MORNINGSTAR, INC., 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document and Entity Information Document - USD ($)
$ in Millions
 12 Months Ended
Dec. 31, 2018
Feb. 15, 2019
Jun. 30, 2018
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    
Entity Emerging Growth Company false    
Entity Small Business false    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   42,587,504  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Shell Company false    
Entity Public Float     $ 2,400.0
v3.10.0.1
Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenue $ 1,019.9 $ 911.7 $ 798.6
Operating expense:      
Cost of revenue 411.1 386.6 344.3
Sales and marketing 148.5 134.3 97.6
General and administrative 147.8 129.8 105.2
Depreciation and amortization 96.7 91.2 70.7
Total operating expense 804.1 741.9 617.8
Operating income 215.8 169.8 180.8
Non-operating income:      
Interest income (expense), net (1.8) (3.6) 0.3
Gain on sale of investments, reclassified from other comprehensive income 1.0 3.2 0.6
Gain on sale of business 0.0 16.7 0.0
Gain on sale of a product line 10.5 0.0 0.0
Gain on sale of equity investments 5.6 0.0 0.0
Holding gain upon acquisition of additional ownership of equity-method investments 0.0 0.0 37.1
Other income (expense), net 1.8 (5.0) 6.1
Non-operating income, net 17.1 11.3 44.1
Income before income taxes and equity in net loss of unconsolidated entities 232.9 181.1 224.9
Equity in net loss of unconsolidated entities (2.1) (1.3) (0.2)
Income tax expense 47.8 42.9 63.7
Consolidated net income $ 183.0 $ 136.9 $ 161.0
Net income per share attributable to Morningstar, Inc.:      
Basic net income per share attributable to Morningstar, Inc. (in dollars per share) $ 4.30 $ 3.21 $ 3.74
Diluted net income per share attributable to Morningstar, Inc. (in dollars per share) 4.25 3.18 3.72
Dividends per common share:      
Dividends declared per common share (in dollars per share) 1.03 0.94 0.89
Dividends paid per common share (in dollars per share) $ 1.0 $ 0.92 $ 0.88
Weighted average shares outstanding:      
Basic (in shares) 42.6 42.7 43.0
Diluted (in shares) 43.0 43.0 43.3
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated net income $ 183.0 $ 136.9 $ 161.0
Other comprehensive income (loss), net of tax:      
Foreign currency translation adjustment (26.6) 33.4 (27.8)
Unrealized gains (losses) on securities:      
Unrealized holding gains (losses) arising during period (1.0) 3.4 3.3
Reclassification of gains included in net income (0.8) (1.9) (2.4)
Other comprehensive income (loss) (28.4) 34.9 (26.9)
Comprehensive income $ 154.6 $ 171.8 $ 134.1
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Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 369.3 $ 308.2
Investments 26.6 45.1
Accounts receivable, less allowance for doubtful accounts of $4.0 and $3.2, respectively 172.2 148.2
Income tax receivable, net 1.8 0.0
Deferred commissions 14.8 0.0
Other current assets 16.9 28.3
Total current assets 601.6 529.8
Property, equipment, and capitalized software, net 143.5 147.4
Investments in unconsolidated entities 63.1 62.0
Goodwill 556.7 564.9
Intangible assets, net 73.9 95.4
Deferred commissions, non-current 10.3 0.0
Other assets 4.7 6.2
Total assets 1,453.8 1,405.7
Current liabilities:    
Accounts payable and accrued liabilities 54.4 49.2
Accrued compensation 109.5 92.0
Deferred revenue 195.8 171.3
Other current liabilities 3.1 10.7
Total current liabilities 362.8 323.2
Accrued compensation 11.8 11.7
Deferred tax liability, net 22.2 23.6
Long-term debt 70.0 180.0
Deferred rent 24.5 26.9
Deferred revenue, non-current 14.2 14.2
Other long-term liabilities 13.6 21.2
Total liabilities 519.1 600.8
Morningstar, Inc. shareholders’ equity:    
Common stock, no par value, 200,000,000 shares authorized, of which 42,624,118 and 42,547,707 shares were outstanding as of December 31, 2018 and December 31, 2017, respectively 0.0 0.0
Treasury stock at cost, 10,816,672 and 10,633,637 shares as of December 31, 2018 and December 31, 2017, respectively (726.8) (708.2)
Additional paid-in capital 621.7 601.0
Retained earnings 1,114.8 958.7
Accumulated other comprehensive loss:    
Currency translation adjustment (74.5) (47.9)
Unrealized gain (loss) on available-for-sale investments (0.5) 1.3
Total accumulated other comprehensive loss (75.0) (46.6)
Total equity 934.7 804.9
Total liabilities and equity $ 1,453.8 $ 1,405.7
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Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 4.0 $ 3.2
Common stock, no par value
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares outstanding 46,624,118 42,547,707
Treasury stock, shares 10,816,672 10,633,637
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Consolidated Statement of Equity - USD ($)
$ in Millions
Total
Common Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Non Controlling Interests
Balance at Dec. 31, 2015 $ 640.6   $ (619.8) $ 575.5 $ 739.2 $ (54.6) $ 0.3
Balance (in shares) at Dec. 31, 2015   43,403,076          
Increase (Decrease) in Stockholders' Equity              
Net income 161.0       161.0   0.0
Other Comprehensive Income (loss)              
Unrealized gain on available-for-sale investments, net of income tax 3.3         3.3  
Reclassification of adjustments for gains included in net income, net of income tax (2.4)         (2.4)  
Foreign currency translation adjustment, net (27.8)         (27.8) 0.0
Other comprehensive income (loss) (26.9)         (26.9) 0.0
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (4.6)   1.4 (6.0)      
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)   174,911          
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]              
Stock-based compensation — restricted stock units 14.6     14.6      
Stock-based compensation — performance share awards (0.1)     (0.1)      
Dividends declared — common shares outstanding (38.3)       (38.3)    
Common share repurchased (49.5)   (49.5)        
Common share repurchased (in shares)   (644,993)          
Balance at Dec. 31, 2016 696.8   (667.9) 584.0 861.9 (81.5) 0.3
Balance (in shares) at Dec. 31, 2016   42,932,994          
Increase (Decrease) in Stockholders' Equity              
Net income 136.9       136.9   0.0
Other Comprehensive Income (loss)              
Unrealized gain on available-for-sale investments, net of income tax 3.4         3.4  
Reclassification of adjustments for gains included in net income, net of income tax (1.9)         (1.9)  
Foreign currency translation adjustment, net 33.4         33.4 0.0
Other comprehensive income (loss) 34.9         34.9 0.0
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (4.6)   1.6 (6.2)      
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)   161,445          
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]              
Stock-based compensation — restricted stock units 16.5     16.5      
Stock-based compensation — performance share awards 7.1     7.1      
Stock-based compensation — market stock units 0.5     0.5      
Dividends declared — common shares outstanding (40.1)       (40.1)    
Purchase of additional interest in majority-owned investment 1.2     0.9 0.0 0.0 0.3
Common share repurchased (41.9)   (41.9)        
Common share repurchased (in shares)   (546,732)          
Balance at Dec. 31, 2017 $ 804.9 $ 0.0 (708.2) 601.0 958.7 (46.6) 0.0
Balance (in shares) at Dec. 31, 2017 42,547,707 42,547,707          
Increase (Decrease) in Stockholders' Equity              
Net income $ 183.0       183.0   0.0
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) 0.0
Other comprehensive income (loss) (28.4)         (28.4) 0.0
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (13.2)   2.3 (15.5)      
Reclassification of awards previously liability-classified that were converted to equity 4.5     4.5      
Issuance of common stock related to stock-option exercises and vesting of restricted stock units, net (in shares)   278,656          
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition [Abstract]              
Stock-based compensation — restricted stock units 19.8     19.8      
Stock-based compensation — performance share awards 10.2     10.2      
Stock-based compensation — market stock units 1.7     1.7      
Dividends declared — common shares outstanding (43.9)       (43.9)    
Common share repurchased (20.9)   (20.9)        
Common share repurchased (in shares)   (202,245)          
Balance at Dec. 31, 2018 $ 934.7 $ 0.0 $ (726.8) $ 621.7 $ 1,114.8 $ (75.0) $ 0.0
Balance (in shares) at Dec. 31, 2018 46,624,118 42,624,118          
v3.10.0.1
Consolidated Statement of Equity (Parenthetical) - USD ($)
$ in Millions
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Stockholders' Equity [Abstract]      
Unrealized gain on available-for-sale investments, tax $ 0.7 $ 1.8 $ 1.3
Reclassification of adjustments for gains included in net income, tax $ 0.3 $ 1.2 $ 1.8
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Operating activities      
Consolidated net income $ 183.0 $ 136.9 $ 161.0
Adjustments to reconcile consolidated net income to net cash flows from operating activities:      
Depreciation and amortization 96.7 91.2 70.7
Deferred income taxes (1.1) (14.1) 4.7
Stock-based compensation expense 31.7 24.1 14.5
Provision for bad debt 2.5 2.3 1.3
Equity in net loss of unconsolidated entities 2.1 1.3 0.2
Gain on sale of business 0.0 (16.7) 0.0
Gain on sale of a product line (10.5) 0.0 0.0
Gain on sale of equity investments (5.6) 0.0 0.0
Holding gain upon acquisition of additional ownership of equity-method investments 0.0 0.0 (37.1)
Other, net (2.5) 1.8 (6.8)
Changes in operating assets and liabilities, net of effects of acquisitions:      
Accounts receivable (29.6) (1.2) (0.1)
Other assets 13.4 (7.8) 1.1
Deferred commissions 25.1 0.0 0.0
Accounts payable and accrued liabilities 6.0 0.7 3.4
Accrued compensation (9.5) 20.2 (8.8)
Income taxes—current (12.4) 9.7 1.0
Deferred revenue 28.6 2.5 6.7
Deferred rent (2.0) 2.6 (2.9)
Other liabilities (1.1) (3.4) 4.8
Cash provided by operating activities 314.8 250.1 213.7
Investing activities      
Purchases of investments (35.7) (34.9) (32.0)
Proceeds from maturities and sales of investments 51.2 42.2 28.6
Capital expenditures (76.1) (66.6) (62.8)
Acquisitions, net of cash acquired (0.4) (1.0) (191.6)
Proceeds from sale of a business, net 0.0 23.7 0.0
Proceeds from sale of a product line 10.5 0.0 0.0
Proceeds from sale of equity-method investments 7.9 0.0 0.0
Purchases of equity- and cost-method investments (7.4) (24.8) (16.5)
Other, net 0.1 0.6 0.1
Cash used for investing activities (49.9) (60.8) (274.2)
Financing activities      
Common shares repurchased (20.9) (42.3) (48.8)
Dividends paid (42.6) (39.3) (37.9)
Proceeds from short-term debt 0.0 0.0 40.0
Repayment of short-term debt 0.0 0.0 (15.0)
Proceeds from long-term debt 0.0 0.0 190.0
Repayment of long-term debt (110.0) (70.0) 0.0
Proceeds from stock-option exercises 0.1 0.2 0.4
Employee taxes withheld for restricted stock units (13.3) (4.8) (5.0)
Other, net (2.1) (1.3) 0.0
Cash provided by (used for) financing activities (188.8) (157.5) 123.7
Effect of exchange rate changes on cash and cash equivalents (15.0) 17.3 (11.2)
Net increase in cash and cash equivalents 61.1 49.1 52.0
Cash and cash equivalents—beginning of period 308.2 259.1 207.1
Cash and cash equivalents—end of period 369.3 308.2 259.1
Supplemental disclosure of cash flow information:      
Cash paid for income taxes 67.0 47.1 58.0
Cash paid for interest 3.7 5.4 1.2
Supplemental information of non-cash investing and financing activities:      
Unrealized gain (loss) on available-for-sale investments (2.7) 2.0 1.2
Software and equipment obtained under long-term financing arrangement $ 0.0 $ 0.6 $ 9.0
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Description of Business
 12 Months Ended
Dec. 31, 2018
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 27 countries.
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Summary of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2018
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:
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. 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. 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. 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 as these relate mainly to investments tracking the strategies of our newsletter portfolios. 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 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 value 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 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 7.

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, 2018, 2017, and 2016, 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 generally is three 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 internally developed software for the past three years:
(in millions)
 
2018
 
2017
 
2016
Internally developed software depreciation expense
 
$
42.8

 
$
30.6

 
$
20.0



The table below summarizes our capitalized software development costs for the past three years:
(in millions)
 
2018
 
2017
 
2016
Capitalized software development costs
 
$
53.5

 
$
46.3

 
$
28.2



Business Combinations. When we make acquisitions, 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, as well as the assets acquired and liabilities assumed, at their full fair values as of the date we obtain control, 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 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 2018 and 2017. We did not record any impairment losses in 2018, 2017, and 2016.

Intangible Assets. We amortize intangible assets using the straight-line method over their estimated useful lives, which range from one to 20 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 2018, 2017, and 2016.

Revenue Recognition. On January 1, 2018, we began recognizing revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company has retained much of the same accounting treatment used to recognize revenue under ASC Topic 606 as under accounting standards in effect in prior periods (see Note 18 for additional information).

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. Amounts invoiced in excess of the revenue recognized for the services transferred during the period will result in an increase to deferred revenue. The timing of cash payments is typically thirty to sixty days after the performance obligation has been satisfied and these payments reduce our outstanding accounts receivable.

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

License-based revenue is generated through subscription contracts with our customers of Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Enterprise Components, PitchBook Data, and other similar products. Our performance obligations under these contracts are typically 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. Therefore, we recognize revenue for these performance obligations on a straight-line basis, typically over terms of 12 to 36 months.

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 satisfied over time as the customer receives continuous access to a service for the contract term. We recognize revenue 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 12 to 36 months. 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 variable consideration is included in the initial transaction price only to the extent it is probable that a significant reversal in the amount of revenue recognized will not occur. Estimates of asset-based fees 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 Internet advertising, Morningstar Conferences, and Morningstar Credit Ratings. Our performance obligations for Internet advertising and Morningstar Conferences are satisfied as the service is delivered, and therefore we recognize revenue when the performance obligation is satisfied (as the customer’s advertisements are displayed and at the completion of the Morningstar Conference). Our performance obligations for Morningstar Credit Ratings 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 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 license obligations. In these arrangements, the customer has contracted to receive a single, 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 condensed consolidated financial statements.

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 licenses or 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.

Sales Commissions. Under prior accounting standards, the Company expensed sales incentive compensation costs, (sales commissions) as incurred. However, upon adopting ASC Topic 606 and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, on January 1, 2018 (see Note 18 for additional information), 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, 2018, the period of transfer was determined to be 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.

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:
(in millions)
 
2018
 
2017
 
2016
Advertising expense
 
$
6.4

 
$
7.0

 
$
7.6



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, 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 date of grant based on the closing market price of Morningstar's common stock on the day prior to 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 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 some of our locations, we offer employees a sabbatical leave. Although the sabbatical policy varies by region, Morningstar's full-time employees are generally 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 and include this liability in Accrued Compensation in our Consolidated Balance Sheet.

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 FASB ASC 740, Income Taxes (FASB ASC 740). FASB 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.
v3.10.0.1
Credit Arrangements
 12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Credit Arrangements
Credit Arrangements

In December 2018, we amended our credit agreement to extend the maturity date to December 21, 2020 with no other changes in terms. The credit agreement provides us with a borrowing capacity of up to $300.0 million and provides for issuance of up to $25.0 million of letters of credit under the revolving credit facility.

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

The credit agreement also contains financial covenants under which we: (i) may not exceed a maximum consolidated leverage ratio of 3.00 to 1.00 and (ii) are required to maintain a minimum consolidated interest coverage ratio of not less than 3.00 to 1.00. We were in compliance with the financial covenants as of December 31, 2018.

We had an outstanding principal balance of $70.0 million at a one-month LIBOR interest rate plus 100 basis points as of December 31, 2018, leaving borrowing availability of $230.0 million.
v3.10.0.1
Income Per Share
 12 Months Ended
Dec. 31, 2018
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 income per share:

(in millions, except per share amounts)
 
2018
 
2017
 
2016
Basic net income per share attributable to Morningstar, Inc.:
 
 
 
 
 
 
Net income attributable to Morningstar, Inc.
 
$
183.0

 
$
136.9

 
$
161.0

 
 
 
 
 
 
 
Weighted average common shares outstanding
 
42.6

 
42.7

 
43.0

 
 
 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.
 
$
4.30

 
$
3.21

 
$
3.74

 
 
 
 
 
 
 
Diluted net income per share attributable to Morningstar, Inc.:
 
 
 
 
 
 
Net income attributable to Morningstar, Inc.
 
$
183.0

 
$
136.9

 
$
161.0

 
 


 


 
 
Weighted average common shares outstanding
 
42.6

 
42.7

 
43.0

Net effect of dilutive stock options and restricted stock units
 
0.4

 
0.3

 
0.3

Weighted average common shares outstanding for computing diluted income per share
 
43.0

 
43.0

 
43.3

 
 


 


 
 
Diluted net income per share attributable to Morningstar, Inc.
 
$
4.25

 
$
3.18

 
$
3.72


The number of weighted average restricted stock units, performance share awards, and market stock units excluded from our calculation of diluted earnings per share, as their inclusion would have been anti-dilutive, was immaterial during the periods presented.
v3.10.0.1
Revenue
 12 Months Ended
Dec. 31, 2018
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)
 
2018
 
2017
 
2016
License-based
 
$
751.6

 
$
667.7

 
$
579.4

Asset-based
 
200.4

 
182.2

 
163.6

Transaction-based
 
67.9

 
61.8

 
55.6

Consolidated revenue
 
$
1,019.9

 
$
911.7

 
$
798.6



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 12 to 36 months. License-based revenue is generated from the sale of Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Enterprise Components, Morningstar Research, PitchBook Data, 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 12 to 36 months. The 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, or significant disruptions in the market, are evaluated to determine if revisions of estimates of earned asset-based fees are needed for the current quarter. 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 includes Morningstar 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 includes Morningstar Credit Ratings, Internet Advertising Sales, and Conferences. Morningstar Credit Ratings may include surveillance services, which are 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 are refundable. The contract liabilities balance as of December 31, 2018 had a net increase of $24.5 million, primarily driven by cash payments received or due in advance of satisfying our performance obligations. We recognized $163.0 million of revenue in 2018 that was included in the contract liabilities balance as of December 31, 2017.

We expect to recognize revenue related to our contract liabilities for 2019 and subsequent years as follows:
(in millions)
 
As of December 31, 2018
2019
 
$
388.9

2020
 
93.7

2021
 
28.0

2022
 
11.0

2023
 
5.4

Thereafter
 
43.6

 
 
$
570.6



The aggregate amount of revenue we expect to recognize for 2019 and subsequent years is higher than our contract liability balance of $210.0 million as of December 31, 2018. The difference represents the value of performance obligations for signed contracts where we have not yet begun to satisfy the performance obligations, partially satisfied performance obligations, or have not yet billed the customer.

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, 2018. We are applying the optional exemption 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 12 to 36 months as services are provided to the client. For licensed-based contracts, the consideration received for services performed is based on future user count, which will be known at the time the services are performed. The variable consideration for this revenue can be affected by the number of user licenses. For asset-based contracts, the consideration received for services performed is based on future asset values, which will be known at the time 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 significant movements in the market. For transaction-based contracts such as Internet advertising, the consideration received for services performed is based on the number of impressions, which will be known once impressions are created. The variable consideration for this revenue can be affected by the timing and quantity of impressions in any given period.

The table above also does not include revenue for unsatisfied performance obligations related to certain of our license-based and transaction-based contracts as of December 31, 2018. We are applying the optional exemption as the performance obligations for such contracts have an expected duration of one year or less. For certain license-based contracts, the remaining performance obligation is expected to be less than one year based on the corresponding subscription terms. For transaction-based contracts, such as new credit rating issuances and the Morningstar conference, the related performance obligations are expected to be satisfied within the next twelve months.

Contract Assets

Our contract assets represent accounts receivable, less allowance for doubtful accounts and deferred commissions. We did not record any impairment losses on receivables or deferred commissions in 2018.

The following table summarizes our contract assets balance:

(in millions)
 
As of December 31, 2018
 
As of December 31, 2017
Accounts receivable, less allowance for doubtful accounts
 
$
172.2

 
$
148.2

Deferred commissions
 
14.8

 
—

Deferred commissions, non-current
 
10.3

 
—

Total contract assets
 
$
197.3

 
$
148.2


The following table shows the change in our deferred commissions balance from January 1, 2018 to December 31, 2018:

 
 
(in millions)
Balance as of January 1, 2018
 
$
22.7

Commissions earned and capitalized
 
19.4

Amortization of capitalized amounts
 
(17.0
)
Balance as of December 31, 2018
 
$
25.1
v3.10.0.1
Segment and Geographical Area Information
 12 Months Ended
Dec. 31, 2018
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 and long-lived assets by geographical area:

External revenue by geographical area
 
 
 
 
 
 
 
 
Year ended December 31
(in millions)
 
2018
 
2017
 
2016
United States
 
$
764.2

 
$
687.0

 
$
590.5

 
 
 
 
 
 
 
United Kingdom
 
72.4

 
64.7

 
61.1

Continental Europe
 
81.2

 
69.9

 
62.6

Australia
 
40.9

 
34.6

 
32.2

Canada
 
30.7

 
29.4

 
28.2

Asia
 
24.5

 
21.2

 
20.0

Other
 
6.0

 
4.9

 
4.0

Total International
 
255.7

 
224.7

 
208.1

 
 
 
 
 
 
 
Consolidated revenue
 
$
1,019.9

 
$
911.7

 
$
798.6


Long-lived assets by geographical area
 
 
 
 
 
 
As of December 31
(in millions)
 
2018
 
2017
United States
 
$
126.4

 
$
131.9

 
 
 
 
 
United Kingdom
 
3.8

 
6.0

Continental Europe
 
1.3

 
1.7

Australia
 
5.0

 
2.3

Canada
 
0.3

 
0.2

Asia
 
6.5

 
5.2

Other
 
0.2

 
0.1

Total International
 
17.1

 
15.5

 
 
 
 
 
Consolidated property, equipment, and capitalized software, net
 
$
143.5

 
$
147.4


The long-lived asset by geographical area does not include deferred commissions, non-current as the balance is not significant.
v3.10.0.1
Investments and Fair Value Measurements
 12 Months Ended
Dec. 31, 2018
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)
 
2018
 
2017
Available-for-sale
 
$
20.1

 
$
21.5

Held-to-maturity
 
2.5

 
21.9

Trading securities
 
4.0

 
1.7

Total
 
$
26.6

 
$
45.1


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, 2018
 
As of December 31, 2017
(in millions)
 
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Fair
Value
 
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Fair
Value
Available-for-sale:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
17.9

 
$
1.2

 
$
(1.8
)
 
$
17.3

 
$
17.1

 
$
2.4

 
$
(0.6
)
 
$
18.9

Mutual funds
 
3.0

 
—

 
(0.2
)
 
2.8

 
2.4

 
0.2

 
—

 
2.6

Total
 
$
20.9

 
$
1.2

 
$
(2.0
)
 
$
20.1

 
$
19.5

 
$
2.6

 
$
(0.6
)
 
$
21.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 

 
 

 
 

 
 

Certificates of deposit
 
$
2.5

 
$
—

 
$
—

 
$
2.5

 
$
19.9

 
$
—

 
$
—

 
$
19.9

Convertible note
 
—

 
—

 
—

 
—

 
2.0

 
—

 
—

 
2.0

Total
 
$
2.5

 
$
—

 
$
—

 
$
2.5

 
$
21.9

 
$
—

 
$
—

 
$
21.9


 
As of December 31, 2018 and December 31, 2017, 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, 2018 and December 31, 2017.

 
 
As of December 31, 2018
 
As of December 31, 2017
(in millions)
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Available-for-sale:
 
 

 
 

 
 

 
 

Equity securities, exchange-traded funds, and mutual funds
 
$
20.9

 
$
20.1

 
$
19.5

 
$
21.5

Total
 
$
20.9

 
$
20.1

 
$
19.5

 
$
21.5

 
 
 
 
 
 
 
 
 
Held-to-maturity:
 
 

 
 

 
 

 
 

Due in one year or less
 
$
2.3

 
$
2.3

 
$
19.7

 
$
19.7

Due in one to three years
 
0.2

 
0.2

 
2.2

 
2.2

Total
 
$
2.5

 
$
2.5

 
$
21.9

 
$
21.9



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)
 
2018
 
2017
 
2016
Realized gains
 
$
1.8

 
$
3.4

 
$
1.6

Realized losses
 
(0.8
)
 
(0.2
)
 
(1.0
)
Realized gains, net
 
$
1.0

 
$
3.2

 
$
0.6


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

The following table shows the net unrealized gains (losses) on trading securities as recorded in our Consolidated Statements of Income:
 
(in millions)
 
2018
 
2017
 
2016
Unrealized gains (losses), net
 
$
(0.2
)
 
$
0.1

 
$
—



The table below shows the fair value of our assets subject to fair value measurements that are measured at fair value on a recurring basis using a fair value hierarchy:
 
Level 1:
Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2:
Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3:
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 
 
Fair Value
 
Fair Value Measurements as of December 31, 2018
 
 
as of
 
Using Fair Value Hierarchy
(in millions)
 
December 31, 2018
 
Level 1

 
Level 2

 
Level 3

Available-for-sale investments
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
17.3

 
$
17.3

 
$
—

 
$
—

Mutual funds
 
2.8

 
2.8

 
—

 
—

Trading securities
 
4.0

 
4.0

 
—

 
—

Cash equivalents
 
0.1

 
0.1

 
—

 
—

Total
 
$
24.2

 
$
24.2

 
$
—

 
$
—

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

 
Level 2

 
Level 3

Available-for-sale investments
 
 

 
 

 
 

 
 

Equity securities and exchange-traded funds
 
$
18.9

 
$
18.9

 
$
—

 
$
—

Mutual funds
 
2.6

 
2.6

 
—

 
—

Trading securities
 
1.7

 
1.7

 
—

 
—

Cash equivalents
 
0.5

 
0.5

 
—

 
—

Total
 
$
23.7

 
$
23.7

 
$
—

 
$
—


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

We measure the fair value of money market funds, mutual funds, equity securities, and exchange-traded funds based on quoted prices in active markets for identical assets or liabilities. We did not hold any securities categorized as Level 2 or Level 3 as of December 31, 2018 and December 31, 2017.
v3.10.0.1
Acquisitions, Goodwill, and Other Intangible Assets
 12 Months Ended
Dec. 31, 2018
Acquisitions, Goodwill, and Other Intangible Assets [Abstract]  
Acquisitions, Goodwill, and Other Intangible Assets
Acquisitions, Goodwill, and Other Intangible Assets
 
2018 Acquisitions

We did not complete any significant acquisitions in 2018.

2017 Acquisitions

We did not complete any significant acquisitions in 2017.

2016 Acquisitions

Increased Ownership Interest in PitchBook Data, Inc. (PitchBook)

In December 2016, we acquired an additional 78% interest in PitchBook Data, Inc. (PitchBook), increasing our ownership to 100% from 22%. PitchBook delivers data, research, and technology covering the private capital markets, including venture capital, private equity, and mergers and acquisitions. We began consolidating the financial results of this acquisition in our Consolidated Financial Statements on December 1, 2016. PitchBook contributed $4.1 million of revenue and $7.5 million of operating expense during the one-month period that PitchBook was included in our consolidated results for 2016.

PitchBook's total estimated fair value of $235.1 million as of the acquisition date includes $188.2 million in cash paid to acquire the remaining 78% interest in PitchBook as well as a $46.9 million fair value related to our previous 22% ownership interest. The book value of this ownership immediately prior to the acquisition date was $9.8 million, and we recorded a noncash holding gain of $37.1 million for the difference between the fair value and the book value of our previously held investment. We used the income approach and a discounted cash flow analysis of PitchBook’s projected revenue, operating expense, and other amounts to arrive at the estimated fair value. The gain is classified as "Holding gain upon acquisition of additional ownership of equity-method investments" in our Consolidated Statement of Income for the year ended December 31, 2016.

The transaction has been accounted for 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.

Adjustments recorded in the measurement period to the purchase price allocation were not significant. 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 and cash equivalents
 
$
12.4

Accounts receivable
 
10.8

Other current and non-current assets
 
3.2

Intangible assets
 
60.7

Goodwill
 
192.0

Deferred revenue
 
(22.0
)
Deferred tax liability, net
 
(12.3
)
Other current and non-current liabilities
 
(9.7
)
Total fair value of PitchBook
 
$
235.1



Accounts receivable acquired were recorded at gross contractual amounts receivable, which approximates fair value.

The allocation includes $60.7 million of acquired intangible assets, as follows:
 
 
(in millions)
 
Weighted Average Useful Life (years)
Customer-related assets
 
$
17.1

 
10
Technology-based assets
 
40.8

 
5
Intellectual property (trademarks and trade names)
 
2.8

 
4
Total intangible assets
 
$
60.7

 
6


We recognized a net deferred tax liability of $12.3 million mainly because the amortization expense related to certain intangible assets is not deductible for income tax purposes.

Goodwill of $192.0 million represents the excess 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 opportunity to offer comprehensive data coverage across the full life cycle of private market transactions. The goodwill is not deductible for income tax purposes.

Unaudited Pro Forma Information for PitchBook Acquisition

The following unaudited pro forma information presents a summary of our Consolidated Statements of Income for the years ended December 31, 2016 and 2015, as if we had completed the PitchBook acquisition as of January 1, 2015.

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 of the combined company 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, stock-based compensation expense related to the PitchBook bonus plan (see Note 13 for additional information), and interest expense incurred on the long-term debt. The 2016 pro forma net income excludes the $37.1 million noncash holding gain generated in connection with the transaction.

Unaudited Pro Forma Financial Information (in millions)
 
2016
 
2015
Revenue
 
$
834.1

 
$
813.3

Operating income
 
157.7

 
170.0

Net income
 
105.5

 
117.1

 
 
 
 
 
Basic net income per share attributable to Morningstar, Inc.
 
$
2.45

 
$
2.65

Diluted net income per share attributable to Morningstar, Inc.
 
$
2.44

 
$
2.65



RequiSight, LLC (RightPond)

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

InvestSoft Technology, Inc. (InvestSoft)

On May 31, 2016, we acquired InvestSoft Technology, Inc. (InvestSoft), a provider of fixed-income analytics. We began consolidating the financial results of InvestSoft in our Consolidated Financial Statements on May 31, 2016.

Goodwill
 
The following table shows the changes in our goodwill balances from January 1, 2017 to December 31, 2018:
 
 
 
(in millions)
Balance as of January 1, 2017
 
$
556.8

Divestiture of HelloWallet (See Note 9)
 
(2.4
)
Foreign currency translation and adjustments to purchase price allocation
 
10.5

Balance as of December 31, 2017
 
$
564.9

Other, primarily foreign currency translation
 
(8.2
)
Balance as of December 31, 2018
 
$
556.7



We did not record any impairment losses in 2018, 2017, or 2016 as the estimated fair value of our reporting unit exceeded its carrying value. 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, 2018
 
As of December 31, 2017
(in millions)
 
Gross
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful  Life
(years)
 
Gross
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Useful  Life
(years)
Intellectual property
 
$
30.8

 
$
(29.2
)
 
$
1.6

 
9
 
$
31.5

 
$
(28.9
)
 
$
2.6

 
9
Customer-related assets
 
153.0

 
(111.7
)
 
41.3

 
12
 
156.6

 
(108.1
)
 
48.5

 
12
Supplier relationships
 
0.2

 
(0.1
)
 
0.1

 
20
 
0.2

 
(0.1
)
 
0.1

 
20
Technology-based assets
 
126.9

 
(96.3
)
 
30.6

 
7
 
127.9

 
(84.2
)
 
43.7

 
7
Non-competition agreements
 
2.4

 
(2.1
)
 
0.3

 
5
 
2.5

 
(2.0
)
 
0.5

 
5
Total intangible assets
 
$
313.3

 
$
(239.4
)
 
$
73.9

 
10
 
$
318.7

 
$
(223.3
)
 
$
95.4

 
10

 
The following table summarizes our amortization expense related to intangible assets:
(in millions)
 
2018
 
2017
 
2016
Amortization expense
 
$
20.7

 
$
23.6

 
$
19.4


 
We did not record any impairment losses involving intangible assets in 2018, 2017, or 2016.

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

Based on acquisitions and divestitures completed through December 31, 2018, we expect intangible amortization expense for 2019 and subsequent years to be as follows:
 
 
(in millions)
2019
 
$
19.2

2020
 
16.2

2021
 
12.9

2022
 
5.0

2023
 
5.0

Thereafter
 
15.6



Our estimates of future amortization expense for intangible assets may be affected by additional acquisitions, divestitures, changes in the estimated average useful life, and foreign currency translation.
v3.10.0.1
Divestitures
 12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Divestitures
Divestiture

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.

2017 Divestitures

On June 30, 2017, we sold HelloWallet to KeyBank National Association, a bank-based financial services company. We recorded a noncash gain on the sale of $16.7 million. This gain mainly represents the sale proceeds of $23.7 million less $2.4 million of goodwill and the write-off of the remaining net book value of the acquired intangible assets. As some aspects of HelloWallet had been integrated into Morningstar's single reporting unit, the goodwill attributable to this transaction was calculated using a relative fair value allocation method.

The sale of HelloWallet did not meet the criteria to be classified as a discontinued operation because the divestiture did not represent a strategic shift that has, or will have, a major effect on our operations and financial results.

The following table summarizes the amounts included in the gain on sale of business for the year ended December 31, 2017:
 
 
Year ended December 31
(in millions)
 
2017

Proceeds received
 
$
23.7

Intangibles and internally developed software
 
(4.5
)
Goodwill
 
(2.4
)
Other assets and liabilities