CHICAGO, April 28 /PRNewswire-FirstCall/ -- Morningstar,
Inc. (Nasdaq: MORN), a leading provider of independent investment
research, today announced its first-quarter 2010 financial results.
The company reported consolidated revenue of $128.3 million in the first quarter of 2010, a
9.9% increase from $116.7 million in
the first quarter of 2009. Consolidated operating income was
$30.9 million in the first quarter of
2010, a decrease of 10.6% compared with $34.6 million in the same period a year ago. Net
income was $20.2 million in the first
quarter of 2010, or 40 cents per
diluted share, compared with $25.0
million, or 51 cents per
diluted share, in the first quarter of 2009.
Excluding acquisitions and the impact of foreign currency
translations, revenue declined 1.6%. First-quarter results included
$9.7 million in revenue from
acquisitions as well as a $3.7
million benefit from foreign currency translations. Revenue
excluding acquisitions and foreign currency translations (organic
revenue) is a non-GAAP measure; the accompanying financial tables
contain a reconciliation to consolidated revenue.
Joe Mansueto, chairman and chief
executive officer of Morningstar, said, "We continue to see
encouraging signs that business conditions are improving. Despite
the loss of revenue from the Global Analyst Research Settlement,
which ended last summer, organic revenue was down about 2%,
compared with a decline of about 7% in the fourth quarter of 2009,
which is a positive trend. Revenue for our Investment Management
segment rebounded and Morningstar Direct revenue also grew
nicely."
He added, "We're also seeing more acquisition opportunities
globally, partly because of possible increases in tax rates.
Sellers are motivated and are looking to partner with a firm like
Morningstar, which has the resources and geographic reach to help
expand their businesses. During the first four months of 2010, we
announced four acquisitions. Each one supports our growth strategy
of enhancing our leadership in investment research.
"In addition to acquisitions, we're also making investments in
our core business. We're expanding our sales and product
development teams and entering new businesses, such as corporate
credit ratings and business valuation. We made significant cost
reductions early in 2009 in anticipation of a tough economic
environment last year. Those cuts improved our margin a year ago,
but we've been partially reinstating some discretionary costs, such
as 401(k) contributions and bonuses, which impacted the margin in
the first quarter of 2010. As a result, our operating margin fell
to 24.1% from 29.7% in the first quarter of 2010."
Key Business Drivers
Morningstar has two operating segments: Investment Information
and Investment Management. The Investment Information segment
includes all of the company's data, software, and research products
and services. These products and services are typically sold
through subscriptions or license agreements. The Investment
Management segment includes all of the company's asset management
operations, which are registered investment advisors and earn more
than half of their revenue from asset-based fees.
Revenue: In the first quarter of 2010, revenue in the
Investment Information segment was $103.5
million, an increase of $7.3
million, or 7.6%, compared with the first quarter of 2009,
including $7.7 million from
acquisitions. Excluding acquisitions and currency, revenue in this
segment declined year over year, primarily because of the loss of
$5.5 million in equity research
revenue associated with the Global Analyst Research Settlement,
which ended in July 2009. Revenue in
the Investment Management segment was up 20.9% to $24.8 million, including $2.0 million from acquisitions. Excluding
acquisitions, revenue in this segment increased year over year.
Revenue from international operations was $35.7 million in the first quarter of 2010, an
increase of 24.8% from the same period a year ago. International
revenue included $4.1 million from
acquisitions. Foreign currency translations had a favorable impact
of $3.7 million on international
revenue in the first quarter. Excluding acquisitions and foreign
currency translations, international revenue declined 2.6% in the
first quarter. International revenue excluding acquisitions and
foreign currency translations is a non-GAAP measure; the
accompanying financial tables contain a reconciliation to
international revenue.
Operating Income: Consolidated operating income was
$30.9 million in the first quarter of
2010, a 10.6% decrease from the same period in 2009. Operating
expense rose $15.2 million, or 18.6%.
Incremental operating expense from businesses acquired since the
first quarter of 2009 was the main contributor to this increase.
The company completed six acquisitions in 2009 and one in the first
quarter of 2010. Because of the timing of these acquisitions,
first-quarter 2010 results include operating expense that did not
exist in the first quarter of 2009.
Increases in incentive compensation and employee benefits
represented approximately 40% of the operating expense increase.
Bonus expense increased $2.5 million
in the quarter. Sales commissions were $2.1
million higher, reflecting improved sales activity compared
with the prior-year period. In 2010, Morningstar began phasing in
some of the benefits it temporarily suspended in 2009. The company
partially reinstated matching contributions to its 401(k) plan in
the United States, representing
approximately $1.0 million of expense
in the quarter. The company kept salary levels flat for nearly all
employees in 2009, but expects to make some moderate compensation
increases later in 2010. The company also has been hiring for some
previously unfilled positions.
Morningstar had approximately 2,760 employees worldwide as of
March 31, 2010, compared with 2,600
as of Dec. 31, 2009, and 2,370 as of
March 31, 2009. Headcount grew year
over year because of acquisitions and continued hiring in the
company's development centers in China and India.
Higher travel, professional fees, and amortization expense,
primarily related to acquisitions, also contributed to the
operating expense increase in the quarter. It also includes a
$0.8 million expense because the
company increased its liability for vacant office space at the
former Ibbotson headquarters after finalizing sub-lease
arrangements for a portion of this space.
The company's operating margin was 24.1% in the first quarter of
2010, down from 29.7% in the same period in 2009. The margin
decline mainly reflects higher sales and marketing and general and
administrative expense as a percentage of revenue, including
increased bonus and commission expense in these categories.
Effective Tax Rate: Morningstar's effective tax rate in
the first quarter of 2010 was 35.3%, an increase of 5.4 percentage
points. Several items that reduced the company's effective tax rate
in the first quarter of 2009 did not recur in the first quarter of
2010. The prior-year period included the impact of reversing a
$1.4 million reserve for uncertain
tax positions as a result of a lapse in the statute of limitations.
This non-cash benefit favorably impacted the first-quarter 2009
effective tax rate by approximately 4.0 percentage points. The
favorable effect of incentive stock-option transactions also
reduced the effective tax rate in the first quarter of 2009.
Free Cash Flow: Morningstar generated free cash flow of
$12.8 million in the first quarter of
2010, an increase of $25.7 million
compared with negative free cash flow of $12.9 million in the first quarter of 2009.
First-quarter 2010 free cash flow reflects cash provided by
operating activities of $14.5 million
and approximately $1.7 million of
capital expenditures. Cash flow from operating activities increased
$22.8 million in the quarter because
2010 bonus payments were $37.5
million lower than in 2009. The company made bonus payments
of $21.4 million in the first quarter
of 2010, compared with $58.9 million
in the first quarter of 2009.
The lower bonus payout was the primary factor contributing to
the increase in operating cash flow. Lower net income, adjusted for
non-cash items, partially offset the favorable cash-flow impact of
the lower bonus payment. Morningstar typically pays annual bonuses
in the first quarter. As a result, first-quarter operating cash
flow tends to be lower compared with subsequent quarters.
Capital expenditures decreased $2.9
million for the quarter. Capital expenditures in 2009
included spending for the company's new corporate headquarters in
Chicago, which did not recur in
2010.
Free cash flow is a non-GAAP measure; the accompanying financial
tables contain a reconciliation to cash provided by operating
activities. Morningstar defines free cash flow as cash provided by
or used for operating activities less capital expenditures.
As of March 31, 2010, Morningstar
had cash, cash equivalents, and investments of $360.7 million, compared with $342.6 million as of Dec.
31, 2009, despite paying $21.4
million in bonuses in the first quarter. In the second
quarter of 2010, the company expects to use approximately
$76 million to complete previously
announced acquisitions.
Business Segment Performance
Investment Information Segment: The largest products and
services in this segment based on revenue are Morningstar® Licensed
Data; Morningstar® Advisor Workstation(SM); Morningstar.com®,
including Premium Memberships and advertising sales; and
Morningstar Direct(SM).
- Revenue was $103.5 million in the
first quarter of 2010, a 7.6% increase from $96.2 million in the first quarter of 2009.
- Acquisitions contributed revenue of $7.7
million to the Investment Information segment in the first
quarter of 2010.
- Excluding acquisitions, Investment Information segment revenue
declined because of the loss of $5.5
million in revenue associated with the Global Analyst
Research Settlement, which ended in July
2009.
- Higher revenue from Morningstar Direct, Equity Research, and
Internet advertising for Morningstar.com was partially offset by
lower revenue from Principia. Licenses for Morningstar Direct rose
24.3% to 3,771, with particularly strong growth outside
the United States. Premium
Membership subscriptions for Morningstar.com fell about 13%.
Principia subscriptions fell 14.5% to 35,033 and Advisor
Workstation licenses increased slightly to 154,474.
- Operating income was $32.7
million in the first quarter of 2010, compared with
$36.8 million in the same period in
2009. Operating expense in this segment increased $11.4 million, or 19.1%, partly because of
operating expense from acquisitions. Higher bonuses and commissions
also contributed to the increase.
- Operating margin was 31.6% in the first quarter of 2010 versus
38.3% in the prior-year period. The decrease mainly reflects higher
compensation and bonus expense as a percentage of revenue.
Investment Management Segment: The largest products in
this segment based on revenue are Investment Consulting; Retirement
Advice, including Advice by Ibbotson® and Morningstar® Retirement
Manager(SM); and Morningstar® Managed Portfolios(SM).
- Revenue was $24.8 million in the
first quarter of 2010, a 20.9% increase from $20.5 million in the same period in 2009.
- Acquisitions contributed revenue of $2.0
million to the segment in the first quarter.
- Excluding acquisitions, revenue increased from the prior-year
period. Morningstar Managed Portfolios and Retirement Advice were
the primary drivers of the segment revenue increase. Investment
Consulting was also a positive contributor, but to a lesser extent.
As previously disclosed, in the first quarter of 2009, Investment
Consulting results included revenue related to a contract that was
not renewed in May 2009.
- Assets under advisement for Investment Consulting were
$62.6 billion as of March 31, 2010, compared with $63.3 billion as of March
31, 2009. Assets under advisement for Morningstar Associates
were down 27.7%, and assets under advisement for Ibbotson
Associates rose 19.7%. The majority of the asset decline for
Morningstar Associates reflects the loss of a client contract that
did not renew in 2009, partially offset by positive market
performance and net inflows. Assets under management for Retirement
Advice rose to $16.1 billion as of
March 31, 2010, versus $10.2 billion as of March
31, 2009. Assets under management for Morningstar Managed
Portfolios increased to $2.3 billion
as of March 31, 2010, compared with
$1.4 billion as of March 31, 2009.
- Operating income was $13.3
million in the first quarter of 2010, an increase of 12.4%
compared with the first quarter of 2009. Operating expense in the
segment increased $2.8 million, or
32.4%, primarily because of operating expense from acquisitions as
well as higher bonus and sales commission expense.
- Operating margin was 53.7% in the first quarter of 2010 versus
57.7% in the prior-year period. The margin decline mainly reflects
higher bonus and sales commission expense as a percentage of
revenue. The Intech acquisition also contributed to the margin
decline.
Intangible Amortization and Corporate Depreciation Expense:
Morningstar does not allocate expense for intangible
amortization or corporate depreciation to its operating segments.
Expense for these categories was $7.2
million, an increase of $0.4
million, or 7.0%, reflecting amortization expense from
recent acquisitions.
Corporate Unallocated: This category includes the costs
related to corporate functions, including general management,
information technology used to support corporate systems, legal,
finance, human resources, marketing, and corporate communications.
Costs in this category were $7.9
million, an increase of $0.6
million, or 8.1%, reflecting the $0.8
million expense for increasing the liability related to
vacant office space at the former Ibbotson headquarters.
Investor Communication
Morningstar encourages all interested parties—including
securities analysts, current shareholders, potential shareholders,
and others—to submit questions in writing. Investors and others may
send an e-mail to investors@morningstar.com, contact the company
via fax at 312-696-6009, or write to Morningstar at the following
address:
Morningstar,
Inc.
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Investor
Relations
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22 W. Washington
Street
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Chicago, IL
60602
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Morningstar will make written responses to selected inquiries
available to all investors at the same time in Form 8-Ks furnished
to the Securities and Exchange Commission, generally on the first
Friday of every month.
Investors are invited to attend Morningstar's annual meeting at
9 a.m. on Tuesday, May 18, 2010, at its corporate
headquarters at 22 W. Washington Street in Chicago. If you are interested in attending,
please register at http://global.morningstar.com/AnnualMeeting.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent
investment research in North
America, Europe,
Australia, and Asia. The company offers an extensive line of
Internet, software, and print-based products and services for
individuals, financial advisors, and institutions. Morningstar
provides data on approximately 350,000 investment offerings,
including stocks, mutual funds, and similar vehicles, along with
real-time global market data on more than 4 million equities,
indexes, futures, options, commodities, and precious metals, in
addition to foreign exchange and Treasury markets. The company has
operations in 20 countries and minority ownership positions in
companies based in two other countries.
Caution Concerning Forward-Looking Statements
This press release 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 discussed not to occur or to differ significantly
from what we expected. For us, these risks and uncertainties
include, among others, general industry conditions and competition,
including current global financial uncertainty; 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 filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the year ended
December 31, 2009. 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.
Non-GAAP Financial Measures
To supplement Morningstar's consolidated financial statements
presented in accordance with U.S. Generally Accepted Accounting
Principles (GAAP), Morningstar uses the following measures
considered as non-GAAP by the Securities and Exchange Commission:
free cash flow, consolidated revenue excluding acquisitions
and foreign currency translations (organic revenue), and
international revenue excluding acquisitions and foreign currency
translations. These non-GAAP measures may not be comparable to
similarly titled measures reported by other companies.
Morningstar presents free cash flow solely as supplemental
disclosure to help investors better understand how much cash is
available after Morningstar spends money to operate its business.
Morningstar uses free cash flow to evaluate the performance of its
business. Free cash flow should not be considered an alternative to
any measure of performance as promulgated under GAAP (such as cash
provided by (used for) operating, investing, and financing
activities). For more information on free cash flow, please see the
reconciliation from cash provided by operating activities to free
cash flow included in the accompanying financial tables.
Morningstar presents consolidated revenue excluding acquisitions
and foreign currency translations (organic revenue) and
international revenue excluding acquisitions and foreign currency
translations because the company believes these non-GAAP measures
help investors better compare period-to-period results. For more
information, please see the reconciliation provided in the
accompanying financial tables.
©2010 Morningstar, Inc. All rights reserved.
Contacts:
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Media: Margaret Kirch Cohen,
312-696-6383 or margaret.cohen@morningstar.com
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Investors may submit questions to
investors@morningstar.com or by fax to 312-696-6009.
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Morningstar, Inc. and
Subsidiaries
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Unaudited Condensed Consolidated
Statements of Income
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Three months ended
March 31
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(in thousands, except per share
amounts)
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2010
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2009
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change
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Revenue
|
$
128,290
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$
116,732
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9.9%
|
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|
Operating expense(1):
|
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|
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Cost of goods sold
|
34,316
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30,252
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13.4%
|
|
|
|
Development
|
10,889
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|
9,300
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17.1%
|
|
|
|
Sales and marketing
|
22,561
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|
17,536
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|
28.7%
|
|
|
|
General and administrative
|
20,643
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|
17,153
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|
20.3%
|
|
|
|
Depreciation and
amortization
|
8,939
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|
7,866
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|
13.6%
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|
|
|
Total operating
expense
|
97,348
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|
82,107
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|
18.6%
|
|
|
Operating income
|
30,942
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|
34,625
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(10.6%)
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Operating margin
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24.1%
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29.7%
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(5.6)pp
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Non-operating income
(expense):
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|
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Interest income, net
|
587
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|
978
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(40.0%)
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Other expense, net
|
(766)
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(444)
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72.5%
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|
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Non-operating income
(expense), net
|
(179)
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534
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NMF
|
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Income before income taxes and equity
in net income
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|
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of unconsolidated entities
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30,763
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35,159
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(12.5%)
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Income tax expense
|
10,995
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10,668
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3.1%
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Equity in net income of unconsolidated
entities
|
389
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|
382
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1.8%
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Consolidated net income
|
20,157
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|
24,873
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(19.0%)
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Net loss attributable to
noncontrolling interests
|
31
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|
89
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(65.2%)
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Net income attributable to
Morningstar, Inc.
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$
20,188
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$
24,962
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(19.1%)
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Net income per share attributable to
Morningstar, Inc.:
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Basic
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$
0.41
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$
0.53
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(22.6%)
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Diluted
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$
0.40
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$
0.51
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(21.6%)
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Weighted average common shares
outstanding:
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Basic
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48,828
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47,378
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Diluted
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50,332
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49,167
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Three months ended
March 31
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2010
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2009
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(1) Includes stock-based compensation
expense of:
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Cost of goods sold
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$
715
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$
549
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Development
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393
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354
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Sales and marketing
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403
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|
356
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General and administrative
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1,426
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1,466
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Total stock-based compensation
expense
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$
2,937
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$
2,725
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NMF — Not
meaningful, pp — percentage points
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Morningstar, Inc. and
Subsidiaries
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Operating Expense as a Percentage of
Revenue
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Three months ended
March 31
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2010
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2009
|
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change
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Revenue
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100.0%
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100.0%
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|
-
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Operating expense(1):
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|
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Cost of goods sold
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26.7%
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25.9%
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0.8pp
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Development
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8.5%
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8.0%
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0.5pp
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Sales and marketing
|
17.6%
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15.0%
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2.6pp
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|
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General and administrative
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16.1%
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14.7%
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|
1.4pp
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Depreciation and
amortization
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7.0%
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6.7%
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0.3pp
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Total operating
expense(2)
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75.9%
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70.3%
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5.6pp
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Operating margin
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24.1%
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29.7%
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(5.6)pp
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Three months ended
March 31
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2010
|
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2009
|
|
change
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(1) Includes stock-based compensation
expense of:
|
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|
|
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Cost of goods sold
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0.6%
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0.5%
|
|
0.1pp
|
|
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Development
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0.3%
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0.3%
|
|
-
|
|
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Sales and marketing
|
0.3%
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0.3%
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-
|
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General and administrative
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1.1%
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1.3%
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(0.2)pp
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|
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Total stock-based compensation
expense(2)
|
2.3%
|
|
2.3%
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|
-
|
|
|
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|
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(2) Sum of percentages may not equal
total because of rounding.
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|
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|
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Morningstar, Inc. and
Subsidiaries
|
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Unaudited Condensed Consolidated
Statements of Cash Flows
|
|
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|
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|
|
|
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|
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Three months ended
March 31
|
|
($000)
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Consolidated net income
|
|
$
20,157
|
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$
24,873
|
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Adjustments to reconcile consolidated
net income to net cash flows
|
|
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|
|
from operating activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
8,939
|
|
7,866
|
|
|
Deferred income tax benefit
|
|
(1,287)
|
|
(1,311)
|
|
|
Stock-based compensation
expense
|
|
2,937
|
|
2,725
|
|
|
Equity in net income of unconsolidated
entities
|
|
(389)
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|
(382)
|
|
|
Excess tax benefits from stock option
exercises
|
|
|
|
|
|
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and vesting of restricted stock
units
|
|
(3,048)
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|
(350)
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|
|
Other, net
|
|
954
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|
632
|
|
Changes in operating assets and
liabilities, net of
|
|
|
|
|
|
effects of acquisitions:
|
|
|
|
|
|
|
Accounts receivable
|
|
(4,867)
|
|
169
|
|
|
Other assets
|
|
(480)
|
|
351
|
|
|
Accounts payable and accrued
liabilities
|
|
1,174
|
|
(4,111)
|
|
|
Accrued compensation
|
|
(22,516)
|
|
(55,039)
|
|
|
Deferred revenue
|
|
10,430
|
|
4,060
|
|
|
Income taxes - current
|
|
3,681
|
|
11,382
|
|
|
Deferred rent
|
|
(392)
|
|
(156)
|
|
|
Other liabilities
|
|
(843)
|
|
969
|
|
|
Cash
provided by (used for) operating activities
|
|
14,450
|
|
(8,322)
|
|
Investing activities
|
|
|
|
|
|
Purchases of investments
|
|
(50,964)
|
|
(22,403)
|
|
Proceeds from sale of
investments
|
|
87,934
|
|
16,752
|
|
Capital expenditures
|
|
(1,650)
|
|
(4,590)
|
|
Acquisitions, net of cash
acquired
|
|
(738)
|
|
(60)
|
|
Other, net
|
|
-
|
|
98
|
|
|
Cash
provided by (used for) investing activities
|
|
34,582
|
|
(10,203)
|
|
Financing activities
|
|
|
|
|
|
Proceeds from stock option
exercises
|
|
3,494
|
|
2,932
|
|
Excess tax benefits from stock option
exercises
|
|
|
|
|
|
and vesting of restricted stock
units
|
|
3,048
|
|
350
|
|
Other, net
|
|
315
|
|
(176)
|
|
|
Cash provided by
financing activities
|
|
6,857
|
|
3,106
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
(1,032)
|
|
(1,760)
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
54,857
|
|
(17,179)
|
|
Cash and cash equivalents—Beginning of
period
|
|
130,496
|
|
173,891
|
|
Cash and cash equivalents—End of
period
|
|
$
185,353
|
|
$
156,712
|
|
|
|
|
|
|
|
|
Reconciliation from cash provided by
operating activities to free cash flow (a non-GAAP
measure):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
|
($000)
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
Cash provided by (used for) operating
activities
|
|
$
14,450
|
|
$
(8,322)
|
|
Less: Capital expenditures
|
|
(1,650)
|
|
(4,590)
|
|
Free cash flow
|
|
$
12,800
|
|
$
(12,912)
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Unaudited Condensed Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
March
31
|
|
December
31
|
|
($000)
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
185,353
|
|
$
130,496
|
|
|
Investments
|
175,390
|
|
212,057
|
|
|
Accounts receivable, net
|
86,273
|
|
82,330
|
|
|
Deferred tax asset, net
|
1,081
|
|
1,109
|
|
|
Income tax receivable, net
|
4,638
|
|
5,541
|
|
|
Other
|
12,627
|
|
12,564
|
|
|
Total current assets
|
465,362
|
|
444,097
|
|
|
|
|
|
|
|
Property and equipment, net
|
57,561
|
|
59,828
|
|
Investments in unconsolidated
entities
|
24,474
|
|
24,079
|
|
Goodwill
|
245,952
|
|
249,992
|
|
Intangible assets, net
|
131,035
|
|
135,488
|
|
Other assets
|
6,018
|
|
6,099
|
|
|
Total assets
|
$
930,402
|
|
$
919,583
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
30,666
|
|
$
29,901
|
|
|
Accrued compensation
|
26,042
|
|
48,902
|
|
|
Deferred revenue
|
136,842
|
|
127,114
|
|
|
Other
|
946
|
|
962
|
|
|
Total current liabilities
|
194,496
|
|
206,879
|
|
|
|
|
|
|
|
Accrued compensation
|
4,945
|
|
4,739
|
|
Deferred tax liability, net
|
3,077
|
|
4,678
|
|
Other long-term liabilities
|
25,801
|
|
26,413
|
|
|
Total liabilities
|
228,319
|
|
242,709
|
|
|
Total equity
|
702,083
|
|
676,874
|
|
|
Total liabilities and
equity
|
$
930,402
|
|
$
919,583
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
|
|
($000)
|
|
|
2010
|
|
2009
|
|
change
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Investment Information
|
|
$
103,524
|
|
$
96,240
|
|
7.6%
|
|
|
Investment Management
|
|
24,766
|
|
20,492
|
|
20.9%
|
|
|
Consolidated revenue
|
|
$
128,290
|
|
$
116,732
|
|
9.9%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue—U.S.
|
|
$
92,610
|
|
$
88,148
|
|
5.1%
|
|
|
Revenue—International
|
|
$
35,680
|
|
$
28,584
|
|
24.8%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue—U.S. (percentage of
consolidated revenue)
|
|
72.2%
|
|
75.5%
|
|
(3.3)pp
|
|
|
Revenue—International (percentage of
consolidated revenue)
|
|
27.8%
|
|
24.5%
|
|
3.3pp
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)(1)
|
|
|
|
|
|
|
|
|
Investment Information
|
|
$
32,746
|
|
$
36,837
|
|
(11.1%)
|
|
|
Investment Management
|
|
13,293
|
|
11,827
|
|
12.4%
|
|
|
Intangible amortization and corporate
depreciation expense
|
|
(7,246)
|
|
(6,775)
|
|
7.0%
|
|
|
Corporate unallocated
|
|
(7,851)
|
|
(7,264)
|
|
8.1%
|
|
|
Consolidated operating
income
|
|
$
30,942
|
|
$
34,625
|
|
(10.6%)
|
|
|
|
|
|
|
|
|
|
|
Operating margin(1)
|
|
|
|
|
|
|
|
|
Investment Information
|
|
31.6%
|
|
38.3%
|
|
(6.7)pp
|
|
|
Investment Management
|
|
53.7%
|
|
57.7%
|
|
(4.0)pp
|
|
|
Consolidated operating
margin
|
|
24.1%
|
|
29.7%
|
|
(5.6)pp
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation
expense allocated to each segment.
|
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
As of March
31
|
|
|
|
|
|
2010
|
|
2009
|
|
%
change
|
|
Our employees
|
|
|
|
|
|
|
Worldwide headcount
(approximate)
|
2,760
|
|
2,370
|
|
16.5%
|
|
Number of worldwide equity and
fixed-income analysts
|
104
|
|
120
|
|
(13.3%)
|
|
Number of worldwide fund
analysts
|
100
|
|
75
|
|
33.3%
|
|
|
|
|
|
|
|
|
|
Our business
|
|
|
|
|
|
|
Investment Information
|
|
|
|
|
|
|
Morningstar.com Premium
subscriptions
|
146,726
|
|
168,257
|
|
(12.8%)
|
|
Registered users for Morningstar.com
(U.S.)
|
6,114,706
|
|
5,783,353
|
|
5.7%
|
|
U.S. Advisor Workstation
licenses
|
154,474
|
|
148,6141
|
|
3.9%
|
|
Principia subscriptions
|
35,033
|
|
40,993
|
|
(14.5%)
|
|
Morningstar Direct licenses
|
3,771
|
|
3,033
|
|
24.3%
|
|
|
|
|
|
|
|
|
|
Investment Management
|
|
|
|
|
|
|
Assets under management for
Morningstar Managed Portfolios
|
$2.3
bil
|
|
$1.4
bil
|
|
64.3%
|
|
Assets under management for
Intech(2)
|
$3.6
bil
|
|
-
|
|
n/a
|
|
Assets under management for managed
retirement accounts
|
$16.1
bil
|
|
$10.2
bil
|
|
57.8%
|
|
|
Morningstar Associates
|
$1.6
bil
|
|
$0.9
bil
|
|
77.8%
|
|
|
Ibbotson Associates
|
$14.5
bil
|
|
$9.3
bil
|
|
55.9%
|
|
Assets under advisement for Investment
Consulting
|
$62.6
bil
|
|
$63.3
bil
|
|
(1.1%)
|
|
|
Morningstar Associates
|
$20.1
bil
|
|
$27.8
bil
|
|
(27.7%)
|
|
|
Ibbotson Associates
|
$42.5
bil
|
|
$35.5
bil
|
|
19.7%
|
|
|
|
|
|
|
|
|
|
(1) Revised to exclude Site Builder
licenses. Morningstar no longer includes the Site Builder product
as part of Advisor Workstation. The number of Advisor Workstation
licenses reported in 2009 has been adjusted to reflect this
change.
|
|
|
|
|
|
|
|
|
|
(2) Intech (Australia) was acquired on
June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
|
($000)
|
|
|
|
2010
|
|
2009
|
|
Effective tax rate
|
|
|
|
|
|
|
Income before income taxes and equity
in net income of
|
|
|
|
|
|
|
|
unconsolidated entities
|
|
|
$
30,763
|
|
$
35,159
|
|
Equity in net income of unconsolidated
entities
|
|
|
389
|
|
382
|
|
Net loss attributable to
noncontrolling interests
|
|
|
31
|
|
89
|
|
|
Total
|
|
|
$
31,183
|
|
$
35,630
|
|
Income tax expense
|
|
|
$
10,995
|
|
$
10,668
|
|
Effective tax rate
|
|
|
35.3%
|
|
29.9%
|
|
|
|
|
|
|
|
|
|
Morningstar, Inc. and
Subsidiaries
|
|
Reconciliations of Non-GAAP Measures
with the Nearest Comparable GAAP Measures
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from consolidated
revenue to revenue excluding acquisitions and foreign currency
translations (organic revenue):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31
|
|
|
|
($000)
|
|
|
2010
|
|
2009
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue
|
|
$
128,290
|
|
$
116,732
|
|
9.9%
|
|
|
Less: acquisitions
|
|
(9,704)
|
|
-
|
|
NMF
|
|
|
Favorable impact of foreign
currency
|
|
(3,731)
|
|
-
|
|
NMF
|
|
|
Revenue excluding acquisitions
and
|
|
|
|
|
|
|
|
|
foreign currency
translations
|
|
$
114,855
|
|
$
116,732
|
|
(1.6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from
international revenue to international revenue excluding
acquisitions and foreign currency translations:
|
|
|
|
|
Three months ended March
31
|
|
|
|
($000)
|
|
|
2010
|
|
2009
|
|
%
change
|
|
|
|
|
|
|
|
|
|
|
|
International revenue
|
|
$
35,680
|
|
$
28,584
|
|
24.8%
|
|
|
Less: acquisitions
|
|
(4,101)
|
|
-
|
|
NMF
|
|
|
Favorable impact of foreign
currency
|
|
(3,731)
|
|
-
|
|
NMF
|
|
|
International revenue excluding
acquisitions
and foreign currency
translations
|
|
$
27,848
|
|
$
28,584
|
|
(2.6%)
|
|
|
|
|
|
|
|
|
|
|
|
Morningstar includes an acquired
operation as part of revenue from acquisitions for 12 months after
we complete the acquisition. After that, we include it as part of
our organic revenue. The table below shows the period in which we
included each acquired operation in revenue from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
Date of acquisition
|
|
Three months ended March 31,
2010
|
|
Global financial filings database
business of Global Reports LLC
|
|
April 20, 2009
|
|
Entire period
|
|
Equity research and data business of
C.P.M.S. Computerized Portfolio Management Services Inc.
|
|
May 1, 2009
|
|
Entire period
|
|
Andex Associates, Inc.
|
|
May 1, 2009
|
|
Entire period
|
|
Intech Pty Ltd
|
|
June 30, 2009
|
|
Entire period
|
|
Canadian Investment Awards and
Gala
|
|
December 17, 2009
|
|
Entire period
|
|
Logical Information Machines,
Inc.
|
|
December 31, 2009
|
|
Entire period
|
|
Footnoted business of Financial
Fineprint Inc.
|
|
February 1, 2010
|
|
February 1 through March 31,
2010
|
|
|
|
|
|
|
MORN-E
SOURCE Morningstar, Inc.