Morningstar Earnings Fall

The mutual fund tracker posts a flat per-share performance.
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Shares of

Morningstar

(MORN) - Get Report

were slightly lower Tuesday after the mutual fund tracker reported its first earnings since going public earlier this month.

The Chicago-based company earned $4 million, or 9 cents a diluted share, compared with $4.5 million, or 9 cents a diluted share, in the year-ago period. Revenue was $53.2 million, a 29% increase from the first quarter of 2004. Net income decreased, but diluted income per share remained the same because of accounting rules related to the treatment of stock-based compensation in calculating diluted income per share.

"We're off to a good start in 2005," says CEO Joe Mansueto. "Excluding stock-based compensation expense, our operating income increased 35% in the first quarter of 2005."

Morningstar priced a 7.6-million-share IPO on May 3 at $18.50 a share. The offering came almost a year to the day after Morningstar filed to go public, after a number of public detours along the way. Since then the shares have risen more than 15%.

Mansueto says the company uses the liability method of accounting for stock-option expense, which requires it to mark to market the value of stock options.

According to Mansueto, the rise in the value of Morningstar's common stock led to a sharp increase in stock-based compensation expense under this method for the quarter. The $1 increase in the fair value per share of the company's common stock to $18.50 as of March 31 from $17.50 as of Dec. 31 resulted in $2.8 million of stock-based compensation expense under the liability method in the quarter.

"Because our May 2005 initial public offering price per share and our March 31, 2005, value per share are the same, we won't record additional expense under this method in connection with our IPO," says Mansueto, who added that "this method of expensing stock options is now behind us."

Morningstar shares were recently down 18 cents at $21.80.