2010 10-K: Part II under management. Overall, revenue tied to asset-based fees  accounted for about 12% of our consolidated revenue in 2010. We frequently invoice our clients and collect cash in advance of  providing services or fulfilling subscriptions for our customers. As  a result, we use some of this cash to fund our operations and invest  in new product development. The businesses we acquired over the  past several years have similar business models, and as a result,  we acquired their deferred revenue. Deferred revenue is the largest  liability on our Consolidated Balance Sheets and totaled $146.3  million as of December 31, 2010 and $127.1 million as of December  31, 2009. We expect to recognize this deferred revenue in future  periods as we fulfill the service obligations under our subscription,  license, and service agreements. Our business requires significant investments to create and maintain  proprietary databases and content. We strive to leverage these  costs by selling a wide variety of products and services to multiple  investor segments, through multiple media, and in many geograph- ical markets. In general, our businesses have high fixed costs, and  we expect our revenue to increase or decrease more quickly than  our expenses. We believe that while the fixed costs of the invest- ments in our business are relatively high, the variable cost of add- ing customers is considerably lower, particularly as a significant  portion of our products and services focus on Internet-based plat- forms and assets under management. At times, we will make invest- ments in building our databases and content that will hurt our  short-term operating results. During other periods, our profitability  will improve because we’re able to increase revenue without increas- ing our cost base at the same rate. When revenue decreases, how- ever, the significant operating leverage in our business may reduce  our profitability. We classify our operating expense into separate categories for cost  of goods sold, development, sales and marketing, general and  administrative, and depreciation and amortization, as described  below. We include stock-based compensation expense, as appropri- ate, in each of these categories. U Cost of goods sold.  This category includes compensation expense  for employees who produce the products and services we deliver  to our customers. For example, this category covers production  teams and analysts who write investment research reports. Cost  of goods sold also includes other expense such as postage, print- ing, and CD-ROM replication, as well as shareholder servicing  fees for Morningstar Managed Portfolios. U Development.  This category includes compensation expense for  programmers, designers, and other employees who develop new  products and enhance existing products. In some cases, we  capitalize the compensation costs associated with certain devel- opment projects. This reduces the expense that we would oth- erwise report in this category. We amortize these capitalized  costs over the estimated economic life of the software, which is  generally three years, and include this expense in depreciation  and amortization. U Sales and marketing.  This category includes compensation  expense for our sales teams, product managers, and other mar- keting professionals. We also include the cost of advertising,  direct mail campaigns, and other marketing programs to promote  our products. U General and administrative.  This category consists mainly of  compensation expense for each segment’s management team, as  well as human resources, finance, and support employees for each  segment. The category also includes compensation expense for  senior management and other corporate costs, including corporate  systems, finance and accounting, legal, and facilities expense. U Depreciation and amortization.  Our capital expenditures consist  of computers, leasehold improvements, and capitalized product  development costs related to certain software development proj- ects. We depreciate property and equipment primarily using the  straight-line method based on the useful life of the asset, which  ranges from three to seven years. We amortize leasehold improve- ments over the lease term or their useful lives, whichever is  shorter. We amortize capitalized product development costs over  their estimated economic life, which is generally three years. We  also include amortization related to intangible assets, which is  mainly driven by acquisitions, in this category. We amortize intan- gible assets using the straight-line method over their estimated  economic useful lives, which range from one to 25 years. Operating Expense Significant Operating Leverage Deferred Revenue 64