CHICAGO, Oct. 26, 2011 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its third-quarter 2011 financial results. The company reported consolidated revenue of $160.1 million in the third quarter of 2011, a 14.5% increase from $139.8 million in the third quarter of 2010. Consolidated operating income was $33.9 million in the third quarter of 2011, an increase of 12.3% compared with $30.2 million in the same period a year ago. Net income was $21.4 million, or 42 cents per diluted share, compared with $24.7 million, or 49 cents per diluted share, in the third quarter of 2010. The company's 2010 third-quarter earnings included an after-tax gain of $3.2 million, or 7 cents per share, related to increasing its ownership interest in Morningstar Denmark.

Excluding acquisitions and the effect of foreign currency translations, revenue rose 11.2%. Third-quarter results included $0.9 million in revenue from acquisitions. Foreign currency translations had a favorable effect of $3.7 million. Revenue excluding acquisitions and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.

In the first nine months of 2011, revenue was $472.8 million, an increase of 17.0% compared with $404.2 million in the same period in 2010. Revenue for the first nine months of the year included $15.0 million from acquisitions and $9.9 million from foreign currency translations. Excluding acquisitions and foreign currency translations, revenue rose 10.8%. Consolidated operating income increased 17.5% to $104.3 million in the first nine months of 2011, compared with $88.8 million in the first nine months of 2010. Net income was $70.4 million, or $1.37 per diluted share, in the first nine months of 2011, compared with $62.9 million, or $1.24 per diluted share, in the same period in 2010.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, "Organic revenue rose about 11% during the third quarter, which is consistent with the growth trends we've had throughout the year. Investment Consulting and Morningstar Direct were the primary growth drivers in the quarter, followed by Integrated Web Tools and Structured Credit Ratings. However, operating expense rose because of higher compensation costs, including bonus expense.

"During the quarter, we held our second annual ETF Invest conference in Chicago, with very strong attendance. We aim to be the leading provider of ETF data and research, and we also announced plans to research and rank ETF managed portfolios. Within our Investment Management division, we added several new strategies to the Morningstar Managed Portfolios offering. And, we added sophisticated asset allocation functionality to the Morningstar Direct research platform for institutional investors."

Mansueto added, "I'm also pleased to announce that we've hired Greg Goff to be our chief technology officer. Greg joins us from The Nielsen Company, where he served as senior vice president of global platform technology. He has experience managing large data sets and integrating diverse platforms, and we're thrilled to have him on board."

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 earn more than 60% of their revenue from asset-based fees.

Revenue: In the third quarter of 2011, revenue in the Investment Information segment was $125.8 million, an increase of $13.7 million, or 12.3%, including $0.9 million from acquisitions. Revenue in the Investment Management segment was $34.2 million, an increase of $6.5 million, or 23.4%.

Revenue from international operations was $47.3 million in the third quarter of 2011, an increase of 18.5% from the same period a year ago. Foreign currency translations contributed $3.7 million to international revenue. Excluding foreign currency translations, international revenue rose 9.3%.

For the first nine months of 2011, international revenue increased $25.8 million, or 22.9%, including $5.6 million from acquisitions. Foreign currency translations had a favorable effect of $9.9 million. 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 $33.9 million in the third quarter of 2011, a 12.3% increase from the same period in 2010. Operating expense rose $16.5 million, or 15.1%. The company completed seven acquisitions in 2010. Because of the timing of these acquisitions, results for both periods in 2011 include operating expense that did not exist in the same periods in 2010.

Approximately half of the increase in total operating expense was due to higher salaries, reflecting salary increases made in July, and, to a lesser extent, additional headcount. The headcount growth includes about 30 employees hired in July in the United States as part of the Morningstar Development Program, a two-year rotational training program for entry-level college graduates.

Incentive compensation and employee benefits costs represented approximately 35%, or $5.7 million, of the overall operating expense increase. Higher depreciation and amortization contributed an additional $1.1 million to the operating expense increase in the third quarter of 2011, partly from recent acquisitions. In the third quarter, the company capitalized $1.6 million of operating expense, primarily for software development within the LIM commodity data business, Structured Credit Ratings, and Morningstar Direct.

Morningstar had approximately 3,395 employees worldwide as of Sept. 30, 2011, compared with 3,165 as of Sept. 30, 2010. Headcount was higher year over year mainly because of continued hiring in the company's development centers in China and India, as well as in the United States.

The company's operating margin was 21.2% in the third quarter of 2011, a slight decrease compared with the same period in 2010. The margin decline primarily reflects higher employee benefits expense as a percentage of revenue. Capitalized operating expense contributed 1.0 percentage point to the margin in the third quarter, partially offsetting the decrease. In the first nine months of 2011, operating margin was 22.1%, a slight increase compared with 22.0% in the first nine months of 2010.

Non-Operating Income (Expense):  In the third quarter of 2010, the company acquired an additional 75% ownership interest in Morningstar Denmark, increasing its ownership to 100%. In conjunction with this acquisition, the company recorded a non-cash gain of $5.1 million and related non-cash income tax expense of $1.9 million. The gain, net of tax, increased net income by $3.2 million, or 7 cents per diluted share, in the quarter, and 6 cents per diluted share in the year-to-date period of 2010. This gain did not recur in 2011.

Effective Tax Rate: Morningstar's effective tax rate in the third quarter of 2011 was 36.6%, an increase of 4.0 percentage points compared with the prior-year period. In the third quarter of 2010, the company's effective tax rate was 32.6%, which includes a benefit related to non-U.S. income taxes. Year to date, the company's effective tax rate was 33.6%, a decrease of 0.9 percentage points. The year-to-date effective tax rate primarily reflects the positive effect of higher estimated tax benefits and incentives, most of which relate to prior years. 

Free Cash Flow:  Morningstar generated free cash flow of $38.9 million in the third quarter of 2011, reflecting cash provided by operating activities of $45.2 million and approximately $6.3 million of capital expenditures.

Cash provided by operating activities rose $9.9 million, reflecting a positive cash flow effect primarily generated from higher accrued bonus and income tax liabilities, as well as changes in other operating assets and liabilities. Capital expenditures were $2.4 million higher in the quarter.

In the first nine months of 2011, Morningstar generated free cash flow of $91.6 million, reflecting cash provided by operating activities of $106.3 million and capital expenditures of $14.7 million. Cash provided by operating activities in the first nine months of 2011 increased $26.0 million, reflecting the positive effect of changes in operating assets and liabilities and higher net income (adjusted for non-cash items), partially offset by a $16.1 million increase in bonuses paid in the first quarter of 2011.

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 Sept. 30, 2011, Morningstar had cash, cash equivalents, and investments of $433.0 million, compared with $365.4 million as of Dec. 31, 2010. In the third quarter of 2011, the company used $28.4 million of cash for its stock repurchase program. Of the $100 million authorized under the program, Morningstar has purchased 646,682 shares for $35.9 million as of Sept. 30, 2011. On Oct. 31, 2011, the company expects to pay approximately $2.5 million for its regular quarterly dividend. It expects to make capital expenditures of approximately $3 million to $5 million in the fourth quarter of 2011.

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) (including Morningstar Office); Morningstar.com®, including Premium Memberships and Internet advertising sales; and Morningstar Direct(SM).

  • Revenue was $125.8 million in the third quarter of 2011, up 12.3% from $112.1 million in the third quarter of 2010.
  • Acquisitions contributed revenue of $0.9 million in the third quarter of 2011.
  • Morningstar Direct, Integrated Web Tools, and Structured Credit Ratings drove most of the revenue increase. Morningstar Advisor Workstation (including Morningstar Office) and Licensed Data also contributed to the increase. Licenses for Morningstar Direct rose 30% to 5,726. Premium Membership subscriptions for Morningstar.com fell 4.3%. Principia subscriptions were down 5.8% to 31,318, and Advisor Workstation licenses rose slightly to 155,833.
  • Operating income was $31.4 million in the third quarter of 2011, compared with $32.8 million in the same period in 2010. Operating expense in this segment rose $15.1 million, or 19.1%, with approximately 80% of the increase from compensation-related expense, including higher salaries, employee benefits, bonus, and commission expense.
  • Operating margin was 25.0% in the third quarter of 2011 versus 29.3% in the prior-year period. The margin decline primarily reflects higher salary, benefits, and bonus expense as a percentage of revenue.  


Investment Management Segment:  The largest products in this segment based on revenue are Investment Consulting; Retirement Solutions, including Advice by Ibbotson® and Morningstar® Retirement Manager(SM); and Morningstar® Managed Portfolios(SM).

  • Revenue was $34.2 million in the third quarter of 2011, a 23.4% increase from $27.8 million in the same period in 2010.
  • Investment Consulting was the primary driver of the segment revenue growth. Retirement Solutions and Morningstar Managed Portfolios also made positive contributions, but to a lesser extent.
  • Assets under advisement and management for Investment Consulting were $128.1 billion as of Sept. 30, 2011, up 21.2% compared with $105.7 billion as of Sept. 30, 2010. The increase reflects additional assets for an existing client's fund-of-funds program for which Morningstar now receives asset-based fees. Assets under advisement and management for Retirement Solutions rose to $36.3 billion as of Sept. 30, 2011, versus $31.6 billion as of Sept. 30, 2010. Assets under management for Morningstar Managed Portfolios increased to $2.8 billion as of Sept. 30, 2011, compared with $2.5 billion as of Sept. 30, 2010.
  • Operating income was $18.1 million in the third quarter of 2011, an increase of 33.6% compared with the third quarter of 2010. Operating expense in the segment was $16.1 million, an increase of $1.9 million, or 13.7%, primarily reflecting higher operating expense for operations outside of the United States as well as higher compensation expense and professional fees in the United States.
  • Operating margin was 52.7% in the third quarter of 2011 versus 48.7% in the prior-year period. The higher margin mainly reflects lower salary, bonus, and commission expense as a percentage of revenue.  


Intangible Amortization and Corporate Depreciation Expense:  Intangible amortization, which represents the majority of the expense in this category, was $6.9 million in the third quarter of 2011, an increase of $0.7 million compared with the same period in 2010. Corporate depreciation expense was $1.9 million in the third quarter, essentially unchanged from the prior-year period.

Corporate Unallocated:  This category includes 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 $6.8 million in the quarter, a decrease of $1.3 million, or 15.7%, because the company capitalized $1.6 million of operating expense in the quarter for software development. Lower professional fees also contributed to the decrease, but to a lesser extent.

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.

Investor Relations

22 W. Washington Street

Chicago, IL 60602

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.

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 products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 330,000  investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $167 billion in assets under advisement and management as of Sept. 30, 2011. The company has operations in 26 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 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 ongoing economic weakness and uncertainty; the effect 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; the increasing concentration of data and development work carried out at our offshore facilities in China and India; failing to differentiate our products and continuously create innovative, proprietary research tools; failing to successfully integrate acquisitions; challenges faced by our non-U.S. operations; and a prolonged outage of our database and network facilities. A more complete description of these risks and uncertainties can be found in our other filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2010. If any of these risks and uncertainties materialize, our actual future results may vary significantly from what we expect. 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 its business. Free cash flow should not be considered an alternative to any measure required to be reported 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.

All dollar and percentage comparisons, which are often accompanied by words such as "increase," "decrease," "grew," "declined,"or "was similar" refer to a comparison with the same period in the previous year unless otherwise stated.

©2011 Morningstar, Inc.  All rights reserved.

MORN-E

Contacts:

Media: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com

Investors may submit questions to investors@morningstar.com or by fax to 312-696-6009.

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)



2011



2010



change



2011



2010



change





























Revenue



$                  160,051



$ 139,817



14.5%



$           472,829



$ 404,198



17.0%

Operating expense(1):



























Cost of goods sold



48,074



40,713



18.1%



133,929



114,767



16.7%



Development



13,482



12,703



6.1%



39,151



35,491



10.3%



Sales and marketing



27,253



22,881



19.1%



80,502



69,877



15.2%



General and administrative



26,431



23,462



12.7%



83,255



67,211



23.9%



Depreciation and amortization



10,947



9,897



10.6%



31,712



28,082



12.9%



  Total operating expense



126,187



109,656



15.1%



368,549



315,428



16.8%

Operating income



33,864



30,161



12.3%



104,280



88,770



17.5%

Operating margin



21.2%



21.6%



(0.4)pp



22.1%



22.0%



0.1pp





























Non-operating income (expense), net:



























Interest income, net



797



512



55.7%



1,142



1,692



(32.5%)



Other income (expense), net



(1,376)



5,694



NMF



(938)



4,356



NMF



    Non-operating income (expense), net



(579)



6,206



NMF



204



6,048



(96.6%)





























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



33,285



36,367



(8.5%)



104,484



94,818



10.2%

Income tax expense



12,343



11,917



3.6%



35,585



33,137



7.4%

Equity in net income of unconsolidated entities



428



333



28.5%



1,397



1,176



18.8%

Consolidated net income



21,370



24,783



(13.8%)



70,296



62,857



11.8%

Net (income) loss attributable to noncontrolling interests



10



(106)



NMF



106



10



NMF

Net income attributable to Morningstar, Inc.



$                    21,380



$   24,677



(13.4%)



$             70,402



$   62,867



12.0%





























Net income per share attributable to Morningstar, Inc.:



























Basic



$                        0.42



$       0.50



(16.0%)



$                 1.40



$       1.27



10.2%



Diluted



$                        0.42



$       0.49



(14.3%)



$                 1.37



$       1.24



10.5%

Weighted average common shares outstanding:



























Basic



50,278



49,401







50,082



49,157







Diluted



51,123



50,544







51,071



50,453







































Three months ended September 30



Nine months ended September 30







2011



2010







2011



2010





(1) Includes stock-based compensation expense of:



























Cost of goods sold



$                      1,117



$        960







$               3,068



$     2,582







Development



545



517







1,588



1,359







Sales and marketing



489



469







1,392



1,358







General and administrative



1,800



1,799







5,395



5,038







  Total stock-based compensation expense



$                      3,951



$     3,745







$             11,443



$   10,337

































NMF — Not meaningful, pp — percentage points





Morningstar, Inc. and Subsidiaries

























Operating Expense as a Percentage of Revenue



































Three months ended September 30



Nine months ended September 30







2011



2010



change



2011



2010



change





























Revenue



100.0%



100.0%



-



100.0%



100.0%



-

Operating expense(1):



























Cost of goods sold



30.0%



29.1%



0.9pp



28.3%



28.4%



(0.1)pp



Development



8.4%



9.1%



(0.7)pp



8.3%



8.8%



(0.5)pp



Sales and marketing



17.0%



16.4%



0.6pp



17.0%



17.3%



(0.3)pp



General and administrative



16.5%



16.8%



(0.3)pp



17.6%



16.6%



1.0pp



Depreciation and amortization



6.8%



7.1%



(0.3)pp



6.7%



6.9%



(0.2)pp



  Total operating expense(2)



78.8%



78.4%



0.4pp



77.9%



78.0%



(0.1)pp

Operating margin



21.2%



21.6%



(0.4)pp



22.1%



22.0%



0.1pp



































Three months ended September 30



Nine months ended September 30







2011



2010



change



2011



2010



change

(1) Includes stock-based compensation expense of:























Cost of goods sold



0.7%



0.7%



-



0.6%



0.6%



-



Development



0.3%



0.4%



(0.1)pp



0.3%



0.3%



-



Sales and marketing



0.3%



0.3%



-



0.3%



0.3%



-



General and administrative



1.1%



1.3%



(0.2)pp



1.1%



1.2%



(0.1)pp



  Total stock-based compensation expense(2)



2.5%



2.7%



(0.2)pp



2.4%



2.6%



(0.2)pp





























(2) Sum of percentages may not equal total because of rounding.





Morningstar, Inc. and Subsidiaries

















Unaudited Condensed Consolidated Statements of Cash Flows





































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



2011



2010





















Operating activities

















Consolidated net income



$   21,370



$   24,783



$   70,296



$   62,857

Adjustments to reconcile consolidated net income to net cash













flows from operating activities:



















Depreciation and amortization



10,947



9,897



31,712



28,082



Deferred income tax (benefit) expense



(2,013)



2,781



(1,559)



1,769



Stock-based compensation expense



3,951



3,745



11,443



10,337



Equity in net income of unconsolidated entities



(428)



(333)



(1,397)



(1,176)



Excess tax benefits from stock-option exercises



















 and vesting of restricted stock units



(1,450)



(680)



(7,621)



(4,885)



Holding gain upon acquisition of additional



















 ownership of equity method investments



-



(5,073)



-



(5,073)



Other, net



2,700



(765)



2,683



977

Changes in operating assets and liabilities, net of

















effects of acquisitions:



















Accounts receivable



(1,020)



(639)



(403)



(7,254)



Other assets



1,388



(1,997)



1,996



(2,508)



Accounts payable and accrued liabilities



(15)



(834)



(5,275)



2,025



Accrued compensation



11,286



8,884



(3,242)



(2,270)



Deferred revenue



(7,579)



(9,115)



618



(1,938)



Income taxes - current



6,700



4,564



9,442



309



Deferred rent



(327)



522



(984)



442



Other liabilities



(350)



(460)



(1,393)



(1,384)



         Cash provided by operating activities



45,160



35,280



106,316



80,310

Investing activities

















Purchases of investments



(83,051)



(42,515)



(281,698)



(128,043)

Proceeds from maturities and sales of investments



55,061



46,816



205,421



177,197

Capital expenditures



(6,271)



(3,862)



(14,689)



(7,701)

Acquisitions, net of cash acquired



(269)



(21,242)



300



(88,697)

Other, net



90



(59)



875



830



       Cash used for investing activities



(34,440)



(20,862)



(89,791)



(46,414)

Financing activities

















Proceeds from stock-option exercises, net



1,978



1,557



6,630



5,207

Excess tax benefits from stock-option exercises

















 and vesting of restricted stock units



1,450



680



7,621



4,885

Common shares repurchased



(28,417)



-



(28,526)



-

Dividends paid



(2,528)



-



(7,539)



-

Other, net



(149)



(734)



(363)



(529)



      Cash provided by (used for) financing activities



(27,666)



1,503



(22,177)



9,563

Effect of exchange rate changes on cash and cash equivalents

(3,807)



5,574



(254)



1,917

Net increase (decrease) in cash and cash equivalents



(20,753)



21,495



(5,906)



45,376

Cash and cash equivalents—Beginning of period



195,023



154,377



180,176



130,496

Cash and cash equivalents—End of period



$ 174,270



$ 175,872



$ 174,270



$ 175,872





















Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):



























Three months ended September 30



Nine months ended September 30

($000)



2011



2010



2011



2010





















Cash provided by operating activities



$   45,160



$   35,280



$ 106,316



$   80,310

Less: Capital expenditures



(6,271)



(3,862)



(14,689)



(7,701)

Free cash flow



$   38,889



$   31,418



$   91,627



$   72,609





Morningstar, Inc. and Subsidiaries













Unaudited Condensed Consolidated Balance Sheets



























September 30



December 31

($000)







2011



2010

















Assets













Current assets:















Cash and cash equivalents







$        174,270



$        180,176



Investments







258,749



185,240



Accounts receivable, net







110,444



110,891



Deferred tax asset, net







3,814



2,860



Income tax receivable, net







10,045



10,459



Other







16,076



17,654



         Total current assets







573,398



507,280

















Property and equipment, net







63,703



62,105

Investments in unconsolidated entities







24,761



24,262

Goodwill







319,367



317,661

Intangible assets, net







147,311



169,023

Other assets







5,726



5,971



Total assets







$     1,134,266



$     1,086,302

















Liabilities and equity













Current liabilities:















Accounts payable and accrued liabilities







$          42,184



$          42,680



Accrued compensation







59,908



62,404



Deferred revenue







146,877



146,267



Other







322



1,373



         Total current liabilities







249,291



252,724

















Accrued compensation







5,427



4,965

Deferred tax liability, net







17,490



19,975

Other long-term liabilities







25,930



27,213



Total liabilities







298,138



304,877



Total equity







836,128



781,425



Total liabilities and equity







$     1,134,266



$     1,086,302





Morningstar, Inc. and Subsidiaries

























Segment Information



























































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



change



2011



2010



change





























Revenue



























Investment Information



$ 125,804



$ 112,055



12.3%



$ 374,319



$ 324,600



15.3%



Investment Management



34,247



27,762



23.4%



98,510



79,598



23.8%



Consolidated revenue



$ 160,051



$ 139,817



14.5%



$ 472,829



$ 404,198



17.0%































Revenue—U.S.



$ 112,790



$   99,933



12.9%



$ 334,395



$ 291,529



14.7%



Revenue—International



$   47,261



$   39,884



18.5%



$ 138,434



$ 112,669



22.9%































Revenue—U.S. (percentage of consolidated revenue)

70.5%



71.5%



(1.0)pp



70.7%



72.1%



(1.4)pp



Revenue—International (percentage of consolidated revenue)

29.5%



28.5%



1.0pp



29.3%



27.9%



1.4pp





























Operating income (loss)(1)



























Investment Information



$   31,426



$   32,811



(4.2%)



$ 100,830



$   96,099



4.9%



Investment Management



18,062



13,523



33.6%



53,599



41,137



30.3%



Intangible amortization and corporate depreciation expense

(8,788)



(8,064)



9.0%



(25,565)



(22,930)



11.5%



Corporate unallocated



(6,836)



(8,109)



(15.7%)



(24,584)



(25,536)



(3.7%)



Consolidated operating income



$   33,864



$   30,161



12.3%



$ 104,280



$   88,770



17.5%





























Operating margin(1)



























Investment Information



25.0%



29.3%



(4.3)pp



26.9%



29.6%



(2.7)pp



Investment Management



52.7%



48.7%



4.0pp



54.4%



51.7%



2.7pp



Consolidated operating margin



21.2%



21.6%



(0.4)pp



22.1%



22.0%



0.1pp





























(1) Includes stock-based compensation expense allocated to each segment.







Morningstar, Inc. and Subsidiaries

















Supplemental Data



















































As of September 30













2011



2010



% change

Our employees

















Worldwide headcount (approximate)







3,395



3,165



7.3%

Number of worldwide equity and credit analysts







161



143

(1)

12.6%

Number of worldwide fund analysts







109



99

(2)

10.1%























Our business

















Investment Information

















Morningstar.com Premium subscriptions (U.S.)







133,734



139,677

(2)

(4.3%)

Registered users for Morningstar.com (U.S.)







6,891,406



6,226,554



10.7%

U.S. Advisor Workstation and Morningstar Office licenses







155,833



154,403



0.9%

Principia subscriptions







31,318



33,252



(5.8%)

Morningstar Direct licenses







5,726



4,403



30.0%























Investment Management

















Assets under advisement and management

















    Investment Consulting







$128.1 bil



$105.7 bil

(3)

21.2%

    Retirement Solutions(4)







$36.3 bil



$31.6 bil



14.9%

    Morningstar Managed Portfolios







$2.8 bil



$2.5 bil



12.0%













































(1) Revised to include structured credit analysts























(2) Revised























(3) Revised; in addition, Ibbotson Australia is now included in the total.























(4) Revised to include Plan Sponsor Advice.































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



2011



2010

Effective tax rate

















Income before income taxes and equity in net income of

















    unconsolidated entities



$ 33,285



$   36,367



$ 104,484



$   94,818

Equity in net income of unconsolidated entities



428



333



1,397



1,176

Net (income) loss attributable to noncontrolling interests



10



(106)



106



10

    Total



$ 33,723



$   36,594



$ 105,987



$   96,004

Income tax expense



$ 12,343



$   11,917



$   35,585



$   33,137

Effective tax rate



36.6%



32.6%



33.6%



34.5%





Morningstar, Inc. and Subsidiaries

Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures





























Morningstar includes an acquired operation as part of revenue and expense from acquisitions for 12 months after we complete the acquisition. Operating

expense related to acquisitions also includes amortization of intangible assets, professional fees, and expense related to vacant office space incurred as part

of the acquisition process. It's important to note that it's difficult to precisely quantify the amount of operating expense from acquisitions.  Morningstar doesn't

always maintain acquired operations as stand-alone businesses, and the company often integrates administrative or other functions with existing operations.



Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue):











































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



% change



2011



2010



% change





























Consolidated revenue



$ 160,051



$             139,817



14.5%



$ 472,829



$ 404,198



17.0%

Less: acquisitions



(908)



-



NMF



(15,020)



-



NMF

Favorable impact of foreign currency translations



(3,683)



-



NMF



(9,936)



-



NMF

Revenue excluding acquisitions and



























foreign currency translations



$ 155,460



$             139,817



11.2%



$ 447,873



$ 404,198



10.8%

























































Reconciliation from international revenue to international revenue excluding acquisitions and foreign currency translations: 



































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



% change



2011



2010



% change





























International revenue



$   47,261



$               39,884



18.5%



$ 138,434



$ 112,669



22.9%

Less: acquisitions



-



-



n/a



(5,561)



-



NMF

Favorable impact of foreign currency translations



(3,683)



-



NMF



(9,936)



-



NMF

International revenue excluding acquisitions



























and foreign currency translations



$   43,578



$               39,884



9.3%



$ 122,937



$ 112,669



9.1%

























































The following table summarizes the change in operating expense:



























































Three months ended September 30



Nine months ended September 30

($000)



2011



2010



$ change



2011



2010



$ change

Total operating expense



$ 126,187



$             109,656



$   16,531



$ 368,549



$ 315,428



$   53,121































Acquisitions











$        476











$   13,274



Unfavorable impact of foreign currency translations











3,353











9,127



All other changes in operating expense











12,702











30,720



Total











$   16,531











$   53,121

































The table below shows the period in which we included each acquired operation in revenue and expense from acquisitions:





























Acquisition







Date of acquisition



2011 revenue and expense from acquisitions

Footnoted business of Financial Fineprint Inc.







February 1, 2010







January 1 through January 31, 2011









Aegis Equities Research







April 1, 2010







January 1 through March 31, 2011









Old Broad Street Research Ltd.







April 12, 2010







January 1 through April 11, 2011









Realpoint, LLC







May 3, 2010







January 1 through May 2, 2011









Morningstar Danmark A/S







July 1, 2010







January 1 through June 30, 2011









Seeds Group







July 1, 2010







January 1 through June 30, 2011









Annuity intelligence business of Advanced Sales and Marketing Corporation



November 1, 2010







January 1 through September 30, 2011













SOURCE Morningstar, Inc.

Copyright 2011 PR Newswire

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