MORNINGSTAR, INC., 10-Q filed on 4/28/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
Apr. 21, 2017
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, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
42,930,624 
Condensed Consolidated Statements of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Revenue
$ 209.5 
$ 192.1 
Operating expense:
 
 
Cost of revenue
97.0 
85.3 
Sales and marketing
32.4 
22.3 
General and administrative
30.2 
25.6 
Depreciation and amortization
21.5 
16.6 
Total operating expense
181.1 
149.8 
Operating income
28.4 
42.3 
Non-operating income (expense):
 
 
Interest income (expense), net
(0.9)
0.2 
Gain on sale of investments, reclassified from other comprehensive income
0.5 
(0.1)
Other income (expense), net
(0.9)
0.4 
Non-operating income (expense), net
(1.3)
0.5 
Income before income taxes and equity in net income (loss) of unconsolidated entities
27.1 
42.8 
Equity in net income (loss) of unconsolidated entities
(0.8)
0.5 
Income tax expense
8.3 
14.6 
Consolidated net income
$ 18.0 
$ 28.7 
Net income per share:
 
 
Basic (in dollars per share)
$ 0.42 
$ 0.67 
Diluted (in dollars per share)
$ 0.42 
$ 0.67 
Dividends declared per common share (in dollars per share)
$ 0.23 
$ 0.22 
Dividends paid per common share (in dollars per share)
$ 0.23 
$ 0.22 
Weighted average shares outstanding:
 
 
Basic (in shares)
42.9 
43.0 
Diluted (in shares)
43.2 
43.1 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Consolidated net income
$ 18.0 
$ 28.7 
Other comprehensive income:
 
 
Foreign currency translation adjustment
7.4 
4.5 
Unrealized gains (losses) on securities, net of tax:
 
 
Unrealized holding gains arising during period
1.6 
0.5 
Reclassification (gains) losses included in net income
(0.3)
0.1 
Other comprehensive income
8.7 
5.1 
Comprehensive income
$ 26.7 
$ 33.8 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 265.8 
$ 259.1 
Investments
51.7 
44.9 
Accounts receivable, less allowance of $2.2 and $2.1, respectively
142.3 
145.8 
Other
26.3 
22.2 
Total current assets
486.1 
472.0 
Property, equipment, and capitalized software, less accumulated depreciation and amortization of $230.5 and $214.8, respectively
149.8 
152.1 
Investments in unconsolidated entities
39.2 
40.3 
Goodwill
558.3 
556.8 
Intangible assets, net
114.7 
120.9 
Other assets
7.5 
8.8 
Total assets
1,355.6 
1,350.9 
Current liabilities:
 
 
Accounts payable and accrued liabilities
47.1 
44.6 
Accrued compensation
46.1 
71.7 
Deferred revenue
187.9 
165.4 
Other
18.8 
13.2 
Total current liabilities
299.9 
294.9 
Accrued compensation
10.7 
10.3 
Deferred tax liability, net
36.3 
38.2 
Long-term debt
235.0 
250.0 
Deferred rent
24.2 
24.8 
Other long-term liabilities
30.8 
35.9 
Total liabilities
636.9 
654.1 
Morningstar, Inc. shareholders' equity:
 
 
Common stock, no par value, 200,000,000 shares authorized, of which 42,930,624 and 42,932,994 shares were outstanding as of March 31, 2017 and December 31, 2016, respectively
Treasury stock at cost, 10,109,043 and 10,106,249 shares as of March 31, 2017 and December 31, 2016, respectively
(668.1)
(667.9)
Additional paid-in capital
589.3 
584.0 
Retained earnings
870.0 
861.9 
Accumulated other comprehensive income (loss):
 
 
Currency translation adjustment
(73.9)
(81.3)
Unrealized loss on available-for-sale securities
1.1 
(0.2)
Total accumulated other comprehensive loss
(72.8)
(81.5)
Total Morningstar, Inc. shareholders' equity
718.4 
696.5 
Noncontrolling interest
0.3 
0.3 
Total equity
718.7 
696.8 
Total liabilities and equity
$ 1,355.6 
$ 1,350.9 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts receivable
$ 2.2 
$ 2.1 
Accumulated depreciation and amortization
$ 230.5 
$ 214.8 
Common Stock, No Par Value
$ 0 
$ 0 
Common Stock, Shares Authorized
200,000,000 
200,000,000 
Common Stock, Shares, Outstanding
42,930,624 
42,932,994 
Treasury Stock, Shares
10,109,043 
10,106,249 
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, 2016
$ 696.8 
$ 0 
$ (667.9)
$ 584.0 
$ 861.9 
$ (81.5)
$ 0.3 
Balance (in shares) at Dec. 31, 2016
42,932,994 
42,932,994 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income
18.0 
 
 
 
18.0 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax of $0.6
1.6 
 
 
 
 
1.6 
Reclassification of adjustments for gain included in net income, net of income tax of $0.2
(0.3)
 
 
 
 
(0.3)
Foreign currency translation adjustment
7.4 
 
 
 
 
7.4 
Other comprehensive income, net
8.7 
 
 
 
 
8.7 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net of shares withheld for taxes on settlements of restricted stock units
 
 
 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net of shares withheld for taxes on settlements of restricted stock units (in shares)
 
424 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
 
 
 
 
 
 
 
Stock-based compensation
5.3 
 
 
5.3 
 
 
 
Common share repurchased
(0.2)
 
(0.2)
 
 
 
 
Common share repurchased (in shares)
 
(2,794)
 
 
 
 
 
Dividends declared
(9.9)
 
 
 
(9.9)
 
 
Balance at Mar. 31, 2017
$ 718.7 
$ 0 
$ (668.1)
$ 589.3 
$ 870.0 
$ (72.8)
$ 0.3 
Balance (in shares) at Mar. 31, 2017
42,930,624 
42,930,624 
 
 
 
 
 
Condensed Consolidated Statement of Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Statement of Stockholders' Equity [Abstract]
 
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax
$ 0.6 
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax
$ 0.2 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operating activities
 
 
Consolidated net income
$ 18.0 
$ 28.7 
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
 
 
Depreciation and amortization
21.5 
16.6 
Deferred income taxes
(2.3)
(2.2)
Stock-based compensation expense
5.3 
4.0 
Provision for (recoveries of) bad debt
0.5 
(0.2)
Equity in net income (loss) of unconsolidated entities
0.8 
(0.5)
Other, net
0.4 
(0.3)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
Accounts receivable
4.0 
(7.8)
Other assets
(6.6)
(5.2)
Accounts payable and accrued liabilities
2.3 
2.2 
Accrued compensation
(25.7)
(41.2)
Income taxes- current
6.6 
(1.4)
Deferred revenue
22.1 
19.3 
Deferred rent
(0.5)
(0.8)
Other liabilities
0.1 
0.2 
Cash provided by operating activities
46.5 
11.4 
Investing activities
 
 
Purchases of investments
(9.2)
(9.2)
Proceeds from maturities and sales of investments
5.7 
10.2 
Capital expenditures
(14.3)
(13.5)
Acquisitions, net of cash acquired
(2.5)
Purchases of equity- and cost-method investments
(0.2)
(13.1)
Other, net
0.5 
Cash used for investing activities
(17.5)
(28.1)
Financing activities
 
 
Common shares repurchased
(0.9)
(38.8)
Dividends paid
(9.9)
(9.5)
Proceeds from short-term debt
40.0 
Repayment of long-term debt
(15.0)
Proceeds from stock-option exercises, net
0.4 
Other, net
(0.2)
Cash used for financing activities
(26.0)
(7.9)
Effect of exchange rate changes on cash and cash equivalents
3.7 
2.7 
Net increase (decrease) in cash and cash equivalents
6.7 
(21.9)
Cash and cash equivalents-beginning of period
259.1 
207.1 
Cash and cash equivalents-end of period
265.8 
185.2 
Supplemental disclosure of cash flow information:
 
 
Cash paid for income taxes
4.1 
18.2 
Interest Paid
1.2 
0.2 
Supplemental information of non-cash investing and financing activities:
 
 
Unrealized gain on available-for-sale investments
$ 1.8 
$ 0.8 
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, 2016, filed with the SEC on February 28, 2017 (our Annual Report).

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
 
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 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 us to adopt it beginning on January 1, 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with CustomersDeferral 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. We elected the deferral, and the new standard is effective for us on January 1, 2018. The company has obtained an understanding of ASU No. 2014-09 and has begun to analyze the impact of the new standard on its financial results. We have completed a high-level assessment of the attributes within the company’s contracts for its major products and services, and we have started assessing potential impacts to our internal processes, control environment, and disclosures. While the company does not currently anticipate that the adoption of ASU 2014-09 will result in a material change to the timing of when revenue is recognized and believes that it will retain similar accounting treatment used to recognize revenue under current standards, we are continuing to evaluate the impact of the new standard on our financial results and other possible impacts. The standard allows for both retrospective and modified retrospective methods of adoption. The company is in the process of determining the method of adoption it will elect and the impact on our consolidated financial statements and footnote disclosures. We will continue to provide enhanced disclosures as we continue our assessment.

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. On May 6, 2016, the FASB issued ASU No. 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC guidance because of ASU No. 2014-09 and ASU No. 2014-16 pursuant to staff announcements at the March 3, 2016 EITF Meeting, which rescinds the following SEC Staff Observer comments from ASC 605, Revenue Recognition, upon an entity's early adoption of ASC 606, Revenue from Contracts with Customers: Revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer (including a reseller of the vendor's products). On May 9, 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which makes narrow-scope amendments to ASU No. 2014-09 and provides practical expedients to simplify the transition to the new standard and clarify certain aspects of the standard. On December 21, 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which makes narrow-scope amendments to ASU No. 2014-09.

The effective date and transition requirements for ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 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, ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 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 August 26, 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in practice of how certain transactions are classified in the statement of cash flows. The new guidance clarifies the classification of cash activities related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow.

The new standard is effective for us on January 1, 2018. Early adoption is permitted, including adoption in an interim period, but requires all elements of the amendments to be adopted at once rather than individually. The new standard must be adopted using a retrospective transition method. We are evaluating the effect that ASU No. 2016-15 will have on our consolidated financial statements and related disclosures.

On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which revises the definition of a business. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and substantive process are present (including for early-stage companies that have not generated outputs). To be a business without outputs, there will now need to be an organized workforce. The new guidance also narrows the definition of the term outputs to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The new standard is effective for us on January 1, 2018. Early adoption is permitted. We are evaluating the effect that ASU No. 2017-01 will have on our consolidated financial statements and related disclosures.

On January 26, 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other, which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The new standard is effective for us on January 1, 2020. The new standard should be applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. We are evaluating the effect that ASU No. 2017-04 will have on our consolidated financial statements and related disclosures.
Credit Arrangements (Notes)
Credit Arrangements
Credit Arrangements

Our credit agreement provides us with a three-year credit facility with a borrowing capacity of up to $300.0 million. The credit agreement also provides for issuance of up to $25.0 million of letters of credit under the revolving credit facility.

The interest rate applicable to any loan under the credit agreement is, at our option, either: (i) the applicable London interbank offered rate (LIBOR) plus an applicable margin for such loans, which ranges between 1.00% and 1.75%, based on our consolidated leverage ratio or (ii) the lender's base rate plus the applicable margin for such loans, which ranges between 2.00% and 2.75%, based on our consolidated leverage ratio.

The credit agreement also contains financial covenants under which we: (i) may not exceed a maximum consolidated leverage ratio of 3.00 to 1.00 and (ii) are required to maintain a minimum consolidated interest coverage ratio of not less than 3.00 to 1.00. We were in compliance with the financial covenants as of March 31, 2017.

We had an outstanding principal balance of $235.0 million at a one-month LIBOR interest rate plus 100 basis points as of March 31, 2017, leaving borrowing availability of $65.0 million.
Acquisitions, Goodwill and Other Intangible Assets
Acquisitions, Goodwill and Other Intangible Assets
Acquisitions, Goodwill, and Other Intangible Assets

2017 Acquisitions

We did not complete any acquisitions in the first quarter of 2017.

2016 Acquisitions

In the first quarter of 2017, we did not make any significant changes to the preliminary purchase price allocation related to our acquisition of PitchBook Data, Inc. compared with the preliminary estimates at December 31, 2016.

As of March 31, 2017, the primary areas that are not yet finalized due to information that may become available subsequently and may result in changes in the values assigned to various assets and liabilities, include the fair values of acquired intangible assets and related deferred tax liabilities, assumed deferred revenue, and assumed tax assets and liabilities.

Additional information concerning this acquisition can be found in the Notes to our Consolidated Financial Statements included in our Annual Report.

Goodwill
 
The following table shows the changes in our goodwill balances from December 31, 2016 to March 31, 2017:
 
 
 
(in millions)

Balance as of December 31, 2016
 
$
556.8

Adjustments to purchase price allocation and foreign currency translation
 
1.5

Balance as of March 31, 2017
 
$
558.3



We did not record any impairment losses in the first three months of 2017 or 2016. We perform our annual impairment reviews in the fourth quarter.

Intangible Assets

The following table summarizes our intangible assets: 
 
 
As of March 31, 2017
 
As of December 31, 2016
(in millions)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
31.2

 
$
(28.0
)
 
$
3.2

 
9
 
$
30.9

 
$
(27.4
)
 
$
3.5

 
9
Customer-related assets
 
152.8

 
(100.0
)
 
52.8

 
12
 
152.0

 
(97.7
)
 
54.3

 
12
Supplier relationships
 
0.2

 
(0.1
)
 
0.1

 
20
 
0.2

 
(0.1
)
 
0.1

 
20
Technology-based assets
 
133.6

 
(76.8
)
 
56.8

 
7
 
133.2

 
(72.1
)
 
61.1

 
7
Non-competition agreements
 
5.1

 
(3.3
)
 
1.8

 
5
 
5.0

 
(3.1
)
 
1.9

 
5
Total intangible assets
 
$
322.9

 
$
(208.2
)
 
$
114.7

 
10
 
$
321.3

 
$
(200.4
)
 
$
120.9

 
10
 
The following table summarizes our amortization expense related to intangible assets:
 
 
Three months ended March 31
(in millions)
 
2017

 
2016

Amortization expense
 
$
6.5

 
$
5.1


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

We expect intangible amortization expense for the remainder of 2017 and subsequent years as follows:
 
 
(in millions)

Remainder of 2017 (from April 1 through December 31)
 
$
17.9

2018
 
22.4

2019
 
19.8

2020
 
16.2

2021
 
12.8

Thereafter
 
25.6


 
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)
 
2017

 
2016

 
 
 
 
 
Basic net income per share:
 
 

 
 

Consolidated net income
 
$
18.0

 
$
28.7

 
 
 
 
 
Weighted average common shares outstanding
 
42.9

 
43.0

 
 
 
 
 
Basic net income per share
 
$
0.42

 
$
0.67

 
 
 
 
 
Diluted net income per share:
 
 
 
 
Consolidated net income
 
$
18.0

 
$
28.7

 
 
 
 
 
Weighted average common shares outstanding
 
42.9

 
43.0

Net effect of dilutive stock options, restricted stock units, and performance share awards
 
0.3

 
0.1

Weighted average common shares outstanding for computing diluted income per share
 
43.2

 
43.1

 
 
 
 
 
Diluted net income per share
 
$
0.42

 
$
0.67


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 was immaterial during the periods presented.

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. 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)
 
2017

 
2016

United States
 
$
156.9

 
$
141.8

 
 
 
 
 
United Kingdom
 
14.9

 
15.3

Continental Europe
 
16.3

 
15.5

Australia
 
8.1

 
6.9

Canada
 
7.3

 
6.6

Asia
 
4.9

 
5.1

Other
 
1.1

 
0.9

Total International
 
52.6

 
50.3

 
 
 
 
 
Consolidated revenue
 
$
209.5

 
$
192.1



Long-lived assets by geographical area
 
 
 
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2017

 
2016

United States
 
$
136.7

 
$
139.1

 
 
 
 
 
United Kingdom
 
6.4

 
6.6

Continental Europe
 
1.8

 
1.9

Australia
 
0.5

 
0.6

Canada
 
0.3

 
0.4

Asia
 
4.0

 
3.4

Other
 
0.1

 
0.1

Total International
 
13.1

 
13.0

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
149.8

 
$
152.1

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)
 
2017

 
2016

Available-for-sale
 
$
30.1

 
$
27.7

Held-to-maturity
 
20.1

 
15.7

Trading securities
 
1.5

 
1.5

Total
 
$
51.7

 
$
44.9



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, 2017
 
As of December 31, 2016
(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
 
$
26.1

 
$
1.9

 
$
(0.4
)
 
$
27.6

 
$
25.6

 
$
1.3

 
$
(1.5
)
 
$
25.4

Mutual funds
 
2.2

 
0.3

 

 
2.5

 
2.2

 
0.1

 

 
2.3

Total
 
$
28.3

 
$
2.2

 
$
(0.4
)
 
$
30.1

 
$
27.8

 
$
1.4

 
$
(1.5
)
 
$
27.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
18.2

 
$

 
$

 
$
18.2

 
$
13.8

 
$

 
$

 
$
13.8

Convertible note
 
1.9

 

 

 
1.9

 
1.9

 

 

 
1.9

Total
 
$
20.1

 
$

 
$

 
$
20.1

 
$
15.7

 
$

 
$

 
$
15.7


 
As of March 31, 2017 and December 31, 2016, 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, 2017 and December 31, 2016.
 
 
 
As of March 31, 2017
 
As of December 31, 2016
(in millions)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Equity securities, exchange-traded funds, and mutual funds
 
$
28.3

 
$
30.1

 
$
27.8

 
$
27.7

    Total
 
$
28.3

 
$
30.1

 
$
27.8

 
$
27.7

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
18.0

 
$
18.0

 
$
13.8

 
$
13.8

Due in one to three years
 
1.9

 
1.9

 
1.9

 
1.9

Due more than three years
 
0.2

 
0.2

 

 

Total
 
$
20.1

 
$
20.1

 
$
15.7

 
$
15.7


 
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)
 
2017

 
2016

Realized gains
 
$
0.5

 
$
0.5

Realized losses
 

 
(0.6
)
Realized gains (losses), net
 
$
0.5

 
$
(0.1
)

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

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 a fair value hierarchy:

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.

 
 
Fair Value
 
Fair Value Measurements as of March 31, 2017
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
March 31, 2017
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
27.6

 
$
27.6

 
$

 
$

Mutual funds
 
2.5

 
2.5

 

 

Trading securities
 
1.5

 
1.5

 

 

Cash equivalents
 
0.3

 
0.3

 

 

Total
 
$
31.9

 
$
31.9

 
$

 
$

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

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
25.4

 
$
25.4

 
$

 
$

Mutual funds
 
2.3

 
2.3

 

 

Trading securities
 
1.5

 
1.5

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
29.4

 
$
29.4

 
$

 
$



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. We did not hold any securities categorized as Level 2 or Level 3 as of March 31, 2017 and December 31, 2016.
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, 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)
 
2017

 
2016

Cost of revenue
 
$
2.1

 
$
2.0

Sales and marketing
 
0.7

 
0.5

General and administrative
 
2.5

 
1.5

Total stock-based compensation expense
 
$
5.3

 
$
4.0



As of March 31, 2017, the total unrecognized stock-based compensation cost related to outstanding restricted stock units and performance share awards expected to vest was $33.8 million, which we expect to recognize over a weighted average period of 29 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, 2017 and March 31, 2016:
 
 
 
Three months ended March 31
(in millions)
 
2017

 
2016

Income before income taxes and equity in net income (loss) of unconsolidated entities
 
$
27.1

 
$
42.8

Equity in net income (loss) of unconsolidated entities
 
(0.8
)
 
0.5

Total
 
$
26.3

 
$
43.3

Income tax expense
 
$
8.3

 
$
14.6

Effective tax rate
 
31.6
%
 
33.7
%

 
Our effective tax rate in the first quarter of 2017 was 31.6% compared with 33.7% in the first quarter of 2016, a decrease of 2.1 percentage points. The decrease in our effective tax rate generally reflects a lower percentage of net income in the United States in 2017, which is typically taxed at higher rates than our foreign net income.



Unrecognized Tax Benefits

The table below provides information concerning our gross unrecognized tax benefits as of March 31, 2017 and December 31, 2016, 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)
 
2017

 
2016

Gross unrecognized tax benefits
 
$
18.7

 
$
18.4

Gross unrecognized tax benefits that would affect income tax expense
 
$
14.7

 
$
14.4

Decrease in income tax expense upon recognition of gross unrecognized tax benefits
 
$
13.6

 
$
13.3



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)
 
2017

 
2016

Current liability
 
$
8.9

 
$
8.9

Non-current liability
 
5.8

 
5.4

Total liability for unrecognized tax benefits
 
$
14.7

 
$
14.3



Because we conduct business globally, 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 2017. 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 71% of our cash, cash equivalents, and investments balance as of March 31, 2017 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. While it is difficult to predict the outcome of any particular proceeding, 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, 2017, we had repurchased a total of 10,030,919 shares for $673.2 million under this authorization, leaving approximately $326.8 million available for future repurchases.
Summary of Significant Accounting Policies (Policies)
We discuss our significant accounting policies in Note 2 of our Audited Consolidated Financial Statements included in our Annual Report.

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 us to adopt it beginning on January 1, 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with CustomersDeferral 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. We elected the deferral, and the new standard is effective for us on January 1, 2018. The company has obtained an understanding of ASU No. 2014-09 and has begun to analyze the impact of the new standard on its financial results. We have completed a high-level assessment of the attributes within the company’s contracts for its major products and services, and we have started assessing potential impacts to our internal processes, control environment, and disclosures. While the company does not currently anticipate that the adoption of ASU 2014-09 will result in a material change to the timing of when revenue is recognized and believes that it will retain similar accounting treatment used to recognize revenue under current standards, we are continuing to evaluate the impact of the new standard on our financial results and other possible impacts. The standard allows for both retrospective and modified retrospective methods of adoption. The company is in the process of determining the method of adoption it will elect and the impact on our consolidated financial statements and footnote disclosures. We will continue to provide enhanced disclosures as we continue our assessment.

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. On May 6, 2016, the FASB issued ASU No. 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC guidance because of ASU No. 2014-09 and ASU No. 2014-16 pursuant to staff announcements at the March 3, 2016 EITF Meeting, which rescinds the following SEC Staff Observer comments from ASC 605, Revenue Recognition, upon an entity's early adoption of ASC 606, Revenue from Contracts with Customers: Revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer (including a reseller of the vendor's products). On May 9, 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which makes narrow-scope amendments to ASU No. 2014-09 and provides practical expedients to simplify the transition to the new standard and clarify certain aspects of the standard. On December 21, 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which makes narrow-scope amendments to ASU No. 2014-09.

The effective date and transition requirements for ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 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, ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 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 August 26, 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in practice of how certain transactions are classified in the statement of cash flows. The new guidance clarifies the classification of cash activities related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow.

The new standard is effective for us on January 1, 2018. Early adoption is permitted, including adoption in an interim period, but requires all elements of the amendments to be adopted at once rather than individually. The new standard must be adopted using a retrospective transition method. We are evaluating the effect that ASU No. 2016-15 will have on our consolidated financial statements and related disclosures.

On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which revises the definition of a business. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and substantive process are present (including for early-stage companies that have not generated outputs). To be a business without outputs, there will now need to be an organized workforce. The new guidance also narrows the definition of the term outputs to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The new standard is effective for us on January 1, 2018. Early adoption is permitted. We are evaluating the effect that ASU No. 2017-01 will have on our consolidated financial statements and related disclosures.

On January 26, 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other, which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The new standard is effective for us on January 1, 2020. The new standard should be applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. We are evaluating the effect that ASU No. 2017-04 will have on our consolidated financial statements and related disclosures.

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. 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, 2016 to March 31, 2017:
 
 
 
(in millions)

Balance as of December 31, 2016
 
$
556.8

Adjustments to purchase price allocation and foreign currency translation
 
1.5

Balance as of March 31, 2017
 
$
558.3

The following table summarizes our intangible assets: 
 
 
As of March 31, 2017
 
As of December 31, 2016
(in millions)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
 
Gross

 
Accumulated
Amortization

 
Net

 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
31.2

 
$
(28.0
)
 
$
3.2

 
9
 
$
30.9

 
$
(27.4
)
 
$
3.5

 
9
Customer-related assets
 
152.8

 
(100.0
)
 
52.8

 
12
 
152.0

 
(97.7
)
 
54.3

 
12
Supplier relationships
 
0.2

 
(0.1
)
 
0.1

 
20
 
0.2

 
(0.1
)
 
0.1

 
20
Technology-based assets
 
133.6

 
(76.8
)
 
56.8

 
7
 
133.2

 
(72.1
)
 
61.1

 
7
Non-competition agreements
 
5.1

 
(3.3
)
 
1.8

 
5
 
5.0

 
(3.1
)
 
1.9

 
5
Total intangible assets
 
$
322.9

 
$
(208.2
)
 
$
114.7

 
10
 
$
321.3

 
$
(200.4
)
 
$
120.9

 
10
 
The following table summarizes our amortization expense related to intangible assets:
 
 
Three months ended March 31
(in millions)
 
2017

 
2016

Amortization expense
 
$
6.5

 
$
5.1

We expect intangible amortization expense for the remainder of 2017 and subsequent years as follows:
 
 
(in millions)

Remainder of 2017 (from April 1 through December 31)
 
$
17.9

2018
 
22.4

2019
 
19.8

2020
 
16.2

2021
 
12.8

Thereafter
 
25.6


 
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)
Schedule of Earnings Per Share, Basic and Diluted
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)
 
2017

 
2016

 
 
 
 
 
Basic net income per share:
 
 

 
 

Consolidated net income
 
$
18.0

 
$
28.7

 
 
 
 
 
Weighted average common shares outstanding
 
42.9

 
43.0

 
 
 
 
 
Basic net income per share
 
$
0.42

 
$
0.67

 
 
 
 
 
Diluted net income per share:
 
 
 
 
Consolidated net income
 
$
18.0

 
$
28.7

 
 
 
 
 
Weighted average common shares outstanding
 
42.9

 
43.0

Net effect of dilutive stock options, restricted stock units, and performance share awards
 
0.3

 
0.1

Weighted average common shares outstanding for computing diluted income per share
 
43.2

 
43.1

 
 
 
 
 
Diluted net income per share
 
$
0.42

 
$
0.67


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)
 
2017

 
2016

United States
 
$
156.9

 
$
141.8

 
 
 
 
 
United Kingdom
 
14.9

 
15.3

Continental Europe
 
16.3

 
15.5

Australia
 
8.1

 
6.9

Canada
 
7.3

 
6.6

Asia
 
4.9

 
5.1

Other
 
1.1

 
0.9

Total International
 
52.6

 
50.3

 
 
 
 
 
Consolidated revenue
 
$
209.5

 
$
192.1



Long-lived assets by geographical area
 
 
 
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2017

 
2016

United States
 
$
136.7

 
$
139.1

 
 
 
 
 
United Kingdom
 
6.4

 
6.6

Continental Europe
 
1.8

 
1.9

Australia
 
0.5

 
0.6

Canada
 
0.3

 
0.4

Asia
 
4.0

 
3.4

Other
 
0.1

 
0.1

Total International
 
13.1

 
13.0

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
149.8

 
$
152.1

Investments and Fair Value Measurements (Tables)
We classify our investment portfolio as shown below:
 
 
 
As of March 31
 
As of December 31
(in millions)
 
2017

 
2016

Available-for-sale
 
$
30.1

 
$
27.7

Held-to-maturity
 
20.1

 
15.7

Trading securities
 
1.5

 
1.5

Total
 
$
51.7

 
$
44.9

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, 2017
 
As of December 31, 2016
(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
 
$
26.1

 
$
1.9

 
$
(0.4
)
 
$
27.6

 
$
25.6

 
$
1.3

 
$
(1.5
)
 
$
25.4

Mutual funds
 
2.2

 
0.3

 

 
2.5

 
2.2

 
0.1

 

 
2.3

Total
 
$
28.3

 
$
2.2

 
$
(0.4
)
 
$
30.1

 
$
27.8

 
$
1.4

 
$
(1.5
)
 
$
27.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
18.2

 
$

 
$

 
$
18.2

 
$
13.8

 
$

 
$

 
$
13.8

Convertible note
 
1.9

 

 

 
1.9

 
1.9

 

 

 
1.9

Total
 
$
20.1

 
$

 
$

 
$
20.1

 
$
15.7

 
$

 
$

 
$
15.7

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, 2017 and December 31, 2016.
 
 
 
As of March 31, 2017
 
As of December 31, 2016
(in millions)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Equity securities, exchange-traded funds, and mutual funds
 
$
28.3

 
$
30.1

 
$
27.8

 
$
27.7

    Total
 
$
28.3

 
$
30.1

 
$
27.8

 
$
27.7

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
18.0

 
$
18.0

 
$
13.8

 
$
13.8

Due in one to three years
 
1.9

 
1.9

 
1.9

 
1.9

Due more than three years
 
0.2

 
0.2

 

 

Total
 
$
20.1

 
$
20.1

 
$
15.7

 
$
15.7

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)
 
2017

 
2016

Realized gains
 
$
0.5

 
$
0.5

Realized losses
 

 
(0.6
)
Realized gains (losses), net
 
$
0.5

 
$
(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 using a fair value hierarchy:

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.

 
 
Fair Value
 
Fair Value Measurements as of March 31, 2017
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
March 31, 2017
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
27.6

 
$
27.6

 
$

 
$

Mutual funds
 
2.5

 
2.5

 

 

Trading securities
 
1.5

 
1.5

 

 

Cash equivalents
 
0.3

 
0.3

 

 

Total
 
$
31.9

 
$
31.9

 
$

 
$

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

 
Level 2

 
Level 3

Available-for-sale investments:
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
25.4

 
$
25.4

 
$

 
$

Mutual funds
 
2.3

 
2.3

 

 

Trading securities
 
1.5

 
1.5

 

 

Cash equivalents
 
0.2

 
0.2

 

 

Total
 
$
29.4

 
$
29.4

 
$

 
$

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)
 
2017

 
2016

Cost of revenue
 
$
2.1

 
$
2.0

Sales and marketing
 
0.7

 
0.5

General and administrative
 
2.5

 
1.5

Total stock-based compensation expense
 
$
5.3

 
$
4.0

Income Taxes (Tables)
The following table shows our effective tax rate for the three months ended March 31, 2017 and March 31, 2016:
 
 
 
Three months ended March 31
(in millions)
 
2017

 
2016

Income before income taxes and equity in net income (loss) of unconsolidated entities
 
$
27.1

 
$
42.8

Equity in net income (loss) of unconsolidated entities
 
(0.8
)
 
0.5

Total
 
$
26.3

 
$
43.3

Income tax expense
 
$
8.3

 
$
14.6

Effective tax rate
 
31.6
%
 
33.7
%
The table below provides information concerning our gross unrecognized tax benefits as of March 31, 2017 and December 31, 2016, 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)
 
2017

 
2016

Gross unrecognized tax benefits
 
$
18.7

 
$
18.4

Gross unrecognized tax benefits that would affect income tax expense
 
$
14.7

 
$
14.4

Decrease in income tax expense upon recognition of gross unrecognized tax benefits
 
$
13.6

 
$
13.3

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)
 
2017

 
2016

Current liability
 
$
8.9

 
$
8.9

Non-current liability
 
5.8

 
5.4