UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 
FORM 8-K

 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  April 23, 2014
 
MORNINGSTAR, INC.
(Exact name of registrant as specified in its charter)

Illinois	 	000-51280	 	36-3297908	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(I.R.S. Employer
Identification No.)	
 	 	 	 	 	
22 West Washington Street
Chicago, Illinois	 	60602	
(Address of principal executive offices)	 	(Zip Code)	
 
(312) 696-6000
(Registrant’s telephone number, including area code)
 
N/A
(Former name or former address, if changed since last report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
Item 2.02.             Results of Operations and Financial Condition.*
 
On April 23, 2014, Morningstar, Inc. issued a press release announcing its financial results for the first quarter ended March 31, 2014.  A copy of the press release is attached hereto as Exhibit 99.1.
 
Item 9.01.  Financial Statements and Exhibits.
 
(d)            Exhibits:

Exhibit No.	 	Description	
 	 	 	
99.1*	 	Press Release dated April 23, 2014.	

*               The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	 	MORNINGSTAR, INC.	

Date:  April 24, 2014	 	By:	/s/ Stéphane Biehler	
 	 	Name:	Stéphane Biehler	
 	 	Title:	Chief Financial Officer	
 
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EXHIBIT INDEX

Exhibit No.	 	Description	
 	 	 	
99.1*	 	Press Release dated April 23, 2014.	

*               The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
4 

Exhibit 99.1

		

Contacts:
 
Media: Carling Spelhaug, +1 312-696-6150 or carling.spelhaug@morningstar.com
 
Margaret Kirch Cohen, +1 312-696-6383 or margaret.cohen@morningstar.com
 
Investors may submit questions to investors@morningstar.com.
 
FOR IMMEDIATE RELEASE
 
Morningstar, Inc. Reports First-Quarter 2014 Financial Results
 
CHICAGO, April 23, 2014—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its first-quarter 2014 financial results. The company reported consolidated revenue of $181.2 million, a 7.3% increase from $168.9 million in the first quarter of 2013. Consolidated operating income was $38.5 million, down 5.0% from $40.6 million in the same period a year ago. Net income was $26.4 million, or 58 cents per diluted share, in the first quarter of 2014, compared with $29.6 million, or 63 cents per diluted share, in the first quarter of 2013.
 
Excluding acquisitions and a slight negative effect from foreign currency translations, revenue rose 6.9% in the first quarter of 2014. Revenue excluding acquisitions and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.
 
Joe Mansueto, chairman and chief executive officer of Morningstar, said, “Organic revenue growth picked up slightly in the first quarter of 2014, and we continued investing in our existing business as well as in a number of promising initiatives. We hired about 200 new employees year over year, including for product and technology roles in the United States as well as data analysts based in India. While these investments added to our operating expense for the quarter, we see many opportunities to build shareholder value over the long term.”
 
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Financial Highlights
 
Revenue and Key Operating Metrics
 
·                   Investment information revenue was $141.3 million, a 4.6% increase from $135.1 million in the first quarter of 2013. Morningstar Data, Morningstar Direct, and Morningstar Advisor Workstation were the main contributors to revenue growth. These positive results were partially offset by a $2.3 million revenue decline for Principia. The company has been migrating Principia clients to Morningstar Advisor Workstation and other Morningstar products and expects to continue supporting clients using Principia until the end of 2014.
·                   Investment management revenue was $39.9 million, an 18.1% increase from $33.8 million in the first quarter of 2013. Retirement Solutions and Morningstar Managed Portfolios were the main contributors to revenue growth, and revenue for Investment Advisory services was up slightly versus the same period of 2013.
·                   Consolidated operating income was $38.5 million in the first quarter of 2014, a 5.0% decrease from the same period in 2013. Operating expense rose $14.3 million, or 11.2%, in the first quarter of 2014, mainly because of higher salary and other compensation-related expense from additional headcount.
·                   Operating margin was 21.3% in the first quarter of 2014, down from 24.0% in the same period in 2013.
 
Cash Flow and Balance Sheet
 
·                   Morningstar generated negative free cash flow of $8.9 million in the first quarter of 2014, reflecting positive cash provided by operating activities of $11.9 million less $20.8 million of cash used for capital expenditures. 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. The company made bonus payments of $39.8 million in the first quarter of 2014, compared with $36.6 million in the first quarter of 2013. Morningstar typically pays annual bonuses in the first quarter. As a result, first-quarter operating cash flow tends to be lower compared with subsequent quarters.
·                   As of March 31, 2014, cash, cash equivalents, and investments totaled $264.0 million, compared with $298.6 million as of Dec. 31, 2013. Of the $700 million authorized under its share repurchase program, Morningstar had purchased a total of 7.4 million shares for $471.5 million as of March 31, 2014. In the first quarter of 2014, Morningstar repurchased approximately 280,000 shares for $21.7 million.
·                   On April 1, 2014, the company used approximately $28 million in cash to acquire ByAllAccounts, Inc., a provider of innovative data aggregation technology for financial applications, to enhance many of its key solutions across core customer groups, particularly offerings that support an advisor’s workflow.
·                   The company expects to pay approximately $7.6 million for its regular quarterly dividend on April 30, 2014.
 
Comparability of Year-Over-Year Results
 
Several items affected the comparability of first-quarter 2014 results versus the same period in 2013:
 
·                   Morningstar moved to a more centralized organizational structure in 2013. As a result, approximately 180 net positions shifted from the general and administrative and sales and marketing categories to cost of revenue. For the first quarter of 2014 compared with the same period in 2013, changes related to the company’s more centralized organizational structure added approximately $7 million of compensation expense to cost of revenue. At the same time, these changes reduced compensation expense in the sales and marketing and general and administrative expense categories by approximately $4 million and $3 million, respectively.
·                   As a result of a change in accounting estimate involving revenue recognition for certain investment management contracts with minimum fee features, Morningstar recognized an additional $1.7 million of investment management revenue in the first quarter of 2014 that will not recur in future quarters.
 
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·                   During the first quarter of 2014, commission expense rose $2.9 million compared with the prior-year period, mainly because of a change to the company’s sales commission structure that requires a different accounting treatment. Morningstar now expenses sales commissions as incurred instead of amortizing them over the term of the underlying contracts. The company continues to amortize the prepaid commission balance from the previous commission structure and expensed an additional $2.7 million of commission cost in the quarter. Morningstar expects to incur additional commission expense for the next several quarters because of this change.
 
Operating Highlights
 
·                   Licenses for Morningstar Direct rose 15.5% to 8,858.
·                   Assets under management and advisement for Retirement Solutions were approximately $68.0 billion as of March 31, 2014, versus $51.9 billion as of March 31, 2013. Assets under management and advisement for Morningstar Managed Portfolios were approximately $7.8 billion as of March 31, 2014, compared with $5.3 billion as of March 31, 2013. Both product lines benefited from strong market performance and asset inflows.
·                   Companies that offer variable annuities have continued to face difficult market conditions, which has prompted some of Morningstar’s clients to begin managing their fund-of-funds portfolios in-house instead of using outside subadvisors. Because of this trend, Investment Advisory assets under advisement as of March 31, 2014 were $12.0 billion lower versus the same date in 2013.
 
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 questions about Morningstar’s business to investors@morningstar.com or write to the company 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.
 
Annual Shareholders’ Meeting
 
Investors are invited to attend Morningstar’s annual meeting at 9 a.m. Central Time on Tuesday, May 13, 2014, at its corporate headquarters at 22 W. Washington Street in Chicago. If you would like to attend, please register at http://corporate.morningstar.com/US/asp/meetingregistration.aspx.
 
3 

 
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 individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 456,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 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 had approximately $164 billion in assets under advisement and management as of March 31, 2014. 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 discuss not to occur or to differ significantly from what we expect. For us, these risks and uncertainties include, among others, liability for any losses that result from an actual or claimed breach of our fiduciary duties; failing to differentiate our products and continuously create innovative, proprietary research tools; failing to respond to technological change, keep pace with new technology developments, or adopt a successful technology strategy; a prolonged outage of our database and network facilities; any failures or disruptions in our electronic delivery systems and the Internet; liability and/or damage to our reputation as a result of some of our pending litigation; liability related to the storage of personal information about our users; general industry conditions and competition, including current global financial uncertainty, trends in the mutual fund industry, and continued growth in passively managed investment vehicles; the impact of market volatility on revenue from asset-based fees; failing to maintain and protect our brand, independence, and reputation; changes in laws applicable to our investment advisory or credit rating operations, compliance failures, or regulatory action; and challenges faced by our non-U.S. operations, including the concentration of development work at our offshore facilities in China and India. 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, 2013. 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 U.S. 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.
 
###
 
©2014 Morningstar, Inc. All Rights Reserved.
 
MORN-E
 
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Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income

 	 	Three months ended March 31	 	
(in thousands, except per share amounts)	 	2014	 	2013	 	change	 	
 	 	 	 	 	 	 	 	
Revenue	 	$	181,165	 	$	168,856	 	7.3%	 	
Operating expense(1)(2):	 	 	 	 	 	 	 	
Cost of revenue	 	75,714	 	61,650	 	22.8%	 	
Sales and marketing	 	28,428	 	27,980	 	1.6%	 	
General and administrative	 	26,104	 	27,327	 	(4.5%	)	
Depreciation and amortization	 	12,387	 	11,339	 	9.2%	 	
Total operating expense	 	142,633	 	128,296	 	11.2%	 	
Operating income	 	38,532	 	40,560	 	(5.0%	)	
Operating margin	 	21.3%	 	24.0%	 	(2.7)pp	 	
 	 	 	 	 	 	 	 	
Non-operating income (expense):	 	 	 	 	 	 	 	
Interest income, net	 	585	 	741	 	(21.1%	)	
Other income, net	 	280	 	204	 	37.3%	 	
Non-operating income, net	 	865	 	945	 	(8.5%	)	
 	 	 	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	39,397	 	41,505	 	(5.1%	)	
Equity in net income of unconsolidated entities	 	599	 	497	 	20.5%	 	
Income tax expense	 	13,650	 	12,427	 	9.8%	 	
Consolidated net income	 	26,346	 	29,575	 	(10.9%	)	
Net loss attributable to noncontrolling interests	 	30	 	43	 	(30.2%	)	
Net income attributable to Morningstar, Inc.	 	$	26,376	 	$	29,618	 	(10.9%	)	
 	 	 	 	 	 	 	 	
Net income per share attributable to Morningstar, Inc.:	 	 	 	 	 	 	 	
Basic	 	$	0.59	 	$	0.64	 	(7.8%	)	
Diluted	 	$	0.58	 	$	0.63	 	(7.9%	)	
Weighted average shares outstanding:	 	 	 	 	 	 	 	
Basic	 	44,777	 	46,406	 	(3.5%	)	
Diluted	 	45,093	 	46,814	 	(3.7%	)	

 	 	Three months ended March 31	 	
 	 	2014	 	2013	 	change	 	
(1) Includes stock-based compensation expense of:	 	 	 	 	 	 	 	
Cost of revenue	 	$	1,762	 	$	1,701	 	3.6%	 	
Sales and marketing	 	497	 	512	 	(2.9%	)	
General and administrative	 	1,680	 	1,570	 	7.0%	 	
Total stock-based compensation expense	 	$	3,939	 	$	3,783	 	4.1%	 	
 
(2) Morningstar moved to a more centralized organizational structure in 2013. As a result, approximately 180 net positions shifted from the general and administrative and sales and marketing categories to cost of revenue. For the first quarter of 2014 compared with the same period in 2013, changes related to the company’s more centralized organizational structure added approximately $7 million of compensation expense to cost of revenue. At the same time, these changes reduced compensation expense in the sales and marketing and general administrative expense categories by approximately $4 million and $3 million, respectively.
 
NMF — Not meaningful, pp — percentage points
 
5 

 
Morningstar, Inc. and Subsidiaries
Operating Expense as a Percentage of Revenue (Unaudited)

 	 	Three months ended March 31	 	
 	 	2014	 	2013	 	change	 	
 	 	 	 	 	 	 	 	
Revenue	 	100.0%	 	100.0%	 	—	 	
Operating expense(1):	 	 	 	 	 	 	 	
Cost of revenue	 	41.8%	 	36.5%	 	5.3pp	 	
Sales and marketing	 	15.7%	 	16.6%	 	(0.9)pp	 	
General and administrative	 	14.4%	 	16.2%	 	(1.8)pp	 	
Depreciation and amortization	 	6.8%	 	6.7%	 	0.1pp	 	
Total operating expense(2)	 	78.7%	 	76.0%	 	2.7pp	 	
Operating margin	 	21.3%	 	24.0%	 	(2.7)pp	 	

 	 	Three months ended March 31	 	
 	 	2014	 	2013	 	change	 	
(1) Includes stock-based compensation expense of:	 	 	 	 	 	 	 	
Cost of revenue	 	1.0%	 	1.0%	 	—	 	
Sales and marketing	 	0.3%	 	0.3%	 	—	 	
General and administrative	 	0.9%	 	0.9%	 	—	 	
Total stock-based compensation expense(2)	 	2.2%	 	2.2%	 	—	 	
 
(2) Sum of percentages may not equal total because of rounding.
 
6 

 
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	
 	 	 	 	 	 	
Operating activities	 	 	 	 	 	
Consolidated net income	 	$	26,346	 	$	29,575	 	
Adjustments to reconcile consolidated net income to net cash flows from operating activities:	 	 	 	 	 	
Depreciation and amortization	 	12,387	 	11,339	 	
Stock-based compensation expense	 	3,939	 	3,783	 	
Other, net	 	(4,048	)	(5,475	)	
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions	 	(26,740	)	(12,549	)	
Cash provided by operating activities	 	11,884	 	26,673	 	
Investing activities	 	 	 	 	 	
Purchases of investments	 	(1,697	)	(3,694	)	
Proceeds from maturities and sales of investments	 	73,712	 	61,152	 	
Capital expenditures	 	(20,793	)	(9,118	)	
Other, net	 	260	 	892	 	
Cash provided by investing activities	 	51,482	 	49,232	 	
Financing activities	 	 	 	 	 	
Proceeds from stock-option exercises	 	1,278	 	2,088	 	
Employee taxes withheld for restricted stock units	 	(7	)	(82	)	
Excess tax benefits from stock-option exercises and vesting of restricted stock units	 	573	 	1,587	 	
Common shares repurchased	 	(21,697	)	(15,240	)	
Dividends paid	 	(7,644	)	—	 	
Other, net	 	(5	)	(3	)	
Cash used for financing activities	 	(27,502	)	(11,650	)	
Effect of exchange rate changes on cash and cash equivalents	 	609	 	(3,252	)	
Net increase in cash and cash equivalents	 	36,473	 	61,003	 	
Cash and cash equivalents—Beginning of period	 	168,160	 	163,889	 	
Cash and cash equivalents—End of period	 	$	204,633	 	$	224,892	 	
 
7 

 
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets

 	 	March 31	 	December 31	 	
($000)	 	2014	 	2013	 	
 	 	 	 	 	 	
Assets	 	 	 	 	 	
Current assets:	 	 	 	 	 	
Cash and cash equivalents	 	$	204,633	 	$	168,160	 	
Investments	 	59,340	 	130,407	 	
Accounts receivable, net	 	131,464	 	114,131	 	
Deferred tax asset, net	 	4,381	 	3,892	 	
Income tax receivable, net	 	—	 	3,942	 	
Other	 	25,124	 	26,361	 	
Total current assets	 	424,942	 	446,893	 	
 	 	 	 	 	 	
Property, equipment, and capitalized software, net	 	107,438	 	104,986	 	
Investments in unconsolidated entities	 	39,176	 	38,714	 	
Goodwill	 	327,936	 	326,450	 	
Intangible assets, net	 	98,947	 	103,909	 	
Other assets	 	8,978	 	9,716	 	
Total assets	 	$	1,007,417	 	$	1,030,668	 	
 	 	 	 	 	 	
Liabilities and equity	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	
Accounts payable and accrued liabilities	 	$	39,790	 	$	42,131	 	
Accrued compensation	 	41,718	 	71,403	 	
Deferred revenue	 	159,591	 	149,225	 	
Income taxes payable	 	2,267	 	—	 	
Other	 	4,491	 	6,786	 	
Total current liabilities	 	247,857	 	269,545	 	
 	 	 	 	 	 	
Accrued compensation	 	7,495	 	8,193	 	
Deferred tax liability, net	 	21,743	 	23,755	 	
Other long-term liabilities	 	33,605	 	37,885	 	
Total liabilities	 	310,700	 	339,378	 	
Total equity	 	696,717	 	691,290	 	
Total liabilities and equity	 	$	1,007,417	 	$	1,030,668	 	
 
8 

 
Morningstar, Inc. and Subsidiaries
Supplemental Data (Unaudited)

 	 	As of March 31	 	
 	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	
Our business	 	 	 	 	 	 	 	
Morningstar.com Premium Membership subscriptions (U.S.)	 	123,777	 	124,138	 	(0.3%	)	
Registered users for Morningstar.com (U.S.)	 	7,945,324	 	7,607,716	 	4.4%	 	
U.S. Advisor Workstation and Morningstar Office licenses	 	167,207	 	163,141	 	2.5%	 	
Principia subscriptions	 	12,006	 	25,652	 	(53.2%	)	
Morningstar Direct licenses	 	8,858	 	7,671	(1)	15.5%	 	
Assets under advisement and management (approximate)	 	 	 	 	 	 	 	
Investment Advisory services	 	$84.7 bil	 	$96.7 bil	 	(12.4%	)	
Retirement Solutions	 	$68.0 bil	 	$51.9 bil	 	31.0%	 	
Morningstar Managed Portfolios	 	$7.8 bil	 	$5.3 bil	 	47.2%	 	
Ibbotson Australia	 	$3.2 bil	 	$3.2 bil	 	0.0%	 	
 	 	 	 	 	 	 	 	
Our employees (approximate)	 	 	 	 	 	 	 	
Worldwide headcount	 	3,645	 	3,445	 	5.8%	 	
Number of worldwide equity and credit analysts	 	170	 	150	 	13.3%	 	
Number of worldwide fund analysts	 	110	 	105	 	4.8%	 	
 	
(1) Revised to reflect a minor calculation change.	

 	 	Three months ended March 31	 	
 	 	2014	 	2013	 	% change	 	
Average assets under management and advisement	 	$161.5 bil	 	$153.3 bil	 	5.3%	 	
Number of new commerical mortgage-based securities (CMBS) new-issue ratings completed	 	9	 	10	 	(10.0%	)	
Rated balance for CMBS new-issue ratings	 	$5.6 bil	 	$5.4 bil	 	3.7%	 	

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	
Revenue	 	 	 	 	 	
Investment information	 	$	141,270	 	$	135,085	 	
Investment management	 	39,895	 	33,771	 	
Consolidated revenue	 	$	181,165	 	$	168,856	 	
 	 	 	 	 	 	
Revenue—U.S.	 	$	129,952	 	$	121,413	 	
Revenue—International	 	$	51,213	 	$	47,443	 	

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	
Effective tax rate	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	$	39,397	 	$	41,505	 	
Equity in net income of unconsolidated entities	 	599	 	497	 	
Net loss attributable to noncontrolling interests	 	30	 	43	 	
Total	 	$	40,026	 	$	42,045	 	
Income tax expense	 	$	13,650	 	$	12,427	 	
Effective tax rate	 	34.1%	 	29.6%	 	
 
9 

 
Morningstar, Inc. and Subsidiaries
Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures
 
Reconciliation from consolidated revenue to revenue excluding divestitures, acquisitions, and foreign currency translations (organic revenue):

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	
Consolidated revenue	 	$	181,165	 	$	168,856	 	7.3%	 	
Less: divestitures	 	—	 	—	 	NMF	 	
Less: acquisitions	 	(1,477	)	—	 	NMF	 	
Unfavorable effect of foreign currency translations	 	806	 	—	 	NMF	 	
Revenue excluding acquisitions, divestitures, and foreign currency translations	 	$	180,494	 	$	168,856	 	6.9%	 	
 
Reconciliation from international revenue to international revenue excluding divestitures, acquisitions, and foreign currency translations (international organic revenue):

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	
International revenue	 	$	51,213	 	$	47,443	 	7.9%	 	
Less: divestitures	 	—	 	—	 	NMF	 	
Less: acquisitions	 	(1,477	)	—	 	NMF	 	
Unfavorable effect of foreign currency translations	 	806	 	—	 	NMF	 	
International revenue excluding acquisitions, divestitures, and foreign currency translations	 	$	50,542	 	$	47,443	 	6.5%	 	
 
Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):

 	 	Three months ended March 31	 	
($000)	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	
Cash provided by operating activities	 	$	11,884	 	$	26,673	 	(55.4%	)	
Less: Capital expenditures	 	(20,793	)	(9,118	)	128.0%	 	
Free cash flow	 	$	(8,909	)	$	17,555	 	(150.7%	)	
 
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