CHICAGO, July 27, 2011 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its second-quarter 2011 financial results. The company reported consolidated revenue of $161.0 million in the second quarter of 2011, an increase of 18.3% from $136.1 million in the second quarter of 2010. Consolidated operating income was $38.6 million in the second quarter of 2011, an increase of 39.5% compared with $27.7 million in the same period a year ago. Net income was $26.5 million, or 52 cents per diluted share, compared with $18.0 million, or 36 cents per diluted share, in the second quarter of 2010.

Excluding acquisitions and the effect of foreign currency translations, revenue increased 11.2%. Second-quarter results included $5.1 million in revenue from acquisitions. Foreign currency translations had a favorable effect of $4.6 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 six months of 2011, revenue was $312.8 million, an increase of 18.3% compared with $264.4 million in the same period in 2010. Revenue for the first half of the year included $14.1 million from acquisitions and a $6.3 million benefit from foreign currency translations.

Consolidated operating income rose 20.1% to $70.4 million in the first six months of 2011, compared with $58.6 million in the first half of 2010. Net income was $49.0 million, or 96 cents per diluted share, in the first half of 2011, compared with $38.2 million, or 76 cents per diluted share, in the same period in 2010.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, "Organic revenue rose about 11%, reflecting growth across all of our major product lines. Leading the growth were Morningstar Direct ? our institutional research platform ? and Investment Consulting.  It's also worth noting that within our credit ratings business, we had strong revenue growth from new issue rating assignments in the commercial mortgage-backed securities market."

He added, "In June we held our annual investment conference in Chicago, with record attendance. We also announced our plans to launch forward-looking analyst-driven global fund ratings and a uniform approach for global fund research reports later this year. During the quarter, we also expanded our Wealth Forecasting Engine to clients in the United Kingdom and launched a website for fund investors in Chile."

Key Business Drivers

Morningstar has two operating segments: Investment Information and Investment Management. The Investment Information segment includes all of the company's data, software, and research products and services. These products and services are typically sold through subscriptions or license agreements. The Investment Management segment includes all of the company's asset management operations, which earn more than half of their revenue from asset-based fees.

Revenue:  In the second quarter of 2011, revenue in the Investment Information segment was $128.1 million, an increase of $19.1 million, or 17.5%, compared with the second quarter of 2010 including $4.5 million from acquisitions.  Revenue in the Investment Management segment rose 21.5% to $32.9 million, an increase of $5.8 million, including $0.6 million from acquisitions.

Revenue from international operations was $47.6 million in the second quarter of 2011, an increase of 28.2% from the same period a year ago. International revenue included $2.1 million from acquisitions. Foreign currency translations contributed $4.6 million to international revenue. Excluding acquisitions and foreign currency translations, international revenue increased 10.3%.

For the first six months of 2011, international revenue increased $18.4 million, or 25.3%, including $5.6 million in revenue from acquisitions. Foreign currency translations had a favorable impact of $6.3 million. 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 $38.6 million in the second quarter of 2011, a 39.5% increase from the same period in 2010. Operating expense rose $14.0 million, or 12.9%. Incremental operating expense from businesses acquired since the first quarter of 2010 represented approximately $3.6 million, or 25%, of the operating expense increase. The company completed seven acquisitions in 2010. Because of the timing of these acquisitions, the second-quarter and year-to-date results in 2011 include operating expense that did not exist in the comparable periods in 2010.

Approximately 60% of the growth in total operating expense was due to higher salaries, reflecting additional headcount from acquisitions and filling open positions, as well as salary increases made in the third quarter of 2010.  

Incentive compensation and employee benefit costs represented approximately 11% of the overall operating expense increase. Bonus expense rose $2.0 million compared with the prior-year period, a portion of which relates to acquisitions. Higher matching contributions to the company's 401(k) plan in the United States represented approximately $0.6 million of the increase. Lower healthcare benefit costs and sales commissions partially offset these increases. In the second quarter of 2010, the company had some unusually high medical claims that did not recur in the second quarter of 2011. Sales commission expense also declined because changes to the company's U.S. sales commission structure made in 2010 had a greater effect on prior-year period results.

Higher depreciation and amortization contributed $1.3 million to the operating expense increase in the second quarter of 2011, primarily from recent acquisitions.

Morningstar had approximately 3,300 employees worldwide as of June 30, 2011, compared with 2,965 as of June 30, 2010. Headcount rose year over year mainly because of continued hiring in the company's development centers in China and India. Morningstar hired about 30 employees in the United States in July 2011 as part of the Morningstar Development Program, a two-year rotational training program for entry-level college graduates, and expects to continue hiring in the second half of the year. In addition, the company expects to make salary increases in the third quarter of 2011.

The company's operating margin was 24.0% in the second quarter of 2011, up from 20.3% in the same period in 2010. Approximately half of the margin improvement reflects lower healthcare benefits and commission expense as a percentage of revenue. In the first six months of 2011, operating margin was 22.5%, compared with 22.2% in the first six months of 2010.

Effective Tax Rate:  Morningstar's effective tax rate in the second quarter of 2011 was 32.5%, a decrease of 3.7 percentage points compared with the prior-year period. Year to date, the company's effective tax rate was 32.2% compared with 35.7% in the first half of 2010. In the second quarter of 2011, the company increased its estimate of U.S. cash tax benefits by $1.1 million related to prior years. This adjustment represents 2.8 percentage points of the decline in the effective tax rate in the quarter and 1.5 percentage points in the year-to-date period. This higher-than-expected income tax benefit contributed approximately 2 cents to earnings per share in the second-quarter and first-half periods. The year-to-date effective tax rate also reflects the positive effect of certain deferred income tax benefits recorded in the first quarter of 2011.

Free Cash Flow:  Morningstar generated free cash flow of $43.4 million in the second quarter of 2011, reflecting cash provided by operating activities of $46.8 million and $3.4 million of capital expenditures.

Cash provided by operating activities increased $16.2 million, reflecting higher net income (adjusted for non-cash items), a positive cash flow effect generated from accounts receivable, and the timing of income tax payments. Capital expenditures rose $1.2 million in the quarter.

In the first six months of 2011, Morningstar generated free cash flow of $52.7 million, reflecting cash provided by operating activities of $61.1 million and capital expenditures of $8.4 million. Cash provided by operating activities in the first six months of 2011 increased $16.1 million, reflecting higher net income (adjusted for non-cash items), partially offset by a $16.1 million increase in bonuses paid in the first quarter of 2011. Capital expenditures rose $4.6 million, primarily reflecting payments for the company's new development center in China.  

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 June 30, 2011, Morningstar had cash, cash equivalents, and investments of $430.2 million, compared with $320.4 million as of June 30, 2010. On July 29, 2011, the company expects to pay approximately $2.5 million for its regular quarterly dividend. It expects to make capital expenditures of approximately $8.0 million to $11.0 million in the second half of 2011, primarily for leasehold improvements and computer equipment.

Business Segment Performance

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

• Revenue was $128.1 million in the second quarter of 2011, a 17.5% increase from $109.0 million in the second quarter of 2010.
• Acquisitions contributed revenue of $4.5 million.
• Morningstar Direct was the largest contributor to the increase in segment revenue; Licensed Data, Internet advertising sales on Morningstar.com, Morningstar Advisor Workstation (primarily Morningstar Office), and credit ratings were also positive contributors. Licenses for Morningstar Direct rose 32.4% to 5,442. Premium Membership subscriptions for Morningstar.com fell 5.1% because of continued weakness in new trials. Principia subscriptions fell 6.9% to 32,335, and Advisor Workstation (including Morningstar Office) licenses rose slightly to 156,258.
• Operating income was $37.1 million in the second quarter of 2011, compared with $30.5 million in the same period in 2010. Operating expense in this segment rose $12.5 million, or 16.0%, partly because of acquisitions. Higher salaries and bonus expense also contributed to the increase.
• Operating margin was 29.0% in the second quarter of 2011 versus 28.0% in the prior-year period. The increase mainly reflects the favorable effect of recent acquisitions. Lower healthcare benefits and commission expense as a percentage of revenue also contributed to the margin improvement, but to a lesser extent.

Investment Management Segment:  The largest products in this segment based on revenue are Investment Consulting; Retirement Solutions, including Advice by Ibbotson® and Morningstar® Retirement Manager(SM); and Morningstar® Managed Portfolios(SM).

• Revenue was $32.9 million in the second quarter of 2011, a 21.5% increase from $27.1 million in the same period in 2010.
• Acquisitions contributed revenue of $0.6 million.
• Investment Consulting was the primary driver of the segment revenue growth. Retirement Solutions (formerly Retirement Advice) and Morningstar Managed Portfolios also made positive contributions, but to a lesser extent.
• Assets under advisement and management for Investment Consulting were $141.5 billion as of June 30, 2011, compared with $98.7 billion as of June 30, 2010.  Assets under advisement and management rose about 43% year over year, mainly reflecting positive market performance during the past 12 months. Assets under advisement and management for Retirement Solutions rose to $38.4 billion as of June 30, 2011, versus $28.3 billion as of June 30, 2010. Assets under management for Morningstar Managed Portfolios increased to $3.0 billion as of June 30, 2011, compared with $2.2 billion as of June 30, 2010.
• Operating income was $18.5 million in the second quarter of 2011, an increase of 29.1% compared with the second quarter of 2010. Operating expense in the segment was $14.4 million, an increase of $1.7 million, or 13.0%, reflecting higher salaries and bonus expense. Acquisitions also contributed to the higher operating expense, but to a lesser extent.
• Operating margin was 56.2% in the second quarter of 2011 versus 52.9% in the prior-year period. The higher margin reflects lower commission, salary, and healthcare benefits expense as a percentage of revenue, partially offset by the impact of recent acquisitions.  

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 $6.6 million in the second quarter of 2011 and $13.1 million in the first half of 2011, an increase of $0.8 million and $1.8 million, respectively, compared with the same periods in 2010. Corporate depreciation expense was $1.9 million in the second quarter and $3.7 million in the first half of the year, essentially unchanged from the prior-year periods.

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. Costs in this category were $8.5 million, a decrease of $1.1 million, or 11.2%. The company capitalized $0.4 million of operating expense in the quarter for software development.  In the second quarter of 2010, the company expensed $0.5 million to increase a liability for vacant office space. This expense did not recur in the second quarter of 2011.

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 e-mail to investors@morningstar.com, contact the company via fax at 312-696-6009, or write to Morningstar at the following address:

Morningstar, Inc.Investor Relations22 W. Washington StreetChicago, 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 approximately 400,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 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 more than $180 billion in assets under advisement and management as of June 30, 2011. The company has operations in 26 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 ongoing economic weakness and uncertainty; the effect 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; the increasing concentration of data and development work carried out at our offshore facilities in China and India; failing to differentiate our products and continuously create innovative, proprietary research tools; failing to successfully integrate acquisitions; challenges faced by our non-U.S. operations; and a prolonged outage of our database and network facilities. A more complete description of these risks and uncertainties can be found in our other filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2010. If any of these risks and uncertainties materialize, our actual future results may vary significantly from what we expect. 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.

©2011 Morningstar, Inc.  All rights reserved.

MORN-E

Contacts:

Media: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com Nadine Youssef, 312-696-6601 or nadine.youssef@morningstar.com

Investors may submit questions to investors@morningstar.com or by fax to 312-696-6009.

Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
			Three months ended June 30						Six months ended June 30
(in thousands, except per share amounts)			2011		2010		change		2011		2010		change
Revenue			$ 161,011		$ 136,091		18.3%		$ 312,778		$ 264,381		18.3%
Operating expense(1):
	Cost of goods sold		45,186		39,738		13.7%		85,855		74,054		15.9%
	Development		13,681		11,899		15.0%		25,669		22,788		12.6%
	Sales and marketing		26,767		24,435		9.5%		53,249		46,996		13.3%
	General and administrative		26,207		23,106		13.4%		56,824		43,749		29.9%
	Depreciation and amortization		10,563		9,246		14.2%		20,765		18,185		14.2%
	Total operating expense		122,404		108,424		12.9%		242,362		205,772		17.8%
Operating income			38,607		27,667		39.5%		70,416		58,609		20.1%
Operating margin			24.0%		20.3%		3.7pp		22.5%		22.2%		0.3pp
Non-operating income (expense), net:
	Interest income (expense), net		(179)		593		NMF		345		1,180		(70.8%)
	Other income (expense), net		188		(572)		NMF		438		(1,338)		NMF
	Non-operating income (expense), net		9		21		(57.1%)		783		(158)		NMF
Income before income taxes and equity in net income
	of unconsolidated entities		38,616		27,688		39.5%		71,199		58,451		21.8%
Income tax expense			12,724		10,225		24.4%		23,242		21,220		9.5%
Equity in net income of unconsolidated entities			595		454		31.1%		969		843		14.9%
Consolidated net income			26,487		17,917		47.8%		48,926		38,074		28.5%
Net (income) loss attributable to noncontrolling interests			(2)		85		NMF		96		116		(17.2%)
Net income attributable to Morningstar, Inc.			$   26,485		$   18,002		47.1%		$   49,022		$   38,190		28.4%
Net income per share attributable to Morningstar, Inc.:
	Basic		$       0.53		$       0.37		43.2%		$       0.98		$       0.78		25.6%
	Diluted		$       0.52		$       0.36		44.4%		$       0.96		$       0.76		26.3%
Weighted average common shares outstanding:
	Basic		50,165		49,234				49,983		49,032
	Diluted		51,142		50,533				51,041		50,426
			Three months ended June 30						Six months ended June 30
			2011		2010				2011		2010
(1) Includes stock-based compensation expense of:
	Cost of goods sold		$     1,072		$        907				$     1,951		$     1,622
	Development		572		449				1,043		842
	Sales and marketing		481		486				903		889
	General and administrative		1,718		1,813				3,595		3,239
	Total stock-based compensation expense		$     3,843		$     3,655				$     7,492		$     6,592
NMF ? Not meaningful, pp ? percentage points

Morningstar, Inc. and Subsidiaries
Operating Expense as a Percentage of Revenue
			Three months ended June 30						Six months ended June 30
			2011		2010		change		2011		2010		change
Revenue			100.0%		100.0%		-		100.0%		100.0%		-
Operating expense(1):
	Cost of goods sold		28.1%		29.2%		(1.1)pp		27.4%		28.0%		(0.6)pp
	Development		8.5%		8.7%		(0.2)pp		8.2%		8.6%		(0.4)pp
	Sales and marketing		16.6%		18.0%		(1.4)pp		17.0%		17.8%		(0.8)pp
	General and administrative		16.3%		17.0%		(0.7)pp		18.2%		16.5%		1.7pp
	Depreciation and amortization		6.6%		6.8%		(0.2)pp		6.6%		6.9%		(0.3)pp
	Total operating expense(2)		76.0%		79.7%		(3.7)pp		77.5%		77.8%		(0.3)pp
Operating margin			24.0%		20.3%		3.7pp		22.5%		22.2%		0.3pp
			Three months ended June 30						Six months ended June 30
			2011		2010		change		2011		2010		change
(1) Includes stock-based compensation expense of:
	Cost of goods sold		0.7%		0.7%		-		0.6%		0.6%		-
	Development		0.4%		0.3%		0.1pp		0.3%		0.3%		-
	Sales and marketing		0.3%		0.4%		(0.1)pp		0.3%		0.3%		-
	General and administrative		1.1%		1.3%		(0.2)pp		1.1%		1.2%		(0.1)pp
	Total stock-based compensation expense(2)		2.4%		2.7%		(0.3)pp		2.4%		2.5%		(0.1)pp
(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 June 30				Six months ended June 30
($000)			2011		2010		2011		2010
Operating activities
Consolidated net income			$   26,487		$   17,917		$   48,926		$   38,074
Adjustments to reconcile consolidated net income to net cash
flows from operating activities:
	Depreciation and amortization		10,563		9,246		20,765		18,185
	Deferred income tax (benefit) expense		1,131		275		454		(1,012)
	Stock-based compensation expense		3,843		3,655		7,492		6,592
	Equity in net income of unconsolidated entities		(595)		(454)		(969)		(843)
	Excess tax benefits from stock-option exercises
	and vesting of restricted stock units		(2,049)		(1,157)		(6,171)		(4,205)
	Other, net		210		788		(17)		1,742
Changes in operating assets and liabilities, net of
effects of acquisitions:
	Accounts receivable		3,974		(1,748)		617		(6,615)
	Other assets		(845)		(31)		608		(511)
	Accounts payable and accrued liabilities		(2,660)		1,685		(5,260)		2,859
	Accrued compensation		12,348		11,362		(14,528)		(11,154)
	Deferred revenue		(1,650)		(3,253)		8,197		7,177
	Income taxes - current		(2,555)		(7,936)		2,742		(4,255)
	Deferred rent		(258)		312		(657)		(80)
	Other liabilities		(1,134)		(81)		(1,043)		(924)
	Cash provided by operating activities		46,810		30,580		61,156		45,030
Investing activities
Purchases of investments			(131,295)		(34,564)		(198,647)		(85,528)
Proceeds from maturities and sales of investments			88,001		42,447		150,360		130,381
Capital expenditures			(3,381)		(2,189)		(8,418)		(3,839)
Acquisitions, net of cash acquired			569		(66,717)		569		(67,455)
Other, net			799		889		785		889
	Cash used for investing activities		(45,307)		(60,134)		(55,351)		(25,552)
Financing activities
Proceeds from stock-option exercises, net			(269)		156		4,652		3,650
Excess tax benefits from stock-option exercises
and vesting of restricted stock units			2,049		1,157		6,171		4,205
Common shares repurchased			(109)		-		(109)		-
Dividends paid			(2,517)		-		(5,011)		-
Other, net			-		(110)		(214)		205
	Cash provided by (used for) financing activities		(846)		1,203		5,489		8,060
Effect of exchange rate changes on cash and cash equivalents			992		(2,625)		3,553		(3,657)
Net increase (decrease) in cash and cash equivalents			1,649		(30,976)		14,847		23,881
Cash and cash equivalents ? Beginning of period			193,374		185,353		180,176		130,496
Cash and cash equivalents ? End of period			$ 195,023		$ 154,377		$ 195,023		$ 154,377

Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):
			Three months ended June 30				Six months ended June 30
($000)			2011		2010		2011		2010
Cash provided by operating activities			$   46,810		$   30,580		$   61,156		$   45,030
Less: Capital expenditures			(3,381)		(2,189)		(8,418)		(3,839)
Free cash flow			$   43,429		$   28,391		$   52,738		$   41,191

Morningstar, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
			June 30		December 31
($000)			2011		2010
Assets
Current assets:
	Cash and cash equivalents		$    195,023		$        180,176
	Investments		235,216		185,240
	Accounts receivable, net		111,518		110,891
	Deferred tax asset, net		2,787		2,860
	Income tax receivable, net		14,381		10,459
	Other		16,497		17,654
	Total current assets		575,422		507,280
Property and equipment, net			62,062		62,105
Investments in unconsolidated entities			24,424		24,262
Goodwill			326,543		317,661
Intangible assets, net			156,940		169,023
Other assets			7,675		5,971
	Total assets		$ 1,153,066		$ 1,086,302
Liabilities and equity
Current liabilities:
	Accounts payable and accrued liabilities		$      38,646		$          42,680
	Accrued compensation		50,089		62,404
	Deferred revenue		156,760		146,267
	Other		761		1,373
	Total current liabilities		246,256		252,724
Accrued compensation			4,855		4,965
Deferred tax liability, net			19,477		19,975
Other long-term liabilities			26,256		27,213
	Total liabilities		296,844		304,877
	Total equity		856,222		781,425
	Total liabilities and equity		$ 1,153,066		$ 1,086,302

Morningstar, Inc. and Subsidiaries
Segment Information
			Three months ended June 30						Six months ended June 30
($000)			2011		2010		change		2011		2010		change
Revenue
	Investment Information		$ 128,116		$ 109,021		17.5%		$ 248,515		$ 212,545		16.9%
	Investment Management		32,895		27,070		21.5%		64,263		51,836		24.0%
	Consolidated revenue		$ 161,011		$ 136,091		18.3%		$ 312,778		$ 264,381		18.3%
	Revenue ? U.S.		$ 113,424		$   98,986		14.6%		$ 221,605		$ 191,596		15.7%
	Revenue ? International		$   47,587		$   37,105		28.2%		$   91,173		$   72,785		25.3%
	Revenue ? U.S. (percentage of consolidated revenue)		70.4%		72.7%		(2.3)pp		70.9%		72.5%		(1.6)pp
	Revenue ? International (percentage of consolidated revenue)		29.6%		27.3%		2.3pp		29.1%		27.5%		1.6pp
Operating income (loss)(1)
	Investment Information		$   37,097		$   30,542		21.5%		$   69,404		$   63,288		9.7%
	Investment Management		18,491		14,321		29.1%		35,537		27,614		28.7%
	Intangible amortization and corporate depreciation expense		(8,476)		(7,620)		11.2%		(16,777)		(14,866)		12.9%
	Corporate unallocated		(8,505)		(9,576)		(11.2%)		(17,748)		(17,427)		1.8%
	Consolidated operating income		$   38,607		$   27,667		39.5%		$   70,416		$   58,609		20.1%
Operating margin(1)
	Investment Information		29.0%		28.0%		1.0pp		27.9%		29.8%		(1.9)pp
	Investment Management		56.2%		52.9%		3.3pp		55.3%		53.3%		2.0pp
	Consolidated operating margin		24.0%		20.3%		3.7pp		22.5%		22.2%		0.3pp
(1) Includes stock-based compensation expense allocated to each segment.

Morningstar, Inc. and Subsidiaries
Supplemental Data
				As of June 30
				2011		2010		% change
Our employees
Worldwide headcount (approximate)				3,300		2,965		11.3%
Number of worldwide equity and credit analysts				161		151	(1)	6.6%
Number of worldwide fund analysts				118		104	(2)	13.5%
Our business
Investment Information
Morningstar.com Premium subscriptions (U.S.)				136,008		143,392		(5.1%)
Registered users for Morningstar.com (U.S.)				6,810,581		6,175,874		10.3%
U.S. Advisor Workstation and Morningstar Office licenses				156,258		154,226		1.3%
Principia subscriptions				32,335		34,715		(6.9%)
Morningstar Direct licenses				5,442		4,109		32.4%
Investment Management
Assets under advisement and management
	Investment Consulting			$141.5 bil		$98.7 bil	(3)	43.4%
	Retirement Solutions (4)			$38.4 bil		$28.3 bil		35.7%
	Morningstar Managed Portfolios			$3.0 bil		$2.2 bil		36.4%
(1) Revised to include structured credit analysts.
(2)  Revised.
(3) Revised; in addition, Ibbotson Australia is now included in the total.
(4) Revised to include Plan Sponsor Advice.

				Three months ended June 30				Six months ended June 30
($000)				2011		2010		2011		2010
Effective tax rate
Income before income taxes and equity in net income of
	unconsolidated entities			$     38,616		$      27,688		$      71,199		$      58,451
Equity in net income of unconsolidated entities				595		454		969		843
Net (income) loss attributable to noncontrolling interests				(2)		85		96		116
	Total			$     39,209		$      28,227		$      72,264		$      59,410
Income tax expense				$     12,724		$      10,225		$      23,242		$      21,220
Effective tax rate				32.5%		36.2%		32.2%		35.7%

Morningstar, Inc. and Subsidiaries
Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures
Morningstar includes an acquired operation as part of revenue and expense from acquisitions for 12 months after we complete the acquisition. Operating expense related to acquisitions also includes amortization of intangible assets, professional fees, and expense related to vacant office space incurred as part of the acquisition process. It's important to note that it's difficult to precisely quantify the amount of operating expense from acquisitions.  We don't always maintain acquired operations as stand-alone businesses, and we often integrate administrative or other functions with existing operations.
Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue):
				Three months ended June 30						Six months ended June 30
($000)				2011		2010		% change		2011		2010		% change
Consolidated revenue				$ 161,011		$             136,091		18.3%		$         312,778		$ 264,381		18.3%
Less: acquisitions				(5,097)		-		NMF		(14,112)		-		NMF
Favorable impact of foreign currency translations				(4,573)		-		NMF		(6,253)		-		NMF
Revenue excluding acquisitions and
		foreign currency translations		$ 151,341		$             136,091		11.2%		$         292,413		$ 264,381		10.6%

Reconciliation from international revenue to international revenue excluding acquisitions and foreign currency translations:
			Three months ended June 30						Six months ended June 30
($000)			2011		2010		% change		2011		2010		% change
International revenue			$   47,587		$               37,105		28.2%		$           91,173		$   72,785		25.3%
Less: acquisitions			(2,076)		-		NMF		(5,561)		-		NMF
Favorable impact of foreign currency translations			(4,573)		-		NMF		(6,253)		-		NMF
International revenue excluding acquisitions
	and foreign currency translations		$   40,938		$               37,105		10.3%		$           79,359		$   72,785		9.0%

The following table summarizes the change in operating expense:
			Three months ended June 30						Six months ended June 30
($000)			2011		2010		$ change		2011		2010		$ change
Total operating expense			$ 122,404		$             108,424		$   13,980		$         242,362		$ 205,772		$   36,590
	Acquisitions						$     3,552						$   12,798
	Unfavorable impact of foreign currency translations						4,328						5,774
	All other changes in operating expense						6,100						18,018
	Total						$   13,980						$   36,590

The table below shows the period in which we included each acquired operation in revenue and expense from acquisitions:
Acquisition		Date of acquisition		2011 revenue and expense from acquisitions
Footnoted business of Financial Fineprint Inc.		February 1, 2010		January 1 through January 31, 2011
Aegis Equities Research		April 1, 2010		January 1 through March 31, 2011
Old Broad Street Research Ltd.		April 12, 2010		January 1 through April 11, 2011
Realpoint, LLC		May 3, 2010		January 1 through May 2, 2011
Morningstar Danmark A/S		July 1, 2010		January 1 through June 30, 2011
Seeds Group		July 1, 2010		January 1 through June 30, 2011
Annuity intelligence business of Advanced Sales and Marketing Corporation		November 1, 2010		January 1 through June 30, 2011

SOURCE Morningstar, Inc.