MORNINGSTAR, INC., 10-K filed on 2/26/2021
Annual Report
v3.20.4
Cover Page Cover - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2020
Feb. 12, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Document Transition Report false    
Entity File Number 000-51280    
Entity Registrant Name MORNINGSTAR, INC.    
Entity Incorporation, State or Country Code IL    
Entity Tax Identification Number 36-3297908    
Entity Address, Address Line One 22 West Washington Street    
Entity Address, City or Town Chicago    
Entity Address, State or Province IL    
Entity Address, Postal Zip Code 60602    
City Area Code 312    
Local Phone Number 696-6000    
Title of 12(b) Security Common stock, no par value    
Trading Symbol MORN    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 3.1
Entity Common Stock, Shares Outstanding   42,903,180  
Entity Central Index Key 0001289419    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
Documents Incorporated by Reference [Text Block] Certain parts of the registrant's Definitive Proxy Statement for the 2020 Annual Meeting of Shareholders are incorporated into Part III of this Form 10-K.    
ICFR Auditor Attestation Flag true    
v3.20.4
Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Revenue $ 1,389.5 $ 1,179.0 $ 1,019.9
Operating expense:      
Cost of revenue 556.4 483.1 411.1
Sales and marketing 206.4 177.9 148.5
General and administrative 272.0 210.7 147.8
Depreciation and amortization 139.5 117.7 96.7
Total operating expense 1,174.3 989.4 804.1
Operating income 215.2 189.6 215.8
Non-operating income:      
Interest expense, net (9.5) (8.7) (1.8)
Realized gains on sale of investments, reclassified from other comprehensive income 2.1 1.2 1.0
Gain on sale of a product line 0.0 0.0 10.5
Gain on sale of equity method investments 30.0 19.5 5.6
Holding gain on previously held equity interest 50.9 0.0 0.0
Other income (expense), net (5.7) (3.1) 1.8
Non-operating income (expense), net 67.8 8.9 17.1
Income before income taxes and equity in net loss of unconsolidated entities 283.0 198.5 232.9
Equity in net loss of unconsolidated entities 0.3 (0.9) (2.1)
Income tax expense 59.7 45.6 47.8
Consolidated net income $ 223.6 $ 152.0 $ 183.0
Net income per share:      
Basic net income per share (in dollars per share) $ 5.22 $ 3.56 $ 4.30
Diluted net income per share (in dollars per share) 5.18 3.52 4.25
Dividends per common share:      
Dividends declared per common share (in dollars per share) 1.22 1.14 1.03
Dividends paid per common share (in dollars per share) $ 1.20 $ 1.12 $ 1.00
Weighted average shares outstanding:      
Basic (in shares) 42.9 42.7 42.6
Diluted (in shares) 43.2 43.2 43.0
v3.20.4
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Consolidated net income $ 223.6 $ 152.0 $ 183.0
Other comprehensive income (loss), net of tax:      
Foreign currency translation adjustment 37.3 11.5 (26.6)
Unrealized gains (losses) on securities:      
Unrealized holding gains (losses) arising during period 2.9 3.8 (1.0)
Reclassification of gains included in net income (1.6) (0.9) (0.8)
Other comprehensive income (loss) 38.6 14.4 (28.4)
Comprehensive income $ 262.2 $ 166.4 $ 154.6
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 422.5 $ 334.1
Investments 41.7 33.4
Accounts receivable, less allowance for credit losses of $4.2 million and $4.1 million, respectively 205.1 188.5
Income tax receivable 2.2 6.3
Deferred commissions 21.1 16.9
Other current assets 37.4 24.0
Total current assets 730.0 603.2
Property, equipment, and capitalized software, net 155.1 154.7
Investments in unconsolidated entities 32.6 59.6
Goodwill 1,205.0 1,039.1
Operating lease assets 147.7 144.8
Intangible assets, net 380.1 333.4
Deferred tax asset, net 12.6 10.7
Deferred commissions 18.5 13.5
Other assets 14.4 11.9
Total assets 2,696.0 2,370.9
Current liabilities:    
Accounts payable and accrued liabilities 64.5 58.9
Accrued compensation 169.2 137.5
Deferred revenue 306.8 250.1
Current portion of long-term debt 0.0 11.0
Operating lease liabilities 39.9 35.8
Contingent consideration liability 35.0 0.0
Other current liabilities 11.1 2.5
Total current liabilities 626.5 495.8
Operating lease liabilities 137.7 138.7
Accrued compensation 35.1 12.1
Deferred tax liabilities, net 108.9 95.0
Long-term debt 449.1 502.1
Deferred revenue 33.5 32.2
Other long-term liabilities 33.8 11.4
Total liabilities 1,424.6 1,287.3
Morningstar, Inc. shareholders’ equity:    
Common stock, no par value, 200,000,000 shares authorized, of which 42,898,158 and 42,848,359 shares were outstanding as of December 31, 2020 and December 31, 2019, respectively 0.0 0.0
Treasury stock at cost, 11,135,446 and 10,840,173 shares as of December 31, 2020 and December 31, 2019, respectively (767.3) (728.7)
Additional paid-in capital 671.3 655.0
Retained earnings 1,389.4 1,217.9
Accumulated other comprehensive loss:    
Currency translation adjustment (25.7) (63.0)
Unrealized gain on available-for-sale investments 3.7 2.4
Total accumulated other comprehensive loss (22.0) (60.6)
Total equity 1,271.4 1,083.6
Total liabilities and equity $ 2,696.0 $ 2,370.9
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 4.2 $ 4.1
Common stock, no par value $ 0 $ 0
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares outstanding 42,898,158 42,848,359
Treasury stock, shares 11,135,446 10,840,173
v3.20.4
Consolidated Statement of Equity - USD ($)
$ in Millions
Total
Cumulative effect of accounting change related to the adoption of ASU No. 2014-09
Common Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2017 $ 804.9   $ 0.0 $ (708.2) $ 601.0 $ 958.7 $ (46.6)
Balance (in shares) at Dec. 31, 2017     42,547,707        
Increase (Decrease) in Stockholders' Equity              
Consolidated net income 183.0         183.0  
Other Comprehensive Income (loss)              
Unrealized gain on available-for-sale investments, net of income tax (1.0)           (1.0)
Reclassification of adjustments for gains included in net income, net of income tax (0.8)           (0.8)
Foreign currency translation adjustment, net (26.6)           (26.6)
Other comprehensive income (loss) (28.4)           (28.4)
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (13.2)   $ 0.0 2.3 (15.5) 0.0 0.0
Reclassification of awards previously liability-classified that were converted to equity 4.5   $ 0.0 0.0 4.5 0.0 0.0
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)     278,656        
APIC, Share-based Payment Arrangement, Increase for Cost Recognition [Abstract]              
Stock-based compensation — restricted stock units 19.8   $ 0.0 0.0 19.8 0.0 0.0
Stock-based compensation — performance share awards 10.2   0.0 0.0 10.2 0.0 0.0
Stock-based compensation — performance share awards 1.7   0.0 0.0 1.7 0.0 0.0
Dividends declared ($1.22 per share) (43.9)   0.0 0.0 0.0 (43.9) 0.0
Common share repurchased (20.9)   $ 0.0 (20.9) 0.0 0.0 0.0
Common share repurchased (in shares)     (202,245)        
Balance at Dec. 31, 2018 934.7     (726.8) 621.7 1,114.8 (75.0)
Balance (in shares) at Dec. 31, 2018     42,624,118        
APIC, Share-based Payment Arrangement, Increase for Cost Recognition [Abstract]              
Foreign currency translation adjustment (26.6)            
Retained earnings   $ 17.0          
Consolidated net income 152.0         152.0 0.0
Unrealized gain on available-for-sale investments, net of income tax 3.8         0.0 3.8
Reclassification of adjustments for gains included in net income, net of income tax (0.9)         0.0 (0.9)
Foreign currency translation adjustment, net 11.5         0.0 11.5
Other comprehensive income (loss) 14.4         0.0 14.4
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (15.2)     2.7 (17.9)    
Reclassification of awards previously liability-classified that were converted to equity 6.8       6.8    
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)     266,176        
Stock-based compensation — restricted stock units 20.4       20.4    
Stock-based compensation — performance share awards 20.6       20.6    
Stock-based compensation — market stock units 3.4       3.4    
Dividends declared ($1.22 per share) (48.9)         (48.9)  
Common share repurchased (4.6)     (4.6)      
Common share repurchased (in shares)     (41,935)        
Balance at Dec. 31, 2019 $ 1,083.6     (728.7) 655.0 1,217.9 (60.6)
Balance (in shares) at Dec. 31, 2019 42,848,359   42,848,359        
APIC, Share-based Payment Arrangement, Increase for Cost Recognition [Abstract]              
Foreign currency translation adjustment $ 11.5            
Retained earnings 1,217.9            
Consolidated net income 223.6         223.6  
Unrealized gain on available-for-sale investments, net of income tax 2.9           2.9
Reclassification of adjustments for gains included in net income, net of income tax (1.6)           (1.6)
Foreign currency translation adjustment, net 37.3           37.3
Other comprehensive income (loss) 38.6           38.6
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (23.1)     3.3 (26.4)    
Reclassification of awards previously liability-classified that were converted to equity 6.1       6.1    
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)     364,724        
Stock-based compensation — restricted stock units 22.2       22.2    
Stock-based compensation — performance share awards 10.2       10.2    
Stock-based compensation — market stock units 4.2       4.2    
Dividends declared ($1.22 per share) (52.1)         (52.1)  
Common share repurchased (41.9)     (41.9)      
Common share repurchased (in shares)     (314,925)        
Balance at Dec. 31, 2020 $ 1,271.4     $ (767.3) $ 671.3 $ 1,389.4 $ (22.0)
Balance (in shares) at Dec. 31, 2020 42,898,158   42,898,158        
APIC, Share-based Payment Arrangement, Increase for Cost Recognition [Abstract]              
Foreign currency translation adjustment $ 37.3            
Retained earnings $ 1,389.4            
v3.20.4
Consolidated Statement of Equity (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]      
Unrealized gain (loss) on available-for-sale investments, tax $ 1.3 $ (0.7) $ 1.8
Reclassification of adjustments for gains included in net income, tax $ 0.3 $ 0.3 $ 1.2
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Operating activities      
Consolidated net income $ 223.6 $ 152.0 $ 183.0
Adjustments to reconcile consolidated net income to net cash flows from operating activities:      
Depreciation and amortization 139.5 117.7 96.7
Deferred income taxes (6.7) (6.0) (1.1)
Stock-based compensation expense 36.6 44.4 31.7
Provision for bad debt 2.8 2.3 2.5
Equity in net (income) loss of unconsolidated entities (0.3) 0.9 2.1
Gain on sale of a product line 0.0 0.0 (10.5)
Gain on sale of equity method investments (30.0) (19.5) (5.6)
Holding gain on previously held equity interest (50.9) 0.0 0.0
Acquisition earn-out 27.8 0.0 0.0
Other, net 3.0 1.1 (2.5)
Changes in operating assets and liabilities      
Accounts receivable (9.2) 11.3 (29.6)
Accounts payable and accrued liabilities (9.5) 3.2 6.0
Accrued compensation and deferred commissions 18.2 17.1 15.6
Income taxes, current 8.0 (11.6) (12.4)
Deferred revenue 29.5 28.1 28.6
Other assets and liabilities 1.9 (6.6) 10.3
Cash provided by operating activities 384.3 334.4 314.8
Investing activities      
Purchases of investment securities (56.4) (36.2) (35.7)
Proceeds from maturities and sales of investment securities 46.9 35.8 51.2
Capital expenditures (76.7) (80.0) (76.1)
Acquisitions, net of cash acquired (67.8) (681.9) (0.4)
Proceeds from sale of a product line 0.0 0.0 10.5
Proceeds from sale of equity method investments, net 35.2 17.6 7.9
Purchases of equity- and cost-method investments (6.7) (1.5) (7.4)
Other, net 1.7 (0.1) 0.1
Cash used for investing activities (123.8) (746.3) (49.9)
Financing activities      
Common shares repurchased (41.9) (4.9) (20.9)
Dividends paid (51.4) (47.8) (42.6)
Proceeds from revolving credit facility 60.0 610.0 0.0
Repayment of revolving credit facility (130.0) (160.0) (110.0)
Proceeds from 2030 Notes 350.0 0.0 0.0
Repayment of term facility 343.4 5.6 0.0
Proceeds from stock-option exercises 1.9 0.2 0.1
Employee taxes withheld for restricted stock units (25.1) (15.2) (13.3)
Other, net (2.3) (3.0) (2.1)
Cash provided by (used for) financing activities 182.2 373.7 (188.8)
Effect of exchange rate changes on cash and cash equivalents 10.1 3.0 (15.0)
Net increase (decrease) in cash and cash equivalents 88.4 (35.2) 61.1
Cash and cash equivalents—beginning of period 334.1 369.3 308.2
Cash and cash equivalents—end of period 422.5 334.1 369.3
Supplemental disclosure of cash flow information:      
Cash paid for income taxes 58.2 63.3 67.0
Cash paid for interest 11.1 11.0 3.7
Supplemental information of non-cash investing and financing activities:      
Unrealized gain (loss) on available-for-sale investments $ 1.8 $ 3.9 $ (2.7)
v3.20.4
Description of Business
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business Description of Business
 
Morningstar, Inc. and its subsidiaries (Morningstar, we, our, the company) provide independent investment research for investors around the world. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and private market/venture capital investors. We have operations in 29 countries.

COVID-19 Update

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and in the geographies in which we operate, including how it affects our team members, customers, suppliers, and global markets. Since the situation surrounding the COVID-19 pandemic remains fluid, we are actively managing our response and have assessed potential impacts to our financial position and operating results related to our consolidated financial statements for the year ended December 31, 2020.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. On December 27, 2020, an additional stimulus was approved as part of the Consolidated Appropriations Act, 2021 (CAA). Many of the more recent coronavirus relief provisions are extensions and modifications of CARES Act provisions. The CARES Act and CAA had no impact on our consolidated financial statements for the year ended December 31, 2020. We continue to monitor any effects that may result from the CARES Act, CAA, and other similar legislation or governmental actions in geographies in which our business operates.
v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
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:
ASCAccounting Standards Codification
ASUAccounting Standards Update
EITFEmerging Issues Task Force
FASBFinancial Accounting Standards Board
SECSecurities 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. We consolidate assets, liabilities, and results of operations of subsidiaries in which we have a controlling interest and eliminate all significant intercompany accounts and transactions.

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

As part of our investment management operations, we manage certain funds outside of the U.S. that are considered variable interest entities. For the majority of these variable interest entities, we do not have a variable interest. In cases where we do have a variable interest, we are not the primary beneficiary. Accordingly, we do not consolidate any of these variable interest entities.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) 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.
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 the portion of our cash equivalents that are invested in money market funds at fair value, as these funds 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 (FASB ASC 320). 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. 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 values 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 equity securities, exchange-traded funds, and mutual funds. 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 values in our Consolidated Balance Sheets.

Fair Value Measurements. FASB ASC 820, Fair Value Measurements (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 as of the measurement date. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.

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

•    Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.

•    Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•    Level 3: Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

We provide additional information about our cash equivalents and investments that are subject to FASB ASC 820 in Note 7.

Concentration of Credit Risk. For the years ended December 31, 2020, 2019, and 2018, 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 credit losses 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 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. We include capitalized software development costs related to projects that have not been placed into service in our construction in progress balance.
The table below summarizes our depreciation expense related to capitalized developed software for the past three years:
(in millions)202020192018
Capitalized developed software depreciation expense$53.9 $61.1 $42.8 

The table below summarizes our capitalized software development costs for the past three years:
(in millions)202020192018
Capitalized software development costs$60.3 $64.8 $53.5 

Business Combinations. When we acquire a business, we account for the business combination in accordance with FASB ASC 805, Business Combinations (FASB ASC 805). We recognize and measure the fair value of the acquired business and allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The difference between the purchase price and the estimated fair value of the net assets acquired or the excess of the aggregate estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. In determining the estimated fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods, including discounted cash flow, Monte Carlo simulations, and relief from royalty. For a business combination achieved in stages, we remeasure our previously held equity interest immediately before the acquisition to the acquisition date fair value and recognize any gain in our Consolidated Statements of Income.

We recognize the fair value of any contingent payments at the date of acquisition as part of the consideration transferred to acquire a business. The liability associated with contingent consideration is remeasured to fair value at each reporting period subsequent to the date of acquisition considering factors that may impact the timing and amount of contingent payments until the term of the agreement has expired or the contingency is resolved. Any changes in the fair value measurement will be recorded in our Consolidated Statements of Income. In evaluating the characterization of contingent and deferred payments, we analyze relevant factors, including the nature of the payment, continuing employment requirements, incremental payments to employees of the acquired business, and timing and rationale underlying the transaction, to determine whether the payments should be accounted for as additional purchase consideration or post-combination related services.

We expense direct costs related to the business combination, such as 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 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 (FASB ASC 740). This includes establishing deferred tax assets or liabilities reflecting the difference between the values assigned for financial statement purposes and 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, divestitures, and the effect of foreign currency translations. 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. We performed annual impairment reviews in the fourth quarter of 2020 and 2019. We did not record any impairment losses in 2020, 2019, and 2018.
Intangible Assets. We amortize intangible assets using the straight-line method over their estimated useful lives, which range from one to twenty years. We have no intangible assets with indefinite useful lives. 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 group, we record an impairment loss based on the excess of the carrying amount over the fair value of the asset group. We did not record any impairment losses in 2020, 2019, and 2018.

Revenue Recognition. On January 1, 2018, we began recognizing revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606). The Company has retained similar recognition and measurement upon adoption of ASC Topic 606 as under accounting standards in effect in prior periods.

Under ASC Topic 606, we recognize revenue by applying the following five-step model to each of our customer arrangements:

1.Identify the customer contract;
2.Identify the performance obligations in the contract;
3.Determine the transaction price;
4.Allocate the transaction price to the performance obligations; and
5.Recognize revenue when (or as) performance obligations are satisfied.

Revenues are recognized when (or as) performance obligations are satisfied by transferring a promised product or service to the customer. Products or services are transferred when (or as) the customer obtains control of the product or service. The transaction price for a customer arrangement is the amount we expect to be entitled to in exchange for transferring the promised product or service. The transaction price may include fixed amounts, variable amounts, or both. When the right to payment exceeds revenue recognized the result is an increase to deferred revenue. When a customer’s license-based contract is signed, the customer’s service is activated immediately. License-based arrangements, our largest source of revenue from customers, generally is billed for the entire term, or billed annually (if the contract term is longer than one year). Customers are typically given payment terms of thirty to sixty days, although some customers pay immediately.

Revenue from contracts with customers is derived from license-based arrangements, asset-based arrangements, and transaction-based arrangements.

License-based revenue, which represents subscription services available to customers and not a license under the accounting guidance, is generated through subscription contracts entered into with our customers of Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Enterprise Components, PitchBook Data, Sustainalytics, and other similar products. Our performance obligations under these contracts are typically satisfied over time, as the customer has access to the service during the term of the subscription license and the level of service is consistent during the contract period. Each individual day within the contract period is viewed to be a service and the entirety of the service subscription term is determined to be a series combined into a single performance obligation and recognized over-time and on a straight-line basis, typically over terms of 1 to 3 years.

Asset-based revenue is generated through consulting service contracts with our customers of Morningstar Investment Management, Workplace Solutions, and Morningstar Indexes. Our performance obligations under these contracts are a daily asset management performance obligation, which is determined to be a daily service and thus satisfied over time as the customer receives continuous access to a service for the contract term. We recognize revenue daily over the contract term based on the value of assets under management and a tiered fee agreed to with the customer (typically in a range of 30-55 basis points of the customer’s average daily portfolio balance). Asset-based arrangements typically have a term of 1 to 3 years. The fees from such arrangements represent variable consideration, and the customer does not make separate purchasing decisions that result in additional performance obligations. Significant changes in the underlying fund assets, or significant disruptions in the market, are evaluated to determine if revisions on estimates of earned asset-based fees for the current quarter are needed. An estimate of the average daily portfolio balance is included in determining revenue for a given period. Estimates are based on the most recently reported quarter, and, as a result, it is unlikely a significant reversal of revenue would occur.
Transaction-based revenue is generated through contracts with our customers for DBRS Morningstar products and services, Internet advertising on Morningstar.com, and Morningstar-sponsored conferences. Our performance obligations for DBRS Morningstar include the issuance of the rating and may include surveillance services for a period of time as agreed with the customer. We allocate the transaction price to the deliverables based on their relative selling price, which is generally based on the price we charge when the same deliverable is sold separately. Our performance obligation for the issuance of the rating is satisfied when the rating is issued, which is when we recognize the related revenue. Our performance obligations for surveillance services is satisfied over time, as the customer has access to the service during the surveillance period and the level of service is consistent during the contract period. Therefore, we recognize revenue for this performance obligation on a straight-line basis. Our performance obligations for Internet advertising and Morningstar-sponsored conferences are satisfied as the service is delivered; therefore, we recognize revenue when the performance obligation is satisfied (as the customer’s advertisements are displayed and at the completion of the Morningstar-sponsored conference).

Our contracts with customers may include multiple performance obligations. For most of these arrangements, we generally allocate revenue to each performance obligation based on its estimated standalone selling price. We generally determine standalone selling prices based on prices charged to customers when the same performance obligation is sold separately.

Our contracts with customers may include third-party involvement in providing goods or services to the customer. The inclusion of third-party content does not result in separate performance obligations because is it not delivered separately from the other service offerings. In these arrangements, the customer has contracted to receive a single, integrated and bundled solution with third-party and Morningstar content delivered via Morningstar’s subscription services. Revenue and related costs of revenue from third-party content is presented on a gross basis within the consolidated financial statements.

Deferred revenue represents the portion of licenses or subscriptions billed or collected in advance of the service being provided which we expect to recognize as revenue in future periods.

Sales Commissions. Under prior accounting standards, the Company expensed sales incentive compensation costs, (sales commissions) as incurred. Upon adoption of ASC Topic 606 and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, on January 1, 2018, we began capitalizing sales commissions, which are considered directly attributable to obtaining a customer contract. Such costs are capitalized using a portfolio approach that aggregates these costs by legal entity within their geographical regions. Capitalized sales commissions are amortized using the straight-line method over a period that is consistent with the transfer of the products or services to the customer to which the sales commission relates. The period of transfer for each portfolio is the shorter of the weighted-average customer life, or the economic life of the underlying technology that delivers the products or services. As of December 31, 2020, the period of transfer was determined to be approximately two to three years. Discretionary amounts which are added to sales commission payments are expensed as incurred, as they are not considered to be directly attributable to obtaining a customer contract.

Stock-Based Compensation Expense. We account for our stock-based compensation expense in accordance with FASB ASC 718, Compensation—Stock Compensation (FASB ASC 718). Our stock-based compensation expense reflects grants of restricted stock units, performance share awards, market stock units, and stock options. We measure the fair value of our restricted stock units, restricted stock, and performance share awards on the grant date based on the closing market price of Morningstar's common stock on the day prior to the grant. For market stock units, we estimate the fair value of the awards using a Monte Carlo valuation model. For stock options, we estimate the fair value of our stock options on the date of grant using the 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.

Income Taxes. We record deferred income taxes for the temporary differences between the carrying amount of assets and liabilities for financial statement purposes and tax purposes in accordance with ASC 740. ASC 740 prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It 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 or long-term liabilities in our Consolidated Balance Sheet, depending on when we expect to make payment.

Leases. We account for our right-of-use assets and operating lease liabilities in accordance with FASB ASC 842, Leases (FASB ASC 842). We determine if a contract is or contains a lease at the inception of the contract. For identified operating leases, we recognize a lease liability and right-of-use asset on the consolidated balance sheet. The right-of-use asset represents our right to use an underlying asset for the lease term, and the operating lease liability represents the Company's obligation to make lease payments.
 
Our lease agreements consist primarily of real estate leases for office space and non-real estate leases for office equipment. In cases where an agreement contains both a lease and non-lease component, we do not allocate consideration to both components, but account for each as a single lease component by class of underlying asset. There are few instances of short-term agreements in our lease portfolio, which are typically arranged as needed and paid on a month-to-month basis. These leases are not recognized on the Consolidated Balance Sheet, but monthly lease expense is recognized on the Consolidated Statements of Income.
 
Right-of-Use assets and operating lease liabilities are measured using the present value of future lease payments of the lease term at the commencement date. Right-of-use assets also include initial direct costs incurred by the Company, net of pre-payments and lease incentives. In the absence of an explicit rate in the lease agreement, the discount rate used to calculate present value is equal to the Company's incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the life of the lease and is included in general and administrative expenses on the Consolidated Statements of Income.
v3.20.4
Credit Arrangements
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Credit Arrangements Credit Arrangements
Debt

The following table summarizes our total debt and long-term debt as of December 31, 2020 and December 31, 2019.
(in millions)As of December 31, 2020As of December 31, 2019
Term Facility, net of unamortized debt issuance costs of $0.1 million and $1.3 million$100.8 $443.1 
Revolving Credit Facility— 70.0 
2.32% Senior Notes due October 26, 2030, net of unamortized debt issuance costs of $1.7 million348.3 — 
Total debt$449.1 $513.1 
Less: Current portion of long-term debt, net of unamortized debt issuance costs of $0.3 million— 11.0 
Long-term debt$449.1 $502.1 

Credit Agreement

In connection with the acquisition of Ratings Acquisition Corp (DBRS) on July 2, 2019, the Company entered into a senior credit agreement (the Credit Agreement). The Credit Agreement provides the Company with a five-year multi-currency credit facility with an initial borrowing capacity of up to $750.0 million, including a $300.0 million revolving credit facility (the Revolving Credit Facility) and a term loan facility of $450.0 million (the Term Facility). The Credit Agreement also provides for the issuance of up to $50.0 million of letters of credit and a $100.0 million sub-limit for a swingline facility under the Revolving Credit Facility. The Credit Agreement will expire on July 2, 2024. As of December 31, 2020, our total outstanding debt under the Credit Agreement was $100.8 million with borrowing availability of $300.0 million 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 1.50%, based on our consolidated leverage ratio or (ii) the lender's base rate plus the applicable margin for such loans, which ranges between 0.00% and 0.50%, based on our consolidated leverage ratio.
The proceeds of the Term Facility and initial borrowings under the Revolving Credit Facility were used to finance the acquisition of DBRS. The proceeds of future borrowings under the Revolving Credit Facility may be used for working capital, capital expenditures or any other lawful corporate purpose.
The portions of deferred debt issuance costs related to the Revolving Credit Facility are included in other current and other non-current assets, and the portion of deferred debt issuance costs related to the Term Facility is reported as a reduction to the carrying amount of the Term Facility. Amortization of debt issuance costs related to the Revolving Credit Facility are amortized on a straight-line basis to interest expense over the term of the Credit Agreement. Amortization of debt issuance costs related to the Term Facility are amortized to interest expense using the effective interest method over the term of the Credit Agreement.

364-Day Revolving Credit Facility

On June 30, 2020, we entered into a 364-day revolving credit facility (364-Day Revolving Credit Facility) providing for borrowings in an aggregate principal amount of up to $50.0 million. The proceeds of such borrowings may be used for working capital, capital expenditures, and any other lawful corporate purpose. As of December 31, 2020, no borrowings were outstanding.

Private Placement Debt Offering

On October 26, 2020, we completed the issuance and sale of $350.0 million aggregate principal amount of 2.32% senior notes due October 26, 2030 (the 2030 Notes), in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. Proceeds were primarily used to pay off a portion of the Company's outstanding debt under the Credit Agreement. Interest on the 2030 Notes will be paid semi-annually on each October 30 and April 30 during the term of the 2030 Notes and at maturity, with the first interest payment date occurring on April 30, 2021. As of December 31, 2020, our total outstanding debt under the 2030 Notes was $348.3 million.

Compliance with Covenants

Each of the Credit Agreement, the 364-Day Revolving Credit Facility, and the 2030 Notes include customary representations, warranties, and covenants, including financial covenants, that require us to maintain specified ratios of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) to consolidated interest charges and consolidated funded indebtedness to consolidated EBITDA, which are tested on a quarterly basis. We were in compliance with these financial covenants as of December 31, 2020.
v3.20.4
Income Per Share
12 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
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:

(in millions, except per share amounts)202020192018
Basic net income per share:
Consolidated net income $223.6 $152.0 183.0 
Weighted average common shares outstanding42.9 42.7 42.6 
Basic net income per share$5.22 $3.56 $4.30 
Diluted net income per share:
Consolidated net income$223.6 $152.0 $183.0 
Weighted average common shares outstanding42.9 42.7 42.6 
Net effect of dilutive stock options and restricted stock units0.3 0.5 0.4 
Weighted average common shares outstanding for computing diluted income per share43.2 43.2 43.0 
Diluted net income per share$5.18 $3.52 $4.25 
During the periods presented, the number of anti-dilutive restricted stock units, performance share awards, or market stock units excluded from our calculation of diluted earnings per share was immaterial.
v3.20.4
Revenue
12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Revenue
Disaggregation of Revenue

The following table presents our revenue disaggregated by revenue type. Sales and usage-based taxes are excluded from revenue.
Year ended December 31
(in millions)202020192018
License-based $934.9 $812.7 $751.6 
Asset-based223.8 211.6 200.4 
Transaction-based230.8 154.7 67.9 
Consolidated revenue$1,389.5 $1,179.0 $1,019.9 

License-based performance obligations are generally satisfied over time as the customer has access to the product or service during the term of the subscription license and the level of service is consistent during the contract period. License-based agreements typically have a term of 1 to 3 years and are accounted for as subscription services available to customers and not as a license under the accounting guidance. License-based revenue is generated from the sale of Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, PitchBook, Sustainalytics, and other similar products.
Asset-based performance obligations are satisfied over time as the customer receives continuous access to a service for the term. Asset-based arrangements typically have a term of 1 to 3 years. Asset-based fees represent variable consideration and the customer does not make separate purchasing decisions that result in additional performance obligations. Significant changes in the underlying fund assets and significant disruptions in the market are evaluated to determine whether estimates of earned asset-based fees need to be revised for the current quarter. The timing of client asset reporting and the structure of certain contracts can result in a one-quarter lag between market movements and the impact on earned revenue. An estimate of variable consideration is included in the initial transaction price only to the extent it is probable that a significant reversal in the amount of the revenue recognized will not occur. Estimates of asset-based fees are based on the most recently completed quarter and, as a result, it is unlikely a significant reversal of revenue would occur. Asset-based revenue is generated by Investment Management, Workplace Solutions, and Morningstar Indexes.

Transaction-based performance obligations are satisfied when the product or service is completed or delivered. Transaction-based revenue is generated by DBRS Morningstar, Internet advertising, and Morningstar-sponsored conferences. DBRS Morningstar revenue includes revenue from surveillance services, which is recognized over time, as the customer has access to the service during the surveillance period.

Contract liabilities

Our contract liabilities represent deferred revenue. We record contract liabilities when cash payments are received or due in advance of our performance, including amounts which may be refundable. The contract liabilities balance as of December 31, 2020 had a net increase of $58.0 million, primarily driven by cash payments received or payable in advance of satisfying our performance obligations. We recognized $229.8 million of revenue in 2020 that was included in the contract liabilities balance as of December 31, 2019.

We expect to recognize revenue related to our contract liabilities for 2021 and subsequent years as follows:
(in millions)As of December 31, 2020
2021$571.8 
2022153.6 
202351.8 
202416.2 
20256.3 
Thereafter 33.1 
Total$832.8 

The aggregate amount of revenue we expect to recognize for 2021 and subsequent years is higher than our contract liability balance of $340.3 million as of December 31, 2020. The difference represents the value of future obligations for signed contracts where we have not yet begun to satisfy the performance obligations or have partially satisfied performance obligations.

The table above does not include variable consideration for unsatisfied performance obligations related to certain of our licensed-based, asset-based, and transaction-based contracts as of December 31, 2020. We are applying the optional exemption available under ASC Topic 606, as the variable consideration relates to these unsatisfied performance obligations being fulfilled as a series. The performance obligations related to these contracts are expected to be satisfied over the next 1 to 3 years as services are provided to the client. For license-based contracts, the consideration received for services performed is based on the number of future users, which is not known until the services are performed. The variable consideration for this revenue can be affected by the number of user licenses, which cannot be reasonably estimated. For asset-based contracts, the consideration received for services performed is based on future asset values, which are not known until the services are performed. The variable consideration for this revenue can be affected by changes in the underlying value of fund assets due to client redemptions, additional investments, or movements in the market. For transaction-based contracts for Internet advertising, the consideration received for services performed is based on the number of impressions, which is not known until the impressions are created. The variable consideration for this revenue can be affected by the timing and quantity of impressions in any given period and cannot be reasonably estimated.
As of December 31, 2020, the table above also does not include revenue for unsatisfied performance obligations related to certain of our license-based and transaction-based contracts with durations of one year or less since we are applying the optional exemption under ASC Topic 606. For certain license-based contracts, the remaining performance obligation is expected to be less than one year based on the corresponding subscription terms or the existence of cancellation terms that may be enacted causing the contract term to be less than one year from December 31, 2020. For transaction-based contracts, such as new credit rating issuances and Morningstar-sponsored conferences, the related performance obligations are expected to be satisfied within the next 12 months.

Contract Assets

Our contract assets represent accounts receivable, less allowance for credit losses and deferred commissions.

The following table summarizes our contract assets balance:
As of December 31
(in millions)20202019
Accounts receivable, less allowance for credit losses$205.1 $188.5 
Deferred commissions39.6 30.4 
Total contract assets$244.7 $218.9 
v3.20.4
Segment and Geographical Area Information
12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
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 a single reportable segment, all required financial segment information can be found directly in the Consolidated Financial Statements. The accounting policies for our reportable segment are the same as those described in Note 2. We evaluate the performance of our reporting segment based on revenue and operating income.

Geographical Area Information

The tables below summarize our revenue, long-lived assets, which includes property, equipment, and capitalized software, net, and operating lease assets, by geographical area:

Revenue by geographical area
Year ended December 31
(in millions)202020192018
United States$970.8 $866.4 $764.2 
Asia33.6 27.9 24.5 
Australia45.6 39.5 40.9 
Canada101.5 56.9 30.7 
Continental Europe113.8 88.0 81.2 
United Kingdom117.5 93.9 72.4 
Other6.7 6.4 6.0 
Total International418.7 312.6 255.7 
Consolidated revenue$1,389.5 $1,179.0 $1,019.9 
Property, equipment, and capitalized software, net by geographical area
As of December 31
(in millions)20202019
United States$127.0 $131.2 
Asia7.5 6.6 
Australia3.7 4.2 
Canada2.9 2.9 
Continental Europe6.2 2.3 
United Kingdom7.3 6.9 
Other0.5 0.6 
Total International28.1 23.5 
Consolidated property, equipment, and capitalized software, net$155.1 $154.7 
Operating lease assets by geographical area
As of December 31
(in millions)20202019
United States$89.2 $86.4 
Asia12.6 20.2 
Australia5.2 5.8 
Canada7.4 7.5 
Continental Europe17.0 6.3 
United Kingdom15.6 17.9 
Other0.7 0.7 
Total International58.5 58.4 
Consolidated operating lease assets$147.7 $144.8 
The long-lived assets by geographical area table does not include deferred commissions, non-current as the balance is not material.
v3.20.4
Investments and Fair Value Measurements
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
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. 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 December 31
(in millions)20202019
Available-for-sale$40.5 $25.8 
Held-to-maturity1.2 2.3 
Trading securities— 5.3 
Total$41.7 $33.4 
The following table shows the cost, unrealized gains, and fair values related to investments classified as available-for-sale and held-to-maturity:
 
 As of December 31, 2020As of December 31, 2019
(in millions)CostUnrealized
Gain
Unrealized
Loss
Fair
Value
CostUnrealized
Gain
Unrealized
Loss
Fair
Value
Available-for-sale:        
   Equity securities and exchange-traded funds
$24.6 $4.2 $— $28.8 $19.0 $2.9 $— $21.9 
Mutual funds10.0 0.8 — 10.8 3.7 0.2 — 3.9 
Marketable debt securities0.9 — — 0.9 — — — — 
Total$35.5 $5.0 $— $40.5 $22.7 $3.1 $— $25.8 
Held-to-maturity:    
Certificates of deposit
$1.2 $— $— $1.2 $2.3 $— $— $2.3 
Total$1.2 $— $— $1.2 $2.3 $— $— $2.3 
 
As of December 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019.

 As of December 31, 2020As of December 31, 2019
(in millions)CostFair ValueCostFair Value
Available-for-sale:    
Equity securities, exchange-traded funds, mutual funds, and marketable debt securities$35.5 $40.5 $22.7 $25.8 
Total$35.5 $40.5 $22.7 $25.8 
Held-to-maturity:    
Due in one year or less$1.2 $1.2 $2.3 $2.3 
Due in one to three years— — — — 
Total$1.2 $1.2 $2.3 $2.3 

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: 
(in millions)202020192018
Realized gains$2.1 $1.2 $1.8 
Realized losses— — (0.8)
Realized gains, net$2.1 $1.2 $1.0 
We determine realized gains and losses using the specific identification method.
The following table shows the net unrealized (losses) gains on trading securities as recorded in our Consolidated Statements of Income:

 
(in millions)202020192018
Unrealized (losses) gains, net$(0.4)$0.6 $(0.2)

The table below shows the fair value of our assets and liabilities subject to fair value measurements that are measured at fair value on a recurring basis using the 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 ValueFair Value Measurements as of December 31, 2020
 as ofUsing Fair Value Hierarchy
(in millions)December 31, 2020Level 1Level 2Level 3
Financial assets:
Available-for-sale investments    
Equity securities and exchange-traded funds$28.8 $28.8 $— $— 
Mutual funds10.8 10.8 — — 
Marketable debt securities0.9 0.9 — — 
Cash equivalents0.8 0.8 — — 
Financial liabilities:
Contingent consideration53.7 — — 53.7 
Total$95.0 $41.3 $— $53.7 
 
 Fair ValueFair Value Measurements as of December 31, 2019
 as ofUsing Fair Value Hierarchy
(in millions)December 31, 2019Level 1Level 2Level 3
Financial assets:
Available-for-sale investments    
Equity securities and exchange-traded funds$21.9 $21.9 $— $— 
Mutual funds3.9 3.9 — — 
Trading securities5.3 5.3 — — 
Cash equivalents0.9 0.9 — — 
Total$32.0 $32.0 $— $— 
 
Based on our analysis of the nature and risks of our investments in equity securities, mutual funds, marketable debt instruments, and exchange-traded 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, marketable debt 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 December 31, 2020 and December 31, 2019.
Financial liabilities that are classified as Level 3 within the fair value hierarchy include contingent consideration liabilities of $53.7 million that reflect potential future payments that are contingent upon the achievement of certain revenue metrics related to our acquisition of Sustainalytics. This additional purchase consideration, which is contingent, is recognized at fair value at the date of acquisition using a Monte Carlo simulation, which requires the use of management assumptions and inputs, such as projected financial information related to revenue growth and expected margin percentage, among other valuation related items, and is remeasured each reporting period until the contingency is resolved with any changes in fair value recorded in current period earnings. At December, 31, 2020, the fair value of the contingent consideration liability was impacted by foreign currency translations and not by adjustments to key assumptions used in our fair value estimates compared to the assumptions used in the acquisition date fair value estimates.
v3.20.4
Acquisitions, Goodwill, and Other Intangible Assets
Jul. 02, 2019
Acquisitions, Goodwill, and Other Intangible Assets [Abstract]  
Goodwill and Intangible Assets Disclosure Acquisitions, Goodwill, and Other Intangible Assets
 
2020 Acquisitions

On January 31, 2020, we acquired Hueler Analytics' Stable Value Fund Comparative Universe Data and Stable Value Index (Hueler Analytics). We began consolidating the financial results of Hueler Analytics in our consolidated financial statements on January 31, 2020.
On April 3, 2020, we acquired PlanPlus Global, a financial-planning, risk-profiling, and portfolio tracking software firm. The acquisition expands our financial-planning capabilities for advisors. We began consolidating the financial results of PlanPlus Global in our consolidated financial statements on April 3, 2020.
Increased Ownership Interest in Sustainalytics Holding B.V. (Sustainalytics)

On July 2, 2020, we completed the acquisition of the remaining 60% interest in Sustainalytics, a globally recognized leader in environmental, social, and governance (ESG) ratings and research, for an initial cash payment of $61.2 million. The acquisition was accounted for as a business combination with July 2, 2020 as the date of acquisition, and the Company was determined to be the acquirer. Accordingly, we began consolidating the financial results of Sustainalytics in our consolidated financial statements on July 2, 2020. We previously held an approximately 40% ownership interest in Sustainalytics, which had an estimated fair value of $75.4 million at the date of the acquisition and a book value of $24.5 million immediately prior to the acquisition, and resulted in the recording of a holding gain of $50.9 million.

The transaction has been accounted for as a business combination using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of July 2, 2020, and may be adjusted during the measurement period of up to 12 months from the acquisition date as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. Subsequent measurement changes for certain contingent liabilities will generally be recognized in the Company’s future earnings.

Consideration related to the acquisition consists of an initial cash payment of $61.2 million and contingent payments with an acquisition date fair value of $75.2 million, a portion of which is treated as additional purchase consideration and the remainder, which is sometimes referred to as an earn-out, is accounted for and described as compensation expense for purpose of the following discussion and disclosure. The acquisition date fair values of the additional purchase consideration and compensation were $47.4 million and $27.8 million, respectively. The contingent payments are due on the first and second anniversaries of the acquisition date, and each payment is determined based on a multiple of Sustainalytics' revenues for the years ended December 31, 2020 and 2021, respectively, which are also the measurement periods for determining the final payments. We used a Monte Carlo simulation to arrive at the estimated fair values of the contingent payments at the acquisition date. At subsequent balance sheet dates, the additional purchase consideration, including contingent payments, will continue to be measured at fair value and is classified as "Contingent consideration liability" and "Other long-term liabilities" on our Consolidated Balance Sheet as of December 31, 2020. The compensation will be measured based on probability weighted future benefits expected to be paid, and is reflected in "Current liabilities - Accrued compensation" and "Accrued Compensation" on our Consolidated Balance Sheet as of December 31, 2020. At December 31, 2020, the fair value of the contingent consideration liability was impacted by foreign currency translations and not by adjustments to key assumptions used in our fair value estimates compared to the assumptions used in the acquisition date fair value estimates.
The book value of our 40% ownership interest immediately prior to the acquisition date was $24.5 million, and we recorded a $50.9 million non-cash holding gain for the difference between the fair value and the book value of our previously held equity interest. The acquisition of the additional 60% interest was considered an acquisition achieved in stages and resulted in the remeasurement of the previously held equity interest to fair value. The Company determined the fair value of the previously held equity interest using a discounted cash flow analysis (an income approach) based on projected cash flows for Sustainalytics combined with other valuation approaches and considerations to estimate total purchase consideration, which was divided by fully diluted outstanding shares to determine the fair value per share. The fair value per share was then applied to the shares of Sustainalytics held by the Company to derive the acquisition date fair value of the previously held equity interest. The gain is classified as "Holding gain on previously held equity interest" in our Consolidated Statement of Income for the year ended December 31, 2020.

As of September 30, 2020, we completed our initial determination of the fair values of the acquired, identifiable assets and liabilities based on the information available. At December 31, 2020, there are various areas that are not yet finalized due to information that may become available subsequently, which may result in changes in the values assigned to various assets and liabilities, including, but not limited to, assumed current and deferred tax assets and liabilities. If additional information, including a final third-party valuation report, related to the acquisition date fair value determinations becomes available within 12 months of the acquisition date, there may be adjustments to these initial fair value measurements. We did not record any significant adjustments compared with our preliminary estimates at the date of acquisition during the fourth quarter of 2020.

The following table summarizes our allocation of the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
(in millions)
Fair value of consideration transferred$108.6 
Fair value of the previously held equity interest75.4 
Cash and cash equivalents$9.8 
Accounts receivable6.2 
Intangible assets, net79.5 
Operating lease assets5.2 
Other current and non-current assets7.4 
Deferred revenue(21.2)
Operating lease liability(5.2)
Deferred tax liability, net(16.9)
Other current and non-current liabilities(15.5)
Total fair value of net assets acquired$49.3 
Goodwill$134.7 

At July 2, 2020, accounts receivable acquired were recorded at gross contractual amounts receivable, which approximates fair value. At December 31, 2020, substantially all amounts were collected.
The preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed includes $79.5 million of acquired intangible assets, as follows:
(in millions)Weighted average useful life (years)
Customer-related assets$22.9 20
Technology-based assets46.7 10
Intellectual property9.9 10
Total intangible assets$79.5 

Goodwill of $134.7 million represents the excess over the fair value of the net tangible and intangible assets acquired. Goodwill is not deductible for income tax purposes.

We recognized a preliminary net deferred tax liability of $16.9 million primarily because the amortization expense related to certain intangible assets is not deductible for income tax purposes.

2019 Acquisitions

AdviserLogic

On December 1, 2019, we acquired AdviserLogic, a cloud-based financial planning software platform for financial advisors in Australia. We began consolidating the financial results of AdviserLogic in our Consolidated Financial Statements on December 1, 2019.
DBRS

On July 2, 2019, we acquired 100% of the voting equity interests of DBRS for total cash consideration of $682.1 million. DBRS delivers comprehensive credit rating services and ongoing surveillance to customers in various market sectors across Canada, the U.S., and Europe. The combination of DBRS with Morningstar Credit Ratings' business (collectively, DBRS Morningstar) expands global asset class coverage and provides investors with fixed-income analysis and research through the combined platform.
We began consolidating the financial results of this acquisition in our Consolidated Financial Statements on July 2, 2019. DBRS Morningstar contributed $127.6 million of revenue and $123.5 million of operating expense during the year ended December 31, 2019. We incurred transaction-related costs of $6.5 million during the year ended December 31, 2019.
We accounted for this transaction using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Morningstar was the accounting acquirer for purposes of accounting for the business combination.
We finalized the purchase price allocation related to our acquisition of DBRS during 2020 and did not record any significant adjustments compared with our preliminary estimates at the date of acquisition.
The following table summarizes our allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(in millions)
Cash consideration transferred$682.1 
Cash and cash equivalents$8.5 
Accounts receivable28.8 
Property, equipment, and capitalized software, net12.8 
Intangible assets, net284.1 
Goodwill473.3 
Operating lease assets33.3 
Other current and non-current assets5.7 
Deferred revenue(43.2)
Deferred tax liability, net(66.6)
Operating lease liabilities (35.0)
Other current and non-current liabilities(19.6)
Total fair value of DBRS$682.1 
Accounts receivable acquired were recorded at gross contractual amounts receivable, which approximates fair value.
The allocation of the estimated fair values of the assets acquired and liabilities assumed includes $284.1 million of acquired intangible assets, as follows:
(in millions)Weighted Average Useful Life (years)
Customer-related assets$219.1 10
Technology-based assets29.4 5
Intellectual property (trademarks and trade names)35.6 7
Total intangible assets$284.1 

We recognized a net deferred tax liability of $66.6 million mainly because the amortization expense related to certain intangible assets is not deductible for income tax purposes.
Goodwill of $473.3 million represents the excess over the fair value of the net tangible and intangible assets acquired. Goodwill is not deductible for income tax purposes.
The following unaudited pro forma information presents a summary of our Consolidated Statements of Income for the year ended December 31, 2019 and 2018, as if we had completed the acquisition as of January 1, 2018.
This unaudited pro forma information is presented for illustrative purposes and is not intended to represent or be indicative of the actual results of operations or expected synergies of DBRS Morningstar that would have been achieved had the acquisition occurred at the beginning of the earliest period presented, nor is it intended to represent or be indicative of future results of operations.
In calculating the pro forma information below, we included an estimate of amortization expense related to the intangible assets acquired, depreciation expense due to changes in estimated remaining useful lives of long-lived assets, reduction in revenue as a result of the fair value adjustments to deferred revenue, and interest expense incurred on the long-term debt.
Unaudited Pro Forma Financial Information (in millions)20192018
Revenue$1,259.2 $1,184.5 
Operating income190.3 223.6 
Net income148.2 179.7 
Basic net income per share$3.47 $4.22 
Diluted net income per share$3.43 $4.18 
Other acquisition activity during 2019 was not material.

Goodwill
 
The following table shows the changes in our goodwill balances from January 1, 2019 to December 31, 2020:
 
 (in millions)
Balance as of January 1, 2019$556.7 
Acquisition of DBRS473.3 
Other, primarily foreign currency translation9.1 
Balance as of December 31, 2019$1,039.1 
Acquisition of Sustainalytics134.7 
Other, primarily foreign currency translation31.2 
Balance as of December 31, 2020$1,205.0 

We did not record any impairment losses in 2020, 2019, or 2018 as the estimated fair value of our reporting unit exceeded its carrying value and we did not note any indicators of impairment. We perform our annual impairment testing during the fourth quarter of each year.

Intangible Assets

The following table summarizes our intangible assets: 
 As of December 31, 2020As of December 31, 2019
(in millions)GrossAccumulated
Amortization
NetWeighted
Average
Useful  Life
(years)
GrossAccumulated
Amortization
NetWeighted
Average
Useful  Life
(years)
Customer-related assets$415.6 $(163.7)$251.9 11$377.9 $(130.3)$247.6 11
Technology-based assets223.2 (135.2)88.0 7163.7 (112.0)51.7 7
Intellectual property & other 83.6 (43.4)40.2 869.3 (35.2)34.1 8
Total intangible assets$722.4 $(342.3)$380.1 10$610.9 $(277.5)$333.4 10
 
The following table summarizes our amortization expense related to intangible assets:

(in millions)202020192018
Amortization expense$58.8 $36.5 $20.7 
 
We did not record any impairment losses involving intangible assets in 2020, 2019, or 2018.

We amortize intangible assets using the straight-line method over their expected economic useful lives.
Based on acquisitions and divestitures completed through December 31, 2020, we expect intangible amortization expense for 2021 and subsequent years to be as follows:
 (in millions)
2021$61.1 
202253.1 
202349.3 
202443.2 
202536.6 
Thereafter136.8 
Total$380.1 

Our estimates of future amortization expense for intangible assets may be affected by additional acquisitions, divestitures, changes in the estimated average useful lives, impairments, and foreign currency translation.
v3.20.4
Divestitures
12 Months Ended
Dec. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Divestitures Divestitures
2020 and 2019 Divestitures

We did not complete any divestitures in 2020 or 2019.

2018 Divestitures
In January 2018, we sold our 15(c) board consulting services product line for $10.5 million and recorded a gain of $10.5 million on the sale.
v3.20.4
Investments in Unconsolidated Entities
12 Months Ended
Dec. 31, 2020
Investments in Unconsolidated Entities [Abstract]  
Investments in Unconsolidated Entities Investments in Unconsolidated Entities
 
Our investments in unconsolidated entities consist primarily of the following:
 
As of December 31
(in millions)20202019
Investment in MJKK$18.9 $24.0 
Investment in Sustainalytics— 25.3 
Other-equity method investments7.4 6.6 
Cost method investments6.3 3.7 
Total investments in unconsolidated entities$32.6 $59.6 
 
Morningstar Japan K.K. Morningstar Japan K.K. (MJKK) develops and markets financial information products and services customized for the Japanese market. MJKK’s shares are traded on the Tokyo Stock Exchange under the ticker 47650. We account for our investment in MJKK using the equity method. The following table summarizes our ownership percentage in MJKK and the market value of this investment based on MJKK’s publicly quoted share price:
As of December 31
 20202019
Morningstar’s approximate ownership of MJKK22.4 %30.4 %
Approximate market value of Morningstar’s ownership in MJKK:  
Japanese yen (¥ in millions)¥9,221.9 ¥10,319.0 
Equivalent U.S. dollars ($ in millions)$89.4 $95.0 
On October 19, 2020, we sold 3,850,000 shares of MJKK in an underwritten offering at a price per share of ¥437.9, resulting in net proceeds, after underwriting discounts and commissions, of $16.0 million, which resulted in a pre-tax gain of $12.2 million. In connection with this sale, we also granted an underwriter an overallotment option on 1,289,000 MJKK shares. On November 6, 2020, the option was exercised for 1,227,100 shares of MJKK common stock and we received $5.1 million for these shares, which resulted in a pre-tax gain of $3.8 million.

Sustainalytics Holding B.V. (Sustainalytics). As of December 31, 2019, our investments in unconsolidated entities included a minority investment in Sustainalytics. On July 2, 2020, we purchased the remaining ownership interest in Sustainalytics. See Note 8 for additional information on our acquisition of Sustainalytics.

Other investments in unconsolidated entities. On October 8, 2020, we sold the entire interest in one of our other unconsolidated entities for cash proceeds of $14.3 million, including accrued but unpaid dividends on preferred shares, which resulted in a pre-tax gain of $14.0 million.
v3.20.4
Property, Equipment, and Capitalized Software
12 Months Ended
Dec. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Equipment, and Capitalized Software Property, Equipment, and Capitalized Software, net
The following table shows our property, equipment, and capitalized software, net summarized by major category:

As of December 31
(in millions)20202019
Capitalized software$390.2 $328.3 
Capitalized equipment74.6 70.1 
Furniture and fixtures35.6 33.7 
Leasehold improvements96.0 92.1 
Telephone equipment2.4 2.3 
Construction in progress8.6 5.5 
Property, equipment, and capitalized software, at cost607.4 532.0 
Less accumulated depreciation(452.3)(377.3)
Property, equipment, and capitalized software, net$155.1 $154.7 

The following table summarizes our depreciation expense:
(in millions)202020192018
Depreciation expense$80.1 $81.2 $76.0 
v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
Leases, Operating [Abstract]  
Operating Leases Leases
We lease office space and certain equipment under various operating and finance leases, with most of our lease portfolio consisting of operating leases for office space.

We determine whether an arrangement is, or includes, an embedded lease at contract inception. Operating lease assets and lease liabilities are recognized at the commencement date and initially measured using the present value of lease payments over the defined lease term. Lease expense is recognized on a straight-line basis over the lease term. For finance leases, we also recognize a finance lease asset and finance lease liability at inception, with lease expense recognized as interest expense and amortization.

A contract is or contains an embedded lease if the contract meets all of the below criteria:

there is an identified asset
we obtain substantially all of the economic benefits of the asset
we have the right to direct the use of the asset
For initial measurement of the present value of lease payments and for subsequent measurement of lease modifications, we are required to use the rate implicit in the lease, if available. However, as most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is a collateralized rate. To apply the incremental borrowing rate, we used a portfolio approach and grouped leases based on similar lease terms in a manner whereby we reasonably expect that the application does not differ materially from a lease-by-lease approach.

Our leases have remaining lease terms of approximately 1 year to 13 years, which may include the option to extend the lease when it is reasonably certain we will exercise that option. We do not have lease agreements with residual value guarantees, sale leaseback terms, or material restrictive covenants.

Leases with an initial term of 12 months or less are not recognized on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

The following table summarizes our operating lease assets and lease liabilities:
Leases (in millions)Balance Sheet ClassificationAs of December 31, 2020As of December 31, 2019
Assets
Operating Operating lease assets$147.7 $144.8 
Liabilities
OperatingOperating lease liabilities, current$39.9 $35.8 
OperatingOperating lease liabilities, non-current137.7 138.7 
Total lease liabilities$