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):  October 23, 2013
 
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 October 23, 2013, Morningstar, Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2013.  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 October 23, 2013.	

*               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:  October 24, 2013	 	By:	/s/ Richard Scott Cooley	
 	 	Name:	Richard Scott Cooley	
 	 	Title:	Chief Financial Officer	
 
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EXHIBIT INDEX

Exhibit No.	 	Description	
 	 	 	
99.1*	 	Press Release dated October 23, 2013.	

*               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: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com
 
Investors may submit questions to investors@morningstar.com.
 
FOR IMMEDIATE RELEASE
 
Morningstar, Inc. Reports Third-Quarter 2013 Financial Results
 
CHICAGO, Oct. 23, 2013—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its third-quarter 2013 financial results. The company reported consolidated revenue of $173.5 million in the third quarter of 2013, a 7.8% increase from $161.0 million in the third quarter of 2012. Consolidated operating income was $44.6 million in the third quarter of 2013, an increase of 11.9% compared with $39.9 million in the same period a year ago. Net income was $31.5 million, or 68 cents per diluted share, in the third quarter of 2013, compared with $27.1 million, or 56 cents per diluted share, in the third quarter of 2012.
 
Excluding acquisitions, divestitures, and foreign currency translations, revenue rose 8.8% in the third quarter of 2013. 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.
 
Joe Mansueto, chairman and chief executive officer of Morningstar, said, “We had another solid quarter, with organic revenue up nearly 9%. Morningstar Data, Morningstar Direct, Retirement Solutions, and Morningstar Managed Portfolios all had double-digit growth rates and were the main drivers of revenue growth. While these results are encouraging, the investment industry still faces challenges and lingering fallout from the financial crisis.”
 
1 

 
Financial Highlights
 
As previously announced, Morningstar now reports its results in a single segment to reflect its shift to a more centralized organizational structure. The company will continue to provide investors with a discussion of revenue for its investment information and investment management product groups as well as international operations.
 
·                   Investment information revenue was $137.2 million, an increase of 6.9% from the third quarter of 2012. Morningstar® Data and Morningstar Direct SM  were the largest contributors to revenue growth. Morningstar® Advisor Workstation SM  (including Morningstar Office SM ) also contributed to the revenue increase, which was partially offset by lower revenue for Morningstar® Principia®.
·                   Investment management revenue was $36.3 million, an increase of 11.4% from $32.6 million in the third quarter of 2012. Revenue for both Retirement Solutions and Morningstar® Managed Portfolios SM  rose approximately $2.0 million; lower revenue for Investment Advisory services partially offset the increase.
·                   Revenue for international operations increased slightly to $48.5 million in the third quarter, compared with $46.9 million in the same period last year. International growth was driven by Europe, including the United Kingdom. Foreign currency translations reduced international revenue by $1.4 million.
·                   Consolidated operating income was $44.6 million in the third quarter of 2013, an 11.9% increase from the same period in 2012. Operating expense rose $7.8 million, or 6.4%, in the third quarter of 2013.
·                   Operating margin was 25.7% in the third quarter of 2013, up from 24.8% in the same period in 2012.
·                   The company’s effective tax rate in the third quarter of 2013 was 31.2%, compared with 35.9% in the same period in 2012.
·                   Morningstar generated positive free cash flow of $38.0 million in the third quarter of 2013, reflecting cash provided by operating activities of $47.1 million and $9.1 million of 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 Sept. 30, 2013, Morningstar had cash, cash equivalents, and investments of $342.9 million, compared with $321.4 million as of Dec. 31, 2012. Of the $500 million authorized under its share repurchase program, Morningstar has purchased a total of 5.9 million shares for $359.1 million as of Sept. 30, 2013. In the third quarter, Morningstar repurchased approximately 81,000 shares for $6.2 million. The company expects to pay approximately $5.8 million for its regular quarterly dividend on Oct. 31, 2013.
 
Operating Highlights
 
·                   Licenses for Morningstar Direct rose 17.6% to 8,367.
·                   Assets under advisement and management for Investment Advisory services were approximately $106.6 billion as of Sept. 30, 2013, compared with $142.4 billion as of Sept. 30, 2012, a decrease of $35.8 billion, or 25.1%. A change in the scope of services Morningstar provides to an existing client during the fourth quarter of 2012 lowered assets under advisement by $49.1 billion.
·                   Assets under management and advisement for Retirement Solutions were approximately $59.5 billion as of Sept. 30, 2013, versus $45.4 billion as of Sept. 30, 2012.
·                   Assets under management and advisement for Morningstar Managed Portfolios were approximately $6.6 billion as of Sept. 30, 2013, compared with $4.3 billion as of Sept. 30, 2012.
·                   In September, the company launched Morningstar® for iPad®, its most comprehensive mobile offering yet that allows investors to monitor the markets, track their portfolios, and research investments using Morningstar data and analysis.
 
2 

 
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 437,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 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 $176 billion in assets under advisement and management as of Sept. 30, 2013. 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, 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; the availability of free or low-cost investment information; and liability and/or damage to our reputation as a result of some of our currently pending litigation. 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, 2012. 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.
 
3 

 
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.
 
###
 
©2013 Morningstar, Inc. All Rights Reserved.
 
MORN-E
 
4 

 
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income

 	 	Three months ended September 30	 	Nine months ended September 30	 	
(in thousands, except per share amounts)	 	2013	 	2012	 	change	 	2013	 	2012	 	change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	173,482	 	$	160,952	 	7.8%	 	$	517,766	 	$	487,679	 	6.2%	 	
Operating expense(1):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue(2)	 	72,422	 	60,568	 	19.6%	 	198,499	 	186,143	 	6.6%	 	
Sales and marketing	 	22,774	 	25,732	 	(11.5%	)	78,789	 	81,431	 	(3.2%	)	
General and administrative	 	22,416	 	23,966	 	(6.5%	)	77,863	 	77,090	 	1.0%	 	
Depreciation and amortization	 	11,257	 	10,822	 	4.0%	 	33,858	 	31,616	 	7.1%	 	
Total operating expense	 	128,869	 	121,088	 	6.4%	 	389,009	 	376,280	 	3.4%	 	
Operating income	 	44,613	 	39,864	 	11.9%	 	128,757	 	111,399	 	15.6%	 	
Operating margin	 	25.7%	 	24.8%	 	0.9pp	 	24.9%	 	22.8%	 	2.1pp	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-operating income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income, net	 	630	 	1,719	 	(63.4%	)	2,035	 	3,848	 	(47.1%	)	
Other income (expense), net	 	141	 	161	 	(12.4%	)	2,792	 	(314	)	NMF	 	
Non-operating income, net	 	771	 	1,880	 	(59.0%	)	4,827	 	3,534	 	36.6%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	45,384	 	41,744	 	8.7%	 	133,584	 	114,933	 	16.2%	 	
Income tax expense	 	14,265	 	15,186	 	(6.1%	)	42,647	 	41,441	 	2.9%	 	
Equity in net income of unconsolidated entities	 	315	 	478	 	(34.1%	)	1,172	 	1,541	 	(23.9%	)	
Consolidated net income	 	31,434	 	27,036	 	16.3%	 	92,109	 	75,033	 	22.8%	 	
Net loss attributable to noncontrolling interests	 	29	 	34	 	(14.7%	)	93	 	62	 	50.0%	 	
Net income attributable to Morningstar, Inc.	 	$	31,463	 	$	27,070	 	16.2%	 	$	92,202	 	$	75,095	 	22.8%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share attributable to Morningstar, Inc.:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.68	 	$	0.56	 	21.4%	 	$	1.99	 	$	1.53	 	30.1%	 	
Diluted	 	$	0.68	 	$	0.56	 	21.4%	 	$	1.98	 	$	1.51	 	31.1%	 	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	46,080	 	47,975	 	(3.9%	)	46,293	 	49,028	 	(5.6%	)	
Diluted	 	46,519	 	48,481	 	(4.0%	)	46,635	 	49,664	 	(6.1%	)	
 	 	 	 	 	 	
 	 	Three months ended September 30	 	Nine months ended September 30	 	
 	 	2013	 	2012	 	 	 	2013	 	2012	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(1) Includes stock-based compensation expense of:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue	 	$	1,471	 	$	1,619	 	 	 	$	4,863	 	$	4,739	 	 	 	
Sales and marketing	 	456	 	493	 	 	 	1,490	 	1,433	 	 	 	
General and administrative	 	1,489	 	1,882	 	 	 	4,800	 	5,422	 	 	 	
Total stock-based compensation expense	 	$	3,416	 	$	3,994	 	 	 	$	11,153	 	$	11,594	 	 	 	
 
(2) Morningstar now includes development expense in the cost of revenue category, which the company previously referred to as cost of goods sold. The company has reclassified development expense to include it in cost of revenue for all periods presented.
 
Separately, as a result of Morningstar’s recent reorganization (including new positions created, the elimination of roles no longer needed, changes in focus for some exisiting roles, and the refinement of employee cost categorizations as the company moved to a more centralized structure), approximately 180 net positions shifted from the general and administrative and sales and marketing categories to cost of revenue. These changes did not affect the company’s total operating expense or operating income for any of the periods presented.
 
NMF — Not meaningful, pp — percentage points
 
5 

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

 	 	Three months ended September 30	 	Nine months ended September 30	 	
 	 	2013	 	2012	 	change	 	2013	 	2012	 	change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	100.0%	 	100.0%	 	—	 	100.0%	 	100.0%	 	—	 	
Operating expense(1):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue	 	41.7%	 	37.6%	 	4.1pp	 	38.3%	 	38.2%	 	0.1pp	 	
Sales and marketing	 	13.1%	 	16.0%	 	(2.9)pp	 	15.2%	 	16.7%	 	(1.5)pp	 	
General and administrative	 	12.9%	 	14.9%	 	(2.0)pp	 	15.0%	 	15.8%	 	(0.8)pp	 	
Depreciation and amortization	 	6.5%	 	6.7%	 	(0.2)pp	 	6.5%	 	6.5%	 	—	 	
Total operating expense(2)	 	74.3%	 	75.2%	 	(0.9)pp	 	75.1%	 	77.2%	 	(2.1)pp	 	
Operating margin	 	25.7%	 	24.8%	 	0.9pp	 	24.9%	 	22.8%	 	2.1pp	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended September 30	 	Nine months ended September 30	 	
 	 	2013	 	2012	 	change	 	2013	 	2012	 	change	 	
(1) Includes stock-based compensation expense of:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of revenue	 	0.8%	 	1.0%	 	(0.2)pp	 	0.9%	 	1.0%	 	(0.1)pp	 	
Sales and marketing	 	0.3%	 	0.3%	 	—	 	0.3%	 	0.3%	 	—	 	
General and administrative	 	0.9%	 	1.2%	 	(0.3)pp	 	0.9%	 	1.1%	 	(0.2)pp	 	
Total stock-based compensation expense(2)	 	2.0%	 	2.5%	 	(0.5)pp	 	2.2%	 	2.4%	 	(0.2)pp	 	
 
(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 September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	2013	 	2012	 	
 	 	 	 	 	 	 	 	 	 	
Operating activities	 	 	 	 	 	 	 	 	 	
Consolidated net income	 	$	31,434	 	$	27,036	 	$	92,109	 	$	75,033	 	
Adjustments to reconcile consolidated net income to net cash flows from operating activities:	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	11,257	 	10,822	 	33,858	 	31,616	 	
Deferred income taxes	 	(2,277	)	193	 	(2,315	)	492	 	
Stock-based compensation expense	 	3,416	 	3,994	 	11,153	 	11,594	 	
Equity in net income of unconsolidated entities	 	(315	)	(478	)	(1,172	)	(1,541	)	
Excess tax benefits from stock-option exercises and vesting of restricted stock units	 	(251	)	(459	)	(4,093	)	(5,007	)	
Holding gain upon acquisition of additional ownership of equity method investments	 	78	 	—	 	(3,635	)	—	 	
Other, net	 	(407	)	(130	)	742	 	1,332	 	
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:	 	 	 	 	 	 	 	 	 	
Accounts receivable	 	(1,773	)	(2,175	)	(1,249	)	(6,569	)	
Other assets	 	578	 	89	 	(2,887	)	(3,551	)	
Accounts payable and accrued liabilities	 	(3,789	)	(4,968	)	(3,151	)	(4,316	)	
Accrued compensation	 	11,177	 	6,069	 	(8,404	)	(20,851	)	
Deferred revenue	 	(5,019	)	(4,649	)	6,004	 	7,684	 	
Income taxes - current	 	3,512	 	2,695	 	17,205	 	7,220	 	
Deferred rent	 	(401	)	(177	)	(1,273	)	291	 	
Other liabilities	 	(142	)	(335	)	(679	)	(1,111	)	
Cash provided by operating activities	 	47,078	 	37,527	 	132,213	 	92,316	 	
Investing activities	 	 	 	 	 	 	 	 	 	
Purchases of investments	 	(31,525	)	(1,041	)	(113,824	)	(134,929	)	
Proceeds from maturities and sales of investments	 	12,471	 	54,827	 	108,599	 	216,350	 	
Capital expenditures	 	(9,069	)	(4,954	)	(27,950	)	(22,876	)	
Acquisitions, net of cash acquired	 	46	 	—	 	(11,079	)	—	 	
Proceeds from sale of a business, net	 	—	 	—	 	957	 	—	 	
Purchase of equity and cost method investments	 	(1,842	)	(3,554	)	(2,751	)	(10,304	)	
Other, net	 	(4	)	(4	)	432	 	(4	)	
Cash provided by (used for) investing activities	 	(29,923	)	45,274	 	(45,616	)	48,237	 	
Financing activities	 	 	 	 	 	 	 	 	 	
Proceeds from stock-option exercises	 	362	 	2,278	 	3,172	 	6,752	 	
Employee taxes withheld for restricted stock units	 	(119	)	(299	)	(5,276	)	(3,992	)	
Excess tax benefits from stock-option exercises and vesting of restricted stock units	 	251	 	459	 	4,093	 	5,007	 	
Common shares repurchased	 	(8,857	)	(78,259	)	(62,794	)	(183,698	)	
Dividends paid	 	(5,768	)	(4,863	)	(11,657	)	(14,867	)	
Other, net	 	(4	)	2	 	(54	)	(18	)	
Cash used for financing activities	 	(14,135	)	(80,682	)	(72,516	)	(190,816	)	
Effect of exchange rate changes on cash and cash equivalents	 	4,129	 	2,563	 	(1,011	)	2,007	 	
Net increase (decrease) in cash and cash equivalents	 	7,149	 	4,682	 	13,070	 	(48,256	)	
Cash and cash equivalents—Beginning of period	 	169,810	 	147,499	 	163,889	 	200,437	 	
Cash and cash equivalents—End of period	 	$	176,959	 	$	152,181	 	$	176,959	 	$	152,181	 	
 	 	 	 	 	 	 	 	 	 	
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)	 	2013	 	2012	 	2013	 	2012	 	
 	 	 	 	 	 	 	 	 	 	
Cash provided by operating activities	 	$	47,078	 	$	37,527	 	$	132,213	 	$	92,316	 	
Less: Capital expenditures	 	(9,069	)	(4,954	)	(27,950	)	(22,876	)	
Free cash flow	 	$	38,009	 	$	32,573	 	$	104,263	 	$	69,440	 	
 
7 

 
Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets

 	 	September 30	 	December 31	 	
($000)	 	2013	 	2012	 	
 	 	 	 	 	 	
Assets	 	 	 	 	 	
Current assets:	 	 	 	 	 	
Cash and cash equivalents	 	$	176,959	 	$	163,889	 	
Investments	 	165,918	 	157,529	 	
Accounts receivable, net	 	113,688	 	114,361	 	
Deferred tax asset, net	 	3,155	 	3,741	 	
Income tax receivable, net	 	3,451	 	14,267	 	
Other	 	26,229	 	20,823	 	
Total current assets	 	489,400	 	474,610	 	
 	 	 	 	 	 	
Property, equipment, and capitalized software, net	 	99,007	 	84,022	 	
Investments in unconsolidated entities	 	38,376	 	35,305	 	
Goodwill	 	326,741	 	320,845	 	
Intangible assets, net	 	109,269	 	116,732	 	
Other assets	 	11,357	 	10,438	 	
Total assets	 	$	1,074,150	 	$	1,041,952	 	
 	 	 	 	 	 	
Liabilities and equity	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	
Accounts payable and accrued liabilities	 	$	35,984	 	$	43,777	 	
Accrued compensation	 	60,745	 	67,317	 	
Deferred revenue	 	151,850	 	146,015	 	
Other	 	6,760	 	256	 	
Total current liabilities	 	255,339	 	257,365	 	
 	 	 	 	 	 	
Accrued compensation	 	8,467	 	8,281	 	
Deferred tax liability, net	 	22,188	 	21,583	 	
Other long-term liabilities	 	29,680	 	27,828	 	
Total liabilities	 	315,674	 	315,057	 	
Total equity	 	758,476	 	726,895	 	
Total liabilities and equity	 	$	1,074,150	 	$	1,041,952	 	
 
8 

 
Morningstar, Inc. and Subsidiaries
Supplemental Data

 	 	As of September 30	 	
 	 	2013	 	2012	 	% change	 	
Our employees	 	 	 	 	 	 	 	
Worldwide headcount (approximate)	 	3,490	 	3,525	 	(1.0%	)	
Number of worldwide equity and credit analysts (approximate)	 	155	 	155	 	0.0%	 	
Number of worldwide fund analysts (approximate)	 	105	 	110	 	(4.5%	)	
 	 	 	 	 	 	 	 	
Our business	 	 	 	 	 	 	 	
Morningstar.com Premium Membership subscriptions (U.S.)	 	123,656	 	125,006	 	(1.1%	)	
Registered users for Morningstar.com (U.S.)	 	7,765,424	 	7,440,867	 	4.4%	 	
U.S. Advisor Workstation and Morningstar Office licenses	 	165,812	 	161,957	 	2.4%	 	
Principia subscriptions	 	21,612	 	27,695	 	(22.0%	)	
Morningstar Direct licenses	 	8,367	 	7,115	 	17.6%	 	
Assets under advisement and management (approximate)	 	 	 	 	 	 	 	
Investment Advisory Services	 	$106.6 bil	 	$142.4 bil	 	(25.1%	)	
Retirement Solutions	 	$59.5 bil	 	$45.4 bil	 	31.1%	 	
Morningstar Managed Portfolios	 	$6.6 bil	 	$4.3 bil	(1)	53.5%	 	
Ibbotson Australia	 	$3.1 bil	 	$3.1 bil	 	0.0%	 	
 	 	 	 	 	 	 	 	 	 	
(1) Revised	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
 	 	Three months ended September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	2013	 	2012	 	
Revenue	 	 	 	 	 	 	 	 	 	
Investment information	 	$	137,216	 	$	128,392	 	$	412,332	 	$	388,468	 	
Investment management	 	36,266	 	32,560	 	105,434	 	99,211	 	
Consolidated revenue	 	$	173,482	 	$	160,952	 	$	517,766	 	$	487,679	 	
 	 	 	 	 	 	 	 	 	 	
Revenue—U.S.	 	$	124,998	 	$	114,021	 	$	372,746	 	$	346,442	 	
Revenue—International	 	$	48,484	 	$	46,931	 	$	145,020	 	$	141,237	 	
 	 	 	 	 	 	
 	 	Three months ended September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	2013	 	2012	 	
Effective tax rate	 	 	 	 	 	 	 	 	 	
Income before income taxes and equity in net income of unconsolidated entities	 	$	45,384	 	$	41,744	 	$	133,584	 	$	114,933	 	
Equity in net income of unconsolidated entities	 	315	 	478	 	1,172	 	1,541	 	
Net loss attributable to noncontrolling interests	 	29	 	34	 	93	 	62	 	
Total	 	$	45,728	 	$	42,256	 	$	134,849	 	$	116,536	 	
Income tax expense	 	$	14,265	 	$	15,186	 	$	42,647	 	$	41,441	 	
Effective tax rate	 	31.2%	 	35.9%	 	31.6%	 	35.6%	 	
 
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 September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	% change	 	2013	 	2012	 	% change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated revenue	 	$	173,482	 	$	160,952	 	7.8%	 	$	517,766	 	$	487,679	 	6.2%	 	
Less: divestitures	 	—	 	(1,481	)	NMF	 	 	 	(4,144	)	NMF	 	
Less: acquisitions	 	(1,398	)	—	 	NMF	 	(2,265	)	—	 	NMF	 	
Unfavorable impact of foreign currency translations	 	1,419	 	—	 	NMF	 	2,608	 	—	 	NMF	 	
Revenue excluding acquisitions, divestitures, and foreign currency translations	 	$	173,503	 	$	159,471	 	8.8%	 	$	518,109	 	$	483,535	 	7.2%	 	
 
Reconciliation from international revenue to international revenue excluding divestitures, acquisitions, and foreign currency translations:

 	 	Three months ended September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	% change	 	2013	 	2012	 	% change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
International revenue	 	$	48,484	 	$	46,931	 	3.3%	 	$	145,020	 	$	141,237	 	2.7%	 	
Less: divestitures	 	—	 	(1,353	)	NMF	 	—	 	(3,814	)	NMF	 	
Less: acquisitions	 	(1,398	)	—	 	NMF	 	(2,265	)	—	 	NMF	 	
Unfavorable impact of foreign currency translations	 	1,419	 	—	 	NMF	 	2,608	 	—	 	NMF	 	
International revenue excluding acquisitions, divestitures, and foreign currency translations	 	$	48,505	 	$	45,578	 	6.4%	 	$	145,363	 	$	137,423	 	5.8%	 	
 
The following table summarizes the change in operating expense:

 	 	Three months ended September 30	 	Nine months ended September 30	 	
($000)	 	2013	 	2012	 	$ change	 	2013	 	2012	 	$ change	 	
Total operating expense	 	$	128,869	 	$	121,088	 	$	7,781	 	$	389,009	 	$	376,280	 	$	12,729	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Favorable impact of foreign currency translations	 	 	 	 	 	(1,347	)	 	 	 	 	(2,659	)	
All other changes in operating expense	 	 	 	 	 	9,128	 	 	 	 	 	15,388	 	
Total	 	 	 	 	 	$	7,781	 	 	 	 	 	$	12,729	 	

10