Morningstar, Inc. Reports Third-Quarter 2012 Financial Results

CHICAGO, Oct. 24, 2012 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its third-quarter 2012 financial results. The company reported consolidated revenue of $161.0 million in the third quarter of 2012, a 0.6% increase from $160.1 million in the third quarter of 2011. Consolidated operating income was $39.9 million, an increase of 17.7% compared with $33.9 million in the same period a year ago. Net income was $27.1 million, or 56 cents per diluted share, compared with $21.4 million, or 42 cents per diluted share, in the third quarter of 2011.

Excluding acquisitions and the effect of foreign currency translations, revenue rose 1.9%. Foreign currency translations had an unfavorable effect of $2.1 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 2012, consolidated revenue was $487.7 million, an increase of 3.1% compared with $472.8 million in the same period in 2011. Consolidated operating income was $111.4 million in the first nine months of 2012, an increase of 6.8% compared with $104.3 million in the same period a year ago. Net income was $75.1 million, or $1.51 per diluted share, in the first nine months of 2012, compared with $70.4 million, or $1.37 per diluted share, in the same period in 2011.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, "We had another challenging quarter, and much of the investment industry is still struggling. Still, Morningstar Direct, Morningstar Data, and Morningstar Advisor Workstation continued to show strong organic revenue growth. Meanwhile, our customers in the variable annuity business are facing near-record low interest rates and market volatility."

Mansueto added, "During the quarter, we also launched municipal bond research and we hired a Microsoft veteran, James McClamroch, to lead Morningstar.com, our investment website. We've been clamping down on expenses, and we're seeing the benefits of greater cost control in areas such as travel, hiring, and advertising. We're also taking steps to streamline and simplify our product lines and have announced several small divestitures."

International Operations: Revenue from international operations was $46.9 million in the third quarter of 2012, a slight decrease of 0.7% from the same period a year ago. Foreign currency translations reduced international revenue by $2.1 million. Excluding acquisitions and foreign currency translations, international revenue rose 3.7% in the third 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 $39.9 million in the third quarter of 2012, a 17.7% increase from the same period in 2011. Operating expense fell $5.1 million, or 4.0%, in the third quarter of 2012. In the first nine months of 2012, consolidated operating income rose 6.8% to $111.4 million compared with $104.3 million in the first nine months of 2011. Operating expense rose $7.7 million, or 2.1%, in the first nine months of 2012.

The largest factor behind the operating expense decrease was bonus expense, which fell $2.6 million, or approximately 25.4%, in the third quarter of 2012. Morningstar reviews and updates its bonus expense quarterly based primarily on its expectations for full-year operating income versus budget.

Operating margin was 24.8% in the third quarter of 2012, up from 21.2% in the same period in 2011. In the first nine months of 2012, operating margin was 22.8%, compared with 22.1% in the first nine months of 2011. Lower bonus expense had a favorable effect on margins of 1.7 percentage points in the third quarter and 1.3 percentage points in the first nine months of 2012.

Morningstar had approximately 3,525 employees worldwide as of Sept. 30, 2012, compared with 3,490 employees as of June 30, 2012 and 3,395 as of Sept. 30, 2011. Headcount rose year over year because of hiring in the company's development center in India as well as in the United States. Morningstar hired about 35 employees in the United States in July as part of the Morningstar Development Program, a career development program for entry-level employees.

Effective Tax Rate: Morningstar's effective tax rate in the third quarter of 2012 was 35.9%, compared with 36.6% in the same period in 2011. Year to date, the company's effective tax rate was 35.6% compared with 33.6% in the first nine months of 2011. The year-to-date increase is due primarily to lower credit incentives in the current year.

Free Cash Flow: Morningstar generated free cash flow of $32.5 million in the third quarter of 2012, reflecting cash provided by operating activities of $37.5 million and $5.0 million of capital expenditures. Free cash flow declined by $6.3 million compared with the third quarter of 2011 as cash provided by operating activities declined $7.6 million and capital expenditures declined $1.3 million.

In the first nine months of 2012, Morningstar generated free cash flow of $69.4 million, reflecting cash provided by operating activities of $92.3 million and capital expenditures of $22.9 million. Cash provided by operating activities in the first nine months of 2012 decreased $14.0 million, reflecting the negative cash effect of changes in operating assets and liabilities, and, to a lesser extent, a $5.3 million increase in bonuses paid in the first quarter. Higher net income (adjusted for non-cash items) partially offset the decline. Capital expenditures rose $8.2 million, primarily reflecting computer hardware and software purchases for the company's U.S. operations.

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, 2012, Morningstar had cash, cash equivalents, and investments of $343.1 million, compared with $470.2 million as of Dec. 31, 2011. In the first nine months of 2012, the company used $183.7 million of cash for its share repurchase program. Of the $300 million authorized under the program, Morningstar has purchased a total of 3,964,411 shares for $231.6 million as of Sept. 30, 2012. Morningstar ended the quarter with 47.5 million shares outstanding. On Oct. 31, 2012, the company will pay approximately $4.7 million for its regular quarterly dividend.

Business Segment Performance

Investment Information Segment: The largest products and services in this segment based on revenue are Morningstar® Data (formerly Licensed Data); Morningstar® Advisor WorkstationSM (including Morningstar Office); Morningstar DirectSM; and Morningstar.com®, including Premium Memberships and Internet advertising sales.

  • Revenue was $129.4 million in the third quarter of 2012, a 2.8% increase from $125.8 million in the third quarter of 2011. Morningstar Direct was the primary driver of revenue growth, with licenses increasing 24.3% to 7,115. Morningstar Data and Morningstar Advisor Workstation (primarily Morningstar Office) also contributed to the revenue growth in the segment.
  • Revenue for Morningstar.com was down because Internet advertising sales were lower and Premium Membership subscriptions for Morningstar.com fell 6.5% to 125,006.
  • Operating income was $39.0 million in the third quarter of 2012, compared with $31.4 million in the same period in 2011. Operating expense in this segment fell $4.0 million, or 4.2%, primarily because of lower bonus expense and lower discretionary spending, including travel expense.
  • Operating margin was 30.1% in the third quarter of 2012 versus 25.0% in the prior-year period. The margin increase reflects the higher revenue base and the decrease in operating expense.

Investment Management Segment:  The largest products in this segment based on revenue are Investment Advisory Services (formerly Investment Consulting); Retirement Solutions, including Advice by Ibbotson® and Morningstar® Retirement ManagerSM; and Morningstar® Managed PortfoliosSM.

  • Revenue was $31.6 million in the third quarter of 2012, a 7.7% decrease from $34.2 million in the same period in 2011. The main reason for the revenue decline was the previously announced loss of business from a large client in the Investment Management segment that began managing several fund-of-funds portfolios in-house in April 2012. The loss of revenue from this client was partially offset by higher revenue from Morningstar Managed Portfolios and Retirement Solutions. The variable annuity industry, which accounted for approximately 15% of Investment Management segment revenue in the third quarter of 2012, continues to face challenges. Accordingly, Morningstar expects that there will be further pressure on revenue from clients in the variable annuity industry.  
  • Assets under advisement and management for Investment Advisory Services were $142.4 billion as of Sept. 30, 2012, compared with $119.3 billion as of Sept. 30, 2011. Assets now managed in-house by the client described above represented $11.3 billion, or 9.5%, of the company's Investment Advisory Services assets under advisement and management as of Sept. 30, 2011.
  • Assets under management and advisement for Retirement Solutions were $45.4 billion as of Sept. 30, 2012, versus $36.3 billion as of Sept. 30, 2011. Assets under management and advisement for Morningstar Managed Portfolios were $4.0 billion as of Sept. 30, 2012, compared with $2.8 billion as of Sept. 30, 2011.
  • Operating income was $14.8 million in the third quarter of 2012, a decrease of 17.8% compared with the third quarter of 2011. Operating expense in the segment was $16.8 million, an increase of $0.6 million, or 3.5%. Operating margin was 47.0% in the third quarter of 2012 versus 52.7% in the prior-year period. 

Intangible Amortization and Corporate Depreciation Expense: Morningstar does not allocate expense for intangible amortization or corporate depreciation to its operating segments. Intangible amortization, which represents the majority of the expense in this category, was $5.9 million in the third quarter of 2012, a decrease of $1.0 million compared with the same period in 2011. Corporate depreciation expense was $2.6 million in the third quarter, an increase of $0.7 million compared with the same period in 2011.

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. It also includes capitalization of internal product development costs. Costs in this category were $5.4 million in the third quarter of 2012, a decrease of $1.4 million, or 20.4%. The company capitalized $1.9 million of operating expense in the quarter for software development, compared with $1.6 million in the third quarter of 2011. The total expense recorded in this category benefited $1.0 million from the resolution of a prior-year business tax expense matter.

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 email to investors@morningstar.com or write to Morningstar at:

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 more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 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 approximately $195 billion in assets under advisement and management as of Sept. 30, 2012. The company has operations in 27 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; liability related to the storage of personal information about our users; 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, 2011. 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 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.

Contacts:

Media: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com
Investors may submit questions to investors@morningstar.com.

©2012 Morningstar, Inc. All Rights Reserved.

MORN-E

 

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)


2012


2011


change


2012


2011


change















Revenue


$       160,952


$ 160,051


0.6%


$

487,679


$ 472,829


3.1%

Operating expense1:














Cost of goods sold


47,711


48,074


(0.8%)


147,479


133,929


10.1%


Development


12,857


13,482


(4.6%)


38,664


39,151


(1.2%)


Sales and marketing


25,732


27,253


(5.6%)


81,431


80,502


1.2%


General and administrative


23,966


26,431


(9.3%)


77,090


83,255


(7.4%)


Depreciation and amortization


10,822


10,947


(1.1%)


31,616


31,712


(0.3%)


   Total operating expense


121,088


126,187


(4.0%)


376,280


368,549


2.1%

Operating income 


39,864


33,864


17.7%


111,399


104,280


6.8%

Operating margin


24.8%


21.2%


3.6pp


22.8%


22.1%


0.7pp















Non-operating income (expense), net:














Interest income (expense), net


1,719


797


115.7%


3,848


1,142


237.0%


Other income (expense), net


161


(1,376)


NMF


(314)


(938)


(66.5%)


     Non-operating income (expense), net


1,880


(579)


NMF


3,534


204


1632.4%




























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


41,744


33,285


25.4%


114,933


104,484


10.0%

Income tax expense


15,186


12,343


23.0%


41,441


35,585


16.5%

Equity in net income of unconsolidated entities


478


428


11.7%


1,541


1,397


10.3%

Consolidated net income


27,036


21,370


26.5%


75,033


70,296


6.7%

Net loss attributable to noncontrolling interests


34


10


240.0%


62


106


(41.5%)

Net income attributable to Morningstar, Inc.


$         27,070


$   21,380


26.6%


$

75,095


$   70,402


6.7%















Net income per share attributable to Morningstar, Inc.:














Basic


$             0.56


$       0.42


33.3%


$

1.53


$       1.40


9.3%


Diluted


$             0.56


$       0.42


33.3%


$

1.51


$       1.37


10.2%

Weighted average common shares outstanding:














Basic


47,975


50,278




49,028


50,082




Diluted


48,481


51,123




49,664


51,071




















Three months ended September 30

Nine months ended September 30





2012


2011




2012


2011



(1) Includes stock-based compensation expense of:














Cost of goods sold


$           1,148


$     1,117




$

3,304


$     3,068




Development


471


545




1,435


1,588




Sales and marketing


493


489




1,433


1,392




General and administrative


1,882


1,800




5,422


5,395




   Total stock-based compensation expense


$           3,994


$     3,951




$

11,594


$   11,443

















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





2012


2011


change


2012


2011


change

















Revenue


100.0%


100.0%


-


100.0%


100.0%


-


Operating expense1:















Cost of goods sold


29.6%


30.0%


(0.4)pp


30.2%


28.3%


1.9pp



Development


8.0%


8.4%


(0.4)pp


7.9%


8.3%


(0.4)pp



Sales and marketing


16.0%


17.0%


(1.0)pp


16.7%


17.0%


(0.3)pp



General and administrative


14.9%


16.5%


(1.6)pp


15.8%


17.6%


(1.8)pp



Depreciation and amortization


6.7%


6.8%


(0.1)pp


6.5%


6.7%


(0.2)pp



Total operating expense2


75.2%


78.8%


(3.6)pp


77.2%


77.9%


(0.7)pp


Operating margin


24.8%


21.2%


3.6pp


22.8%


22.1%


0.7pp




















Three months ended September 30

Nine months ended September 30




2012


2011


change


2012


2011


change


(1) Includes stock-based compensation expense of:













Cost of goods sold


0.7%


0.7%


-


0.7%


0.6%


0.1pp



Development


0.3%


0.3%


-


0.3%


0.3%


-



Sales and marketing


0.3%


0.3%


-


0.3%


0.3%


-



General and administrative


1.2%


1.1%


0.1pp


1.1%


1.1%


-



Total stock-based compensation expense2


2.5%


2.5%


-


2.4%


2.4%


-

















(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)


2012


2011


2012


2011











Operating activities









Consolidated net income


$

27,036


$

21,370


$

75,033


$

70,296

Adjustments to reconcile consolidated net income to net cash









flows from operating activities:










Depreciation and amortization


10,822


10,947


31,616


31,712


Deferred income taxes


193


(2,013)


492


(1,559)


Stock-based compensation expense


3,994


3,951


11,594


11,443


Equity in net income of unconsolidated entities


(478)


(428)


(1,541)


(1,397)


Excess tax benefits from stock-option exercises










  and vesting of restricted stock units 


(459)


(1,450)


(5,007)


(7,621)


Other, net


(130)


2,700


1,332


2,683

Changes in operating assets and liabilities, net of 









effects of acquisitions:










Accounts receivable


(2,175)


(1,020)


(6,569)


(403)


Other assets


89


1,388


(3,551)


1,996


Accounts payable and accrued liabilities


(4,968)


(15)


(4,316)


(5,275)


Accrued compensation


6,069


11,286


(20,851)


(3,242)


Deferred revenue


(4,649)


(7,579)


7,684


618


Income taxes - current


2,695


6,700


7,220


9,442


Deferred rent


(177)


(327)


291


(984)


Other liabilities


(335)


(350)


(1,111)


(1,393)


          Cash provided by operating activities


37,527


45,160


92,316


106,316

Investing activities









Purchases of investments


(1,041)


(100,229)


(134,929)


(298,876)

Proceeds from maturities and sales of investments 


54,827


72,239


216,350


222,599

Capital expenditures


(4,954)


(6,271)


(22,876)


(14,689)

Acquisitions, net of cash acquired


-


(269)


-


300

Purchase of equity and cost method investments


(3,554)


-


(10,304)


-

Other, net


(4)


90


(4)


875


        Cash provided by (used for) investing activities


45,274


(34,440)


48,237


(89,791)

Financing activities









Proceeds from stock-option exercises, net


1,979


1,978


2,760


6,630

Excess tax benefits from stock-option exercises









  and vesting of restricted stock units


459


1,450


5,007


7,621

Common shares repurchased


(78,259)


(28,417)


(183,698)


(28,526)

Dividends paid


(4,863)


(2,528)


(14,867)


(7,539)

Other, net


2


(149)


(18)


(363)


       Cash used for financing activities


(80,682)


(27,666)


(190,816)


(22,177)

Effect of exchange rate changes on cash and cash equivalents

2,563


(3,807)


2,007


(254)

Net increase (decrease) in cash and cash equivalents


4,682


(20,753)


(48,256)


(5,906)

Cash and cash equivalents—Beginning of period


147,499


195,023


200,437


180,176

Cash and cash equivalents—End of period


$

152,181


$

174,270


$

152,181


$

174,270











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)


2012


2011


2012


2011











Cash provided by operating activities


$

37,527


$

45,160


$

92,316


$

106,316

Less: Capital expenditures


(4,954)


(6,271)


(22,876)


(14,689)

Free cash flow


$

32,573


$

38,889


$

69,440


$

91,627











 

Morningstar, Inc. and Subsidiaries







Unaudited Condensed Consolidated Balance Sheets


















September 30


December 31

($000)




2012


2011









Assets







Current assets:








Cash and cash equivalents




$        152,181


$        200,437


Investments




190,899


269,755


Accounts receivable, net




119,877


113,312


Deferred tax asset, net




2,156


5,104


Income tax receivable, net




5,277


7,445


Other




22,546


15,980


          Total current assets




492,936


612,033









Property, equipment, and capitalized software, net




77,873


68,196

Investments in unconsolidated entities




38,278


27,642

Goodwill




321,134


318,492

Intangible assets, net




122,832


139,809

Other assets




8,330


5,912


Total assets




$     1,061,383


$     1,172,084









Liabilities and equity







Current liabilities:








Accounts payable and accrued liabilities




$          40,356


$          41,403


Accrued compensation




55,131


73,124


Deferred revenue




164,360


155,494


Other




319


612


          Total current liabilities




260,166


270,633









Accrued compensation




6,802


5,724

Deferred tax liability, net




14,262


15,940

Other long-term liabilities




23,422


22,771


Total liabilities




304,652


315,068


Total equity




756,731


857,016


Total liabilities and equity




$     1,061,383


$     1,172,084









 

Morningstar, Inc. and Subsidiaries










Segment Information




























Three months ended September 30


Nine months ended September 30

($000)


2012


2011


change


2012


2011


change















Revenue














Investment Information


$         129,357


$ 125,804


2.8%


$        391,031


$ 374,319


4.5%


Investment Management


31,595


34,247


(7.7%)


96,648


98,510


(1.9%)


Consolidated revenue


$         160,952


$ 160,051


0.6%


$        487,679


$ 472,829


3.1%
















Revenue—U.S.


$         114,021


$ 112,790


1.1%


$        346,442


$ 334,395


3.6%


Revenue—International


$           46,931


$   47,261


(0.7%)


$        141,237


$ 138,434


2.0%
















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

70.8%


70.5%


0.3pp


71.0%


70.7%


0.3pp


Revenue—International (percentage of consolidated revenue)

29.2%


29.5%


(0.3)pp


29.0%


29.3%


(0.3)pp















Operating income (loss)1














Investment Information


$           38,957


$   31,426


24.0%


$        110,644


$ 100,830


9.7%


Investment Management


14,842


18,062


(17.8%)


45,606


53,599


(14.9%)


Intangible amortization and corporate depreciation expense

(8,495)


(8,788)


(3.3%)


(24,668)


(25,565)


(3.5%)


Corporate unallocated


(5,440)


(6,836)


(20.4%)


(20,183)


(24,584)


(17.9%)


Consolidated operating income


$           39,864


$   33,864


17.7%


$        111,399


$ 104,280


6.8%















Operating margin1














Investment Information


30.1%


25.0%


5.1pp


28.3%


26.9%


1.4pp


Investment Management


47.0%


52.7%


(5.7)pp


47.2%


54.4%


(7.2)pp


Consolidated operating margin


24.8%


21.2%


3.6pp


22.8%


22.1%


0.7pp















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







 

Morningstar, Inc. and Subsidiaries







Supplemental Data

























As of September 30









2012


2011


% change

Our employees









Worldwide headcount (approximate)




3,525


3,395


3.8%

Number of worldwide equity and credit analysts (approximate)


155


155

(1)

0.0%

Number of worldwide fund analysts (approximate)



110


110


0.0%












Our business









Investment Information









Morningstar.com Premium Membership subscriptions (U.S.)


125,006


133,734


(6.5%)

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




7,440,867


6,891,406


8.0%

U.S. Advisor Workstation and Morningstar Office licenses 


161,957


160,710

(2)

0.8%

Principia subscriptions 




27,695


31,318


(11.6%)

Morningstar Direct licenses




7,115


5,726


24.3%












Investment Management









Assets under advisement and management (approximate)








Investment Advisory Services




$142.4 bil


$119.3 bil

(1)

19.4%


Retirement Solutions




$45.4 bil


$36.3 bil


25.1%


Morningstar Managed Portfolios




$4.0 bil


$2.8 bil


42.9%


Ibbotson Australia




$3.1 bil


$2.8 bil


10.7%























(1) Revised




















(2) Revised to include licenses from the Annuity Intelligence business










































Three months ended September 30

Nine months ended September 30

($000)


2012


2011


2012


2011

Effective tax rate









Income before income taxes and equity in net income of 








unconsolidated entities


$     41,744


$      33,285


$    114,933


$    104,484

Equity in net income of unconsolidated entities


478


428


1,541


1,397

Net loss attributable to noncontrolling interests


34


10


62


106


Total


$     42,256


$      33,723


$    116,536


$    105,987

Income tax expense


$     15,186


$      12,343


$      41,441


$      35,585

Effective tax rate


35.9%


36.6%


35.6%


33.6%












 

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 September 30


Nine months ended September 30

($000)


2012


2011


% change


2012


2011


% change














Consolidated revenue 


$

160,952


$

160,051


0.6%


$

487,679


$

472,829


3.1%

Less: acquisitions


-


-


n/a


-


-


n/a

Unfavorable impact of foreign currency translations


2,085


-


NMF


4,912


-


NMF

Revenue excluding acquisitions and 














foreign currency translations


$

163,037


$

160,051


1.9%


$

492,591


$

472,829


4.2%



























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


















Three months ended September 30


Nine months ended September 30

($000)


2012


2011


% change


2012


2011


% change















International revenue 


$

46,931


$

47,261


(0.7%)


$

141,237


$

138,434


2.0%

Less: acquisitions


-


-


n/a


-


-


n/a

Unfavorable impact of foreign currency translations


2,085


-


NMF


4,912


-


NMF

International revenue excluding acquisitions 














and foreign currency translations


$

49,016


$

47,261


3.7%


$

146,149


$

138,434


5.6%





























The following table summarizes the change in operating expense:


























Three months ended September 30


Nine months ended September 30

($000)


2012


2011


$ change


2012


2011


$ change

Total operating expense


$

121,088


$

126,187


$

(5,099)


$

376,280


$

368,549


$

7,731
















Acquisitions






$

-






$

-


Favorable impact of foreign currency translations






(1,735)






(3,946)


All other changes in operating expense






(3,364)






11,677


Total






$

(5,099)






$

7,731















SOURCE Morningstar, Inc.



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