Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 


 

FORM 10-Q

 


 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

 

OR

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to         

 

Commission File Number: 000-51280

 


 

MORNINGSTAR, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Illinois

 

36-3297908

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

22 West Washington Street

 

 

Chicago, Illinois

 

60602

(Address of Principal Executive Offices)

 

(Zip Code)

 

(312) 696-6000

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    x

Accelerated filer   o

Non-accelerated filer    o

Smaller reporting company   o

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of October 29, 2010, there were 49,666,834 shares of the Company’s common stock, no par value, outstanding.

 

 

 



Table of Contents

 

MORNINGSTAR, INC. AND SUBSIDIARIES

INDEX

 

PART 1

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009

 

 

 

 

 

Unaudited Condensed Consolidated Statement of Equity and Comprehensive Income (Loss) for the nine months ended September 30, 2010

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART 2

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 6.

Exhibits

 

 

 

 

SIGNATURE

 

 

 

2



Table of Contents

 

PART 1.  FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income

 

 

 

Three months ended September 30

 

Nine months ended September 30

 

(in thousands except per share amounts)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

139,817

 

$

120,088

 

$

404,198

 

$

356,353

 

 

 

 

 

 

 

 

 

 

 

Operating expense (1):

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

40,713

 

31,954

 

114,767

 

92,900

 

Development

 

12,703

 

9,447

 

35,491

 

28,185

 

Sales and marketing

 

22,881

 

17,730

 

69,877

 

53,276

 

General and administrative

 

23,462

 

20,643

 

67,211

 

57,649

 

Depreciation and amortization

 

9,897

 

6,631

 

28,082

 

23,347

 

Total operating expense

 

109,656

 

86,405

 

315,428

 

255,357

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

30,161

 

33,683

 

88,770

 

100,996

 

 

 

 

 

 

 

 

 

 

 

Non-operating income, net:

 

 

 

 

 

 

 

 

 

Interest income, net

 

512

 

572

 

1,692

 

2,314

 

Other income, net

 

5,694

 

221

 

4,356

 

985

 

Non-operating income, net

 

6,206

 

793

 

6,048

 

3,299

 

 

 

 

 

 

 

 

 

 

 

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

 

36,367

 

34,476

 

94,818

 

104,295

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

15,807

 

12,407

 

37,027

 

37,099

 

 

 

 

 

 

 

 

 

 

 

Equity in net income of unconsolidated entities

 

333

 

429

 

1,176

 

790

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income

 

20,893

 

22,498

 

58,967

 

67,986

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interests

 

(106

)

22

 

10

 

40

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Morningstar, Inc.

 

$

20,787

 

$

22,520

 

$

58,977

 

$

68,026

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to Morningstar, Inc.:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.42

 

$

0.46

 

$

1.19

 

$

1.42

 

Diluted

 

$

0.41

 

$

0.45

 

$

1.16

 

$

1.37

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.05

 

$

 

$

0.05

 

$

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

49,401

 

48,457

 

49,157

 

47,930

 

Diluted

 

50,544

 

50,048

 

50,453

 

49,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30

 

Nine months ended September 30

 

 

 

2010

 

2009

 

2010

 

2009

 

(1) Includes stock-based compensation expense of:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

960

 

$

690

 

$

2,582

 

$

1,954

 

Development

 

517

 

410

 

1,359

 

1,177

 

Sales and marketing

 

469

 

407

 

1,358

 

1,185

 

General and administrative

 

1,799

 

1,356

 

5,038

 

4,340

 

Total stock-based compensation expense

 

$

3,745

 

$

2,863

 

$

10,337

 

$

8,656

 

 

See notes to unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

 

(in thousands except share amounts)

 

September 30
2010

 

December 31
2009

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

175,872

 

$

130,496

 

Investments

 

163,469

 

212,057

 

Accounts receivable, less allowance of $714 and $1,339, respectively

 

94,638

 

82,330

 

Deferred tax asset, net

 

1,081

 

1,109

 

Income tax receivable, net

 

9,554

 

5,541

 

Other

 

14,316

 

12,564

 

Total current assets

 

458,930

 

444,097

 

Property, equipment, and capitalized software, net

 

57,716

 

59,828

 

Investments in unconsolidated entities

 

24,043

 

24,079

 

Goodwill

 

311,249

 

249,992

 

Intangible assets, net

 

167,311

 

135,488

 

Other assets

 

6,948

 

6,099

 

Total assets

 

$

1,026,197

 

$

919,583

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

37,504

 

$

29,901

 

Accrued compensation

 

47,893

 

48,902

 

Deferred revenue

 

135,843

 

127,114

 

Other

 

532

 

962

 

Total current liabilities

 

221,772

 

206,879

 

Accrued compensation

 

5,094

 

4,739

 

Deferred tax liability, net

 

18,353

 

4,678

 

Other long-term liabilities

 

25,552

 

26,413

 

Total liabilities

 

270,771

 

242,709

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Morningstar, Inc. shareholders’ equity:

 

 

 

 

 

Common stock, no par value, 200,000,000 shares authorized, of which 49,658,633 and 48,768,541 shares were outstanding as of September 30, 2010 and December 31, 2009, respectively

 

5

 

5

 

Treasury stock at cost, 207,254 shares as of September 30, 2010 and 222,653 shares as of December 31, 2009

 

(2,913

)

(3,130

)

Additional paid-in capital

 

448,485

 

432,052

 

Retained earnings

 

303,196

 

246,745

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

Currency translation adjustment

 

5,240

 

(337

)

Unrealized gain on available-for-sale securities

 

413

 

370

 

Total accumulated other comprehensive income

 

5,653

 

33

 

Total Morningstar, Inc. shareholders’ equity

 

754,426

 

675,705

 

Noncontrolling interest

 

1,000

 

1,169

 

  Total equity

 

755,426

 

676,874

 

Total liabilities and equity

 

$

1,026,197

 

$

919,583

 

 

See notes to unaudited condensed consolidated financial statements.

 

4



Table of Contents

 

Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Equity and Comprehensive Income (Loss)

For the Nine Months Ended September 30, 2010

 

 

 

Morningstar, Inc. Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

 

Additional

 

 

 

Comprehensive

 

Non

 

 

 

 

 

Shares

 

Par

 

Treasury

 

Paid-in

 

Retained

 

Income

 

Controlling

 

Total

 

(in thousands, except share amounts)

 

Outstanding

 

Value

 

Stock

 

Capital

 

Earnings

 

(Loss)

 

Interests

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2009

 

48,768,541

 

$

5

 

$

(3,130

)

$

432,052

 

$

246,745

 

$

33

 

$

1,169

 

$

676,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

58,977

 

 

(10

)

58,967

 

Unrealized gain on available-for-sale investments, net of income tax of $28

 

 

 

 

 

 

 

43

 

 

43

 

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

5,577

 

57

 

5,634

 

Total comprehensive income

 

 

 

 

 

 

58,977

 

5,620

 

47

 

64,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock related to stock option exercises and vesting of restricted stock units, net

 

690,918

 

 

217

 

4,990

 

 

 

 

5,207

 

Stock-based compensation — restricted stock units

 

 

 

 

 

9,557

 

 

 

 

9,557

 

Stock-based compensation — restricted stock

 

199,174

 

 

 

780

 

 

 

 

780

 

Excess tax benefit derived from stock option exercises and vesting of restricted stock units

 

 

 

 

 

4,885

 

 

 

 

4,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of deferred tax liability related to accretion of equity investment

 

 

 

 

 

(3,821

)

 

 

 

(3,821

)

Dividends declared — common shares outstanding

 

 

 

 

 

 

(2,484

)

 

 

(2,484

)

Dividends declared — restricted stock units

 

 

 

 

 

42

 

(42

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment to noncontrolling interest

 

 

 

 

 

 

 

 

(216

)

(216

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2010

 

49,658,633

 

$

5

 

$

(2,913

)

$

448,485

 

$

303,196

 

$

5,653

 

$

1,000

 

$

755,426

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

Nine months ended September 30

 

(in thousands)

 

2010

 

2009

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Consolidated net income

 

$

58,967

 

$

67,986

 

Adjustments to reconcile consolidated net income to net cash flows from operating activities:

 

 

 

 

 

Depreciation and amortization

 

28,082

 

23,347

 

Deferred income tax (benefit) expense

 

5,659

 

(847

)

Stock-based compensation expense

 

10,337

 

8,656

 

Provision for bad debt

 

253

 

343

 

Equity in net income of unconsolidated entities

 

(1,176

)

(790

)

Excess tax benefits from stock option exercises and vesting of restricted stock units

 

(4,885

)

(5,724

)

Holding gain upon acquisition of additional ownership of equity method investments

 

(5,073

)

(352

)

Other, net

 

724

 

(617

)

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

(7,254

)

13,521

 

Other assets

 

(2,508

)

2,206

 

Accounts payable and accrued liabilities

 

2,025

 

(2,007

)

Accrued compensation

 

(2,270

)

(41,794

)

Income taxes payable

 

309

 

12,999

 

Deferred revenue

 

(1,938

)

(8,974

)

Deferred rent

 

442

 

(353

)

Other liabilities

 

(1,384

)

(267

)

Cash provided by operating activities

 

80,310

 

67,333

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of investments

 

(128,043

)

(111,603

)

Proceeds from maturities and sales of investments

 

177,197

 

64,479

 

Capital expenditures

 

(7,701

)

(10,286

)

Acquisitions, net of cash acquired

 

(88,697

)

(19,315

)

Other, net

 

830

 

623

 

Cash used for investing activities

 

(46,414

)

(76,102

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from stock option exercises

 

5,207

 

14,378

 

Excess tax benefits from stock option exercises and vesting of restricted stock units

 

4,885

 

5,724

 

Other, net

 

(529

)

(305

)

Cash provided by financing activities

 

9,563

 

19,797

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1,917

 

4,481

 

Net increase in cash and cash equivalents

 

45,376

 

15,509

 

Cash and cash equivalents—beginning of period

 

130,496

 

173,891

 

Cash and cash equivalents—end of period

 

$

175,872

 

$

189,400

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for income taxes

 

$

29,594

 

$

25,154

 

Supplemental information of non-cash investing and financing activities:

 

 

 

 

 

Unrealized gain (loss) on available-for-sale investments

 

$

71

 

$

(225

)

 

See notes to unaudited condensed consolidated financial statements.

 

6



Table of Contents

 

MORNINGSTAR, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation of Interim Financial Information

 

The accompanying condensed consolidated financial statements of Morningstar, Inc. and subsidiaries (Morningstar, we, our, the Company) have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (SEC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, and expenses. Actual results could differ from those estimates. In the opinion of management, the statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly our financial position, results of operations, equity, and cash flows. These financial statements and notes should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 1, 2010.

 

The acronyms that appear in the Notes to our Condensed 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

 

2. Summary of Significant Accounting Policies

 

We discuss our significant accounting policies in Note 2 of our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 1, 2010. In addition, effective January 1, 2010, we adopted the following financial accounting standards:

 

·   ASU No. 2009-16, Transfers and Servicing (Topic 860) and Accounting for Transfers of Financial Assets and ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

 

These accounting pronouncements change the way entities account for transfers of financial assets and determine what entities must be consolidated. The most significant amendment resulting from FASB ASU No. 2009-16 consists of the removal of the concept of a Qualifying Special-Purpose Entity (QSPE) from FASB ASC 860, Transfers and Services. ASU No. 2009-17 addresses the effects of eliminating the QSPE concept from ASC 860 and responds to concerns about the application of certain key provisions of FASB ASC 810, Consolidation, including concerns over the transparency of enterprises’ involvement with Variable Interest Entities (VIEs). These accounting pronouncements did not impact our Condensed Consolidated Financial Statements.

 

·   ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements.

 

ASU No. 2010-06 requires additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. ASU 2010-06 also clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the disclosure requirements regarding the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The additional disclosures required by ASU No. 2010-06 appear in Note 6, in the Notes to our Condensed Consolidated Financial Statements.

 

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Table of Contents

 

3. Acquisitions, Goodwill, and Other Intangible Assets

 

2010 Acquisitions

 

In the first nine months of 2010, we completed six acquisitions, as follows:

 

Increased Ownership Interest in Morningstar Danmark A/S (Morningstar Denmark)

 

In July 2010, we acquired an additional 75% interest in Morningstar Denmark, increasing our ownership to 100% from 25%. Morningstar Denmark’s main offering is the investment information website for individual investors, Morningstar.dk, which provides fund and ETF data, portfolio tools, and market analysis.

 

The total estimated fair value of $20,665,000 includes $15,467,000 in cash paid to acquire the remaining 75% interest in Morningstar Denmark. The following table summarizes our preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

($000)

 

Cash and cash equivalents

 

$

915

 

Accounts receivable and other current assets

 

771

 

Other non-current assets

 

65

 

Intangible assets

 

9,066

 

Goodwill

 

13,347

 

Deferred revenue

 

(496

)

Deferred tax liability

 

(2,307

)

Other current and non-current liabilities

 

(696

)

Total fair value of Morningstar Denmark

 

$

20,665

 

 

The preliminary fair value allocation includes $9,066,000 of acquired intangible assets, consisting primarily of customer-related assets and technology-based assets, including software and databases. We recognized a deferred tax liability of $2,307,000 mainly because the amortization expense related to certain intangible assets is not deductible for income tax purposes.

 

Goodwill of $13,347,000 represents the premium 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 Morningstar’s full suite of products and services to investors in Denmark, and further leveraging Morningstar’s global reach, investment databases, and technology expertise.

 

Seeds Group (Seeds)

 

In July 2010, we acquired Seeds Group, a leading provider of investment consulting services and fund research in France. Through its subsidiary Seeds Finance, Seeds provides investment consulting services and specializes in asset liability management, manager selection, plan construction, risk, and portfolio management in alternative investments and active strategies. Its subsidiary, Multiratings.com, provides a fund research and investment education website for advisor groups and institutions. Terms were not disclosed. The acquisition did not have a significant effect on our Condensed Consolidated Financial Statements for the nine months ended September 30, 2010.

 

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Table of Contents

 

Realpoint, LLC

 

In May 2010, we acquired Realpoint, LLC (Realpoint) a Nationally Recognized Statistical Ratings Organization (NRSRO) that specializes in structured finance. Realpoint offers securities ratings, research, surveillance services, and data to help institutional investors identify credit risk in commercial mortgage-backed securities. Institutional investment firms subscribe to Realpoint’s ratings and analytics, including money managers who invest in commercial mortgage-backed securities.

 

In conjunction with this acquisition, we paid $38,423,000 in cash, net of cash acquired, and issued 199,174 shares of restricted stock to the selling employee-shareholders. As a result of the terms of the restricted share agreements, in accordance with FASB ASC 805, Business Combinations, we account for these grants as stock-based compensation expense, and not as part of the acquisition consideration. See Note 9 in the Notes to our Condensed Consolidated Financial Statements for additional information concerning the accounting for this restricted stock.

 

The following table summarizes our preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

 

($000)

 

 

Cash and cash equivalents

 

$

5,393

 

 

Accounts receivable and other current assets

 

2,647

 

 

Other non-current assets

 

227

 

 

Intangible assets

 

19,959

 

 

Goodwill

 

24,259

 

 

Deferred revenue

 

(7,316

)

 

Accounts payable and accrued and other current liabilities

 

(1,353

)

 

Total purchase price

 

$

43,816

 

 

The preliminary allocation includes $19,959,000 of acquired intangible assets. These assets primarily include customer-related assets and technology-based assets, including software and databases.

 

Goodwill of $24,259,000 represents the premium we paid over the fair value of the acquired net tangible and intangible assets. We paid this premium for a number of reasons, including the opportunity for Morningstar to enter into the structured finance ratings and analysis business.

 

The value assigned to goodwill, intangible assets, and restricted shares at the date of grant are deductible for income tax purposes over a period of approximately 15 years from the acquisition date.

 

Old Broad Street Research Ltd

 

In April 2010, we acquired Old Broad Street Research Ltd. (OBSR) for $16,754,000 in cash, net of cash acquired. OBSR is a premier provider of fund research, ratings, and investment consulting services in the United Kingdom, and offers an array of customized consulting services including model portfolios, advice on fund construction, and corporate governance services, that are used by many of the leading financial advisers and fund platforms.

 

The following table summarizes our preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation is preliminary pending certain tax related matters, including the valuation of deferred tax assets and liabilities at the date of acquisition.

 

 

 

($000)

 

Cash and cash equivalents

 

$

4,632

 

Accounts receivable and other current assets

 

1,022

 

Other non-current assets

 

449

 

Intangible assets

 

9,312

 

Goodwill

 

11,396

 

Deferred revenue

 

(1,557

)

Accounts payable and accrued and other current liabilities

 

(1,169

)

Deferred tax liability — non-current

 

(2,621

)

Other non-current liabilities

 

(78

)

Total purchase price

 

$

21,386

 

 

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The preliminary allocation includes $9,312,000 of acquired intangible assets. These assets primarily include customer-related assets and technology-based assets, including software and databases.

 

Goodwill of $11,396,000 represents the premium we paid over the fair value of the acquired net tangible and intangible assets. We paid this premium for a number of reasons, including the strategic benefit of adding to our existing fund research team in London and continuing to build our thought leadership in investment research. OBSR will also help us expand our investment consulting presence in the United Kingdom, where we already provide asset allocation, manager selection, and portfolio construction services to institutions and intermediaries. The goodwill we recorded is not considered deductible for income tax purposes.

 

Aegis Equities Research

 

In April 2010, we acquired Aegis Equities Research, a leading provider of independent equity research in Australia, for $10,717,000 in cash, net of cash acquired. The following table summarizes our preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

($000)

 

Cash and cash equivalents

 

$

51

 

Investments

 

55

 

Accounts receivable

 

229

 

Other non-current assets

 

62

 

Intangible assets

 

5,100

 

Goodwill

 

6,235

 

Deferred revenue

 

(617

)

Other current and non-current liabilities

 

(347

)

Total purchase price

 

$

10,768

 

 

The preliminary allocation includes $5,100,000 of acquired intangible assets. These assets primarily include customer-related assets and technology-based assets, including software and databases. Goodwill of $6,235,000 represents the premium we paid over the fair value of the net tangible and intangible assets acquired with this acquisition. We paid this premium for a number of reasons, including the strategic benefits of creating a larger analyst team that will enable us to expand our coverage of Australian-listed companies, provide Australian clients with more robust independent research, and give us the potential to expand our services in multiple delivery channels. We are in the process of determining what portion of the value assigned to goodwill and intangible assets, if any, is deductible for income tax purposes.

 

Footnoted business of Financial Fineprint Inc.

 

In February 2010, we acquired the Footnoted business of Financial Fineprint Inc. (Footnoted), a blog for professional money managers, analysts, and individual investors. Footnoted Pro, a service for institutional investors, provides insight on actionable items and trends in SEC filings. The acquisition includes the Footnoted.org website and the Footnoted Pro service. Terms were not disclosed. The acquisition did not have a significant effect on our Condensed Consolidated Financial Statements for the nine months ended September 30, 2010.

 

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2009 Acquisitions

 

The table below summarizes the six acquisitions we completed in 2009:

 

Acquisition

 

Description

 

Date Acquired

 

Purchase Price*

Global financial filings database business of Global Reports LLC

 

A leading provider of online financial and Corporate and Social Responsibility reports for publicly traded companies around the world

 

April 20, 2009

 

Not separately Disclosed

Equity research and data business of C.P.M.S. Computerized Portfolio Management Services Inc.

 

C.P.M.S. tracks fundamental equity data for approximately 4,000 securities in the United States and Canada as well as tracks and provides earnings estimates for Canadian stocks

 

May 1, 2009

 

$13.9 million

Andex Associates, Inc.

 

Andex is known for Andex Charts, which illustrate historical market returns, stock index growth, inflation rates, currency rates, and general economic conditions for the United States dating back to 1926, and for Canada dating back to 1950

 

May 1, 2009

 

Not separately disclosed

Intech Pty Ltd

 

A leading provider of multimanager and investment portfolio solutions in Sydney, Australia, Intech also manages a range of single sector, alternative strategy, and diversified investment portfolios, has one of the leading separately managed account databases in Australia, and offers the Intech Desktop Consultant, a research software product for institutions

 

June 30, 2009

 

Not separately disclosed

Canadian Investment Awards and Gala

 

Canada’s marquee investment awards program, recognizing excellence in products and firms within the financial services industry

 

December 17, 2009

 

Not separately disclosed

Logical Information Machines, Inc. (LIM)

 

A leading provider of data and analytics for the energy, financial, and agriculture sectors

 

December 31, 2009

 

$53.5 million

 


* Total purchase price less cash acquired, subject to post-closing adjustments.

 

As of September 30, 2010, we did not make any significant changes to the purchase price allocations for the acquisitions that occurred in 2009. Certain of these purchase price allocations, primarily the purchase price allocation related to Logical Information Machines, Inc. are preliminary, pending resolution of certain tax and other matters. Additional information concerning the six acquisitions completed in 2009 can be found in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on March 1, 2010.

 

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Pro Forma Information for 2010 and 2009 Acquisitions

 

The following unaudited pro forma information presents a summary of our Condensed Consolidated Statements of Income for the nine months ended September 30, 2010 and 2009 as if we had completed the 2010 and 2009 acquisitions and had consolidated Morningstar Korea and Morningstar Denmark, as of January 1 of each of these years. In calculating the pro forma information below, we included an estimate of amortization expense related to the intangible assets acquired.

 

 

 

Nine months ended September 30

 

Unaudited Pro Forma Financial Information (in thousands except per share amounts)

 

2010

 

2009

 

Revenue

 

$

414,208

 

$

397,680

 

Operating income

 

$

88,210

 

$

100,916

 

Net income attributable to Morningstar, Inc.

 

$

58,618

 

$

68,042

 

 

 

 

 

 

 

Basic net income per share attributable to Morningstar, Inc.

 

$

1.19

 

$

1.42

 

Diluted net income per share attributable to Morningstar, Inc.

 

$

1.16

 

$

1.37

 

 

Goodwill

 

The following table shows the changes in our goodwill balances from December 31, 2009 to September 30, 2010:

 

 

 

($000)

 

Balance as of December 31, 2009

 

$

249,992

 

Acquisition of Aegis

 

6,235

 

Acquisition of OBSR

 

11,396

 

Acquisition of Realpoint

 

24,259

 

Acquisition of Seeds Group

 

3,504

 

Acquisition of remaining ownership of Morningstar Denmark

 

13,347

 

Other, primarily currency translation

 

2,516

 

Balance as of September 30, 2010

 

$

311,249

 

 

We did not record any impairment losses in the third quarter or year-to-date periods ended September 30, 2010 and September 30, 2009, respectively. We perform our annual impairment reviews in the fourth quarter.

 

The following table summarizes our intangible assets:

 

 

 

As of September 30, 2010

 

As of December 31, 2009

 

($000)

 

Gross

 

Accumulated
Amortization

 

Net

 

Weighted
Average
Useful Life
(years)

 

Gross

 

Accumulated
Amortization

 

Net

 

Weighted
Average
Useful Life
(years)

 

Intellectual property

 

$

31,293

 

$

(14,804

)

$

16,489

 

10

 

$

28,472

 

$

(12,147

)

$

16,325

 

10

 

Customer-related assets

 

111,935

 

(36,041

)

75,894

 

11

 

87,635

 

(27,405

)

60,230

 

10

 

Supplier relationships

 

240

 

(69

)

171

 

20

 

240

 

(60

)

180

 

20

 

Technology-based assets

 

60,302

 

(22,266

)

38,036

 

9

 

49,276

 

(16,694

)

32,582

 

9

 

Non-competition agreement

 

849

 

(672

)

177

 

5

 

820

 

(547

)

273

 

5

 

Intangible assets related to acquisitions with preliminary purchase price allocations

 

37,961

 

(1,417

)

36,544

 

10

 

26,129

 

(231

)

25,898

 

5

 

Total intangible assets

 

$

242,580

 

$

(75,269

)

$

167,311

 

10

 

$

192,572

 

$

(57,084

)

$

135,488

 

9

 

 

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The following table summarizes our amortization expense related to intangible assets:

 

 

 

Three months ended September 30

 

Nine months ended September 30

 

($000)

 

2010

 

2009

 

2010

 

2009

 

Amortization expense

 

$

6,219

 

$

3,130

 

$

17,535

 

$

13,793

 

 

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

 

Based on acquisitions completed through September 30, 2010, we expect intangible amortization expense for 2010 and subsequent years as follows:

 

 

 

($000)

 

2010

 

$

24,054

 

2011

 

24,223

 

2012

 

22,973

 

2013

 

20,878

 

2014

 

19,925

 

2015

 

19,230

 

 

Our estimates of future amortization expense for intangible assets may be affected by changes to the preliminary purchase price allocations, additional acquisitions, and currency translations.

 

4. Income Per Share

 

We compute income per share based on the two-class method, in accordance with FASB ASC 260-10-45-59A, Participating Securities and the Two Class Method.

 

In May 2010, we issued restricted shares in conjunction with the Realpoint acquisition. Because the restricted shares contain nonforfeitable rights to dividends, they meet the criteria of a participating security. Under the two-class method, earnings are allocated between common stock and participating securities. The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. We reduce our reported net earnings by the amount allocated to participating securities to arrive at the earnings allocated to common stock shareholders for purposes of calculating earnings per share.

 

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

 

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Table of Contents

 

The following table shows how we reconcile our net income and the number of shares used in computing basic and diluted income per share:

 

 

 

Three Months Ended September 30

 

Nine Months Ended September 30

 

(in thousands, except per share amounts)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Net income attributable to Morningstar, Inc.

 

$

20,787

 

$

22,520

 

$

58,977

 

$

68,026

 

Less: Distributed earnings available to participating securities

 

(10

)

 

(10

)

 

Less: Undistributed earnings available to participating securities

 

(73

)

 

(226

)

 

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

 

$

20,704

 

$

22,520

 

$

58,741

 

$

68,026

 

Weighted average common shares outstanding

 

49,401

 

48,457

 

49,157

 

47,930

 

Basic net income per share attributable to Morningstar, Inc.

 

$

0.42

 

$

0.46

 

$

1.19

 

$

1.42

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

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

 

$

20,704

 

$

22,520

 

$

58,741

 

$

68,026

 

Add: Undistributed earnings allocated to participating securities

 

73

 

 

226

 

 

Less: Undistributed earnings reallocated to participating securities

 

(72

)

 

(221

)

 

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

 

$

20,705

 

$

22,520

 

$

58,746

 

$

68,026

 

Weighted average common shares outstanding

 

49,401

 

48,457

 

49,157

 

47,930

 

Net effect of dilutive stock options and restricted stock units

 

1,143

 

1,591

 

1,296

 

1,693

 

Weighted average common shares outstanding for computing diluted income per share

 

50,544

 

50,048

 

50,453

 

49,623

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share attributable to Morningstar, Inc.

 

$

0.41

 

$

0.45

 

$

1.16

 

$

1.37

 

 

5. Segment and Geographical Area Information

 

Morningstar has two operating segments:

 

·   Investment Information. The Investment Information segment includes all of our data, software, and research products and services. These products are typically sold through subscriptions or license agreements.

 

The largest products in this segment based on revenue are Licensed Data, Morningstar Advisor Workstation, Morningstar.com, Morningstar Direct, and Morningstar Principia. Licensed Data is a set of investment data spanning all of our investment databases, including real-time pricing data, and is available through electronic data feeds. Advisor Workstation is a web-based investment planning system for advisors. Advisor Workstation is available in two editions: Morningstar Office for independent financial advisors and an enterprise edition for financial advisors affiliated with larger firms. Morningstar.com includes both Premium Memberships and Internet advertising sales. Morningstar Direct is a web-based institutional research platform. Principia is our CD-ROM-based investment research and planning software for advisors.

 

The Investment Information segment also includes Morningstar Equity Research, which we distribute through several channels. From June 2004 through July 2009, our equity research was distributed through six major investment banks to meet the requirements for independent research under the Global Analyst Research Settlement. The period covered by the Global Analyst Research Settlement expired at the end of July 2009. The banks covered by it are no longer required to provide independent research to their clients. We also sell Equity Research to other companies that purchase our research for their own use or provide our research to their affiliated advisors or individual investor clients.

 

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Table of Contents

 

·   Investment Management. The Investment Management segment includes all of our asset management operations, which earn the majority of their revenue from asset-based fees.

 

The key products and services in this segment based on revenue are Investment Consulting, which focuses on investment monitoring and asset allocation for funds of funds, including mutual funds and variable annuities; Retirement Advice, including the Morningstar Retirement Manager and Advice by Ibbotson platforms; and Morningstar Managed Portfolios, a fee-based discretionary asset management service that includes a series of mutual fund, exchange-traded fund, and stock portfolios tailored to meet a range of investment time horizons, risk levels, and investment strategies that financial advisors can use for their clients’ taxable and tax-deferred accounts.

 

Our segment accounting policies are the same as those described in Note 2 to our Consolidated Financial Statements included in our Annual Report on Form 10-K as of December 31, 2009, except for the capitalization and amortization of internal product development costs, amortization of intangible assets, and costs related to corporate functions. We exclude these items from our operating segment results to provide our chief operating decision maker with a better indication of each segment’s ability to generate cash flow. This information is one of the criteria used by our chief operating decision maker in determining how to allocate resources to each segment. We include capitalization and amortization of internal product development costs, amortization of intangible assets, and costs related to corporate functions in the Corporate Items category to arrive at the consolidated financial information. Our segment disclosures are consistent with the business segment information provided to our chief operating decision maker on a recurring basis; for that reason, we don’t present balance sheet information by segment. We disclose goodwill by segment in accordance with the requirements of FASB ASC 350-20-50, Intangibles - Goodwill - Disclosure.

 

The following tables show selected segment data for the three and nine months ended September 30, 2010 and 2009:

 

 

 

Three months ended September 30, 2010

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

External revenue

 

$

112,055

 

$

27,762

 

$

 

$

139,817

 

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

 

75,129

 

13,670

 

7,215

 

96,014

 

Stock-based compensation expense

 

2,326

 

525

 

894

 

3,745

 

Depreciation and amortization

 

1,789

 

44

 

8,064

 

9,897

 

Operating income (loss)

 

$

32,811

 

$

13,523

 

$

(16,173

)

$

30,161

 

 

 

 

 

 

 

 

 

 

 

U.S. revenue

 

 

 

 

 

 

 

$

99,933

 

Non-U.S. revenue

 

 

 

 

 

 

 

$

39,884

 

 

 

 

Three months ended September 30, 2009

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

External revenue

 

$

95,410

 

$

24,678

 

$

 

$

120,088

 

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

 

59,122

 

9,755

 

8,034

 

76,911

 

Stock-based compensation expense

 

1,429

 

484

 

950

 

2,863

 

Depreciation and amortization

 

1,561

 

48

 

5,022

 

6,631

 

Operating income (loss)

 

$

33,298

 

$

14,391

 

$

(14,006

)

$

33,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. revenue

 

 

 

 

 

 

 

$

85,548

 

Non-U.S. revenue

 

 

 

 

 

 

 

$

34,540

 

 

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Table of Contents

 

 

 

Nine months ended September 30, 2010

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

External revenue

 

$

324,600

 

$

79,598

 

$

 

$

404,198

 

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

 

217,559

 

36,768

 

22,682

 

277,009

 

Stock-based compensation expense

 

5,926

 

1,557

 

2,854

 

10,337

 

Depreciation and amortization

 

5,016

 

136

 

22,930

 

28,082

 

Operating income (loss)

 

$

96,099

 

$

41,137

 

$

(48,466

)

$

88,770

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

4,953

 

$

58

 

$

2,690

 

$

7,701

 

 

 

 

 

 

 

 

 

 

 

U.S. revenue

 

 

 

 

 

 

 

$

291,529

 

Non-U.S. revenue

 

 

 

 

 

 

 

$

112,669

 

 

 

 

Nine months ended September 30, 2009

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

External revenue

 

$

289,389

 

$

66,964

 

$

 

$

356,353

 

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

 

173,957

 

26,058

 

23,339

 

223,354

 

Stock-based compensation expense

 

4,222

 

1,469

 

2,965

 

8,656

 

Depreciation and amortization

 

3,833

 

157

 

19,357

 

23,347

 

Operating income (loss)

 

$

107,377

 

$

39,280

 

$

(45,661

)

$

100,996

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

8,872

 

$

679

 

$

735

 

$

10,286

 

 

 

 

 

 

 

 

 

 

 

U.S. revenue

 

 

 

 

 

 

 

$

262,982

 

Non-U.S. revenue

 

 

 

 

 

 

 

$

93,371

 

 

 

 

As of September 30, 2010

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

Goodwill

 

$

269,042

 

$

42,207

 

$

 

$

311,249

 

 

 

 

 

 

 

 

 

 

 

U.S. long-lived assets

 

 

 

 

 

 

 

$

40,257

 

Non-U.S. long-lived assets

 

 

 

 

 

 

 

$

17,459

 

 

 

 

As of December 31, 2009

 

($000)

 

Investment
Information

 

Investment
Management

 

Corporate Items

 

Total

 

Goodwill

 

$

217,758

 

$

32,234

 

$

 

$

249,992

 

 

 

 

 

 

 

 

 

 

 

U.S. long-lived assets

 

 

 

 

 

 

 

$

42,884

 

Non-U.S. long-lived assets

 

 

 

 

 

 

 

$

16,944

 

 

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Table of Contents

 

6. Investments and Fair Value Measurements

 

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

 

($000)

 

As of September 30
2010

 

As of December 31
2009

 

Available-for-sale

 

$

150,516

 

$

197,306

 

Held-to-maturity

 

8,759

 

10,588

 

Trading securities

 

4,194

 

4,163

 

Total

 

$

163,469

 

$

212,057

 

 

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 September 30, 2010

 

As of December 31, 2009

 

($000)

 

Cost

 

Unrealized
Gain

 

Unrealized
Loss

 

Fair
Value

 

Cost

 

Unrealized
Gain

 

Unrealized
Loss

 

Fair
Value

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government obligations

 

$

101,260

 

$

94

 

$

(11

)

$

101,343

 

$

174,433

 

$

439

 

$

(50

)

$

174,822

 

Corporate bonds

 

36,609

 

78

 

(27

)

36,660

 

12,268

 

44

 

(1

)

12,311

 

Equity securities

 

3,921

 

346

 

 

4,267

 

2,013

 

188

 

(28

)

2,173

 

Mutual funds

 

8,063

 

183

 

 

8,246

 

8,000

 

 

 

8,000

 

Total

 

$

149,853

 

$

701

 

$

(38

)

$

150,516

 

$

196,714

 

$

671

 

$

(79

)

$

197,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

8,759

 

$

 

$

 

$

8,759

 

$

10,588

 

$

 

$

 

$

10,588

 

 

As of September 30, 2010 and December 31, 2009, investments with unrealized losses for greater than a 12-month period were not material to the Condensed Consolidated Balance Sheets and were not deemed to have other than temporary declines in value.

 

The table below shows the cost and fair value of investments classified as available-for-sale and held-to-maturity based on their contractual maturities as of September 30, 2010 and December 31, 2009. The expected maturities of certain fixed-income securities may differ from their contractual maturities because some of these holdings have call features that allow the issuers the right to prepay obligations without penalties.

 

 

 

As of September 30, 2010

 

As of December 31, 2009

 

($000)

 

Cost

 

Fair Value

 

Cost

 

Fair Value

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

59,078

 

$

59,091

 

$

161,453

 

$

161,817

 

Due in one to three years

 

78,791

 

78,912

 

25,248

 

25,316

 

Equity securities and mutual funds

 

11,984

 

12,513

 

10,013

 

10,173

 

Total

 

$

149,853

 

$

150,516

 

$

196,714

 

$

197,306

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

8,754

 

$

8,754

 

$

10,587

 

$

10,587

 

Due in one to three years

 

5

 

5

 

1

 

1

 

Total

 

$

8,759

 

$

8,759

 

$

10,588

 

$

10,588

 

 

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

 

17



Table of Contents

 

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

 

 

 

Nine months ended September 30

 

($000)

 

2010

 

2009

 

Realized gains

 

$

17

 

$

 

Realized losses

 

(3

)

 

Realized gains, net

 

$

14

 

$

 

 

The following table shows the net unrealized gains (losses) on trading securities as recorded in our Condensed Consolidated Statements of Income:

 

 

 

Nine months ended September 30

 

($000)

 

2010

 

2009

 

Unrealized gains (losses), net

 

$

(75

)

$

1,026

 

 

The fair value of our assets subject to fair value measurements and the necessary disclosures are as follows:

 

 

 

Fair Value

 

Fair Value Measurements as of

 

 

 

as of

 

September 30, 2010 Using Fair Value Hierarchy

 

($000)

 

September 30, 2010

 

Level 1

 

Level 2

 

Level 3

 

Available-for-sale investments

 

 

 

 

 

 

 

 

 

Government obligations

 

$

101,343

 

$

101,343

 

$

 

$

 

Corporate bonds

 

36,660

 

36,660

 

 

 

Equity securities

 

4,267

 

4,267

 

 

 

Mutual funds

 

8,246

 

8,246

 

 

 

Trading securities

 

4,194

 

4,194

 

 

 

Total

 

$

154,710

 

$

154,710

 

$

 

$

 

 

 

 

Fair Value

 

Fair Value Measurements as of

 

 

 

as of

 

December 31, 2009 Using Fair Value Hierarchy

 

($000)

 

December 31, 2009

 

Level 1

 

Level 2

 

Level 3

 

Available-for-sale investments