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
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|
|
|
|
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|
|
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:
|
|
|
|
|
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|
|
|
|
|
Interest
income (expense), net
|
|
1,719
|
|
797
|
|
115.7%
|
|
3,848
|
|
1,142
|
|
237.0%
|
|
Other
income (expense), net
|
|
161
|
|
(1,376)
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|
NMF
|
|
(314)
|
|
(938)
|
|
(66.5%)
|
|
Non-operating income
(expense), net
|
|
1,880
|
|
(579)
|
|
NMF
|
|
3,534
|
|
204
|
|
1632.4%
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
Income before income taxes and equity in net
income of unconsolidated entities
|
|
41,744
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|
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.:
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Basic
|
|
$
0.56
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|
$
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
47,975
|
|
50,278
|
|
|
|
49,028
|
|
50,082
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|
|
|
Diluted
|
|
48,481
|
|
51,123
|
|
|
|
49,664
|
|
51,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30
|
Nine
months ended September 30
|
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|
|
|
2012
|
|
2011
|
|
|
|
2012
|
|
2011
|
|
|
(1)
Includes stock-based compensation expense of:
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|
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Cost of
goods sold
|
|
$
1,148
|
|
$
1,117
|
|
|
|
$
|
3,304
|
|
$
3,068
|
|
|
|
Development
|
|
471
|
|
545
|
|
|
|
1,435
|
|
1,588
|
|
|
|
Sales and
marketing
|
|
493
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|
489
|
|
|
|
1,433
|
|
1,392
|
|
|
|
General
and administrative
|
|
1,882
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|
1,800
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|
|
|
5,422
|
|
5,395
|
|
|
|
Total stock-based compensation
expense
|
|
$
3,994
|
|
$
3,951
|
|
|
|
$
|
11,594
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$
11,443
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|
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|
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|
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|
|
NMF —
Not meaningful, pp — percentage points
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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.