MORNINGSTAR, INC., 10-K filed on 2/24/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Feb. 20, 2012
Jun. 30, 2011
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-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
50,134,439 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 1,498,106,979 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenue
$ 631,400 
$ 555,351 
$ 478,996 
Operating expense (1):
 
 
 
Cost of goods sold
182,132 1
157,068 1
128,616 1
Development
53,157 1
49,244 1
38,378 1
Sales and marketing
106,699 1
95,473 1
71,772 1
General and administrative
108,084 1
92,843 1
83,596 1
Depreciation and amortization
42,913 1
39,664 1
31,961 1
Total operating expense
492,985 1
434,292 1
354,323 1
Operating income
138,415 
121,059 
124,673 
Non-operating income (expense):
 
 
 
Interest income, net
2,361 
2,437 
3,016 
Other income (expense), net
(652)
4,295 
(82)
Non-operating income (expense), net
1,709 
6,732 
2,934 
Income before income taxes and equity in net income of unconsolidated entities
140,124 
127,791 
127,607 
Income tax expense
43,658 
42,756 
46,775 
Equity in net income of unconsolidated entities
1,848 
1,422 
1,165 
Consolidated net income
98,314 
86,457 
81,997 
Net (income) loss attributable to the noncontrolling interest
43 
(87)
132 
Net income attributable to Morningstar, Inc.
$ 98,357 
$ 86,370 
$ 82,129 
Net income per share attributable to Morningstar, Inc.:
 
 
 
Basic (in dollars per share)
$ 1.96 
$ 1.75 
$ 1.71 
Diluted (in dollars per share)
$ 1.92 
$ 1.70 
$ 1.65 
Dividends per common share:
 
 
 
Dividends declared per common share
$ 0.25 
$ 0.05 
$ 0.00 
Dividends paid per common share
$ 0.20 
$ 0.00 
$ 0.00 
Weighted average shares outstanding:
 
 
 
Basic (in shares)
50,032 
49,249 
48,112 
Diluted (in shares)
50,988 
50,555 
49,793 
Condensed Consolidated Statements of Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Includes stock-based compensation expense of:
 
 
 
Allocated Share-based Compensation Expense
$ 15,303 
$ 13,793 
$ 11,593 
Cost of Sales [Member]
 
 
 
Includes stock-based compensation expense of:
 
 
 
Allocated Share-based Compensation Expense
4,150 
3,473 
2,666 
Research and Development Expense [Member]
 
 
 
Includes stock-based compensation expense of:
 
 
 
Allocated Share-based Compensation Expense
2,086 
1,840 
1,570 
Selling and Marketing Expense [Member]
 
 
 
Includes stock-based compensation expense of:
 
 
 
Allocated Share-based Compensation Expense
1,871 
1,786 
1,587 
General and Administrative Expense [Member]
 
 
 
Includes stock-based compensation expense of:
 
 
 
Allocated Share-based Compensation Expense
$ 7,196 
$ 6,694 
$ 5,770 
Consolidated Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated net income
$ 98,314 
$ 86,457 
$ 81,997 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustment
(2,345)
4,909 
16,000 
Unrealized gains (losses) on securities:
 
 
 
Unrealized holding gains (losses) arising during period
(773)
417 
(111)
Reclasification of (gains) losses included in net income
(166)
(172)
Other comprehensive income (loss)
(3,284)
5,154 
15,889 
Comprehensive income
95,030 
91,611 
97,886 
Comprehensive (income) loss attributable to noncontrolling interest
(179)
(156)
161 
Comprehensive income attributable to Morningstar, Inc.
$ 94,851 
$ 91,455 
$ 98,047 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 200,437 
$ 180,176 
Investments
269,755 
185,240 
Accounts receivable, less allowance of $835 and $1,056, respectively
113,312 
110,891 
Deferred tax asset, net
5,104 
2,860 
Income tax receivable, net
7,445 
10,459 
Other
15,980 
17,654 
Total current assets
612,033 
507,280 
Property, equipment, and capitalized software, net
68,196 
62,105 
Investments in unconsolidated entities
27,642 
24,262 
Goodwill
318,492 
317,661 
Intangible assets, net
139,809 
169,023 
Other assets
5,912 
5,971 
Total assets
1,172,084 
1,086,302 
Current liabilities:
 
 
Accounts payable and accrued liabilities
41,403 
42,680 
Accrued compensation
73,124 
62,404 
Deferred revenue
155,494 
146,267 
Other
612 
1,373 
Total current liabilities
270,633 
252,724 
Accrued compensation
5,724 
4,965 
Deferred tax liability, net
15,940 
19,975 
Other long-term liabilities
22,771 
27,213 
Total liabilities
315,068 
304,877 
Morningstar, Inc. shareholders' equity:
 
 
Common stock, no par value, 200,000,000 shares authorized, of which 50,083,940 and 49,874,392 shares were outstanding as of December 31, 2011 and December 31, 2010, respectively
Treasury stock at cost, 980,177 shares as of December 31, 2011 and 279,456 shares as of December 31, 2010
(46,701)
(6,641)
Additional paid-in capital
491,432 
458,426 
Retained earnings
409,022 
323,408 
Accumulated other comprehensive income (loss):
 
 
Currency translation adjustment
1,936 
4,503 
Unrealized gain (loss) on available-for-sale investments
(324)
615 
Total accumulated other comprehensive income
1,612 
5,118 
Total Morningstar, Inc. shareholders' equity
855,370 
780,316 
Noncontrolling interest
1,646 
1,109 
Total equity
857,016 
781,425 
Total liabilities and equity
$ 1,172,084 
$ 1,086,302 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Statement of Financial Position [Abstract]
 
 
Accounts receivable, allowance (in dollars)
$ 835 
$ 1,056 
Common stock, no par value (in dollars per share)
$ 0 
$ 0 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares outstanding
50,083,940 
49,874,392 
Treasury stock, shares
980,177 
279,456 
Condensed Consolidated Statement of Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Non Controlling Interests
Balance at Dec. 31, 2008
$ 530,245 
$ 4 
$ (3,280)
$ 391,565 
$ 157,444 
$ (15,885)
$ 397 
Balance (in shares) at Dec. 31, 2008
 
47,282,958 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income (loss)
81,997 
82,129 
(132)
Other Comprehensive Income (loss)
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax
(111)
(111)
Reclassification of adjustments for gains included in net income, net of income tax
Foreign currency translation adjustment, net
16,000 
16,029 
(29)
Other comprehensive income (loss)
15,889 
15,918 
(29)
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net
16,439 
150 
16,288 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)
 
1,485,583 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]
 
 
 
 
 
 
 
Stock-based compensation - restricted stock units
10,591 
10,591 
Stock-based compensation - stock options
1,002 
1,002 
Excess tax benefit derived from stock-option exercises and vesting of restricted stock units
8,693 
8,693 
Non-controlling interest in Morningstar Korea
933 
933 
Balance at Dec. 31, 2009
665,789 
(3,130)
428,139 
239,573 
33 
1,169 
Balance (in shares) at Dec. 31, 2009
 
48,768,541 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income (loss)
86,457 
86,370 
87 
Other Comprehensive Income (loss)
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax
417 
417 
Reclassification of adjustments for gains included in net income, net of income tax
(172)
(172)
Foreign currency translation adjustment, net
4,909 
4,840 
69 
Other comprehensive income (loss)
5,154 
5,085 
69 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net
9,220 
274 
8,946 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)
 
1,182,069 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]
 
 
 
 
 
 
 
Stock-based compensation - restricted stock units
12,545 
12,545 
Stock-based compensation - restricted stock
1,248 
1,248 
Excess tax benefit derived from stock-option exercises and vesting of restricted stock units
7,507 
7,507 
Dividends declared - common shares outstanding
(2,494)
(2,494)
Dividends declared - restricted stock units
 
41 
(41)
Adjustments to noncontrolling interest
(216)
(216)
Common share repurchased
(3,785)
(3,785)
Common share repurchased (in shares)
 
(76,218)
 
 
 
 
 
Balance at Dec. 31, 2010
781,425 
(6,641)
458,426 
323,408 
5,118 
1,109 
Balance (in shares) at Dec. 31, 2010
 
49,874,392 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Net income (loss)
98,314 
98,357 
(43)
Other Comprehensive Income (loss)
 
 
 
 
 
 
 
Unrealized gain on available-for-sale investments, net of income tax
(773)
(773)
Reclassification of adjustments for gains included in net income, net of income tax
(166)
(166)
Foreign currency translation adjustment, net
(2,345)
(2,567)
222 
Other comprehensive income (loss)
(3,284)
(3,506)
222 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net
8,702 
612 
8,090 
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)
 
931,667 
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]
 
 
 
 
 
 
 
Stock-based compensation - restricted stock units
12,765 
12,765 
Stock-based compensation - restricted stock
2,196 
2,196 
Stock-based compensation - stock options
342 
342 
Excess tax benefit derived from stock-option exercises and vesting of restricted stock units
9,525 
9,525 
Dividends declared - common shares outstanding
(12,550)
(12,550)
Dividends declared - restricted stock units
(9)
184 
(193)
Adjustments to noncontrolling interest
262 
(96)
358 
Common share repurchased
(40,672)
(40,672)
Common share repurchased (in shares)
 
(722,119)
 
 
 
 
 
Balance at Dec. 31, 2011
$ 857,016 
$ 5 
$ (46,701)
$ 491,432 
$ 409,022 
$ 1,612 
$ 1,646 
Balance (in shares) at Dec. 31, 2011
 
50,083,940 
 
 
 
 
 
Condensed Consolidated Statement of Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Statement of Stockholders' Equity [Abstract]
 
 
 
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Tax
$ 447 
$ 0 
$ 0 
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Tax
$ 94 
$ 0 
$ 0 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Operating activities
 
 
 
Consolidated net income
$ 98,314 
$ 86,457 
$ 81,997 
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
42,913 1
39,664 1
31,961 1
Deferred income taxes
(4,436)
211 
(2,207)
Stock-based compensation expense
15,303 
13,793 
11,593 
Provision for bad debt
1,237 
413 
1,292 
Equity in net income of unconsolidated entities
(1,848)
(1,422)
(1,165)
Excess tax benefits from stock-option exercises and vesting of restricted stock units
(9,525)
(7,507)
(8,693)
Holding gain upon acquisition of additional ownership of equity
(4,564)
(352)
Other, net
592 
(90)
575 
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(3,858)
(23,652)
12,364 
Other assets
2,728 
(2,341)
2,521 
Accounts payable and accrued liabilities
(4,821)
(759)
(9,476)
Accrued compensation
10,176 
12,166 
(26,729)
Income taxes—current
10,751 
4,569 
11,676 
Deferred revenue
9,578 
5,752 
(8,704)
Deferred rent
(1,030)
1,364 
5,679 
Other liabilities
(1,098)
(638)
(1,076)
Cash provided by operating activities
164,976 
123,416 
101,256 
Investing activities
 
 
 
Purchases of investments
(320,193)
(186,283)
(176,770)
Proceeds from maturities and sales of investments
234,868 
214,929 
92,851 
Capital expenditures
(23,322)
(14,771)
(12,372)
Acquisitions, net of cash acquired
300 
(102,324)
(74,175)
Other, net
(2,420)
500 
(4,209)
Cash used for investing activities
(110,767)
(87,949)
(174,675)
Financing activities
 
 
 
Proceeds from stock-option exercises, net
8,702 
9,220 
16,439 
Excess tax benefits from stock-option exercises and vesting of restricted stock units
9,525 
7,507 
8,693 
Common shares repurchased
(40,672)
(3,785)
Dividends paid
(10,041)
Other, net
(110)
(417)
188 
Cash provided by (used for) financing activities
(32,596)
12,525 
25,320 
Effect of exchange rate changes on cash and cash equivalents
(1,352)
1,688 
4,704 
Net increase (decrease) in cash and cash equivalents
20,261 
49,680 
(43,395)
Cash and cash equivalents - beginning of period
180,176 
130,496 
173,891 
Cash and cash equivalents - end of period
200,437 
180,176 
130,496 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes
38,054 
37,624 
38,009 
Supplemental information of non-cash investing and financing activities:
 
 
 
Unrealized gain (loss) on available-for-sale investments
$ (1,480)
$ 394 
$ (177)
Description of Business
Description of Business
Description of Business
 
Morningstar, Inc. and its subsidiaries (Morningstar, we, our), is a provider of independent investment research to investors around the world. We offer an extensive line of data, software, and research products for individual investors, financial advisors, and institutional clients. We also offer asset management services for advisors, institutions, and retirement plan participants. We have operations in 27 countries.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

The acronyms that appear in these Notes to our Consolidated Financial Statements refer to the following:
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
EITF
Emerging Issues Task Force
FASB
Financial Accounting Standards Board
SEC
Securities and Exchange Commission

Principles of Consolidation. We conduct our business operations through wholly owned or majority-owned operating subsidiaries. The accompanying consolidated financial statements include the accounts of Morningstar, Inc. and our subsidiaries. The assets, liabilities, and results of operations of subsidiaries in which we have a controlling interest have been consolidated. All significant intercompany accounts and transactions have been eliminated.

We account and report the noncontrolling (minority) interests in our Consolidated Financial Statements in accordance with FASB ASC 810, Consolidation. A noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to the parent company. We report the noncontrolling interest in our Consolidated Balance Sheet within equity separate from the shareholders' equity attributable to Morningstar, Inc. In addition, we present the net income (loss) and comprehensive income (loss) attributed to Morningstar, Inc.'s shareholders and the noncontrolling interest in our Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Equity.

We account for investments in entities in which we exercise significant influence, but do not control, using the equity method.

Comprehensive Income. In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. In accordance with ASU No. 2011-05, we present the total of comprehensive income, the components of net income, and the components of other comprehensive income (OCI) in two separate but consecutive statements, our Consolidated Statements of Income and separately, our Consolidated Statements of Comprehensive Income. We no longer present total comprehensive income in our Consolidated Statement of Equity.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Actual results may differ from these estimates.

Reclassifications. Certain amounts reported in previous years have been reclassified to conform to the 2011 presentation.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash and investments with original maturities of three months or less. We state them at cost, which approximates fair value. We state at fair value the portion of our cash equivalents that are invested in money market funds, which are actively traded and have quoted market prices.

Investments. We account for our investments in accordance with FASB ASC 320, Investments-Debt and Equity Securities. We classify our investments into three categories: held-to-maturity, trading, and available-for-sale.

Held-to-maturity:  We classify certain investments, primarily certificates of deposit, as held-to-maturity securities, based on our intent and ability to hold these securities to maturity. We record held-to-maturity investments at amortized cost in our Consolidated Balance Sheets.

Trading:  We classify certain other investments, primarily equity securities, as trading securities, primarily to satisfy the requirements of one of our wholly owned subsidiaries, which is a registered broker-dealer. We include realized and unrealized gains and losses associated with these investments as a component of our operating income in our Consolidated Statements of Income. We record these securities at their fair value in our Consolidated Balance Sheets.

Available-for-sale:  Investments not considered held-to-maturity or trading securities are classified as available-for-sale securities. Available-for-sale securities primarily consist of fixed-income securities. We report unrealized gains and losses for available-for-sale securities as other comprehensive income (loss), net of related income taxes. We record these securities at their fair value in our Consolidated Balance Sheets.

Fair Value Measurements. We follow FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Under FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances and does not require any new fair value measurements.

FASB ASC 820 uses a fair value hierarchy based on three broad levels of valuation inputs as described below:

Level 1:  Valuations based on quoted prices in active markets for identical assets or liabilities that the company has 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 provide additional information about our cash equivalents and investments that are subject to valuation under FASB ASC 820 in Note 5 in these Notes to our Consolidated Financial Statements.

The Fair Value Option for Financial Assets and Financial Liabilities. FASB ASC 825, Financial Instruments, permits entities the option to measure many financial instruments and certain other items at fair value with changes in fair value recognized in earnings each period. FASB ASC 825 allows the fair value option to be elected on an instrument-by-instrument basis when the asset or liability is initially recognized or when there's an event that gives rise to a new basis of accounting for that instrument. We do not apply this fair value option to any of our eligible assets.

Concentration of Credit Risk. No single customer is large enough to pose a significant credit risk to our operations or financial condition. For the years ended December 31, 2011, 2010, and 2009, no single customer represented 5% or more of our consolidated revenue. If receivables from our customers become delinquent, we begin a collections process. We maintain an allowance for doubtful accounts based on our estimate of the probable losses of accounts receivable.

Property, Equipment, and Depreciation. We state property and equipment at historical cost, net of accumulated depreciation. We depreciate property and equipment primarily using the straight-line method based on the useful life of the asset, which ranges from three to seven years. We amortize leasehold improvements over the lease term or their useful lives, whichever is shorter.

Computer Software and Internal Product Development Costs. We capitalize certain costs in accordance with FASB ASC 350-40, Internal-Use Software, FASB ASC 350-50, Website Development Costs, and FASB ASC 985, Software. Internal product development costs mainly consist of employee costs for developing new web-based products and certain major enhancements of existing products. We amortize these costs on a straight-line basis over the estimated economic life, which is generally three years. Capitalized software development costs related to projects that have not been placed into service yet are included in our construction in progress balance.

Business Combinations. Over the past several years, we have acquired companies that complement our business operations. For each acquisition, we allocate the purchase price to the assets acquired, liabilities assumed, and goodwill. We follow FASB ASC 805, Business Combinations. We recognize and measure the fair value of the acquired operation as a whole, and the assets acquired and liabilities assumed at their full fair values as of the date control is obtained, regardless of the percentage ownership in the acquired operation or how the acquisition was achieved. We expense direct costs related to the business combination, such as advisory, accounting, legal, valuation, and other professional fees, as incurred. We recognize restructuring costs, including severance and relocation for employees of the acquired entity, as post-combination expenses unless the target entity meets the criteria of FASB ASC 420, Exit or Disposal Cost Obligations on the acquisition date.

As part of the purchase price allocation, we follow the requirements of FASB ASC 740, Income Taxes. This includes establishing deferred tax assets or liabilities reflecting the difference between the values assigned for financial statement purposes and values applicable for income tax purposes. In certain acquisitions, the goodwill resulting from the purchase price allocation may not be deductible for income tax purposes. FASB ASC 740 prohibits recognition of a deferred tax asset or liability for temporary differences in goodwill if goodwill is not amortizable and deductible for tax purposes.

Goodwill. Changes in the carrying amount of our recorded goodwill are mainly the result of business acquisitions. In accordance with FASB ASC 350, Intangibles - Goodwill and Other, we do not amortize goodwill; instead, goodwill is subject to an impairment test annually, or whenever indicators of impairment exist. An impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. In 2011, we altered the definition of our reporting units to align with the definition of our operating segments. This realignment occurred because of our successful efforts to integrate acquired businesses and leverage proprietary content across multiple products. As a result, the businesses that previously represented components of our operating segments no longer met the criteria for recognition as reporting units. Our reporting units constitute businesses for which discrete financial information, which is regularly reviewed by management, is available. We performed annual impairment reviews in the fourth quarter of 2011, 2010, and 2009. We did not record any impairment losses in 2011, 2010, or 2009.

Intangible Assets. We amortize intangible assets using the straight-line method over their estimated economic useful lives, which range from one to 25 years. In accordance with FASB ASC 360-10-35, Subsequent Measurement-Impairment or Disposal of Long Lived Assets, we review intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the value of future undiscounted cash flows is less than the carrying amount of an asset, we record an impairment loss based on the excess of the carrying amount over the fair value of the asset. We recorded an impairment loss of approximately $800,000 in 2011. We did not record any impairment losses in 2010 or 2009. The impairment charge is included in our amortization expense on our Consolidated Statements of Income.

Revenue Recognition:  We recognize revenue in accordance with SEC SAB Topic 13, Revenue Recognition, ASC 605-25, Revenue Recognition:  Multiple Element Arrangements, and ASC 985-605, Software: Revenue Recognition.

Effective January 1, 2011, we adopted FASB ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. ASU 2009-13 superseded EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables and establishes the accounting and reporting guidance for arrangements when a vendor performs multiple revenue-generating activities, addresses how to separate deliverables, and specifies how to measure and allocate arrangement consideration. We applied this guidance for revenue arrangements entered into or materially modified from January 1, 2011. The adoption of ASU 2009-13 did not significantly affect either the timing or amount of our revenue recognition.
We recognize revenue when all of the following conditions are met:

There is persuasive evidence of an arrangement, as evidenced by a signed contract;
Delivery of our products and services is a prerequisite for recognition of revenue. If arrangements include an acceptance provision, we generally begin recognizing revenue upon the receipt of customer acceptance;
The amount of fees to be paid by the customer is fixed or determinable; and
The collectibility of the fees is reasonably assured.

We generate revenue through sales of Licensed Data, Morningstar Advisor Workstation (including Morningstar Office), Morningstar Direct, Morningstar Equity Research, Premium Membership fees for Morningstar.com, our structured credit research and ratings offerings, and a variety of other investment-related products and services. We generally structure the revenue agreements for these offerings as licenses or subscriptions. We recognize revenue from licenses and subscription sales ratably as we deliver the product or service and over the service obligation period defined by the terms of the customer contract. For new-issue ratings and analysis for CMBS, we charge asset-based fees that are paid by the issuer on the rated balance of the transaction and recognize the revenue immediately upon issuance of the transaction.

We also generate revenue from Internet advertising, primarily from “impression-based” contracts. For advertisers who use our cost-per-impression pricing, we charge fees each time we display their ads on our site.

Investment Consulting includes a broad range of services. Pricing for the consulting services is based on the scope of work and the level of service required, and includes asset-based fees for work we perform that involves investment management or acting as a subadvisor to investment portfolios. In arrangements that involve asset-based fees, we generally invoice clients quarterly in arrears based on average assets for the quarter. We recognize asset-based fees once the fees are fixed and determinable assuming all other revenue recognition criteria are met.

Our Retirement Solutions offerings help retirement plan participants plan and invest for retirement. We offer these services both through retirement plan providers (typically third-party asset management companies that offer proprietary mutual funds) and directly to plan sponsors (employers that offer retirement plans to their employees). For our Retirement Solutions offerings, we provide both a hosted solution as well as proprietary installed software advice solution. Clients can integrate the installed customized software into their existing systems to help investors accumulate wealth, transition into retirement, and manage income during retirement. The revenue arrangements for Retirement Solutions generally extend over multiple years. Our contracts may include one-time setup fees, implementation fees, technology licensing and maintenance fees, asset-based fees for managed retirement accounts, fixed and variable fees for advice and guidance, or a combination of these fee structures. Upon customer acceptance, we recognize revenue ratably over the term of the agreement. We recognize asset-based fees and variable fees in excess of any minimum once the value is fixed and determinable.

Some of our revenue arrangements with our customers combine multiple products and services. These products and services may be provided at different points in time or over different time periods within the same arrangement. We allocate fees to the separate deliverables based on the deliverables’ relative selling price, which is generally based on the price we charge when the same deliverable is sold separately.

We record taxes imposed on revenue-producing transactions (such as sales, use, value-added, and some excise taxes) on a net basis; therefore, we exclude such taxes from revenue in our Consolidated Statements of Income.

Deferred revenue represents the portion of subscriptions billed or collected in advance of the service being provided, which we expect to recognize as revenue in future periods. Certain arrangements may have cancellation or refund provisions. If we make a refund, it typically reflects the amount collected from a customer for which we have not yet provided services. The refund therefore results in a reduction of deferred revenue.

Advertising Costs. Advertising costs include expenses incurred for various print and Internet ads, search engine fees, and direct mail campaigns. We expense advertising costs as incurred. The table below summarizes our advertising expense for the past three years:
($000)
 
2011

 
2010

 
2009

Advertising expense
 
$
8,210

 
$
8,572

 
$
7,361



Stock-Based Compensation Expense. We account for our stock-based compensation expense in accordance with FASB ASC 718, Compensation—Stock Compensation. Our stock-based compensation expense reflects grants of restricted stock units, restricted stock, and stock options. We measure the fair value of our restricted stock units and restricted stock on the date of grant based on the closing market price of Morningstar's common stock on the day prior to grant. For stock options granted in 2011, we estimated the fair value of our stock options on the date of grant using a Black-Scholes option-pricing model. We amortize the fair values to stock-based compensation expense, net of estimated forfeitures, ratably over the vesting period.

We estimate expected forfeitures of all employee stock-based awards and recognize compensation cost only for those awards expected to vest. We determine forfeiture rates based on historical experience and adjust the estimated forfeitures to actual forfeiture experience as needed.

Liability for Sabbatical Leave. In certain of our operations, we offer employees a sabbatical leave. Although the sabbatical policy varies by region, in general, Morningstar's full-time employees are eligible for six weeks of paid time off after four years of continuous service. We account for our sabbatical liability in accordance with FASB ASC 710-10-25, Compensated Absences. We record a liability for employees' sabbatical benefits over the period employees earn the right for sabbatical leave.

Income Taxes. We record deferred income taxes for the temporary differences between the carrying amount of assets and liabilities for financial statement purposes and the amounts used for income tax purposes in accordance with FASB ASC 740, Income Taxes. FASB ASC 740 prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements, and also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, and disclosure for uncertain tax positions.

We recognize interest and penalties related to unrecognized tax benefits as part of income tax expense in our Consolidated Statements of Income. We classify liabilities related to unrecognized tax benefits as either current liabilities or “Other long-term liabilities” in our Consolidated Balance Sheet, depending on when we expect to make payment.

Income per Share. We compute and present income per share in accordance with FASB ASC 260, Earnings Per Share. The difference between weighted average shares outstanding and diluted shares outstanding primarily reflects the dilutive effect associated with our stock-based compensation plans. Beginning in 2010, we further compute income per share in accordance with FASB ASC 260-10-45-59A, Participating Securities and the Two Class Method.

In May 2010, we issued restricted stock in conjunction with the acquisition of Realpoint, LLC (now Morningstar Credit Ratings, LLC). Because the restricted stock contains nonforfeitable rights to dividends, it meets the criteria of a participating security. Under the two-class method, we allocate earnings between common stock and participating securities. The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. For purposes of calculating earnings per share, we reduce our reported net earnings by the amount allocated to participating securities to arrive at the earnings allocated to common stock shareholders.

ASC 260-10-45-59A requires the dilutive effect of participating securities to be calculated using the more dilutive of the treasury stock or the two-class method. We have determined the two-class method to be the more dilutive. As such, we adjusted the earnings allocated to common stock shareholders in the basic earnings per share calculation for the reallocation of undistributed earnings to participating securities to calculate diluted earnings per share.

Foreign Currency. We translate the financial statements of non-U.S. subsidiaries to U.S. dollars using the period-end exchange rate for assets and liabilities and an average exchange rate for revenue and expense. We use the local currency as the functional currency for all of our non-U.S. subsidiaries. We record translation adjustments for non-U.S. subsidiaries as a component of “Other comprehensive income (loss)” in our Consolidated Statements of Comprehensive Income. We include exchange gains and losses arising from transactions denominated in currencies other than the functional currency in “Other income (expense), net” in our Consolidated Statements of Income.

Income Per Share
Income Per Share
Income Per Share
 
The following table shows how we reconcile our net income and the number of shares used in computing basic and diluted income per share:
 
(in thousands, except per share amounts)
 
2011

 
2010

 
2009

 
 
 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.:
 
 
 
 
 
 
Net income attributable to Morningstar, Inc.:
 
$
98,357

 
$
86,370

 
$
82,129

Less: Distributed earnings available to participating securities
 
(40
)
 
(10
)
 

Less: Undistributed earnings available to participating securities
 
(259
)
 
(335
)
 

Numerator for basic net income per share — undistributed and distributed earnings available to common shareholders
 
$
98,058

 
$
86,025

 
$
82,129

 
 
 
 
 
 
 
Weighted average common shares outstanding
 
50,032

 
49,249

 
48,112

 
 
 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.
 
$
1.96

 
$
1.75

 
$
1.71

 
 
 
 
 
 
 
Diluted net income per share attributable to Morningstar, Inc.:
 
 
 
 
 
 
Numerator for basic net income per share — undistributed and distributed earnings available to common shareholders
 
$
98,058

 
$
86,025

 
$
82,129

Add: Undistributed earnings allocated to participating securities
 
259

 
335

 

Less: Undistributed earnings reallocated to participating securities
 
(254
)
 
(326
)
 

Numerator for diluted net income per share — undistributed and distributed earnings available to common shareholders
 
$
98,063

 
$
86,034

 
$
82,129

 
 


 


 
 
Weighted average common shares outstanding
 
50,032

 
49,249

 
48,112

Net effect of dilutive stock options and restricted stock units
 
956

 
1,306

 
1,681

Weighted average common shares outstanding for computing diluted income per share
 
50,988

 
50,555

 
49,793

 
 


 


 
 
Diluted net income per share attributable to Morningstar, Inc.
 
$
1.92

 
$
1.70

 
$
1.65


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

Morningstar has two operating segments:
 
Investment Information. The Investment Information segment includes all of our data, software, and research products and services. These products are typically sold through subscriptions or license agreements.
 
The largest products in this segment based on revenue are Licensed Data, Morningstar Advisor Workstation (including Morningstar Office), Morningstar.com, Morningstar Direct, Morningstar Integrated Web Tools (formerly Morningstar Site Builder), and Morningstar Principia. Licensed Data is a set of investment data spanning all of our investment databases, including real-time pricing data, and is available through electronic data feeds. Advisor Workstation is a web-based investment planning system for advisors. Advisor Workstation is available in two editions: Morningstar Office for independent financial advisors and an enterprise edition for financial advisors affiliated with larger firms. Morningstar.com includes both Premium Memberships and Internet advertising sales. Morningstar Direct is a web-based institutional research platform. Morningstar Integrated Web Tools is a set of services that helps institutional clients build customized websites or enhance their existing sites with Morningstar’s online tools and components. Principia is our CD-ROM-based investment research and planning software for advisors.
 
The Investment Information segment also includes Morningstar Equity Research, which we sell to other companies that purchase our research for their own use or provide our research to their affiliated advisors or individual investor clients.

The Investment Information also includes Morningstar Credit Research and Morningstar Structured Credit Ratings. Morningstar Structured Credit Ratings is provided by Morningstar Credit Ratings, LLC (formerly Realpoint, LLC), a Nationally Recognized Statistical Rating Organization specializing in structured finance. It offers securities ratings, research, surveillance services, and data to help institutional investors identify risk in commercial mortgage-backed securities (CMBS).

We also offer a variety of financial communications and newsletters, real-time data, and investment indexes.


Investment Management. The Investment Management segment includes all of our asset management operations, which earn the majority of their revenue from asset-based fees.
 
The key products and services in this segment based on revenue are Investment Consulting, which focuses on investment monitoring and asset allocation for funds of funds, including mutual funds and variable annuities; Retirement Solutions, including the Morningstar Retirement Manager and Advice by Ibbotson platforms; and Morningstar Managed Portfolios, a fee-based discretionary asset management service that includes a series of mutual fund, ETF, and stock portfolios tailored to meet a range of investment time horizons, risk levels, and investment strategies that financial advisors can use for their clients’ taxable and tax-deferred accounts.
 
Our segment accounting policies are the same as those described in Note 2, except for the capitalization and amortization of internal product development costs, amortization of intangible assets, and costs related to corporate functions. We exclude these items from our operating segment results to provide our chief operating decision maker with a better indication of each segment’s ability to generate cash flow. This information is one of the criteria used by our chief operating decision maker in determining how to allocate resources to each segment. We include capitalization and amortization of internal product development costs, amortization of intangible assets, and costs related to corporate functions in the Corporate Items category. Our segment disclosures are consistent with the business segment information provided to our chief operating decision maker on a recurring basis; for that reason, we don’t present balance sheet information by segment. We disclose goodwill by segment in accordance with the requirements of FASB ASC 350-20-50, Intangibles - Goodwill - Disclosure.
 
The following tables present information about our operating segments:
 
2011 Segment Information
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2011
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items

 
Total

External revenue
 
$
500,909

 
$
130,491

 
$

 
$
631,400

Operating expense, excluding stock-based compensation expense, depreciation, and amortization
 
351,194

 
58,596

 
24,979

 
434,769

Stock-based compensation expense
 
10,113

 
2,080

 
3,110

 
15,303

Depreciation and amortization
 
8,088

 
166

 
34,659

 
42,913

Operating income (loss)
 
$
131,514

 
$
69,649

 
$
(62,748
)
 
$
138,415

 
 
 
 
 
 
 
 
 
U.S. capital expenditures
 
 
 
 

 
 

 
$
13,816

Non-U.S. capital expenditures
 
 

 
 

 
 

 
$
9,506

 
 
 
 
 
 
 
 
 
U.S. revenue
 
 

 
 

 
 

 
$
446,470

Non-U.S. revenue
 
 

 
 

 
 

 
$
184,930

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2011
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items

 
Total

Goodwill
 
$
277,059

 
$
41,433

 
$

 
$
318,492

 
 
 
 
 
 
 
 
 
U.S. long-lived assets
 
 
 
 
 
 
 
$
44,572

Non-U.S. long-lived assets
 
 
 
 
 
 
 
$
23,624

 
2010 Segment Information
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2010
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items

 
Total

External revenue
 
$
444,957

 
$
110,394

 
$

 
$
555,351

Operating expense, excluding stock-based compensation expense, depreciation, and amortization
 
301,722

 
51,361

 
27,752

 
380,835

Stock-based compensation expense
 
8,110

 
2,032

 
3,651

 
13,793

Depreciation and amortization
 
7,385

 
185

 
32,094

 
39,664

Operating income (loss)
 
$
127,740

 
$
56,816

 
$
(63,497
)
 
$
121,059

 
 
 
 
 
 
 
 
 
U.S. capital expenditures
 
 

 
 

 
 

 
$
5,067

Non-U.S. capital expenditures
 
 

 
 

 
 

 
$
9,704

 
 
 
 
 
 
 
 
 
U.S. revenue
 
 

 
 

 
 

 
$
398,215

Non-U.S. revenue
 
 

 
 

 
 

 
$
157,136

 
 
As of December 31, 2010
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items

 
Total

Goodwill
 
$
275,611

 
$
42,050

 
$

 
$
317,661

 
 
 
 
 
 
 
 
 
U.S. long-lived assets
 
 

 
 

 
 

 
$
39,496

Non-U.S. long-lived assets
 
 

 
 

 
 

 
$
22,609

 
2009 Segment Information
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2009
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items
 
Total

External revenue
 
$
386,642

 
$
92,354

 
$

 
$
478,996

Operating expense, excluding stock-based compensation expense, depreciation, and amortization
 
237,101

 
37,296

 
36,372

 
310,769

Stock-based compensation expense
 
5,704

 
1,965

 
3,924

 
11,593

Depreciation and amortization
 
5,408

 
204

 
26,349

 
31,961

Operating income (loss)
 
$
138,429

 
$
52,889

 
$
(66,645
)
 
$
124,673

 
 
 
 
 
 
 
 
 
U.S. capital expenditures
 
 
 
 
 
 
 
$
4,479

Non-U.S. capital expenditures
 
 
 
 
 
 
 
$
7,893

 
 
 
 
 
 
 
 
 
U.S. revenue
 
 
 
 
 
 
 
$
349,836

Non-U.S. revenue
 
 
 
 
 
 
 
$
129,160

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2009
($000)
 
Investment
Information

 
Investment
Management

 
Corporate Items

 
Total

Goodwill
 
$
217,258

 
$
32,234

 
$

 
$
249,492

 
 
 
 
 
 
 
 
 
U.S. long-lived assets
 
 
 
 
 
 
 
$
42,884

Non-U.S. long-lived assets
 
 
 
 
 
 
 
$
16,944



Information by geographical region is as follows:
External revenue by geographic region
 
 
 
 
 
 
 
 
 
Year ended December 31
 
($000)
 
2011

 
2010

 
2009

 
United States
 
$
446,470

 
$
398,215

 
$
349,836

 
United Kingdom
 
53,427

 
43,797

 
36,666

 
Europe, excluding the United Kingdom
 
49,507

 
39,851

 
36,823

 
Australia
 
39,761

 
35,638

 
25,509

 
Canada
 
27,808

 
25,533

 
20,506

 
Asia, excluding Japan
 
9,240

 
7,855

 
5,725

 
Japan
 
3,948

 
3,871

 
3,726

 
Other
 
1,239

 
591

 
205

 
Total
 
$
631,400

 
$
555,351

 
$
478,996

 


Long-lived assets by geographic region
 
 
 
 
 
 
 
 
 
As of December 31
 
($000)
 
2011

 
2010

 
2009

 
United States
 
$
44,572

 
$
39,496

 
42,884

 
United Kingdom
 
7,512

 
5,960

 
5,870

 
Europe, excluding the United Kingdom
 
2,629

 
3,479

 
4,626

 
Australia
 
1,415

 
1,554

 
1,430

 
Canada
 
2,076

 
2,395

 
2,610

 
Asia, excluding Japan
 
9,656

 
8,874

 
1,988

 
Japan
 
282

 
233

 
279

 
Other
 
54

 
114

 
141

 
Total
 
$
68,196

 
$
62,105

 
59,828

 
Investments and Fair Value Measurements
Investments and Fair Value Measurements
Investments and Fair Value Measurements
 
We account for our investments in accordance with FASB ASC 320, Investments—Debt and Equity Securities. We classify our investments in three categories: available-for-sale, held-to-maturity, and trading. We monitor the concentration, diversification, maturity, and liquidity of our investment portfolio, which is primarily invested in fixed-income securities, and classify our investment portfolio as shown below:
 
 
 
As of December 31
 
 
($000)
 
2011

 
2010

Available-for-sale
 
$
247,917

 
$
173,072

Held-to-maturity
 
16,347

 
7,476

Trading securities
 
5,491

 
4,692

Total
 
$
269,755

 
$
185,240


 
The following table shows the cost, unrealized gains (losses), and fair values related to investments classified as available-for-sale and held-to-maturity:
 
 
 
As of December 31, 2011
 
As of December 31, 2010
($000)
 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

 
Cost

 
Unrealized
Gain

 
Unrealized
Loss

 
Fair
Value

Available-for-sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Government obligations
 
$
139,099

 
$
72

 
$
(402
)
 
$
138,769

 
$
113,597

 
$
36

 
$
(56
)
 
$
113,577

Corporate bonds
 
61,589

 
14

 
(280
)
 
61,323

 
42,839

 
63

 
(24
)
 
42,878

Commercial paper
 
29,964

 
2

 
(7
)
 
29,959

 
2,994

 

 
(3
)
 
2,991

Equity securities and exchange-traded funds
 
8,461

 
368

 
(558
)
 
8,271

 
4,510

 
418

 
(6
)
 
4,922

Mutual funds
 
9,298

 
363

 
(66
)
 
9,595

 
8,146

 
558

 

 
8,704

Total
 
$
248,411

 
$
819

 
$
(1,313
)
 
247,917

 
$
172,086

 
$
1,075

 
$
(89
)
 
$
173,072

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Certificates of deposit
 
$
16,347

 
$

 
$

 
$
16,347

 
$
7,476

 
$

 
$

 
$
7,476


 
As of December 31, 2011 and December 31, 2010, investments with unrealized losses for greater than a 12-month period were not material to the 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 December 31, 2011 and December 31, 2010. 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 December 31, 2011
 
As of December 31, 2010
($000)
 
Cost

 
Fair Value

 
Cost

 
Fair Value

Available-for-sale:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
155,651

 
$
155,247

 
$
85,990

 
$
85,964

Due in one to two years
 
75,001

 
74,804

 
73,440

 
73,482

Equity securities, exchange-traded funds, and mutual funds
 
17,759

 
17,866

 
12,656

 
13,626

Total
 
$
248,411

 
$
247,917

 
$
172,086

 
$
173,072

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
16,342

 
$
16,342

 
$
7,223

 
$
7,223

Due in one to three years
 
5

 
5

 
253

 
253

Total
 
$
16,347

 
$
16,347

 
$
7,476

 
$
7,476


 
As of December 31, 2011 and December 31, 2010, held-to-maturity investments include a $1,600,000 certificate of deposit held as collateral against two bank guarantees for our office lease in Australia.

The following table shows the realized gains and losses arising from sales of our investments classified as available-for-sale recorded in our Consolidated Statements of Income: 
($000)
 
2011

 
2010

 
2009

Realized gains
 
$
761

 
$
276

 
$

Realized losses
 
(501
)
 
(1
)
 

Realized gains, net
 
$
260

 
$
275

 
$


 
The realized gains and losses are determined using the specific identification method.

The following table shows the net unrealized loss on trading securities as recorded in our Consolidated Statements of Income:
 
($000)
 
2011

 
2010

 
2009

Unrealized gains (losses), net
 
$
(387
)
 
$
237

 
$
1,233



The fair value of our assets subject to fair value measurements and the necessary disclosures are as follows:
 
 
 
Fair Value
 
Fair Value Measurements as of December 31, 2011
 
 
as of
 
Using Fair Value Hierarchy
($000)
 
December 31, 2011
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments
 
 

 
 

 
 

 
 

Government obligations
 
$
138,769

 
$

 
$
138,769

 
$

Corporate bonds
 
61,323

 

 
61,323

 

Commercial paper
 
29,959

 

 
29,959

 

Equity securities and exchange-traded funds
 
8,271

 
8,271

 

 

Mutual funds
 
9,595

 
9,595

 

 

Trading securities
 
5,491

 
5,491

 

 

Cash equivalents
 
30,818

 
30,818

 

 

Total
 
$
284,226

 
$
54,175

 
$
230,051

 
$

 
 
 
Fair Value
 
Fair Value Measurements as of December 31, 2010
 
 
as of
 
Using Fair Value Hierarchy
($000)
 
December 31, 2010
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments
 
 

 
 

 
 

 
 

Government obligations
 
$
113,577

 
$

 
$
113,577

 
$

Corporate bonds
 
42,878

 

 
42,878

 

Commercial paper
 
2,991

 

 
2,991

 

Equity securities and exchange-traded funds
 
4,922

 
4,922

 

 

Mutual funds
 
8,704

 
8,704

 

 

Trading securities
 
4,692

 
4,692

 

 

Cash equivalents
 
27,007

 
27,007

 

 

Total
 
$
204,771

 
$
45,325

 
$
159,446

 
$


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

Based on our analysis of the nature and risks of our investments in equity securities and mutual funds, we have determined that presenting these investment categories each in the aggregate is appropriate.
Acquisitions, Goodwill, and Other Intangible Assets
Acquisitions, Goodwill, and Other Intangible Assets
Acquisitions, Goodwill, and Other Intangible Assets
 
2011 Acquisitions
 
We did not complete any acquisitions in 2011.
 
2010 Acquisitions
 
Aegis Equities Research

In April 2010, we acquired Aegis Equities Research, a provider of independent equity research in Australia, for $10,269,000 in cash, net of cash acquired. We began including the financial results of this acquisition in our Consolidated Financial Statements on April 1, 2010. The following table summarizes our allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
 
($000)

Cash and cash equivalents
 
$
51

Investments
 
55

Accounts receivable
 
198

Other non-current assets
 
62

Intangible assets
 
5,801

Goodwill
 
5,117

Deferred revenue
 
(617
)
Other current and non-current liabilities
 
(347
)
Total purchase price
 
$
10,320



The allocation includes $5,801,000 of acquired intangible assets, as follows:
 
 
($000)

 
Weighted Average Useful Life (years)

Customer-related assets
 
$
1,879

 
10

Technology-based assets
 
3,253

 
6

Intellectual property (trademarks and trade names)
 
46

 
1

Non-competition agreement
 
623

 
3

Total intangible assets
 
$
5,801

 
7



Goodwill of $5,117,000 represents the premium we paid over the fair value of the net tangible and intangible assets acquired with this acquisition. We paid this premium for a number of reasons, including the strategic benefits of creating a larger analyst team that will enable us to expand our coverage of Australian-listed companies, provide Australian clients with more robust independent research, and g