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Press release from PR Newswire

Morningstar, Inc. Reports Third-Quarter 2011 Financial Results

Wednesday, October 26, 2011

Morningstar, Inc. Reports Third-Quarter 2011 Financial Results16:04 EDT Wednesday, October 26, 2011CHICAGO, Oct. 26, 2011 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its third-quarter 2011 financial results. The company reported consolidated revenue of $160.1 million in the third quarter of 2011, a 14.5% increase from $139.8 million in the third quarter of 2010. Consolidated operating income was $33.9 million in the third quarter of 2011, an increase of 12.3% compared with $30.2 million in the same period a year ago. Net income was $21.4 million, or 42 cents per diluted share, compared with $24.7 million, or 49 cents per diluted share, in the third quarter of 2010. The company's 2010 third-quarter earnings included an after-tax gain of $3.2 million, or 7 cents per share, related to increasing its ownership interest in Morningstar Denmark.Excluding acquisitions and the effect of foreign currency translations, revenue rose 11.2%. Third-quarter results included $0.9 million in revenue from acquisitions. Foreign currency translations had a favorable effect of $3.7 million. Revenue excluding acquisitions and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.In the first nine months of 2011, revenue was $472.8 million, an increase of 17.0% compared with $404.2 million in the same period in 2010. Revenue for the first nine months of the year included $15.0 million from acquisitions and $9.9 million from foreign currency translations. Excluding acquisitions and foreign currency translations, revenue rose 10.8%. Consolidated operating income increased 17.5% to $104.3 million in the first nine months of 2011, compared with $88.8 million in the first nine months of 2010. Net income was $70.4 million, or $1.37 per diluted share, in the first nine months of 2011, compared with $62.9 million, or $1.24 per diluted share, in the same period in 2010.Joe Mansueto, chairman and chief executive officer of Morningstar, said, "Organic revenue rose about 11% during the third quarter, which is consistent with the growth trends we've had throughout the year. Investment Consulting and Morningstar Direct were the primary growth drivers in the quarter, followed by Integrated Web Tools and Structured Credit Ratings. However, operating expense rose because of higher compensation costs, including bonus expense."During the quarter, we held our second annual ETF Invest conference in Chicago, with very strong attendance. We aim to be the leading provider of ETF data and research, and we also announced plans to research and rank ETF managed portfolios. Within our Investment Management division, we added several new strategies to the Morningstar Managed Portfolios offering. And, we added sophisticated asset allocation functionality to the Morningstar Direct research platform for institutional investors."Mansueto added, "I'm also pleased to announce that we've hired Greg Goff to be our chief technology officer. Greg joins us from The Nielsen Company, where he served as senior vice president of global platform technology. He has experience managing large data sets and integrating diverse platforms, and we're thrilled to have him on board." 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 60% of their revenue from asset-based fees.Revenue: In the third quarter of 2011, revenue in the Investment Information segment was $125.8 million, an increase of $13.7 million, or 12.3%, including $0.9 million from acquisitions. Revenue in the Investment Management segment was $34.2 million, an increase of $6.5 million, or 23.4%.Revenue from international operations was $47.3 million in the third quarter of 2011, an increase of 18.5% from the same period a year ago. Foreign currency translations contributed $3.7 million to international revenue. Excluding foreign currency translations, international revenue rose 9.3%. For the first nine months of 2011, international revenue increased $25.8 million, or 22.9%, including $5.6 million from acquisitions. Foreign currency translations had a favorable effect of $9.9 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 $33.9 million in the third quarter of 2011, a 12.3% increase from the same period in 2010. Operating expense rose $16.5 million, or 15.1%. The company completed seven acquisitions in 2010. Because of the timing of these acquisitions, results for both periods in 2011 include operating expense that did not exist in the same periods in 2010. Approximately half of the increase in total operating expense was due to higher salaries, reflecting salary increases made in July, and, to a lesser extent, additional headcount. The headcount growth includes about 30 employees hired in July in the United States as part of the Morningstar Development Program, a two-year rotational training program for entry-level college graduates.Incentive compensation and employee benefits costs represented approximately 35%, or $5.7 million, of the overall operating expense increase. Higher depreciation and amortization contributed an additional $1.1 million to the operating expense increase in the third quarter of 2011, partly from recent acquisitions. In the third quarter, the company capitalized $1.6 million of operating expense, primarily for software development within the LIM commodity data business, Structured Credit Ratings, and Morningstar Direct. Morningstar had approximately 3,395 employees worldwide as of Sept. 30, 2011, compared with 3,165 as of Sept. 30, 2010. Headcount was higher year over year mainly because of continued hiring in the company's development centers in China and India, as well as in the United States. The company's operating margin was 21.2% in the third quarter of 2011, a slight decrease compared with the same period in 2010. The margin decline primarily reflects higher employee benefits expense as a percentage of revenue. Capitalized operating expense contributed 1.0 percentage point to the margin in the third quarter, partially offsetting the decrease. In the first nine months of 2011, operating margin was 22.1%, a slight increase compared with 22.0% in the first nine months of 2010.Non-Operating Income (Expense):  In the third quarter of 2010, the company acquired an additional 75% ownership interest in Morningstar Denmark, increasing its ownership to 100%. In conjunction with this acquisition, the company recorded a non-cash gain of $5.1 million and related non-cash income tax expense of $1.9 million. The gain, net of tax, increased net income by $3.2 million, or 7 cents per diluted share, in the quarter, and 6 cents per diluted share in the year-to-date period of 2010. This gain did not recur in 2011.Effective Tax Rate: Morningstar's effective tax rate in the third quarter of 2011 was 36.6%, an increase of 4.0 percentage points compared with the prior-year period. In the third quarter of 2010, the company's effective tax rate was 32.6%, which includes a benefit related to non-U.S. income taxes. Year to date, the company's effective tax rate was 33.6%, a decrease of 0.9 percentage points. The year-to-date effective tax rate primarily reflects the positive effect of higher estimated tax benefits and incentives, most of which relate to prior years.  Free Cash Flow:  Morningstar generated free cash flow of $38.9 million in the third quarter of 2011, reflecting cash provided by operating activities of $45.2 million and approximately $6.3 million of capital expenditures. Cash provided by operating activities rose $9.9 million, reflecting a positive cash flow effect primarily generated from higher accrued bonus and income tax liabilities, as well as changes in other operating assets and liabilities. Capital expenditures were $2.4 million higher in the quarter.In the first nine months of 2011, Morningstar generated free cash flow of $91.6 million, reflecting cash provided by operating activities of $106.3 million and capital expenditures of $14.7 million. Cash provided by operating activities in the first nine months of 2011 increased $26.0 million, reflecting the positive effect of changes in operating assets and liabilities and 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. 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, 2011, Morningstar had cash, cash equivalents, and investments of $433.0 million, compared with $365.4 million as of Dec. 31, 2010. In the third quarter of 2011, the company used $28.4 million of cash for its stock repurchase program. Of the $100 million authorized under the program, Morningstar has purchased 646,682 shares for $35.9 million as of Sept. 30, 2011. On Oct. 31, 2011, the company expects to pay approximately $2.5 million for its regular quarterly dividend. It expects to make capital expenditures of approximately $3 million to $5 million in the fourth quarter of 2011.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 $125.8 million in the third quarter of 2011, up 12.3% from $112.1 million in the third quarter of 2010. Acquisitions contributed revenue of $0.9 million in the third quarter of 2011.Morningstar Direct, Integrated Web Tools, and Structured Credit Ratings drove most of the revenue increase. Morningstar Advisor Workstation (including Morningstar Office) and Licensed Data also contributed to the increase. Licenses for Morningstar Direct rose 30% to 5,726. Premium Membership subscriptions for Morningstar.com fell 4.3%. Principia subscriptions were down 5.8% to 31,318, and Advisor Workstation licenses rose slightly to 155,833.Operating income was $31.4 million in the third quarter of 2011, compared with $32.8 million in the same period in 2010. Operating expense in this segment rose $15.1 million, or 19.1%, with approximately 80% of the increase from compensation-related expense, including higher salaries, employee benefits, bonus, and commission expense. Operating margin was 25.0% in the third quarter of 2011 versus 29.3% in the prior-year period. The margin decline primarily reflects higher salary, benefits, and bonus expense as a percentage of revenue.  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 $34.2 million in the third quarter of 2011, a 23.4% increase from $27.8 million in the same period in 2010. Investment Consulting was the primary driver of the segment revenue growth. Retirement Solutions and Morningstar Managed Portfolios also made positive contributions, but to a lesser extent.Assets under advisement and management for Investment Consulting were $128.1 billion as of Sept. 30, 2011, up 21.2% compared with $105.7 billion as of Sept. 30, 2010. The increase reflects additional assets for an existing client's fund-of-funds program for which Morningstar now receives asset-based fees. Assets under advisement and management for Retirement Solutions rose to $36.3 billion as of Sept. 30, 2011, versus $31.6 billion as of Sept. 30, 2010. Assets under management for Morningstar Managed Portfolios increased to $2.8 billion as of Sept. 30, 2011, compared with $2.5 billion as of Sept. 30, 2010.Operating income was $18.1 million in the third quarter of 2011, an increase of 33.6% compared with the third quarter of 2010. Operating expense in the segment was $16.1 million, an increase of $1.9 million, or 13.7%, primarily reflecting higher operating expense for operations outside of the United States as well as higher compensation expense and professional fees in the United States. Operating margin was 52.7% in the third quarter of 2011 versus 48.7% in the prior-year period. The higher margin mainly reflects lower salary, bonus, and commission expense as a percentage of revenue.  Intangible Amortization and Corporate Depreciation Expense:  Intangible amortization, which represents the majority of the expense in this category, was $6.9 million in the third quarter of 2011, an increase of $0.7 million compared with the same period in 2010. Corporate depreciation expense was $1.9 million in the third quarter, essentially unchanged from the prior-year period.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 $6.8 million in the quarter, a decrease of $1.3 million, or 15.7%, because the company capitalized $1.6 million of operating expense in the quarter for software development. Lower professional fees also contributed to the decrease, but to a lesser extent.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 60602Morningstar 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 330,000  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 $167 billion in assets under advisement and management as of Sept. 30, 2011. The company has operations in 26 countries.Caution Concerning Forward-Looking StatementsThis 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 MeasuresTo 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-EContacts:Media: Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.comInvestors may submit questions to investors@morningstar.com or by fax to 312-696-6009.Morningstar, Inc. and SubsidiariesUnaudited Condensed Consolidated Statements of IncomeThree months ended September 30Nine months ended September 30(in thousands, except per share amounts)20112010change20112010changeRevenue$                  160,051$ 139,81714.5%$           472,829$ 404,19817.0%Operating expense(1):Cost of goods sold48,07440,71318.1%133,929114,76716.7%Development13,48212,7036.1%39,15135,49110.3%Sales and marketing27,25322,88119.1%80,50269,87715.2%General and administrative26,43123,46212.7%83,25567,21123.9%Depreciation and amortization10,9479,89710.6%31,71228,08212.9%   Total operating expense126,187109,65615.1%368,549315,42816.8%Operating income 33,86430,16112.3%104,28088,77017.5%Operating margin21.2%21.6%(0.4)pp22.1%22.0%0.1ppNon-operating income (expense), net:Interest income, net79751255.7%1,1421,692(32.5%)Other income (expense), net(1,376)5,694NMF(938)4,356NMF     Non-operating income (expense), net(579)6,206NMF2046,048(96.6%)Income before income taxes and equity in net income of unconsolidated entities33,28536,367(8.5%)104,48494,81810.2%Income tax expense12,34311,9173.6%35,58533,1377.4%Equity in net income of unconsolidated entities42833328.5%1,3971,17618.8%Consolidated net income21,37024,783(13.8%)70,29662,85711.8%Net (income) loss attributable to noncontrolling interests10(106)NMF10610NMFNet income attributable to Morningstar, Inc.$                    21,380$   24,677(13.4%)$             70,402$   62,86712.0%Net income per share attributable to Morningstar, Inc.:Basic$                        0.42$       0.50(16.0%)$                 1.40$       1.2710.2%Diluted$                        0.42$       0.49(14.3%)$                 1.37$       1.2410.5%Weighted average common shares outstanding:Basic50,27849,40150,08249,157Diluted51,12350,54451,07150,453Three months ended September 30Nine months ended September 302011201020112010(1) Includes stock-based compensation expense of:Cost of goods sold$                      1,117$        960$               3,068$     2,582Development5455171,5881,359Sales and marketing4894691,3921,358General and administrative1,8001,7995,3955,038   Total stock-based compensation expense$                      3,951$     3,745$             11,443$   10,337NMF ? Not meaningful, pp ? percentage pointsMorningstar, Inc. and SubsidiariesOperating Expense as a Percentage of RevenueThree months ended September 30Nine months ended September 3020112010change20112010changeRevenue100.0%100.0%-100.0%100.0%-Operating expense(1):Cost of goods sold30.0%29.1%0.9pp28.3%28.4%(0.1)ppDevelopment8.4%9.1%(0.7)pp8.3%8.8%(0.5)ppSales and marketing17.0%16.4%0.6pp17.0%17.3%(0.3)ppGeneral and administrative16.5%16.8%(0.3)pp17.6%16.6%1.0ppDepreciation and amortization6.8%7.1%(0.3)pp6.7%6.9%(0.2)pp   Total operating expense(2)78.8%78.4%0.4pp77.9%78.0%(0.1)ppOperating margin21.2%21.6%(0.4)pp22.1%22.0%0.1ppThree months ended September 30Nine months ended September 3020112010change20112010change(1) Includes stock-based compensation expense of:Cost of goods sold0.7%0.7%-0.6%0.6%-Development0.3%0.4%(0.1)pp0.3%0.3%-Sales and marketing0.3%0.3%-0.3%0.3%-General and administrative1.1%1.3%(0.2)pp1.1%1.2%(0.1)pp   Total stock-based compensation expense(2)2.5%2.7%(0.2)pp2.4%2.6%(0.2)pp(2) Sum of percentages may not equal total because of rounding.Morningstar, Inc. and SubsidiariesUnaudited Condensed Consolidated Statements of Cash FlowsThree months ended September 30Nine months ended September 30($000)2011201020112010Operating activitiesConsolidated net income$   21,370$   24,783$   70,296$   62,857Adjustments to reconcile consolidated net income to net cashflows from operating activities:Depreciation and amortization10,9479,89731,71228,082Deferred income tax (benefit) expense(2,013)2,781(1,559)1,769Stock-based compensation expense3,9513,74511,44310,337Equity in net income of unconsolidated entities(428)(333)(1,397)(1,176)Excess tax benefits from stock-option exercises  and vesting of restricted stock units (1,450)(680)(7,621)(4,885)Holding gain upon acquisition of additional  ownership of equity method investments-(5,073)-(5,073)Other, net2,700(765)2,683977Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable(1,020)(639)(403)(7,254)Other assets1,388(1,997)1,996(2,508)Accounts payable and accrued liabilities(15)(834)(5,275)2,025Accrued compensation11,2868,884(3,242)(2,270)Deferred revenue(7,579)(9,115)618(1,938)Income taxes - current6,7004,5649,442309Deferred rent(327)522(984)442Other liabilities(350)(460)(1,393)(1,384)          Cash provided by operating activities45,16035,280106,31680,310Investing activitiesPurchases of investments(83,051)(42,515)(281,698)(128,043)Proceeds from maturities and sales of investments 55,06146,816205,421177,197Capital expenditures(6,271)(3,862)(14,689)(7,701)Acquisitions, net of cash acquired(269)(21,242)300(88,697)Other, net90(59)875830        Cash used for investing activities(34,440)(20,862)(89,791)(46,414)Financing activitiesProceeds from stock-option exercises, net1,9781,5576,6305,207Excess tax benefits from stock-option exercises  and vesting of restricted stock units1,4506807,6214,885Common shares repurchased(28,417)-(28,526)-Dividends paid(2,528)-(7,539)-Other, net(149)(734)(363)(529)       Cash provided by (used for) financing activities(27,666)1,503(22,177)9,563Effect of exchange rate changes on cash and cash equivalents(3,807)5,574(254)1,917Net increase (decrease) in cash and cash equivalents(20,753)21,495(5,906)45,376Cash and cash equivalents?Beginning of period195,023154,377180,176130,496Cash and cash equivalents?End of period$ 174,270$ 175,872$ 174,270$ 175,872Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):Three months ended September 30Nine months ended September 30($000)2011201020112010Cash provided by operating activities$   45,160$   35,280$ 106,316$   80,310Less: Capital expenditures(6,271)(3,862)(14,689)(7,701)Free cash flow$   38,889$   31,418$   91,627$   72,609Morningstar, Inc. and SubsidiariesUnaudited Condensed Consolidated Balance SheetsSeptember 30December 31($000)20112010AssetsCurrent assets:Cash and cash equivalents$        174,270$        180,176Investments258,749185,240Accounts receivable, net110,444110,891Deferred tax asset, net3,8142,860Income tax receivable, net10,04510,459Other16,07617,654          Total current assets573,398507,280Property and equipment, net63,70362,105Investments in unconsolidated entities24,76124,262Goodwill319,367317,661Intangible assets, net147,311169,023Other assets5,7265,971Total assets$     1,134,266$     1,086,302Liabilities and equityCurrent liabilities:Accounts payable and accrued liabilities$          42,184$          42,680Accrued compensation59,90862,404Deferred revenue146,877146,267Other3221,373          Total current liabilities249,291252,724Accrued compensation5,4274,965Deferred tax liability, net17,49019,975Other long-term liabilities25,93027,213Total liabilities298,138304,877Total equity836,128781,425Total liabilities and equity$     1,134,266$     1,086,302Morningstar, Inc. and SubsidiariesSegment InformationThree months ended September 30Nine months ended September 30($000)20112010change20112010changeRevenueInvestment Information$ 125,804$ 112,05512.3%$ 374,319$ 324,60015.3%Investment Management34,24727,76223.4%98,51079,59823.8%Consolidated revenue$ 160,051$ 139,81714.5%$ 472,829$ 404,19817.0%Revenue?U.S.$ 112,790$   99,93312.9%$ 334,395$ 291,52914.7%Revenue?International$   47,261$   39,88418.5%$ 138,434$ 112,66922.9%Revenue?U.S. (percentage of consolidated revenue)70.5%71.5%(1.0)pp70.7%72.1%(1.4)ppRevenue?International (percentage of consolidated revenue)29.5%28.5%1.0pp29.3%27.9%1.4ppOperating income (loss)(1)Investment Information$   31,426$   32,811(4.2%)$ 100,830$   96,0994.9%Investment Management18,06213,52333.6%53,59941,13730.3%Intangible amortization and corporate depreciation expense(8,788)(8,064)9.0%(25,565)(22,930)11.5%Corporate unallocated(6,836)(8,109)(15.7%)(24,584)(25,536)(3.7%)Consolidated operating income$   33,864$   30,16112.3%$ 104,280$   88,77017.5%Operating margin(1)Investment Information25.0%29.3%(4.3)pp26.9%29.6%(2.7)ppInvestment Management52.7%48.7%4.0pp54.4%51.7%2.7ppConsolidated operating margin21.2%21.6%(0.4)pp22.1%22.0%0.1pp(1) Includes stock-based compensation expense allocated to each segment.Morningstar, Inc. and SubsidiariesSupplemental DataAs of September 3020112010% changeOur employeesWorldwide headcount (approximate)3,3953,1657.3%Number of worldwide equity and credit analysts161143(1)12.6%Number of worldwide fund analysts10999(2)10.1%Our businessInvestment InformationMorningstar.com Premium subscriptions (U.S.)133,734139,677(2)(4.3%)Registered users for Morningstar.com (U.S.)6,891,4066,226,55410.7%U.S. Advisor Workstation and Morningstar Office licenses 155,833154,4030.9%Principia subscriptions 31,31833,252(5.8%)Morningstar Direct licenses5,7264,40330.0%Investment ManagementAssets under advisement and management    Investment Consulting$128.1 bil$105.7 bil(3)21.2%    Retirement Solutions(4)$36.3 bil$31.6 bil14.9%    Morningstar Managed Portfolios$2.8 bil$2.5 bil12.0%(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 September 30Nine months ended September 30($000)2011201020112010Effective tax rateIncome before income taxes and equity in net income of     unconsolidated entities$ 33,285$   36,367$ 104,484$   94,818Equity in net income of unconsolidated entities4283331,3971,176Net (income) loss attributable to noncontrolling interests10(106)10610    Total$ 33,723$   36,594$ 105,987$   96,004Income tax expense$ 12,343$   11,917$   35,585$   33,137Effective tax rate36.6%32.6%33.6%34.5%Morningstar, Inc. and SubsidiariesReconciliations of Non-GAAP Measures with the Nearest Comparable GAAP MeasuresMorningstar includes an acquired operation as part of revenue and expense from acquisitions for 12 months after we complete the acquisition. Operatingexpense 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.  Morningstar doesn't always maintain acquired operations as stand-alone businesses, and the company often integrates administrative or other functions with existing operations.Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue):Three months ended September 30Nine months ended September 30($000)20112010% change20112010% changeConsolidated revenue $ 160,051$             139,81714.5%$ 472,829$ 404,19817.0%Less: acquisitions(908)-NMF(15,020)-NMFFavorable impact of foreign currency translations(3,683)-NMF(9,936)-NMFRevenue excluding acquisitions and foreign currency translations$ 155,460$             139,81711.2%$ 447,873$ 404,19810.8%Reconciliation from international revenue to international revenue excluding acquisitions and foreign currency translations: Three months ended September 30Nine months ended September 30($000)20112010% change20112010% changeInternational revenue $   47,261$               39,88418.5%$ 138,434$ 112,66922.9%Less: acquisitions--n/a(5,561)-NMFFavorable impact of foreign currency translations(3,683)-NMF(9,936)-NMFInternational revenue excluding acquisitions and foreign currency translations$   43,578$               39,8849.3%$ 122,937$ 112,6699.1%The following table summarizes the change in operating expense:Three months ended September 30Nine months ended September 30($000)20112010$ change20112010$ changeTotal operating expense$ 126,187$             109,656$   16,531$ 368,549$ 315,428$   53,121Acquisitions$        476$   13,274Unfavorable impact of foreign currency translations3,3539,127All other changes in operating expense12,70230,720Total$   16,531$   53,121The table below shows the period in which we included each acquired operation in revenue and expense from acquisitions:AcquisitionDate of acquisition2011 revenue and expense from acquisitionsFootnoted business of Financial Fineprint Inc.February 1, 2010January 1 through January 31, 2011Aegis Equities ResearchApril 1, 2010January 1 through March 31, 2011Old Broad Street Research Ltd.April 12, 2010January 1 through April 11, 2011Realpoint, LLCMay 3, 2010January 1 through May 2, 2011Morningstar Danmark A/SJuly 1, 2010January 1 through June 30, 2011Seeds GroupJuly 1, 2010January 1 through June 30, 2011Annuity intelligence business of Advanced Sales and Marketing CorporationNovember 1, 2010January 1 through September 30, 2011SOURCE Morningstar, Inc.