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):  February 11, 2015
 
MORNINGSTAR, INC.
(Exact name of registrant as specified in its charter)

Illinois
(State or other jurisdiction
of incorporation)	 	000-51280
(Commission
File Number)	 	36-3297908
(I.R.S. Employer
Identification No.)	
 	 	 	 	 	
 	 	22 West Washington Street
Chicago, Illinois
(Address of principal executive offices)	 	60602
(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 February 11, 2015, Morningstar, Inc. issued a press release announcing its financial results for the fourth quarter and year ended December 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 February 11, 2015.	

*              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: February 12, 2015	By:	/s/ Stephane Biehler	
 	Name:	Stephane Biehler	
 	Title:	Chief Financial Officer	
 
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EXHIBIT INDEX

Exhibit No.	 	Description	
 	 	 	
99.1*	 	Press Release dated February 11, 2015.	

*              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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Exhibit 99.1

	

 		
 
Contacts:
 
Media: 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 Fourth-Quarter, Full-Year 2014 Financial Results
 
CHICAGO, Feb. 11, 2015—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its fourth-quarter and full-year 2014 financial results. The company reported consolidated revenue of $196.4 million in the fourth quarter of 2014, an 8.8% increase from $180.5 million in the fourth quarter of 2013. Consolidated operating income was $46.6 million, an increase of 11.2% compared with $41.9 million in the same period a year ago. Net income was $31.5 million, or 71 cents per diluted share, compared with $31.3 million, or 68 cents per diluted share, in the fourth quarter of 2013.
 
Excluding acquisitions, divestitures, and the effect of foreign currency translations, revenue rose 8.1% in the fourth quarter of 2014. Revenue excluding acquisitions, divestitures, and foreign currency translations (organic revenue) is a non-GAAP measure. The accompanying financial tables contain a reconciliation to consolidated revenue.
 
For the year ended Dec. 31, 2014, consolidated revenue was $760.1 million, an increase of 8.9% compared with $698.3 million in 2013. During the second quarter of 2014, the company recorded a non-recurring expense of $61.0 million—approximately $38.2 million after taxes, or 85 cents per share—related to a previously announced litigation settlement with Business Logic Holding Corp. As a result, Morningstar reported consolidated operating income of $105.6 million in 2014, a decrease of 38.1% compared with $170.7 million in 2013. Excluding the litigation settlement, Morningstar reported adjusted operating income of $166.6 million in 2014, a decrease of 2.4% compared with 2013. Adjusted operating income is a non-GAAP measure; the accompanying financial tables contain a reconciliation to the comparable GAAP measure. Net income was $78.3 million, or $1.74 per diluted share, in 2014, compared with $123.5 million, or $2.66 per diluted share, in 2013.
 
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Joe Mansueto, chairman and chief executive officer of Morningstar, said, “We had a good quarter, led by strong results for Morningstar Direct and Morningstar Credit Ratings. After investing heavily in the business in late 2013 and early 2014 to support our key growth initiatives, we slowed the pace of spending to better balance expense and revenue growth.”
 
Mansueto outlined some of the company’s 2014 key accomplishments and challenges:
 
Accomplishments:
 
·                   We acquired two great companies, ByAllAccounts, Inc. and HelloWallet Holdings, Inc., which we expect to help us serve our core customer groups in new ways. ByAllAccounts bolsters our data aggregation capability and helps give financial advisors a more comprehensive view of their clients’ assets. HelloWallet helps workers bridge the gap between daily money management and investing for the long term.
·                   We reached some important milestones during the year. Licensed users for Morningstar Direct were up 18% to more than 10,000, and we began beta testing the next-generation version of Direct. In addition, through our Retirement Solutions offering, we now manage more than 1 million defined contribution plan participant accounts, making us the first managed accounts provider to pass the million account mark.
·                   Morningstar Managed Portfolios and Retirement Solutions showed year-over-year asset growth of approximately 27% and 17%, respectively. Assets under management for Morningstar Managed Portfolios were about $9.3 billion as of Dec. 31, 2014, up from $7.3 billion as of Dec. 31, 2013. Assets under management and advisement for Retirement Solutions were approximately $76.8 billion as of Dec. 31, 2014, up from $65.6 billion as of Dec. 31, 2013.
 
Challenges:
 
·                   We settled our lawsuit with Business Logic for $61.0 million in the second quarter of 2014. While the settlement amount was meaningful, we were pleased to move forward and focus on the continued growth and success of our retirement business without the risk, distraction, and uncertainty posed by the lawsuit.
·                   Low interest rates and the industry-wide shift to passive investment management are putting pressure on spending for many of our asset management clients.
·                   Our Investment Advisory business continues to feel the effects of variable annuity clients moving the management of fund-of-funds portfolios in house. Revenue was about $2.3 million lower in 2014 versus 2013, and assets under advisement for these services were down $2.5 billion over the same period.
 
Financial Highlights
 
Revenue and Key Operating Metrics
 
·                   Investment information revenue was $154.0 million in the fourth quarter of 2014, a 7.5% increase from $143.3 million in the fourth quarter of 2013. Morningstar Direct SM  and Morningstar Credit Ratings, the firm’s structured credit research and ratings business, were the main contributors to revenue growth. Morningstar® Advisor Workstation SM  (including Morningstar Office SM ) also contributed to revenue growth, which was offset by lower revenue for Morningstar® Principia®. The company is in the process of migrating clients from Principia to Morningstar Advisor Workstation and other Morningstar products.
 
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·                   Investment management revenue was $42.4 million in the fourth quarter of 2014, a 14.0% increase from $37.2 million in the fourth quarter of 2013, driven by strong results for Morningstar® Managed Portfolios SM  and Retirement Solutions. Slightly lower revenue for Investment Advisory services partially offset the increase.
·                   Operating margin was 23.7% in the fourth quarter of 2014, a slight improvement from 23.2% in the same period in 2013. For the full year, operating margin was 13.9%, compared with 24.4% in 2013. Excluding the Business Logic settlement, adjusted operating margin was 21.9% in 2014. Adjusted operating margin is a non-GAAP measure; the accompanying financial tables contain a reconciliation to the comparable GAAP measure.
 
Cash Flow and Balance Sheet
 
·                   Consolidated free cash flow was $41.4 million in the fourth quarter of 2014, reflecting cash provided by operating activities of $57.0 million less $15.6 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.
·                   As of Dec. 31, 2014, cash, cash equivalent s, and investments totaled $224.6 million, compared with $298.6 million as of Dec. 31, 2013. The company had $30.0 million of short-term debt as of Dec. 31, 2014. The company expects to make annual bonus payments of approximately $48 million in the first quarter of 2015, compared with $40 million in the first quarter of 2014.
·                   In the fourth quarter of 2014, the company repurchased approximately 450,000 shares for $30.9 million. Of the $700 million authorized under its share repurchase pro gram, the company had purchased a total of 8.1 million shares for $526.5 million as of Dec. 31, 2014.
 
Comparability of Year-Over-Year Results
 
Certain items affected the comparability of the company’s 2014 results versus the same periods in 2013:
 
·                   Fourth-quarter results included $4.6 million in revenue and approximately $5.5 million of incremental operating expense from acquisitions. For the full year, acquired companies contributed revenue of $11.4 million and incremental operating expense of $15.9 million.
·                   Commission expense rose $10.0 million in 2014, or approximately 35%, compared with the prior year, mainly because of a change to the company’s sales commission structure that requires a different accounting treatment. Morningstar now expenses commissions as incurred instead of amortizing them over the term of the underlying contracts. However, the company continued to amortize the prepaid commission balance from its previous commission plan during 2014.
·                   The company’s full-year results included a non-recurring expense of $61.0 million—approximately $38.2 million after taxes, or 85 cents per share— in connection with the Business Logic settlement.
 
Annual Meeting
 
Investors are invited to attend Morningstar’s annual meeting at 9 a.m. Central Time on Tuesday, May 12, 2015, at its corporate headquarters at 22 W. Washington Street in Chicago. If you are interested in attending, please send an email to investors@morningstar.com.
 
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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.
 
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 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 14 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 investment advisory subsidiaries and had approximately $170 billion in assets under advisement and management as of Dec. 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 global financial uncertainty, trends in the mutual fund industry, and continued growth in passively managed investment vehicles; the effect 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
 
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(GAAP), Morningstar uses the following measures considered as non-GAAP by the U.S. Securities and Exchange Commission: consolidated revenue excluding acquisitions, divestitures, and the effect of foreign currency translations (organic revenue); consolidated operating income excluding the litigation settlement (adjusted operating income), consolidated operating margin excluding the litigation settlement (adjusted operating margin), and free cash flow. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.
 
Morningstar presents consolidated revenue excluding acquisitions, divestitures, and foreign currency translations (organic revenue) because the company believes this non-GAAP measure helps investors better compare period-over-period results.
 
Morningstar presents operating income and operating margin excluding the litigation settlement (adjusted operating income and adjusted operating margin) to show the effect of this non-recurring charge, better reflect period-over-period comparisons, and improve overall understanding of Morningstar’s current and future financial performance.
 
In addition, 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 about these non-GAAP measures, please see the reconciliations 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.
 
###
 
©2015 Morningstar, Inc. All Rights Reserved.
 
MORN-E
 
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Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income

 	 	 	 	 	 	
 	 	Three months ended December 31	 	Year ended December 31	 	
(in thousands, except per share amounts)	 	2014	 	2013	 	change	 	2014 (1)	 	2013	 	change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	196,415	 	$	180,500	 	8.8%	 	$	760,071	 	$	698,266	 	8.9%	 	
Operating expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue	 	81,395	 	72,938	 	11.6%	 	318,638	 	271,437	 	17.4%	 	
Sales and marketing	 	27,950	 	24,825	 	12.6%	 	111,088	 	103,614	 	7.2%	 	
General and administrative	 	25,939	 	29,005	 	(10.6%)	 	108,865	 	106,868	 	1.9%	 	
Depreciation and amortization	 	14,550	 	11,835	 	22.9%	 	54,886	 	45,693	 	20.1%	 	
Litigation settlement	 	—	 	—	 	—	 	61,000	 	—	 	—	 	
Total operating expense	 	149,834	 	138,603	 	8.1%	 	654,477	 	527,612	 	24.0%	 	
Operating income	 	46,581	 	41,897	 	11.2%	 	105,594	 	170,654	 	(38.1%)	 	
Operating margin	 	23.7%	 	23.2%	 	0.5pp	 	13.9%	 	24.4%	 	(10.5)pp	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-operating income:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income, net	 	316	 	677	 	(53.3%)	 	2,050	 	2,712	 	(24.4%)	 	
Other income, net	 	1,523	 	1,852	 	(17.8%)	 	6,254	 	4,644	 	34.7%	 	
Non-operating income, net	 	1,839	 	2,529	 	(27.3%)	 	8,304	 	7,356	 	12.9%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	48,420	 	44,426	 	9.0%	 	113,898	 	178,010	 	(36.0%)	 	
Equity in net income (loss) of unconsolidated entities	 	(1,394	)	256	 	NMF	 	39	 	1,428	 	(97.3%)	 	
Income tax expense	 	15,490	 	13,384	 	15.7%	 	35,678	 	56,031	 	(36.3%)	 	
Consolidated net income	 	31,536	 	31,298	 	0.8%	 	78,259	 	123,407	 	(36.6%)	 	
Net (income) loss attributable to noncontrolling interests	 	(22	)	29	 	NMF	 	42	 	122	 	(65.6%)	 	
Net income attributable to Morningstar, Inc.	 	$	31,514	 	$	31,327	 	0.6%	 	$	78,301	 	$	123,529	 	(36.6%)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share attributable to Morningstar, Inc.:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.71	 	$	0.68	 	4.4%	 	$	1.75	 	$	2.68	 	(34.7%)	 	
Diluted	 	$	0.71	 	$	0.68	 	4.4%	 	$	1.74	 	$	2.66	 	(34.6%)	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	44,414	 	45,756	 	(2.9%)	 	44,675	 	46,158	 	(3.2%)	 	
Diluted	 	44,548	 	46,211	 	(3.6%)	 	44,901	 	46,491	 	(3.4%)	 	

(1) 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 beginning in the second half of 2013. In 2014 as compared with the same period in 2013, these changes added approximately $14 million of compensation expense to cost of revenue and reduced the compensation expense in our sales and marketing and general and administrative expense categories by approximately $8 million and $6 million, respectively.
 
NMF — Not meaningful, pp — percentage points
 
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Morningstar, Inc. and Subsidiaries
Operating Expense as a Percentage of Revenue (Unaudited)

 	 	 	 	 	 	
 	 	Three months ended December 31	 	Year ended December 31	 	
 	 	2014	 	2013	 	change	 	2014	 	2013	 	change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	100.0%	 	100.0%	 	—	 	100.0%	 	100.0%	 	—	 	
Operating expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue	 	41.4%	 	40.4%	 	1.0pp	 	41.9%	 	38.9%	 	3.0pp	 	
Sales and marketing	 	14.2%	 	13.8%	 	0.4pp	 	14.6%	 	14.8%	 	(0.2)pp	 	
General and administrative	 	13.2%	 	16.1%	 	(2.9)pp	 	14.3%	 	15.3%	 	(1.0)pp	 	
Depreciation and amortization	 	7.4%	 	6.6%	 	0.8pp	 	7.2%	 	6.5%	 	0.7pp	 	
Litigation settlement	 	0.0%	 	0.0%	 	—	 	8.0%	 	0.0%	 	8.0pp	 	
Total operating expense(1)	 	76.3%	 	76.8%	 	(0.5)pp	 	86.1%	 	75.6%	 	10.5pp	 	
Operating margin	 	23.7%	 	23.2%	 	0.5pp	 	13.9%	 	24.4%	 	(10.5)pp	 	

(1) Sum of percentages may not equal total because of rounding.
 
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Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows

 	 	 	 	 	 	
 	 	Three months ended December 31	 	Year ended December 31	 	
($000)	 	2014	 	2013	 	2014	 	2013	 	
 	 	 	 	 	 	 	 	 	 	
Operating activities	 	 	 	 	 	 	 	 	 	
Consolidated net income	 	$	31,536	 	$	31,298	 	$	78,259	 	$	123,407	 	
Adjustments to reconcile consolidated net income to net cash flows from operating activities:	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	14,550	 	11,835	 	54,886	 	45,693	 	
Stock-based compensation expense	 	4,371	 	3,890	 	17,624	 	15,043	 	
Other, net	 	7,235	 	(2,626	)	(7,170	)	(13,099	)	
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions	 	(759	)	10,048	 	(11,378	)	15,614	 	
Cash provided by operating activities	 	56,933	 	54,445	 	132,221	 	186,658	 	
Investing activities	 	 	 	 	 	 	 	 	 	
Purchases of investments	 	(9,741	)	(26,227	)	(20,353	)	(140,051	)	
Proceeds from maturities and sales of investments	 	8,431	 	62,644	 	111,551	 	171,243	 	
Capital expenditures	 	(15,564	)	(5,633	)	(58,320	)	(33,583	)	
Acquisitions, net of cash acquired	 	—	 	—	 	(64,447	)	(11,079	)	
Proceeds from sale of a business, net	 	—	 	—	 	—	 	957	 	
Purchase of equity and cost method investments	 	—	 	—	 	—	 	(2,751	)	
Other, net	 	124	 	(29	)	353	 	403	 	
Cash provided by (used for) investing activities	 	(16,750	)	30,755	 	(31,216	)	(14,861	)	
Financing activities	 	 	 	 	 	 	 	 	 	
Proceeds from stock-option exercises	 	2,840	 	1,360	 	6,606	 	4,532	 	
Employee taxes withheld for restricted stock units	 	(679	)	(531	)	(5,801	)	(5,807	)	
Excess tax benefits from stock-option exercises and vesting of restricted stock units	 	1,504	 	1,805	 	4,449	 	5,898	 	
Common shares repurchased	 	(34,632	)	(90,720	)	(76,732	)	(153,514	)	
Dividends paid	 	(7,586	)	(5,768	)	(30,498	)	(17,425	)	
Proceeds from short-term debt	 	—	 	—	 	30,000	 	—	 	
Other, net	 	306	 	(2	)	297	 	(56	)	
Cash used for financing activities	 	(38,247	)	(93,856	)	(71,679	)	(166,372	)	
Effect of exchange rate changes on cash and cash equivalents	 	(6,104	)	(143	)	(12,336	)	(1,154	)	
Net increase (decrease) in cash and cash equivalents	 	(4,168	)	(8,799	)	16,990	 	4,271	 	
Cash and cash equivalents—Beginning of period	 	189,318	 	176,959	 	168,160	 	163,889	 	
Cash and cash equivalents—End of period	 	$	185,150	 	$	168,160	 	$	185,150	 	$	168,160	 	
 
8 

 
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets

 	 	 	 	 	 	
 	 	December 31	 	December 31	 	
($000)	 	2014	 	2013	 	
 	 	 	 	 	 	
Assets	 	 	 	 	 	
Current assets:	 	 	 	 	 	
Cash and cash equivalents	 	$	185,150	 	$	168,160	 	
Investments	 	39,422	 	130,407	 	
Accounts receivable, net	 	136,735	 	114,131	 	
Deferred tax asset, net	 	9,000	 	3,892	 	
Income tax receivable, net	 	6,870	 	3,942	 	
Other	 	22,596	 	26,361	 	
Total current assets	 	399,773	 	446,893	 	
 	 	 	 	 	 	
Property, equipment, and capitalized software, net	 	117,561	 	104,986	 	
Investments in unconsolidated entities	 	28,798	 	38,714	 	
Goodwill	 	370,054	 	326,450	 	
Intangible assets, net	 	95,905	 	103,909	 	
Other assets	 	7,190	 	9,716	 	
Total assets	 	$	1,019,281	 	$	1,030,668	 	
 	 	 	 	 	 	
Liabilities and equity	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	
Accounts payable and accrued liabilities	 	$	34,268	 	$	42,131	 	
Accrued compensation	 	80,476	 	71,403	 	
Deferred revenue	 	145,979	 	149,225	 	
Short-term debt	 	30,000	 	—	 	
Other	 	3,036	 	6,786	 	
Total current liabilities	 	293,759	 	269,545	 	
 	 	 	 	 	 	
Accrued compensation	 	7,946	 	8,193	 	
Deferred tax liability, net	 	25,978	 	23,755	 	
Other long-term liabilities	 	37,200	 	37,885	 	
Total liabilities	 	364,883	 	339,378	 	
Total equity	 	654,398	 	691,290	 	
Total liabilities and equity	 	$	1,019,281	 	$	1,030,668	 	
 
9 

 
Morningstar, Inc. and Subsidiaries
Supplemental Data (Unaudited)

 	 	 	 	
 	 	As of December 31	 	
 	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	
Our business	 	 	 	 	 	 	 	
Morningstar.com Premium Membership subscriptions (U.S.)	 	123,274	 	124,027	 	(0.6%)	 	
Morningstar.com registered users (U.S.)	 	8,189,569	 	7,848,057	 	4.4%	 	
Advisor Workstation clients (U.S.)	 	181	 	162	(1)	11.7%	 	
Morningstar Office licenses (U.S.)	 	4,268	 	4,073	(1)	4.8%	 	
Principia subscriptions(2)	 	8,178	 	19,206	 	(57.4%)	 	
Morningstar Direct licenses	 	10,055	 	8,514	 	18.1%	 	
Assets under management and advisement (approximate)	 	 	 	 	 	 	 	
Investment Advisory services	 	$81.0 bil	 	$83.5 bil	 	(3.0%)	 	
Retirement Solutions	 	$76.8 bil	 	$65.6 bil	 	17.1%	 	
Morningstar Managed Portfolios	 	$9.3 bil	 	$7.3 bil	 	27.4%	 	
Ibbotson Australia	 	$3.0 bil	 	$3.0 bil	 	—	 	
 	 	 	 	 	 	 	 	
Our employees (approximate)	 	 	 	 	 	 	 	
Worldwide headcount	 	3,760	 	3,565	 	5.5%	 	
Number of equity and credit analysts	 	172	 	165	 	4.2%	 	
Number of manager research analysts	 	100	 	105	 	(4.8%)	 	

 	 	Year ended December 31	 	
($000)	 	2014	 	2013	 	% change	 	
Key product revenue	 	 	 	 	 	 	 	
Morningstar Data	 	$	137,408	 	$	129,262	 	6.3%	 	
Morningstar Advisor Workstation	 	101,689	 	93,059	 	9.3%	 	
Morningstar Direct	 	91,829	 	79,358	 	15.7%	 	
Morningstar.com	 	58,122	 	55,637	 	4.5%	 	
Retirement Solutions	 	57,252	 	45,536	 	25.7%	 	

 
(1) Beginning in the second quarter of 2014, we changed our reporting to show the number of enterprise clients for Morningstar Advisor Workstation instead of the number of individual licenses. We believe this is a more meaningful indicator of underlying business trends because per-user pricing varies significantly depending on the scope of the license. We also began disclosing the number of licenses for Morningstar Office as a separate line item.
 
(2) We no longer offer new Principia subscriptions and are transitioning subscribers to Morningstar Advisor Workstation and other Morningstar products.

 	 	 	 	 	 	
 	 	Three months ended December 31	 	Year ended December 31	 	
 	 	2014	 	2013	 	2014	 	2013	 	
Average assets under management and advisement	 	$169.8 bil	 	$167.6 bil	 	$166.3 bil	 	$161.6 bil	 	
Number of commercial mortgage-backed securities (CMBS) new-issue ratings completed	 	18	 	10	 	52	 	38	 	
Asset value of CMBS new-issue ratings	 	$9.7 bil	 	$7.8 bil	 	$33.7 bil	 	$24.5 bil	 	

 	 	Three months ended December 31	 	Year ended December 31	 	
($000)	 	2014	 	2013	 	2014	 	2013	 	
Revenue	 	 	 	 	 	 	 	 	 	
Investment information	 	$	153,997	 	$	143,310	 	$	597,046	 	$	555,642	 	
Investment management	 	42,418	 	37,190	 	163,025	 	142,624	 	
Consolidated revenue	 	$	196,415	 	$	180,500	 	$	760,071	 	$	698,266	 	
 	 	 	 	 	 	 	 	 	 	
Revenue—U.S.	 	$	143,059	 	$	127,984	 	$	550,740	 	$	500,730	 	
Revenue—International	 	$	53,356	 	$	52,516	 	$	209,331	 	$	197,536	 	

 	 	Three months ended December 31	 	Year ended December 31	 	
($000)	 	2014	 	2013	 	2014	 	2013	 	
Effective tax rate	 	 	 	 	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	$	48,420	 	$	44,426	 	$	113,898	 	$	178,010	 	
Equity in net income of unconsolidated entities	 	(1,394	)	256	 	39	 	1,428	 	
Net loss attributable to noncontrolling interests	 	(22	)	29	 	42	 	122	 	
Total	 	$	47,004	 	$	44,711	 	$	113,979	 	$	179,560	 	
Income tax expense	 	$	15,490	 	$	13,384	 	$	35,678	 	$	56,031	 	
Effective tax rate	 	33.0%	 	29.9%	 	31.3%	 	31.2%	 	
 
10 

 
Morningstar, Inc. and Subsidiaries
Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures

 	 	 	 	 	 	
 	 	Three months ended December 31	 	Year ended December 31	 	
($000)	 	2014	 	2013	 	% change	 	2014	 	2013	 	% change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation from consolidated revenue to revenue excluding divestitures, acquisitions, and foreign currency translations (organic revenue):	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated revenue	 	$	196,415	 	$	180,500	 	8.8%	 	$	760,071	 	$	698,266	 	8.9%	 	
Less: divestitures	 	—	 	—	 	NMF	 	—	 	—	 	NMF	 	
Less: acquisitions	 	(4,574	)	—	 	NMF	 	(11,397	)	—	 	NMF	 	
Unfavorable effect of foreign currency translations	 	3,221	 	—	 	NMF	 	2,459	 	—	 	NMF	 	
Revenue excluding acquisitions, divestitures, and foreign currency translations	 	$	195,062	 	$	180,500	 	8.1%	 	$	751,133	 	$	698,266	 	7.6%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation from operating income to operating income, excluding the litigation settlement (adjusted operating income):	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	$	46,581	 	$	41,897	 	11.2%	 	$	105,594	 	$	170,654	 	(38.1%)	 	
Less: litigation settlement	 	—	 	—	 	—	 	61,000	 	—	 	—	 	
Operating income, excluding litigation settlement	 	$	46,581	 	$	41,897	 	11.2%	 	$	166,594	 	$	170,654	 	(2.4%)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation from operating margin to operating margin, excluding the litigation settlement (adjusted operating margin):	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating margin	 	23.7%	 	23.2%	 	0.5pp	 	13.9%	 	24.4%	 	(10.5)pp	 	
Less: litigation settlement	 	0.0%	 	0.0%	 	—	 	8.0%	 	0.0%	 	8.0pp	 	
Operating margin, excluding litigation settlement	 	23.7%	 	23.2%	 	0.5pp	 	21.9%	 	24.4%	 	(2.5)pp	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by operating activities	 	$	56,933	 	$	54,445	 	4.6%	 	$	132,221	 	$	186,658	 	(29.2%)	 	
Less: capital expenditures	 	(15,564	)	(5,633	)	176.3%	 	(58,320	)	(33,583	)	73.7%	 	
Free cash flow	 	$	41,369	 	$	48,812	 	(15.2%)	 	$	73,901	 	$	153,075	 	(51.7%)	 	
 
11