MORNINGSTAR, INC., 10-Q filed on 4/29/2016
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2016
Apr. 22, 2016
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
Mar. 31, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
42,911,386 
Condensed Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenue
$ 192.1 
$ 189.8 
Operating expense:
 
 
Cost of revenue
85.3 
78.7 
Sales and marketing
22.3 
25.4 
General and administrative
25.6 
26.1 
Depreciation and amortization
16.6 
15.1 
Total operating expense
149.8 
145.3 
Operating income
42.3 
44.5 
Non-operating income (expense):
 
 
Interest income, net
0.2 
0.2 
Loss on sale of investments, reclassified from other comprehensive income
(0.1)
Other income (expense), net
0.4 
(0.6)
Non-operating income (expense), net
0.5 
(0.4)
Income (loss) before income taxes and equity in net income of unconsolidated entities
42.8 
44.1 
Equity in net income of unconsolidated entities
0.5 
0.5 
Income tax expense (benefit)
14.6 
14.8 
Consolidated net income (loss)
28.7 
29.8 
Net (income) loss attributable to the noncontrolling interest
(0.1)
Net income (loss) attributable to Morningstar, Inc.
$ 28.7 
$ 29.7 
Net income (loss) per share attributable to:
 
 
Basic (in dollars per share)
$ 0.67 
$ 0.67 
Diluted (in dollars per share)
$ 0.67 
$ 0.67 
Dividends declared per common share (in dollars per share)
$ 0.22 
$ 0.19 
Dividends paid per common share (in dollars per share)
$ 0.22 
$ 0.19 
Weighted average shares outstanding:
 
 
Basic (in shares)
43.0 
44.3 
Diluted (in shares)
43.1 
44.5 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Consolidated net income
$ 28.7 
$ 29.8 
Other comprehensive income (loss):
 
 
Foreign currency translation adjustment
4.5 
(19.8)
Unrealized gains (losses) on securities, net of tax:
 
 
Unrealized holding gains arising during period
0.5 
0.1 
Reclassification losses included in net income
0.1 
Other comprehensive income (loss)
5.1 
(19.7)
Comprehensive income
33.8 
10.1 
Comprehensive income attributable to noncontrolling interest
(0.1)
Comprehensive income attributable to Morningstar, Inc.
$ 33.8 
$ 10.0 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 185.2 
$ 207.1 
Investments
41.5 
41.5 
Accounts receivable, less allowance of $1.5 and $1.8, respectively
148.1 
139.3 
Other
25.6 
22.0 
Total current assets
400.4 
409.9 
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $180.8 and $169.8, respectively
134.0 
134.5 
Investments in unconsolidated entities
49.3 
35.6 
Goodwill
367.9 
364.2 
Intangible assets, net
70.3 
74.2 
Other assets
10.8 
10.6 
Total assets
1,032.7 
1,029.0 
Current liabilities:
 
 
Accounts payable and accrued liabilities
41.3 
39.2 
Accrued compensation
38.9 
80.9 
Deferred revenue
161.0 
140.7 
Short-term debt
75.0 
35.0 
Other
7.6 
8.6 
Total current liabilities
323.8 
304.4 
Accrued compensation
9.4 
8.9 
Deferred tax liability, net
17.7 
19.8 
Deferred rent
24.6 
25.4 
Other long-term liabilities
26.7 
29.9 
Total liabilities
402.2 
388.4 
Morningstar, Inc. shareholders' equity:
 
 
Common stock, no par value, 200,000,000 shares authorized, of which 42,911,386 and 43,403,076 shares were outstanding as of March 31, 2016 and December 31, 2015, respectively
Treasury stock at cost, 9,976,234 and 9,478,449 shares as of March 31, 2016 and December 31, 2015, respectively
(658.6)
(619.8)
Additional paid-in capital
579.9 
575.5 
Retained earnings
758.4 
739.2 
Accumulated other comprehensive income (loss):
 
 
Currency translation adjustment
(49.0)
(53.5)
Unrealized loss on available-for-sale securities
(0.5)
(1.1)
Total accumulated other comprehensive income (loss)
(49.5)
(54.6)
Total Morningstar, Inc. shareholders' equity
630.2 
640.3 
Noncontrolling interest
0.3 
0.3 
Total equity
630.5 
640.6 
Total liabilities and equity
$ 1,032.7 
$ 1,029.0 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts receivable
$ 1.5 
$ 1.8 
Accumulated depreciation and amortization
$ 180.8 
$ 169.8 
Common Stock, No Par Value
$ 0 
$ 0 
Common Stock, Shares Authorized
200,000,000 
200,000,000 
Common Stock, Shares, Outstanding
42,911,386 
43,403,076 
Treasury Stock, Shares
9,976,234 
9,478,449 
Condensed Consolidated Statement of Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Non Controlling Interests
Balance at Dec. 31, 2015
$ 640.6 
$ 0 
$ (619.8)
$ 575.5 
$ 739.2 
$ (54.6)
$ 0.3 
Balance (in shares) at Dec. 31, 2015
43,403,076 
43,403,076 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income
28.7 
 
 
 
28.7 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax of $0.3
0.5 
 
 
 
 
0.5 
Reclassification of adjustments for losses included in net income
0.1 
 
 
 
 
0.1 
Foreign currency translation adjustment, net
4.5 
 
 
 
 
4.5 
Other comprehensive income (loss)
5.1 
 
 
 
 
5.1 
Issuance of common stock related to stock-option exercises
0.4 
0.4 
 
 
 
Issuance of common stock related to stock-option exercises (in shares)
 
6,095 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
 
 
 
 
 
 
 
Stock-based compensation
4.0 
 
 
4.0 
 
 
 
Common share repurchased
(38.8)
 
(38.8)
 
 
 
 
Common share repurchased (in shares)
 
(497,785)
 
 
 
 
 
Dividends declared
(9.5)
 
 
 
(9.5)
 
 
Balance at Mar. 31, 2016
$ 630.5 
$ 0 
$ (658.6)
$ 579.9 
$ 758.4 
$ (49.5)
$ 0.3 
Balance (in shares) at Mar. 31, 2016
42,911,386 
42,911,386 
 
 
 
 
 
Condensed Consolidated Statement of Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Statement of Stockholders' Equity [Abstract]
 
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax
$ 0.3 
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax
$ 0 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating activities
 
 
Consolidated net income
$ 28.7 
$ 29.8 
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
 
 
Depreciation and amortization
16.6 
15.1 
Deferred income taxes
(2.2)
(1.6)
Stock-based compensation expense
4.0 
4.3 
Provision for (recoveries of) bad debts
(0.2)
0.3 
Equity in net income of unconsolidated entities
(0.5)
(0.5)
Excess tax benefits from stock-option exercises and vesting of restricted stock units
(1.1)
Other, net
(0.3)
0.6 
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
Accounts receivable
(7.8)
(8.6)
Other assets
(5.2)
(0.5)
Accounts payable and accrued liabilities
2.2 
2.2 
Accrued compensation
(41.2)
(36.4)
Income taxes- current
(1.4)
13.9 
Deferred revenue
19.3 
17.4 
Deferred rent
(0.8)
0.1 
Other liabilities
0.2 
Cash provided by operating activities
11.4 
35.0 
Investing activities
 
 
Purchases of investments
(9.2)
(5.5)
Proceeds from maturities and sales of investments
10.2 
5.9 
Capital expenditures
(13.5)
(14.4)
Acquisitions, net of cash acquired
(2.5)
Purchases of equity- and cost-method investments
(13.1)
Other, net
(0.1)
Cash used for investing activities
(28.1)
(14.1)
Financing activities
 
 
Common shares repurchased
(38.8)
(2.3)
Dividends paid
(9.5)
(8.4)
Proceeds from short-term debt
40.0 
15.0 
Proceeds from stock-option exercises, net
0.4 
1.8 
Excess tax benefits from stock-option exercises and vesting of restricted stock units
1.1 
Other, net
(0.2)
Cash provided by (used for) financing activities
(7.9)
7.0 
Effect of exchange rate changes on cash and cash equivalents
2.7 
(8.5)
Net increase (decrease) in cash and cash equivalents
(21.9)
19.4 
Cash and cash equivalents-beginning of period
207.1 
185.2 
Cash and cash equivalents-end of period
185.2 
204.6 
Supplemental disclosure of cash flow information:
 
 
Cash paid for income taxes
18.2 
2.5 
Interest Paid
0.2 
0.1 
Supplemental information of non-cash investing and financing activities:
 
 
Unrealized gain on available-for-sale investments
0.8 
0.2 
Software obtained under long-term financing arrangement
$ 0 
$ 1.3 
Basis of Presentation of Interim Financial Information
Basis of Presentation of Interim Financial Information
Basis of Presentation of Interim Financial Information
 
The accompanying unaudited 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, 2015, filed with the SEC on February 26, 2016.

The acronyms that appear in the Notes to our Unaudited Condensed Consolidated Financial Statements refer to the following:
 
ASU: Accounting Standards Update
FASB: Financial Accounting Standards Board
 
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, 2015, filed with the SEC on February 26, 2016.

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 original effective date for ASU 2014-09 would have required the Company to adopt beginning on January 1, 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. The new standard is effective for us on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU No. 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.

On March 17, 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides guidance on assessing whether an entity is a principal or an agent in a revenue transaction and whether an entity reports revenue on a gross or net basis. On April 14, 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing, which provides guidance on identifying performance obligations and accounting for licenses of intellectual property. The effective date and transition requirements for ASU No. 2016-08 and ASU No. 2016-10 are the same as the effective date and transition requirements of ASU No. 2014-09. We are evaluating the effect that ASU No. 2016-08 and ASU No. 2016-10 will have on our consolidated financial statements and related disclosures.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. The new standard is effective for us on January 1, 2019. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the effect that ASU No. 2016-02 will have on our consolidated financial statements and related disclosures.

On March 15, 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The new standard is effective for us on January 1, 2017. Early adoption is permitted. The new standard should be applied prospectively for investments that qualify for the equity method of accounting after the effective date. We elected to early adopt ASU No. 2016-07 in the quarter ended March 31, 2016. The adoption of ASU No. 2016-07 did not have a material effect on our consolidated financial statements.

On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The new standard is effective for us on January 1, 2017. Early adoption is permitted but requires all elements of the amendments to be adopted at once rather than individually. We are evaluating the effect that ASU No. 2016-09 will have on our consolidated financial statements and related disclosures.
Credit Arrangements (Notes)
Credit Arrangements
Credit Arrangements

In March 2016, we increased our single-bank revolving credit facility from $75.0 million to $100.0 million. We drew on the credit facility during the first quarter of 2016 and had an outstanding principal balance of $75.0 million at an interest rate of LIBOR plus 100 basis points as of March 31, 2016, leaving borrowing availability of $25.0 million.
Acquisitions, Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill, and Other Intangible Assets

Acquisitions

On March 31, 2016, we acquired RequiSight, LLC, which does business as RightPond, a provider of business
intelligence data and analytics on defined contribution and defined benefit plans for financial services firms. We
began consolidating the financial results of RightPond in our Consolidated Financial Statements on March 31, 2016.

Goodwill
 
The following table shows the changes in our goodwill balances from December 31, 2015 to March 31, 2016:
 
 
 
(in millions)

Balance as of December 31, 2015
 
$
364.2

Acquisitions and foreign currency translation
 
3.7

Balance as of March 31, 2016
 
$
367.9



We did not record any impairment losses in the first three months of 2016 or 2015. We perform our annual impairment reviews in the fourth quarter.

Intangible Assets

The following table summarizes our intangible assets: 
 
 
As of March 31, 2016
 
As of December 31, 2015
(in millions)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
28.6

 
$
(27.5
)
 
$
1.1

 
9
 
$
28.3

 
$
(26.7
)
 
$
1.6

 
9
Customer-related assets
 
138.4

 
(95.1
)
 
43.3

 
12
 
137.5

 
(92.3
)
 
45.2

 
12
Supplier relationships
 
0.2

 
(0.1
)
 
0.1

 
20
 
0.2

 
(0.1
)
 
0.1

 
20
Technology-based assets
 
90.0

 
(66.3
)
 
23.7

 
8
 
89.5

 
(64.4
)
 
25.1

 
8
Non-competition agreements
 
4.7

 
(2.6
)
 
2.1

 
5
 
4.6

 
(2.4
)
 
2.2

 
5
Total intangible assets
 
$
261.9

 
$
(191.6
)
 
$
70.3

 
10
 
$
260.1

 
$
(185.9
)
 
$
74.2

 
10
 
The following table summarizes our amortization expense related to intangible assets:
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Amortization expense
 
$
5.1

 
$
5.5


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

We expect intangible amortization expense for the remainder of 2016 and subsequent years as follows:
 
 
(in millions)

Remainder of 2016 (from April 1 through December 31)
 
$
12.8

2017
 
13.0

2018
 
10.9

2019
 
8.4

2020
 
4.8

Thereafter
 
20.4


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

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 net income per share:

 
 
Three months ended March 31
(in millions, except per share amounts)
 
2016

 
2015

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

 
 

Net income attributable to Morningstar, Inc.
 
$
28.7

 
$
29.7

 
 
 
 
 
Weighted average common shares outstanding
 
43.0

 
44.3

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

 
$
0.67

 
 
 
 
 
Diluted net income per share attributable to Morningstar, Inc.:
 
 
 
 
Net income attributable to Morningstar, Inc.
 
$
28.7

 
$
29.7

 
 
 
 
 
Weighted average common shares outstanding
 
43.0

 
44.3

Net effect of dilutive stock options, restricted stock units, and performance share awards
 
0.1

 
0.2

Weighted average common shares outstanding for computing diluted income per share
 
43.1

 
44.5

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

 
$
0.67


The following table shows the number of weighted average 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 March 31
(in thousands)
 
2016

 
2015

Weighted average restricted stock units
 
25

 
32

Weighted average performance share awards
 
2

 
18

Total
 
27

 
50




Segment and Geographical Area Information
Segment and Geographical Area Information
Segment and Geographical Area Information
 
Segment Information

We 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, 2015. We evaluate the performance of our reporting segment based on revenue and operating income.

Geographical Area Information

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

External revenue by geographical area
 
 
 
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

United States
 
$
141.8

 
$
140.9

 
 
 
 
 
United Kingdom
 
15.3

 
14.6

Continental Europe
 
15.5

 
14.3

Australia
 
6.9

 
7.7

Canada
 
6.6

 
7.0

Asia
 
5.1

 
4.4

Other
 
0.9

 
0.9

Total International
 
50.3

 
48.9

 
 
 
 
 
Consolidated revenue
 
$
192.1

 
$
189.8



Long-lived assets by geographical area
 
 
 
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

United States
 
$
117.5

 
$
116.9

 
 
 
 
 
United Kingdom
 
7.9

 
8.6

Continental Europe
 
2.1

 
2.2

Australia
 
0.9

 
0.9

Canada
 
0.7

 
0.7

Asia
 
4.8

 
5.2

Other
 
0.1

 

Total International
 
16.5

 
17.6

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
134.0

 
$
134.5

Investments and Fair Value Measurements
Investments and Fair Value Measurements
Investments and Fair Value Measurements

We classify our investments into three categories: available-for-sale, held-to-maturity, and trading securities. Our investment portfolio consists of stocks, bonds, options, mutual funds, money market funds, or exchange-traded products that replicate the model portfolios and strategies created by Morningstar. These investment accounts may also include exchange-traded products where Morningstar is an index provider. We classify our investment portfolio as shown below:
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

Available-for-sale
 
$
25.9

 
$
17.3

Held-to-maturity
 
14.2

 
15.3

Trading securities
 
1.4

 
8.9

Total
 
$
41.5

 
$
41.5


The following table shows the cost, unrealized gains (losses), and fair value of investments classified as available-for-sale and held-to-maturity:
 
 
 
As of March 31, 2016
 
As of December 31, 2015
(in millions)
 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

Available-for-sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
24.7

 
$
1.1

 
$
(1.6
)
 
$
24.2

 
$
17.4

 
$
0.3

 
$
(1.6
)
 
$
16.1

Mutual funds
 
1.7

 
0.1

 
(0.1
)
 
1.7

 
1.3

 

 
(0.1
)
 
1.2

Total
 
$
26.4

 
$
1.2

 
$
(1.7
)
 
$
25.9

 
$
18.7

 
$
0.3

 
$
(1.7
)
 
$
17.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
14.2

 
$

 
$

 
$
14.2

 
$
15.3

 
$

 
$

 
$
15.3


 
As of March 31, 2016 and December 31, 2015, investments with unrealized losses for greater than a 12-month period were not material to the Unaudited 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 March 31, 2016 and December 31, 2015. 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 March 31, 2016
 
As of December 31, 2015
(in millions)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Equity securities, exchange-traded funds, and mutual funds
 
$
26.4

 
$
25.9

 
$
18.7

 
$
17.3

    Total
 
$
26.4

 
$
25.9

 
$
18.7

 
$
17.3

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
14.2

 
$
14.2

 
$
15.3

 
$
15.3

Total
 
$
14.2

 
$
14.2

 
$
15.3

 
$
15.3


 
The following table shows the realized gains and losses arising from sales of our investments classified as available-for-sale recorded in our Unaudited Condensed Consolidated Statements of Income: 

 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Realized gains
 
$
0.5

 
$
0.2

Realized losses
 
(0.6
)
 
(0.2
)
Realized losses, net
 
$
(0.1
)
 
$


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

The following table shows the net unrealized gains on trading securities as recorded in our Unaudited Condensed Consolidated Statements of Income:
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Unrealized gains, net
 
$

 
$
0.1



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:
 
 
 
Fair Value
 
Fair Value Measurements as of March 31, 2016
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
March 31, 2016
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
24.2

 
$
24.2

 
$

 
$

Mutual funds
 
1.7

 
1.7

 

 

Trading securities
 
1.4

 
1.4

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
27.5

 
$
27.5

 
$

 
$

 
 
 
Fair Value
 
Fair Value Measurements as of December 31, 2015
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
December 31, 2015
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
16.1

 
$
16.1

 
$

 
$

Mutual funds
 
1.2

 
1.2

 

 

Trading securities
 
8.9

 
8.9

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
26.4

 
$
26.4

 
$

 
$


 
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.

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. We did not hold any securities categorized as Level 2 or Level 3 as of March 31, 2016 and December 31, 2015.
Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
 
Stock-Based Compensation Plans
 
All of our employees and our non-employee directors are eligible for awards under the Morningstar 2011 Stock Incentive Plan (the 2011 Plan), which provides for a variety of stock-based awards, including stock options, performance share awards, restricted stock units, and restricted stock.

The following table summarizes the stock-based compensation expense included in each of our operating expense categories:
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Cost of revenue
 
$
2.0

 
$
2.0

Sales and marketing
 
0.5

 
0.5

General and administrative
 
1.5

 
1.8

Total stock-based compensation expense
 
$
4.0

 
$
4.3



As of March 31, 2016, the total unrecognized stock-based compensation cost related to outstanding restricted stock units and performance share awards expected to vest was $27.1 million, which we expect to recognize over a weighted average period of 30 months.
Income Taxes
Income Taxes
Income Taxes

Effective Tax Rate

The following table shows our effective tax rate for the three months ended March 31, 2016 and March 31, 2015:
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Income before income taxes and equity in net income of unconsolidated entities
 
$
42.8

 
$
44.1

Equity in net income of unconsolidated entities
 
0.5

 
0.5

Net income attributable to noncontrolling interest
 

 
(0.1
)
Total
 
$
43.3

 
$
44.5

Income tax expense
 
$
14.6

 
$
14.8

Effective tax rate
 
33.7
%
 
33.3
%

 
In the first quarter of 2016, our effective tax rate was 33.7%, which was similar to the tax rate for the first quarter of 2015.

Unrecognized Tax Benefits

The table below provides information concerning our gross unrecognized tax benefits as of March 31, 2016 and December 31, 2015, as well as the effect these gross unrecognized tax benefits would have on our income tax expense, if they were recognized.
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

Gross unrecognized tax benefits
 
$
15.6

 
$
14.5

Gross unrecognized tax benefits that would affect income tax expense
 
$
11.6

 
$
10.5

Decrease in income tax expense upon recognition of gross unrecognized tax benefits
 
$
10.3

 
$
9.4



Our Unaudited Condensed Consolidated Balance Sheets include the following liabilities for unrecognized tax benefits. These amounts include interest and penalties, less any associated tax benefits.

 
 
As of March 31
 
As of December 31
Liabilities for Unrecognized Tax Benefits (in millions)
 
2016

 
2015

Current liability
 
$
4.6

 
$
4.2

Non-current liability
 
6.6

 
6.0

Total liability for unrecognized tax benefits
 
$
11.2

 
$
10.2



We conduct business globally and, as a result, we file income tax returns in U.S. federal, state, local, and foreign jurisdictions. We are currently under audit by federal and various state and local tax authorities in the United States, as well as tax authorities in certain non-U.S. jurisdictions. It is possible, though not likely, that the examination phase of some of these audits will conclude in 2016. It is not possible to estimate the effect of current audits on previously recorded unrecognized tax benefits.

We have not provided federal and state income taxes on accumulated undistributed earnings of certain foreign subsidiaries because these earnings have been permanently reinvested. Approximately 75% of our cash, cash equivalents, and investments balance as of March 31, 2016 was held by our operations outside of the United States. We believe that our cash balances and investments in the United States, along with cash generated from our U.S. operations, will be sufficient to meet our U.S. operating and cash needs for the foreseeable future, without requiring us to repatriate earnings from these foreign subsidiaries. It is not practical to determine the amount of the unrecognized deferred tax liability related to the undistributed earnings.
 
Certain of our non-U.S. operations have incurred net operating losses (NOLs) which may become deductible to the extent these operations become profitable. For each of our operations, we evaluate whether it is more likely than not that the tax benefits related to NOLs will be realized. As part of this evaluation, we consider evidence such as tax planning strategies, historical operating results, forecasted taxable income, and recent financial performance. In the year that certain non-U.S. operations record a loss, we do not recognize a corresponding tax benefit, thus increasing our effective tax rate. Upon determining that it is more likely than not that the NOLs will be realized, we reduce the tax valuation allowances related to these NOLs, which results in a reduction to our income tax expense and our effective tax rate in the period.

Contingencies
Contingencies
Contingencies

We are involved in legal proceedings and litigation that have arisen in the normal course of our business. Although the outcome of a particular proceeding can never be predicted, we do not believe the result of any of these matters will have a material adverse effect on our business, operating results, or financial position.
Share Repurchase Program
Share Repurchase Program
Share Repurchase Program
 
We have an ongoing authorization, originally approved by our board of directors in September 2010, and subsequently amended, to repurchase up to $1.0 billion in shares of our outstanding common stock. The authorization expires on December 31, 2017. We may repurchase shares from time to time at prevailing market prices on the open market or in private transactions in amounts that we deem appropriate.

As of March 31, 2016, we had repurchased a total of 9,880,917 shares for $662.3 million under this authorization, leaving approximately $337.7 million available for future repurchases.
Summary of Significant Accounting Policies (Policies)
We 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, 2015. We evaluate the performance of our reporting segment based on revenue and operating income.

We classify our investments into three categories: available-for-sale, held-to-maturity, and trading securities. Our investment portfolio consists of stocks, bonds, options, mutual funds, money market funds, or exchange-traded products that replicate the model portfolios and strategies created by Morningstar. These investment accounts may also include exchange-traded products where Morningstar is an index provider. We classify our investment portfolio as shown below:
Acquisitions, Goodwill and Other Intangible Assets (Tables)
The following table shows the changes in our goodwill balances from December 31, 2015 to March 31, 2016:
 
 
 
(in millions)

Balance as of December 31, 2015
 
$
364.2

Acquisitions and foreign currency translation
 
3.7

Balance as of March 31, 2016
 
$
367.9

The following table summarizes our intangible assets: 
 
 
As of March 31, 2016
 
As of December 31, 2015
(in millions)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
28.6

 
$
(27.5
)
 
$
1.1

 
9
 
$
28.3

 
$
(26.7
)
 
$
1.6

 
9
Customer-related assets
 
138.4

 
(95.1
)
 
43.3

 
12
 
137.5

 
(92.3
)
 
45.2

 
12
Supplier relationships
 
0.2

 
(0.1
)
 
0.1

 
20
 
0.2

 
(0.1
)
 
0.1

 
20
Technology-based assets
 
90.0

 
(66.3
)
 
23.7

 
8
 
89.5

 
(64.4
)
 
25.1

 
8
Non-competition agreements
 
4.7

 
(2.6
)
 
2.1

 
5
 
4.6

 
(2.4
)
 
2.2

 
5
Total intangible assets
 
$
261.9

 
$
(191.6
)
 
$
70.3

 
10
 
$
260.1

 
$
(185.9
)
 
$
74.2

 
10
 
The following table summarizes our amortization expense related to intangible assets:
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Amortization expense
 
$
5.1

 
$
5.5

We expect intangible amortization expense for the remainder of 2016 and subsequent years as follows:
 
 
(in millions)

Remainder of 2016 (from April 1 through December 31)
 
$
12.8

2017
 
13.0

2018
 
10.9

2019
 
8.4

2020
 
4.8

Thereafter
 
20.4


 
Our estimates of future amortization expense for intangible assets may be affected by acquisitions, divestitures, changes in the estimated average useful life, and foreign currency translation.
Income Per Share (Tables)
The following table shows how we reconcile our net income and the number of shares used in computing basic and diluted net income per share:

 
 
Three months ended March 31
(in millions, except per share amounts)
 
2016

 
2015

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

 
 

Net income attributable to Morningstar, Inc.
 
$
28.7

 
$
29.7

 
 
 
 
 
Weighted average common shares outstanding
 
43.0

 
44.3

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

 
$
0.67

 
 
 
 
 
Diluted net income per share attributable to Morningstar, Inc.:
 
 
 
 
Net income attributable to Morningstar, Inc.
 
$
28.7

 
$
29.7

 
 
 
 
 
Weighted average common shares outstanding
 
43.0

 
44.3

Net effect of dilutive stock options, restricted stock units, and performance share awards
 
0.1

 
0.2

Weighted average common shares outstanding for computing diluted income per share
 
43.1

 
44.5

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

 
$
0.67


The following table shows the number of weighted average 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 March 31
(in thousands)
 
2016

 
2015

Weighted average restricted stock units
 
25

 
32

Weighted average performance share awards
 
2

 
18

Total
 
27

 
50

Segment and Geographical Area Information (Tables)
Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]
The tables below summarize our revenue and long-lived assets by geographical area:

External revenue by geographical area
 
 
 
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

United States
 
$
141.8

 
$
140.9

 
 
 
 
 
United Kingdom
 
15.3

 
14.6

Continental Europe
 
15.5

 
14.3

Australia
 
6.9

 
7.7

Canada
 
6.6

 
7.0

Asia
 
5.1

 
4.4

Other
 
0.9

 
0.9

Total International
 
50.3

 
48.9

 
 
 
 
 
Consolidated revenue
 
$
192.1

 
$
189.8



Long-lived assets by geographical area
 
 
 
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

United States
 
$
117.5

 
$
116.9

 
 
 
 
 
United Kingdom
 
7.9

 
8.6

Continental Europe
 
2.1

 
2.2

Australia
 
0.9

 
0.9

Canada
 
0.7

 
0.7

Asia
 
4.8

 
5.2

Other
 
0.1

 

Total International
 
16.5

 
17.6

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
134.0

 
$
134.5

Investments and Fair Value Measurements (Tables)
We classify our investment portfolio as shown below:
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

Available-for-sale
 
$
25.9

 
$
17.3

Held-to-maturity
 
14.2

 
15.3

Trading securities
 
1.4

 
8.9

Total
 
$
41.5

 
$
41.5

The following table shows the cost, unrealized gains (losses), and fair value of investments classified as available-for-sale and held-to-maturity:
 
 
 
As of March 31, 2016
 
As of December 31, 2015
(in millions)
 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

Available-for-sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
24.7

 
$
1.1

 
$
(1.6
)
 
$
24.2

 
$
17.4

 
$
0.3

 
$
(1.6
)
 
$
16.1

Mutual funds
 
1.7

 
0.1

 
(0.1
)
 
1.7

 
1.3

 

 
(0.1
)
 
1.2

Total
 
$
26.4

 
$
1.2

 
$
(1.7
)
 
$
25.9

 
$
18.7

 
$
0.3

 
$
(1.7
)
 
$
17.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
14.2

 
$

 
$

 
$
14.2

 
$
15.3

 
$

 
$

 
$
15.3

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 March 31, 2016
 
As of December 31, 2015
(in millions)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Equity securities, exchange-traded funds, and mutual funds
 
$
26.4

 
$
25.9

 
$
18.7

 
$
17.3

    Total
 
$
26.4

 
$
25.9

 
$
18.7

 
$
17.3

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
14.2

 
$
14.2

 
$
15.3

 
$
15.3

Total
 
$
14.2

 
$
14.2

 
$
15.3

 
$
15.3

The following table shows the realized gains and losses arising from sales of our investments classified as available-for-sale recorded in our Unaudited Condensed Consolidated Statements of Income: 

 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Realized gains
 
$
0.5

 
$
0.2

Realized losses
 
(0.6
)
 
(0.2
)
Realized losses, net
 
$
(0.1
)
 
$

The following table shows the net unrealized gains on trading securities as recorded in our Unaudited Condensed Consolidated Statements of Income:
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Unrealized gains, net
 
$

 
$
0.1


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:
 
 
 
Fair Value
 
Fair Value Measurements as of March 31, 2016
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
March 31, 2016
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
24.2

 
$
24.2

 
$

 
$

Mutual funds
 
1.7

 
1.7

 

 

Trading securities
 
1.4

 
1.4

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
27.5

 
$
27.5

 
$

 
$

 
 
 
Fair Value
 
Fair Value Measurements as of December 31, 2015
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
December 31, 2015
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
16.1

 
$
16.1

 
$

 
$

Mutual funds
 
1.2

 
1.2

 

 

Trading securities
 
8.9

 
8.9

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
26.4

 
$
26.4

 
$

 
$

Stock-Based Compensation (Tables)
Schedule Of Compensation Cost By Expense Category
The following table summarizes the stock-based compensation expense included in each of our operating expense categories:
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Cost of revenue
 
$
2.0

 
$
2.0

Sales and marketing
 
0.5

 
0.5

General and administrative
 
1.5

 
1.8

Total stock-based compensation expense
 
$
4.0

 
$
4.3

Income Taxes (Tables)
The following table shows our effective tax rate for the three months ended March 31, 2016 and March 31, 2015:
 
 
 
Three months ended March 31
(in millions)
 
2016

 
2015

Income before income taxes and equity in net income of unconsolidated entities
 
$
42.8

 
$
44.1

Equity in net income of unconsolidated entities
 
0.5

 
0.5

Net income attributable to noncontrolling interest
 

 
(0.1
)
Total
 
$
43.3

 
$
44.5

Income tax expense
 
$
14.6

 
$
14.8

Effective tax rate
 
33.7
%
 
33.3
%
The table below provides information concerning our gross unrecognized tax benefits as of March 31, 2016 and December 31, 2015, as well as the effect these gross unrecognized tax benefits would have on our income tax expense, if they were recognized.
 
 
As of March 31
 
As of December 31
(in millions)
 
2016

 
2015

Gross unrecognized tax benefits
 
$
15.6

 
$
14.5

Gross unrecognized tax benefits that would affect income tax expense
 
$
11.6

 
$
10.5

Decrease in income tax expense upon recognition of gross unrecognized tax benefits
 
$
10.3

 
$
9.4

Our Unaudited Condensed Consolidated Balance Sheets include the following liabilities for unrecognized tax benefits. These amounts include interest and penalties, less any associated tax benefits.

 
 
As of March 31
 
As of December 31
Liabilities for Unrecognized Tax Benefits (in millions)
 
2016

 
2015

Current liability
 
$
4.6

 
$
4.2

Non-current liability
 
6.6

 
6.0

Total liability for unrecognized tax benefits
 
$
11.2

 
$
10.2

Credit Arrangements (Details) (Revolving Credit Facility [Member], USD $)
1 Months Ended
Mar. 31, 2016
Mar. 1, 2016
Mar. 31, 2016
London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
 
 
 
Line of credit
$ 100,000,000 
$ 75,000,000.0 
 
Basis spread on variable rate (percent)
 
 
1.00% 
Principal balance of credit facility repaid
75,000,000 
 
 
Borrowing availability
$ 25,000,000 
 
 
Acquisitions, Goodwill and Other Intangible Assets (Schedule of Goodwill) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
Goodwill, Impairment Loss
$ 0 
$ 0 
Goodwill [Roll Forward]
 
 
Goodwill, Beginning Balance
364.2 
 
Acquisitions and foreign currency translation
3.7 
 
Goodwill, Ending Balance
$ 367.9 
 
Acquisitions, Goodwill and Other Intangible Assets (Schedule of Intangible Assets) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
 
 
Gross
$ 261.9 
$ 260.1 
Accumulated Amortization
(191.6)
(185.9)
Intangible assets, Net
70.3 
74.2 
Weighted-Average Useful Life (years)
10 years 
10 years 
Intellectual Property [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Gross
28.6 
28.3 
Accumulated Amortization
(27.5)
(26.7)