8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 19, 2009

MORNINGSTAR, INC.

(Exact name of registrant as specified in its charter)

Illinois (State or other jurisdiction of incorporation)	000-51280 (Commission File Number)	36-3297908 (I.R.S. Employer Identification No.)
22 West Washington Street Chicago, Illinois (Address of principal executive offices)		60602 (Zip Code)

(312) 696-6000

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.  Results of Operations and Financial Condition.*

On February 19, 2009, Morningstar, Inc., an Illinois corporation (“Morningstar”), issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2008.  A copy of the press release is attached hereto as Exhibit 99.1.

Item 8.01.  Other Events.

On February 19, 2009, Morningstar issued a press release announcing changes to its organizational structure and operating segments.  A copy of the press release is attached hereto as Exhibit 99.2.

Item 9.01.  Financial Statements and Exhibits.

(d)Exhibits:

Exhibit No.	Description
99.1*	Press release dated February 19, 2009 regarding financial results for the fourth quarter and year ended December 31, 2008.
99.2	Press Release dated February 19, 2009 regarding organizational structure and operating segment changes.

*The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MORNINGSTAR, INC.
Date: February 20, 2009	By:	/s/ Scott Cooley
	Name:	Scott Cooley
	Title:	Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
99.1*	Press release dated February 19, 2009 regarding financial results for the fourth quarter and year ended December 31, 2008.
99.2	Press Release dated February 19, 2009 regarding organizational structure and operating segment changes.

*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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EX-99.1

Exhibit 99.1

	News Release
	22 West Washington Street	Telephone:	+1 312 696-6000
	Chicago	Facsimile:	+1 312 696-6009
	Illinois 60602

Contact:

Media:  Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com

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

FOR IMMEDIATE RELEASE

Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2008 Financial Results

CHICAGO, Feb. 19, 2009—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its fourth-quarter and full-year 2008 financial results. The company reported consolidated revenue of $119.3 million in the fourth quarter of 2008, a 1.0% increase from revenue of $118.1 million in the fourth quarter of 2007. Consolidated operating income was $28.7 million in the fourth quarter of 2008, a decrease of 13.9% compared with $33.3 million in the same period a year ago. Morningstar’s net income was $19.3 million in the fourth quarter of 2008, or 39 cents per diluted share, compared with $20.0 million, or 41 cents per diluted share, in the fourth quarter of 2007. Morningstar’s fourth-quarter results included $6.4 million in revenue from acquisitions completed in 2008.

Excluding acquisitions and the impact of foreign currency translations, Morningstar’s revenue declined approximately 1.3% in the fourth quarter of 2008, compared with the prior-year period. Foreign currency translations had a negative impact of $3.8 million in the quarter. 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, 2008, revenue increased 15.5% to $502.5 million, compared with $435.1 million in 2007. Consolidated operating income increased 18.6% to $139.1 million in 2008. Net income was $92.5 million, or $1.88 per diluted share, in 2008, compared with $73.9 million, or $1.53 per diluted share, in 2007. Revenue for the full year included $27.1 million from acquisitions.

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Joe Mansueto, chairman and chief executive officer of Morningstar, said, “We had a good year overall, but our revenue growth slowed significantly in the fourth quarter. About 13% of our revenue is tied to asset-based fees, so the severe market downturn had a negative impact. Because many of our clients have been cutting back on spending, new business and renewals in other parts of the company also suffered in the latter part of the year.”

He added, “Looking at our results for the full year, our revenue grew to more than $502 million in 2008, and operating income rose 18.6% to $139 million. We generated free cash flow of $104 million, and maintained a healthy balance sheet with nearly $300 million in cash and investments and no bank debt. However, our organic revenue growth decelerated during the year and dipped below zero in the fourth quarter, largely because of lower revenue from our Investment Consulting business.

“Because the current economic environment is so uncertain, we’ve taken steps to reduce our cost structure in 2009—mainly by reducing employee benefit costs and bonus expense. We’re continuing to invest in our business, though, and believe we’ll be well-positioned when conditions improve.”

Mansueto outlined some of the company’s key accomplishments and challenges in 2008:

Accomplishments

·We completed six acquisitions, four of which were outside the United States. We invested $105.4 million for these acquisitions, which represent approximately $40 million in annualized revenue.

·We continued to invest in our global investment databases, with significantly improved stock data coverage as well as new mutual fund databases in several markets outside the United States. We also expanded our business to include global real-time price data from UK-based Tenfore Systems Limited, a strategic acquisition. We now provide data on more than 300,000 investments, up from about 265,000 a year ago.

·We made numerous enhancements to our major product platforms, including a new home page and site relaunch for Morningstar.com; a new ETF module for Principia; a new Alternative Investment Edition for Morningstar Direct; and several new managed portfolios through Morningstar Investment Services. Total licenses for Morningstar Direct and Morningstar Advisor Workstation grew 33% and 8%, respectively, compared with the prior year.

·Our Ibbotson Associates unit entered into 14 new funds-of-funds relationships across a variety of client types and strategies, which will help support future growth.

·We created a new organizational structure, effective Jan. 1, 2009, that will help us further globalize our operations and better align the business with our key growth strategies. We issued a separate press release today that contains more information about the new structure and changes to our operating segments.

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·International revenue rose 35% to $121.4 million and represented 24.2% of consolidated revenue in 2008—3.6 percentage points more than in 2007.

Challenges

·The market downturn has been severe and has hit many of our clients in the financial services industry hard. Because of the difficult economic environment, we’ve also experienced slower growth in new business, increased pressure on renewal spending, and cutbacks on Internet advertising. This challenging environment has persisted into the first quarter of 2009.

·We’ve seen a sharp drop in asset-based fees because of the global market downturn, mainly in our Investment Consulting business. In addition, during 2008, one of our Investment Consulting clients informed us that it was not planning to renew its contract. As a result, assets under advisement for Morningstar Associates declined more than the market for the year. Also, in the first quarter of 2009, we did not reach an agreement on renewal terms with another consulting client. Combined, these contracts represented about $17 million of revenue in 2008.

·The independent equity research we’re providing to six banks under the terms of the Global Analyst Research Settlement made up about 4% of our consolidated revenue in 2008. After the settlement period expires in July 2009, these banks will no longer be required to provide independent investment research to their clients. We don’t know how much of this business we’ll retain after the settlement period expires, and we expect this research revenue to decline significantly.

Key Business Drivers

Revenue:  In the fourth quarter of 2008, revenue in the Institutional segment grew 0.8% to $65.1 million compared with the fourth quarter of 2007; approximately $5.4 million of this revenue came from acquisitions. Revenue in the Advisor segment increased 1.4% to $30.6 million, with $0.6 million of the revenue coming from acquisitions. Revenue in the Individual segment rose 0.4% to $25.5 million, with $0.4 million of the revenue coming from acquisitions.

Compared with the third quarter of 2008, fourth-quarter organic revenue declined $3.9 million, or 3.2%, mainly because of lower revenue from Investment Consulting.

Revenue from international operations was $27.9 million in the fourth quarter of 2008, a 6.8% increase from the same period a year ago. International revenue included $3.9 million from acquisitions. Foreign currency translations had a negative impact of $3.8 million on international revenue in the fourth quarter. Excluding the impact of acquisitions and foreign currency translations, international revenue grew approximately 6.2% in the fourth quarter of 2008.

For the full year, international revenue rose 35.4%, with about 60% of the increase coming from acquisitions. International revenue excluding acquisitions and foreign currency translations is a non-GAAP measure; the accompanying financial tables contain a reconciliation to international revenue.

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In 2008, Morningstar’s five largest products by revenue were Licensed DataSM, Investment Consulting, Morningstar® Advisor WorkstationSM, Morningstar.com®, and Principia®.

Operating Income:  Consolidated operating income was $28.7 million in the fourth quarter of 2008, a decrease of 13.9% from the same period in 2007. Operating expense rose $5.8 million, or 6.8%, in the fourth quarter of 2008.

Compensation-related expense, excluding bonuses, increased $3.5 million, mainly because of higher worldwide headcount. Bonus expense decreased $2.9 million in the quarter, primarily because operating income grew at a lower rate in 2008 compared with the previous year. Worldwide headcount grew to approximately 2,375 employees as of Dec. 31, 2008, compared with 1,720 as of Dec. 31, 2007, with approximately 340 employees added from acquisitions. Higher lease expense for the company’s new corporate headquarters and other global offices also added to operating expense in the quarter. Amortization expense rose $1.3 million to $4.6 million because of recent acquisitions, but lower company-wide general and administrative expense partially offset this cost.

The company’s operating margin was 24.1% in the fourth quarter of 2008, compared with 28.2% in the same period in 2007. For the full year, operating margin was 27.7%, compared with 26.9% in 2007. To better align the company’s operating expense with revenue in this challenging business environment, Morningstar has taken a number of steps to reduce costs. While cost reductions began in 2008, the largest cutbacks were effective Jan. 1, 2009. Morningstar is changing its bonus plan in 2009 to reduce bonus expense, which is its single largest discretionary cost. The company also suspended matching contributions to its 401(k) program in the United States, suspended salary increases, and postponed most new hiring. The company is also cutting expenses in other areas such as travel. In addition, a portion of lease costs recorded in 2008 will not recur because the company will no longer incur lease costs for both its new and former corporate headquarters in Chicago.

Effective Tax Rate:  The company’s effective tax rate in the fourth quarter of 2008 was 33.3%, a decrease of 9.1 percentage points compared with the prior-year period. For the year, Morningstar’s effective tax rate was 35.9%, a decrease of 5.0 percentage points compared with 2007. The decrease in the 2008 fourth- quarter and year-to-date periods reflects the favorable, but variable, benefit from incentive stock-option transactions and a decrease in the company’s U.S. state tax rate following a 2007 change in state tax law. These reductions were partially offset by an increase in liabilities for certain tax positions in the company’s U.S. and non-U.S. operations.

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Free Cash Flow:  Morningstar generated free cash flow of $34.9 million in the fourth quarter of 2008, reflecting cash provided by operating activities of $54.1 million and capital expenditures of $19.2 million. Free cash flow decreased by $2.6 million, compared with the prior-year period, mainly because of $17.2 million in additional capital expenditures offset by a $14.6 million increase in cash from operations. For the year ended Dec. 31, 2008, Morningstar generated free cash flow of $103.9 million, reflecting cash provided by operating activities of $152.4 million and capital expenditures of $48.5 million. Free cash flow for the full year increased $2.9 million compared with 2007 because of a $40.1 million increase in cash from operations, which was offset by a $37.2 million increase in capital expenditures.

Cash provided by operating activities rose in 2008 compared with 2007, partly because of the lower impact of excess tax benefits primarily related to stock option exercises. Excess tax benefits have a positive impact on cash provided by financing activities with an equal, but offsetting, impact on cash from operations. Excess tax benefits declined $15.7 million in the quarter and $6.9 million in the year reflecting lower average stock prices on the exercise dates. The year-over-year increase in cash provided by operating activities also benefited from tenant improvement allowances, which rose $4.6 million in the quarter and $15.9 million in the year.

Capital expenditures increased $17.2 million for the quarter and $37.2 million for the year mainly because of spending for office space build-outs in several locations. Capital expenditures were significantly higher in 2008 than in previous years mainly because of Morningstar’s new corporate headquarters.

Free cash flow is a non-GAAP measure; the accompanying financial tables include a reconciliation to cash provided by operating activities. Morningstar defines free cash flow as cash provided by or used for operating activities less capital expenditures.

As of Dec. 31, 2008, Morningstar had cash, cash equivalents, and investments of $297.6 million, compared with $258.6 million as of Dec. 31, 2007. During the first quarter of 2009, Morningstar expects to make annual bonus payments of approximately $60 million, which includes $50 million in 2008 bonus expense plus $10 million in deferred payments from the previous year. During 2009, the company anticipates making capital expenditures of $15 million primarily for leasehold improvements and computer equipment.

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Business Segment Performance

Institutional Segment:  The largest products and services in this segment based on revenue are Licensed DataSM, Investment Consulting, Morningstar DirectSM, and Retirement Advice (including Advice by Ibbotson® and Morningstar® Retirement ManagerSM ).

·Revenue was $65.1 million in the fourth quarter of 2008, a slight increase compared with $64.6 million in the fourth quarter of 2007.

·Acquisitions contributed revenue of $5.4 million to the Institutional segment in the fourth quarter. Excluding acquisitions, Institutional segment revenue declined approximately 7.6% in the fourth quarter of 2008.

·Investment Consulting revenue declines offset growth in other Institutional products. The company provided advisory services on approximately $66.2 billion in assets, including $29.6 billion from Morningstar Associates and $36.6 billion from Ibbotson Associates, as of Dec. 31, 2008, compared with approximately $97.5 billion as of Dec. 31, 2007. During 2008, the U.S. stock market fell about 37% and Morningstar’s total assets under advisement fell 32%. Since Sept. 30, 2008, the company’s assets under advisement have declined 22%.

·Morningstar Direct and Licensed Data both had significant revenue increases for the year. Morningstar Direct licenses grew to 2,961 as of Dec. 31, 2008, a 32.8% increase over the prior year.

·Operating income was $18.4 million in the fourth quarter of 2008, compared with $23.2 million in the same period in 2007. Operating expense in this segment increased $5.3 million, or 12.8%, almost entirely because of additional costs from acquisitions.

·Operating margin was 28.3% in the fourth quarter of 2008, compared with 35.9% in the prior-year period. About one-third of the margin decrease came from acquisitions. The remaining margin decrease was the result of revenue declining at a faster rate than operating expense. This business segment has high fixed costs that tend to increase or decrease at a slower rate than revenue.

Advisor Segment:  The largest products in this segment based on revenue are Morningstar® Advisor WorkstationSM, Morningstar® Principia®, and Morningstar® Managed PortfoliosSM.

·Revenue was $30.6 million in the fourth quarter of 2008, a 1.4% increase from $30.2 million in the same period in 2007.

·Acquisitions contributed revenue of $0.6 million to the Advisor segment in the fourth quarter. Excluding acquisitions, Advisor segment revenue declined approximately 1%.

·Morningstar Advisor Workstation revenue continued to grow, but growth was offset by declines in Managed Portfolios and Principia. Total licenses for Morningstar Advisor Workstation grew to 190,267 as of Dec. 31, 2008, an 8.3% increase compared with the prior year.

·The number of Principia subscriptions declined to 43,019 as of Dec. 31, 2008, compared with 48,900 as of Dec. 31, 2007.

·Operating income was $8.5 million in the fourth quarter of 2008, an increase of 4.4% compared with the fourth quarter of 2007. Operating expense in the segment increased $0.1 million, or 0.3%.

·Operating margin was 27.6% in the fourth quarter of 2008, compared with 26.8% in the prior-year period.

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Individual Segment:  The largest product in this segment based on revenue is Morningstar.com®, the company’s Web site for individual investors. The Individual segment also includes Morningstar® Equity Research and several print and online publications.

·Revenue was $25.5 million in the fourth quarter of 2008, compared with $25.4 million in the fourth quarter of 2007.

·Acquisitions contributed revenue of $0.4 million to the Individual segment in the fourth quarter. Excluding acquisitions, Individual segment revenue declined approximately 1%.

·Morningstar Equity Research and Morningstar.com revenue grew slightly in the quarter, but this growth was offset by a decline in newsletter revenue. Morningstar Equity Research primarily includes revenue related to the Global Analyst Research Settlement. Morningstar.com Premium subscriptions declined to 177,518 as of Dec. 31, 2008, compared with 180,366 as of Dec. 31, 2007, because weak market conditions affected subscriber growth and new trials.

·Operating income was $6.7 million in the fourth quarter of 2008, a 16.7% increase compared with the prior-year period. Operating expense in the segment decreased $0.9 million, or 4.3%.

·Operating margin was 26.3% in the fourth quarter of 2008, compared with 22.7% in the fourth quarter of 2007.

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 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.

Investors are invited to attend Morningstar’s annual meeting at 9 a.m. on Tuesday, May 19, 2009, at its corporate headquarters at 22 W. Washington Street in Chicago. If you are interested in attending, please send an e-mail to investors@morningstar.com.

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 Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 300,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 19 countries and minority ownership positions in companies based in three other countries.

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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 discussed not to occur or to differ significantly from what we expected. For us, these risks and uncertainties include, among others, general industry conditions and competition, including the global financial crisis that began in 2007; 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; a prolonged outage of our database and network facilities; challenges faced by our non-U.S. operations; and the availability of free or low-cost investment information. 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, 2007. 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 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 the performance of its business. Free cash flow should not be considered an alternative to any measure of performance as promulgated 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.

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©2009 Morningstar, Inc.  All rights reserved.

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Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income

	Three months ended December 31								Year ended December 31
(in thousands, except per share amounts)	2008			2007			change		2008				2007				change
Revenue	$	119,271		$	118,116		1.0%		$	502,457			$		435,107		15.5%
Operating expense(1):
Cost of goods sold	31,155			30,228			3.1%		130,085				113,777				14.3%
Development	10,153			8,917			13.9%		40,340				35,116				14.9%
Sales and marketing	19,104			18,503			3.2%		81,651				68,835				18.6%
General and administrative	22,874			21,718			5.3%		85,266				78,868				8.1%
Depreciation and amortization	7,297			5,414			34.8%		25,996				21,257				22.3%
Total operating expense	90,583			84,780			6.8%		363,338				317,853				14.3%
Operating income	28,688			33,336			(13.9%	)	139,119				117,254				18.6%
Operating margin	24.1%			28.2%			(4.1) pp		27.7%				26.9%				0.8 pp
Non-operating income (expense):
Interest income, net	1,219			2,136			(42.9%	)	5,687				7,134				(20.3%	)
Other expense, net	(1,257		)	(1,008		)	24.7%		(1,832		)		(905			)	102.4%
Non-operating income (expense), net	(38		)	1,128			(103.4%	)	3,855				6,229				(38.1%	)
Income before income taxes and equity in net income of unconsolidated entities	28,650			34,464			(16.9%	)	142,974				123,483				15.8%
Income tax expense	9,636			14,739			(34.6%	)	51,763				51,255				1.0%
Equity in net income of unconsolidated entities	256			285			(10.2%	)	1,321				1,694				(22.0%	)
Net income	$	19,270		$	20,010		(3.7%	)	$	92,532			$		73,922		25.2%
Net income per share:
Basic	$	0.41		$	0.45		(8.9%	)	$	2.01			$		1.71		17.5%
Diluted	$	0.39		$	0.41		(4.9%	)	$	1.88			$		1.53		22.9%
Weighted average common shares outstanding:
Basic	46,902			44,188					46,139				43,216
Diluted	49,124			48,757					49,213				48,165
	Three months ended December 31								Year ended December 31
	2008			2007					2008				2007
(1) Includes stock-based compensation expense of:
Cost of goods sold	$	547		$	447				$	2,058		$		1,706
Development	355			330					1,402			1,256
Sales and marketing	359			359					1,449			1,397
General and administrative	1,489			1,708					6,372			6,619
Total stock-based compensation expense	$	2,750		$	2,844				$	11,281		$		10,978

NMF — Not meaningful, pp — percentage points

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Morningstar, Inc. and Subsidiaries

Operating Expense as a Percentage of Revenue

	Three months ended December 31			Year ended December 31
	2008	2007	change	2008	2007	change
Revenue	100.0%	100.0%	—	100.0%	100.0%	—
Operating expense(1):
Cost of goods sold	26.1%	25.6%	0.5 pp	25.9%	26.1%	(0.2) pp
Development	8.5%	7.5%	1.0 pp	8.0%	8.1%	(0.1) pp
Sales and marketing	16.0%	15.7%	0.3 pp	16.3%	15.8%	0.5 pp
General and administrative	19.2%	18.4%	0.8 pp	17.0%	18.1%	(1.1) pp
Depreciation and amortization	6.1%	4.6%	1.5 pp	5.2%	4.9%	0.3 pp
Total operating expense(2)	75.9%	71.8%	4.1 pp	72.3%	73.1%	(0.8) pp
Operating margin	24.1%	28.2%	(4.1) pp	27.7%	26.9%	0.8 pp

	Three months ended December 31			Year ended December 31
	2008	2007	change	2008	2007	change
(1) Includes stock-based compensation expense of:
Cost of goods sold	0.5%	0.4%	0.1 pp	0.4%	0.4%	—
Development	0.3%	0.3%	—	0.3%	0.3%	—
Sales and marketing	0.3%	0.3%	—	0.3%	0.3%	—
General and administrative	1.2%	1.4%	(0.2) pp	1.3%	1.5%	(0.2) pp
Total stock-based compensation expense(2)	2.3%	2.4%	(0.1) pp	2.2%	2.5%	(0.3) pp

(2) Sum of percentages may not equal total because of rounding.

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Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

	Three months ended December 31						Year ended December 31
($000)	2008			2007			2008			2007
Operating activities
Net income	$	19,270		$	20,010		$	92,532		$	73,922
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	7,297			5,414			25,996			21,257
Deferred income tax expense (benefit)	7,959			(1,484		)	9,241			(1,048		)
Stock-based compensation expense	2,750			2,844			11,281			10,978
Equity in net income of unconsolidated entities	(256		)	(285		)	(1,321		)	(1,694		)
Excess tax benefits from stock option exercises and vesting of restricted stock units	(1,488		)	(17,153		)	(23,531		)	(30,428		)
Other, net	1,785			(360		)	1,366			(472		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(479		)	(4,745		)	(658		)	(11,723		)
Other assets	5,033			(3,395		)	1,573			(3,536		)
Accounts payable and accrued liabilities	1,580			(60		)	3,008			638
Accrued compensation	12,188			21,881			(2,333		)	23,118
Deferred revenue	40			5,529			(1,595		)	8,401
Income taxes payable	(5,029		)	11,463			22,078			25,229
Deferred rent	4,947			338			16,346			380
Other liabilities	(1,515		)	(505		)	(1,537		)	(2,654		)
Cash provided by operating activities	54,082			39,492			152,446			112,368
Investing activities
Purchases of investments	(62,256		)	(69,472		)	(134,117		)	(159,693		)
Proceeds from sale of investments	13,379			77,349			109,172			128,713
Capital expenditures	(19,229		)	(1,992		)	(48,519		)	(11,346		)
Acquisitions, net of cash acquired	(49,429		)	(193		)	(105,410		)	(60,508		)
Other, net	(250		)	(1		)	(250		)	(4		)
Cash provided by (used for) investing activities	(117,785		)	5,691			(179,124		)	(102,838		)
Financing activities
Proceeds from stock option exercises	6,146			10,461			23,428			22,037
Excess tax benefits from stock option exercises and vesting of restricted stock units	1,488			17,153			23,531			30,428
Other, net	674			—			671			—
Cash provided by financing activities	8,308			27,614			47,630			52,465
Effect of exchange rate changes on cash and cash equivalents	(4,329		)	361			(6,637		)	1,441
Net increase (decrease) in cash and cash equivalents	(59,724)			73,158			14,315			63,436
Cash and cash equivalents — Beginning of period	233,615			86,418			159,576			96,140
Cash and cash equivalents — End of period	$	173,891		$	159,576		$	173,891		$	159,576
Reconciliation from cash provided by operating activities to free cash flow (a non-GAAP measure):
	Three months ended December 31						Year ended December 31
($000)	2008			2007			2008			2007
Cash provided by operating activities	$	54,082		$	39,492		$	152,446		$	112,368
Less: Capital expenditures	(19,229		)	(1,992		)	(48,519		)	(11,346		)
Free cash flow	$	34,853		$	37,500		$	103,927		$	101,022

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Morningstar, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

	December 31,		December 31,
($000)	2008		2007
Assets
Current assets:
Cash and cash equivalents	$	173,891	$	159,576
Investments	123,686		99,012
Accounts receivable, net	89,537		86,812
Deferred tax asset, net	3,538		—
Income tax receivable	9,193		8,998
Other	13,891		13,163
Total current assets	413,736		367,561
Property and equipment, net	58,822		19,108
Investments in unconsolidated entities	20,404		19,855
Goodwill	187,242		128,141
Intangible assets, net	119,812		95,767
Deferred tax asset, net	—		15,658
Other assets	3,924		3,217
Total assets	$	803,940	$	649,307
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	30,071	$	22,325
Accrued compensation	73,012		64,709
Deferred revenue	130,270		129,302
Deferred tax liability, net	—		557
Other	88		945
Total current liabilities	233,441		217,838
Accrued compensation	3,611		13,913
Deferred tax liability, net	7,531		—
Other long-term liabilities	23,825		9,253
Total liabilities	268,408		241,004
Total shareholders’ equity	535,532		408,303
Total liabilities and shareholders’ equity	$	803,940	$	649,307

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Morningstar, Inc. and Subsidiaries

Segment Information

	Three months ended December 31								Year ended December 31
($000)	2008			2007			change		2008			2007			change
Revenue
Individual	$	25,511		$	25,402		0.4%		$	107,630		$	97,299		10.6%
Advisor	30,640			30,217			1.4%		127,598			115,739			10.2%
Institutional	65,074			64,578			0.8%		276,792			230,329			20.2%
Eliminations	(1,954		)	(2,081		)	(6.1%	)	(9,563		)	(8,260		)	15.8%
Consolidated revenue	$	119,271		$	118,116		1.0%		$	502,457		$	435,107		15.5%
Revenue— U.S.	$	91,400		$	92,022		(0.7%	)	$	381,021		$	345,427		10.3%
Revenue—International	$	27,871		$	26,094		6.8%		$	121,436		$	89,680		35.4%
Revenue—U.S. (percentage of consolidated revenue)	76.6%			77.9%			(1.3) pp		75.8%			79.4%			(3.6) pp
Revenue—International (percentage of consolidated revenue)	23.4%			22.1%			1.3 pp		24.2%			20.6%			3.6 pp
Operating income (loss)(1)
Individual	$	6,719		$	5,758		16.7%		$	27,762		$	23,738		17.0%
Advisor	8,471			8,111			4.4%		36,798			31,669			16.2%
Institutional	18,396			23,189			(20.7%	)	91,679			76,656			19.6%
Corporate items and eliminations	(4,898		)	(3,722		)	31.6%		(17,120		)	(14,809		)	15.6%
Consolidated operating income	$	28,688		$	33,336		(13.9%	)	$	139,119		$	117,254		18.6%
Operating margin(1)
Individual	26.3%			22.7%			3.6 pp		25.8%			24.4%			1.4 pp
Advisor	27.6%			26.8%			0.8 pp		28.8%			27.4%			1.4 pp
Institutional	28.3%			35.9%			(7.6) pp		33.1%			33.3%			(0.2) pp
Consolidated operating margin	24.1%			28.2%			(4.1) pp		27.7%			26.9%			0.8 pp

(1) Includes stock-based compensation expense allocated to each segment.

Top Five Products (Segment)	Revenue		% of
Year Ended December 31, 2008	($000)		Revenue
Licensed Data (Institutional)	$	78,329	15.6%
Investment Consulting (Institutional)	77,757		15.5%
Advisor Workstation (Advisor)	66,675		13.3%
Morningstar.com (Individual)	43,274		8.6%
Principia (Advisor)	27,791		5.5%

Top Five Products (Segment)	Revenue		% of
Year Ended December 31, 2007	($000)		Revenue
Investment Consulting (Institutional)	$	75,595	17.4%
Licensed Data (Institutional)	59,207		13.6%
Advisor Workstation (Advisor)	54,980		12.6%
Morningstar.com (Individual)	37,630		8.6%
Principia (Advisor)	28,760		6.6%

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Morningstar, Inc. and Subsidiaries

Supplemental Data

	As of December 31
	2008	2007		% change
Our employees
Worldwide headcount (approximate)	2,375	1,720		38.1%
Number of U.S. stock analysts	102	96		6.3%
Number of worldwide stock analysts	128	112		14.3%
Number of U.S. fund analysts	28	27	(1)	3.7%
Number of worldwide fund analysts	75	59		27.1%
Our business
Morningstar.com Premium subscriptions	177,518	180,366		(1.6%	)
Registered users for Morningstar.com (U.S.)	5,692,194	5,275,276		7.9%
U.S. Advisor Workstation licenses	190,267	175,725		8.3%
Principia subscriptions	43,019	48,900		(12.0%	)
Morningstar Direct licenses	2,961	2,229		32.8%
Assets under management for Morningstar Managed Portfolios	$1.6 bil	$2.2 bil		(27.3%	)
Assets under management for managed retirement accounts	$11.0 bil	$13.7 bil		(19.7%	)
Morningstar Associates	$1.0 bil	$1.0 bil		0.0%
Ibbotson Associates	$10.0 bil	$12.7 bil		(21.3%	)
Assets under advisement for Investment Consulting	$66.2 bil	$97.5 bil		(32.1%	)
Morningstar Associates	$29.6 bil	$56.6 bil		(47.7%	)
Ibbotson Associates	$36.6 bil	$40.9 bil		(10.5%	)

(1) Revised

	Three months ended December 31				Year ended December 31
($000)	2008		2007		2008		2007
Effective income tax expense rate
Income before income taxes and equity in net income of unconsolidated entities	$	28,650	$	34,464	$	142,974	$	123,483
Equity in net income of unconsolidated entities	256		285		1,321		1,694
Total	$	28,906	$	34,749	$	144,295	$	125,177
Income tax expense	$	9,636	$	14,739	$	51,763	$	51,255
Effective income tax expense rate	33.3%		42.4%		35.9%		40.9%

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Morningstar, Inc. and Subsidiaries

Reconciliations of Non-GAAP Measures with the Nearest Comparable GAAP Measures

Reconciliation from consolidated revenue to revenue excluding acquisitions and foreign currency translations (organic revenue):

	Three months ended December 31							Year ended December 31
($000)	2008			2007		% change		2008			2007		% change
Consolidated revenue	$	119,271		$	118,116	1.0%		$	502,457		$	435,107	15.5%
Less: acquisitions	(6,419		)	—		NMF		(27,125		)	—		NMF
(Favorable) unfavorable impact of foreign currency	3,787			—		NMF		(1,850		)	—		NMF
Revenue excluding acquisitions and foreign currency translations	$	116,639		$	118,116	(1.3%	)	$	473,482		$	435,107	8.8%

Reconciliation from international revenue to international revenue excluding acquisitions and foreign currency translations:

	Three months ended December 31						Year ended December 31
($000)	2008			2007		% change	2008			2007		% change
International revenue	$	27,871		$	26,094	6.8%	$	121,436		$	89,680	35.4%
Less: acquisitions	(3,945		)	—		NMF	(19,426		)	—		NMF
(Favorable) unfavorable impact of foreign currency	3,787			—		NMF	(1,850		)	—		NMF
International revenue excluding acquisitions and foreign currency translations	$	27,713		$	26,094	6.2%	$	100,160		$	89,680	11.7%

Revenue from Acquisitions

Morningstar includes an acquired operation as part of our revenue from acquisitions for 12 months after we complete the acquisition. After that, we include it as part of our organic revenue. The table below shows the period in which we included each acquired operation in revenue from acquisitions:

Acquisition	2008 Revenue from Acquisitions
Standard & Poor’s fund data business	January 1 through March 15, 2008
Hemscott data, media, and investor relations Web site businesses	January 9 through December 31, 2008
Financial Computer Support, Inc.	September 2 through December 31, 2008
Fundamental Data Limited	October 2 through December 31, 2008
10-K Wizard Technology, LLC	December 4 through December 31, 2008
Tenfore Systems Limited	December 17 through December 31, 2008
InvestData (Proprietary) Limited	December 29 through December 31, 2008

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EX-99.2

Exhibit 99.2

	News Release
	22 West Washington Street	Telephone:	+1 312 696-6000
	Chicago	Facsimile:	+1 312 696-6009
	Illinois 60602

Contact:

Media:  Margaret Kirch Cohen, 312-696-6383 or margaret.cohen@morningstar.com

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

FOR IMMEDIATE RELEASE

Morningstar, Inc. Announces Organizational and Operating Segment Reporting Changes

CHICAGO, Feb. 19, 2009—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced changes to its organizational structure and operating segments. Under the new structure Morningstar now has two operating segments: Investment Information and Investment Management. Previously, Morningstar organized its operations based on three audience segments: Individual, Advisor, and Institutional. The changes were effective Jan. 1, 2009, and the company will begin reporting its financial results based on the new operating segments when it issues its first-quarter 2009 earnings press release on April 30, 2009.

Morningstar is changing its structure to organize its operations according to product lines and growth strategies rather than audience segments. The new 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 operate as registered investment advisors and earn the majority of their revenue from asset-based fees.  In addition, under the previous segment reporting, Morningstar allocated costs for its corporate functions to each of the segments. Beginning in 2009, Morningstar will no longer allocate corporate costs to its business segments.

Joe Mansueto, chairman and chief executive officer of Morningstar, said, “We’ve structured the company along product lines to better align with our growth strategies and because many of our offerings now cross a variety of audiences. Our senior management team remains the same; we’re simply shifting some of our leaders into different roles.”

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Investment Information

The Investment Information segment includes all of the company’s data, software, and research products and services.

Data:

Elizabeth Kirscher remains president of data services, including all of the company’s global data operations. The main product in this area is Morningstar Licensed Data, a set of investment data spanning all of Morningstar’s investment databases and available through electronic data feeds.

Software:

Bevin Desmond, who runs the company’s international operations, retains that role and has also been named president of institutional software. The largest product in this area is Morningstar Direct, a Web-based institutional research platform.

Chris Boruff, previously president of the advisor business unit, is now president of advisor software. Key products in this area are Advisor Workstation, a Web-based investment planning system for advisors; and Principia, a CD-ROM-based investment research and planning software for advisors.

Kunal Kapoor, who currently serves as president of Morningstar Investment Services, Inc., has been named president of individual investor software. The largest product in this area is Morningstar.com, which includes Premium memberships and Internet advertising sales.

Investment Research:

Catherine Gillis Odelbo, previously head of the individual investor business, has been named president of equity research. Key offerings in this area include Morningstar Equity Research, Financial Communications and Publications, Morningstar Real-Time Data, and Morningstar Indexes.

Don Phillips, a member of the board of directors and one of the company’s managing directors, also becomes president of fund research, which includes research on mutual funds, exchange-traded funds, and alternative investments.

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Investment Management

The Investment Management segment includes three registered investment advisory firms: Morningstar Associates, LLC, Ibbotson Associates, Inc., and Morningstar Investment Services, Inc.

Patrick Reinkemeyer remains president of Morningstar Associates. The key products and services in this business are Investment Consulting, which focuses on investment monitoring and asset allocation for funds of funds, including mutual funds and variable annuities; and Retirement Advice, including Morningstar Retirement Manager.

Peng Chen remains president of Ibbotson Associates. The key products and services in this business are Investment Consulting, including funds of funds and plan sponsor consulting, and Retirement Advice, including Advice by Ibbotson.

Jeffrey Ptak has been named chief investment officer of Morningstar Investment Services, and will become president following a transition period. The key service in this business is Morningstar Managed Portfolios, a fee-based discretionary asset management service that includes a series of mutual fund, exchange-traded fund, and stock-based portfolios for use by financial advisors.

In addition to its organization and segment changes, Morningstar also today announced its fourth-quarter and full-year 2008 financial results. When Morningstar files its Annual Report on Form 10-K in March 2009, it will present a supplemental table with financial results for 2008, 2007, and 2006 as if they had been reported under the new operating segments.

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 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.

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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 Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 300,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 19 countries and minority ownership positions in companies based in three other 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 discussed not to occur or to differ significantly from what we expected. For us, these risks and uncertainties include, among others, general industry conditions and competition, including the global financial crisis that began in 2007; 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; a prolonged outage of our database and network facilities; challenges faced by our non-U.S. operations; and the availability of free or low-cost investment information. 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, 2007. 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.

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©2009 Morningstar, Inc.  All rights reserved.

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