible for awards under the 2011 Plan.

Grants awarded under the 2011 Plan or the 2004 Plan that are forfeited, canceled, settled, or otherwise terminated without a distribution of shares, or shares withheld by us in connection with the exercise of options, will be available for awards under the 2011 Plan. Any shares subject to awards under the 2011 Plan, but not under the 2004 Plan, that are withheld by us in connection with the payment of any required income tax withholding will be available for awards under the 2011 Plan.

The following table summarizes the number of shares available for future grants under our 2011 Plan:
 
 
 
As of September 30

(in thousands)
 
2014

Shares available for future grants
 
4,257


 
Accounting for Stock-Based Compensation Awards
 
The following table summarizes our stock-based compensation expense and the related income tax benefit we recorded:
 
 
Three months ended September 30
 
Nine months ended September 30
($000)
 
2014

 
2013

 
2014

 
2013

Restricted stock units
 
$
4,587

 
$
3,196

 
$
12,262

 
$
10,493

Restricted stock
 
97

 
97

 
291

 
291

Performance share awards
 
172

 

 
372

 

Stock options
 
95

 
123

 
328

 
369

Total stock-based compensation expense
 
$
4,951

 
$
3,416

 
$
13,253

 
$
11,153

 
 


 


 


 


Income tax benefit related to the stock-based compensation expense
 
$
1,446

 
$
846

 
$
3,808

 
$
2,944


 
The following table summarizes the amount of unrecognized stock-based compensation expense as of September 30, 2014 and the expected number of months over which the expense will be recognized:
 
 
Unrecognized stock-based compensation expense ($000)

 
Expected amortization period (months)
Restricted stock units
 
$
34,989

 
34
Restricted stock
 
257

 
9
Performance share awards
 
1,545

 
27
Stock options
 
226

 
7
Total unrecognized stock-based compensation expense
 
$
37,017

 
33


In accordance with FASB ASC 718, Compensation—Stock Compensation, we estimate forfeitures of employee stock-based awards and recognize compensation cost only for those awards expected to vest. Our largest annual equity grants typically have vesting dates in the second quarter. We adjust the stock-based compensation expense annually in the third quarter to reflect those awards that ultimately vested and update our estimate of the forfeiture rate that will be applied to awards not yet vested.
 
Restricted Stock Units
 
Restricted stock units represent the right to receive a share of Morningstar common stock when that unit vests. Restricted stock units to employees vest ratably over a four-year period. Restricted stock units granted to non-employee directors vest ratably over a three-year period. For restricted stock units granted through December 31, 2008, employees could elect to defer receipt of the Morningstar common stock issued upon vesting of the restricted stock unit.

We measure the fair value of our restricted stock units on the date of grant based on the closing market price of the underlying common stock on the day prior to the grant. We amortize that value to stock-based compensation expense, net of estimated forfeitures, ratably over the vesting period.

The following table summarizes restricted stock unit activity during the first nine months of 2014:
Restricted Stock Units (RSUs)
 
Unvested

 
Vested but
Deferred

 
Total

 
Weighted
Average
Grant Date Value
per RSU

RSUs outstanding—December 31, 2013
 
680,002

 
16,682

 
696,684

 
$
62.02

Granted
 
245,350

 

 
245,350

 
73.11

Dividend equivalents
 
2,083

 
113

 
2,196

 
58.13

Vested
 
(235,053
)
 

 
(235,053
)
 
57.48

Issued
 

 
(2,054
)
 
(2,054
)
 
53.54

Forfeited
 
(27,673
)
 

 
(27,673
)
 
64.45

RSUs Outstanding - September 30, 2014
 
664,709

 
14,741

 
679,450

 
$
67.49


 
Restricted Stock
 
In conjunction with our acquisition of Realpoint LLC in May 2010, we issued 199,174 shares of restricted stock to the selling employee-shareholders under the 2004 Plan. The restricted stock vests ratably over a five-year period from the acquisition date and may be subject to forfeiture if the holder terminates his or her employment during the vesting period.

Because of the terms of the restricted stock agreements prepared in conjunction with the Realpoint acquisition, we account for the grant of restricted stock as stock-based compensation expense and not as part of the acquisition consideration.

We measured the fair value of the restricted stock on the date of grant based on the closing market price of our common stock on the day prior to the grant. We amortize the fair value of $9,363,000 to stock-based compensation expense over the vesting period. We have assumed that all of the remaining restricted stock will ultimately vest, and therefore have not incorporated a forfeiture rate for purposes of determining the stock-based compensation expense.
 
Performance Share Awards

In 2014, executive officers, other than Joe Mansueto, were granted performance share awards pursuant to which each executive becomes entitled to a number of shares of Morningstar common stock equal to the number of notional performance shares that become vested. Each award specifies a number of performance shares that will vest if pre-established target performance goals are attained. The number of performance shares that actually vest may be more or less than the specified number of performance shares to the extent Morningstar exceeds or fails to achieve, respectively, the target performance goals over a three-year performance period.

The performance conditions are not considered in the determination of the grant date fair value for these awards; instead, the grant date fair value is based on the closing market price of the underlying common stock on the day prior to the grant date. We amortize that value to stock-based compensation expense, based on the satisfaction of the performance condition that is most likely to be satisfied over the three-year service period ratably over the vesting period.


Information as of September 30, 2014 regarding the company's target performance share awards granted and shares that would be issued at current performance levels for performance share awards granted during the first nine months of 2014 is as follows:
 
 
As of September 30, 2014

Target performance share awards granted
 
23,685

Fair value per award (1)
 
$
80.91

Number of shares that would be issued based on current performance levels
 
23,685

Unamortized expense, based on current performance levels
 
$
1,545,000


(1) Represents the closing market price of Morningstar's stock on March 14, 2014, which is the last closing price prior to the grant date.

Stock Options

Stock options granted to employees vest ratably over a four-year period. Grants to our non-employee directors vest ratably over a three-year period. All grants expire 10 years after the date of grant. Almost all of the options granted under the 2004 Plan have a premium feature in which the exercise price increases over the term of the option at a rate equal to the 10-year Treasury bond yield as of the date of grant. Options granted under the 2011 Plan have an exercise price equal to the fair market value on the grant date.

The following tables summarize stock option activity in the first nine months of 2014 for our various stock option grants. The first table includes activity for options granted at an exercise price below the fair value per share of our common stock on the grant date; the second table includes activity for all other option grants. 
Options Granted At an Exercise Price Below the Fair Value Per Share on the Grant Date
 
Underlying
Shares

 
Weighted
Average
Exercise
Price

Options outstanding—December 31, 2013
 
179,559

 
$
21.47

Granted
 

 

Canceled
 

 

Exercised
 
(93,116
)
 
21.92

Options outstanding—September 30, 2014
 
86,443

 
22.14

 
 
 
 
 
Options exercisable—September 30, 2014
 
86,443

 
$
22.14


 
All Other Option Grants, Excluding Activity Shown Above
 
Underlying
Shares

 
Weighted
Average
Exercise
Price

Options outstanding—December 31, 2013
 
253,972

 
$
36.48

Granted
 

 

Canceled
 

 

Exercised
 
(58,326
)
 
30.09

Options outstanding—September 30, 2014
 
195,646

 
39.02

 
 
 
 
 
Options exercisable—September 30, 2014
 
179,176

 
$
37.31

 
The following table summarizes the total intrinsic value (difference between the market value of our stock on the date of exercise and the exercise price of the option) of options exercised:
 
 
 
Nine months ended September 30
($000)
 
2014

 
2013

Intrinsic value of options exercised
 
$
7,238

 
$
8,964


 

The table below shows additional information for options outstanding and exercisable as of September 30, 2014:
 
 
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
 
Number of  Options

 
Weighted
Average
Remaining
Contractual
Life (years)
 
Weighted
Average
Exercise
Price

 
Aggregate
Intrinsic
Value
($000)

 
Exercisable Shares

 
Weighted Average Remaining Contractual Life (years)
 
Weighted Average Exercise Price

 
Aggregate Intrinsic Value ($000)

$22.06 - $27.24
 
203,908

 
0.42
 
$
25.08

 
$
8,732

 
203,908

 
0.42
 
$
25.08

 
$
8,732

$40.08 - $50.46
 
6,506

 
1.17
 
48.61

 
125

 
6,506

 
1.17
 
48.61