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Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2009 Financial Results

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its fourth-quarter and full-year 2009 financial results. The company reported consolidated revenue of $122.6 million in the fourth quarter of 2009, a 2.8% increase from $119.3 million in the fourth quarter of 2008. Consolidated operating income was $24.3 million in the fourth quarter of 2009, a decrease of 15.2% compared with $28.7 million in the same period a year ago. Net income was $14.4 million in the fourth quarter of 2009, or 29 cents per diluted share, compared with $19.3 million, or 39 cents per diluted share, in the fourth quarter of 2008.

Results for the fourth quarter of 2009 include a $6.1 million operating expense related to adjusting the treatment of some stock options that were originally considered incentive stock options (ISOs) and should have been considered non-qualified stock options (NQSOs). This expense, net of related income tax benefits, reduced net income by approximately $5.0 million, or 10 cents per diluted share, in the quarter. This expense includes $4.9 million to be paid in the first quarter of 2010 to one former and two current executives. The company expects this first-quarter 2010 cash flow impact to be largely offset by a cash tax benefit in the future. As of December 2009, all incentive stock options have been exercised, and the company does not expect this to be a recurring expense.

Excluding acquisitions and the impact of foreign currency translations, revenue declined 6.6% in the fourth quarter of 2009, compared with the prior-year period. Fourth-quarter results included $7.6 million in revenue from acquisitions as well as a positive effect of $3.7 million from foreign currency translations. Revenue excluding acquisitions and foreign currency translations (organic revenue) is a non-GAAP measure; the accompanying financial tables contain a reconciliation to consolidated revenue.

For the year ended Dec. 31, 2009, revenue was $479.0 million, a decline of 4.7% compared with $502.5 million in 2008. Revenue for
the year included $29.6 million from acquisitions, which was partially offset by an unfavorable foreign currency impact of $9.0 million. Consolidated operating income declined 9.9% to $125.3 million, compared with $139.1 million in 2008. Net income was $82.5 million, or $1.66 per diluted share, in 2009, down from $92.5 million, or $1.88 per diluted share, in 2008.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, “We had a challenging year. Our consolidated revenue fell almost 5% to $479 million, which is only the second time in our 25-year history that we’ve seen revenue decline. Organic revenue fell 8.8%. The main reasons were the loss of two key clients in our Investment Management business, the loss of revenue from the Global Analyst Research Settlement (GARS), and lower Internet advertising sales.

“Although organic revenue declined for the year, the trend during the second half of 2009 was encouraging. Organic revenue fell 10.2% in the third quarter of 2009, but only 6.6% in the fourth quarter. That’s impressive in light of the lost revenue from GARS, which ended in July 2009. Clients are more engaged in sales discussions, and we feel better about our prospects for 2010.”

Mansueto added, “In an environment where our financial services clients were laying off staff and drastically cutting expenses, we took action early in the year to cut our own costs. Still, we kept our staff intact and made investments for the long-term growth of our business. We’re also pleased with the growth in our cash and investments balance, despite spending about $74 million for six acquisitions in 2009.”