- Current report filing (8-K)
February 05 2010 - 4:16PM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13
or 15(d) of
the Securities
Exchange Act of 1934
Date of Report (Date of earliest
event reported):
February 5, 2010
MORNINGSTAR,
INC.
(Exact name of registrant as
specified in its charter)
Illinois
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000-51280
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36-3297908
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(State or
other jurisdiction
of incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification No.)
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22 West
Washington Street
Chicago, Illinois 60602
(Address of principal executive
offices)
(312) 696-6000
(Registrants telephone number,
including area code)
N/A
(Former name or former address,
if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Item 7.01.
Regulation FD Disclosure.
The following information is included in this Current Report on Form 8-K
as a result of Morningstar, Inc.s policy regarding public disclosure of
corporate information. Answers to additional inquiries, if any, that comply
with this policy are scheduled to become available on March 5, 2010.
Caution Concerning Forward-Looking Statements
This current report on Form 8-K contains forward-looking statements as
that term is used in the Private Securities Litigation Reform Act of 1995.
These statements are based on our current expectations about future events or
future financial performance. Forward-looking statements by their nature
address matters that are, to different degrees, uncertain, and often contain
words such as may, could, expect, intend, plan, seek, anticipate,
believe, estimate, predict, potential, or continue. These statements
involve known and unknown risks and uncertainties that may cause the events we
discuss not to occur or to differ significantly from what we expect. For us,
these risks and uncertainties include, among others, general industry
conditions and competition, including the current global financial crisis that
began in 2007; the impact of market volatility on revenue from asset-based
fees; damage to our reputation resulting from claims made about possible
conflicts of interest; liability for any losses that result from an actual or
claimed breach of our fiduciary duties; financial services industry
consolidation; a prolonged outage of our database and network facilities;
challenges faced by our non-U.S. operations; and the availability of free or
low-cost investment information.
A more complete description of these risks and uncertainties can be found
in our Annual Report on Form 10-K for the year ended December 31,
2008. If any of these risks and uncertainties materialize, our actual future
results may vary significantly from what we expected. We do not undertake to
update our forward-looking statements as a result of new information or future
events.
Investor Questions and Answers: February 2010
We plan to make written responses available addressing investor questions
about our business on the first Friday of every month. The following answers
respond to selected questions received through February 3, 2010. We intend
to answer as many questions as time allows, although we will not answer product
support questions through this channel. We may wait to respond to a given
question until the following month if we need more time to research the answer.
If you would like to submit a question, please send an e-mail to
investors@morningstar.com, contact us via fax at 312-696-6009, or write to us
at the following address:
Morningstar, Inc.
Investor Relations
22 W. Washington
Chicago, IL 60602
Institutional
Contracts Up for Renewal
1.
Roughly
what percentage of your institutional contracts are renewing in the next six
months? Separately, could you give us a sense of how many of these contracts
renewing in the next six months are for datawhere you seem to have less
competition particularly for fund data/toolsand what percentage is for
investment consultingwhere it seems more customers could take that work in
house?
2
Based on the dollar value of the
contracts, approximately 20% of our contracts are up for renewal in the first
six months of 2010. About one-fourth of the amount up for renewal is for
Licensed Data and 10-15% is for Investment Consulting.
Investment
Management Business
2.
Regarding
your managed portfolios and retirement advice, please provide information on
pricing (bps)? How many portfolio managers and financial advisors do you
have?
We charge asset-based fees for Morningstar Managed Portfolios. The
management fee is based on a tiered schedule that depends on the clients
average daily portfolio balance. Fees for our mutual fund and exchange-traded
fund portfolios generally range from 30 to 40 basis points. We charge 50-55
basis points for the Select Stock Baskets, which are
individually
customizable stock portfolios based on Morningstars independent equity
research.
We currently reach about 1,900
financial advisors through Morningstar Managed Portfolios and have a team of
seven portfolio managers working on the program.
Pricing for our
Retirement Advice services
depends on the
number of participants, as well as the level of service we provide. We reached
about 20 million retirement plan participants, 149,000 plan sponsors, and 23
plan providers through our Retirement Advice platforms as of September 30,
2009. We have a team of about 15 analysts and investment consultants involved
in working on these programs.
Financial Advisor
Audience
3.
How
many advisors are there in the US and how has that number typically grown over
time?
Cerulli Associates estimates that
there were approximately 300,000 financial advisors in the United States as of
2008. This total has been relatively flat over the period from 2004 through
2008, according to Cerulli.
4.
Do
you see the advisor population dropping right now or at least changing firms?
Were not aware of an official count
of advisors that has been released in 2009 by a third-party source such as
Cerulli.
Anecdotally, we believe the total
number of advisors dropped in 2009 as some advisors chose to leave the field in
such a difficult environment. Similarly, we expect that some of the recent
industry consolidation (Morgan Stanley/Smith Barney and Wells Fargo/Wachovia)
probably resulted in job losses.
We also have seen quite a bit of movement
recently between firms, particularly advisors who are leaving the large
wirehouse environment to establish themselves as independents. We hear
from custodians that they are seeing an increase in activity from these breakaway
brokers.
5.
How
are renewals going in the advisor area and is there pricing pressure as
renewals come up?
We are seeing some improvement in
our renewal rates for individual seat licenses, and weve been able to make
modest price increases for both individual seat licenses and enterprise
contracts recently up for renewal. This is in contrast to early last year when
we were renewing at
3
flat prices, and in some cases
feeling pressure to reduce prices. Our customers are still sensitive to price,
but its become less of a concern.
Morningstar Equity
Research
6.
What
is the future of your equity research effort now that the research-settlement
contracts have been expired for about six months? How many institutional
clients (outside those related to the research settlement) currently pay for
access to your equity research?
Although the period covered by the Global Analyst Research Settlement ended
in July 2009, and the banks covered by it are no longer required to
provide independent investment research to their clients, we remain committed
to maintaining the broad, high-quality coverage weve become known for as one
of the largest providers of independent equity research worldwide.
Were working to expand our equity research distribution through a variety
of channels, including those serving both institutional investors and advisors.
We currently reach approximately 75 research clients in these categories.
Our institutional equity research service helps both buy-side and sell-side
firms extend their internal research capabilities by providing direct access
via phone, e-mail, and in-person to our analysts. In addition to analyst
access, we surface a variety of in-depth research content to
this
audience that helps them tap our analysts industry- and
company-level expertise. We think that the breadth, depth, and accessibility of
our offering create a compelling value proposition for these firms as their
internal research budgets are tightening.
We recently
expanded our sales force serving this audience, as weve seen an increase in
demand.
We also continue to provide analyst research reports, industry updates,
model portfolios, and videos to financial advisors globally, and our business
in this area is growing as well.
In addition, we recently began publishing research and ratings on corporate
credit issuers. During the next year, we plan to produce credit ratings for up
to 1,000 companies currently covered by our equity analyst team. We view credit
ratings as a natural extension of the equity research weve been producing for
the past decade. We believe we have a unique viewpoint to offer on company
default risk that leverages our cash-flow modeling expertise, proprietary
measures like Economic Moat, and in-depth knowledge of the companies and
industries we cover.
Analyst
Coverage on MORN
7.
Ive noticed that
the number of analysts that follow you has come down to only one. Do you have any plans to try and increase
coverage from Wall Street analysts or is this not important to you. If not, why?
Wed be happy to have more analysts
covering us, but our main focus is on running our business and pursuing our
growth strategies. We dont currently have any plans targeted toward increasing
the level of analyst coverage on Morningstar. We hope to attract investors who
plan to hold our shares for the long term and appreciate our focus on
maximizing our long-term business results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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MORNINGSTAR, INC.
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Date: February 5, 2010
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By:
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/s/ Richard E. Robbins
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Name:
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Richard E. Robbins
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Title:
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General Counsel and Corporate
Secretary
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