Liability for Sabbatical Leave.  In certain of our operations, we offer  employees a sabbatical leave. Although the sabbatical policy varies  by region, in general, Morningstar’s full-time employees are eligible  for six weeks of paid time off after four years of continuous service.  We account for our sabbatical liability in accordance with FASB  ASC 710-10-25,  Compensated Absences . We record a liability for  employees’ sabbatical benefits over the period employees earn the  right for sabbatical leave. Income Taxes.  We record deferred income taxes for the temporary  differences between the carrying amount of assets and liabilities  for financial statement purposes and the amounts used for income  tax purposes in accordance with FASB ASC 740,  Income Taxes . FASB  ASC 740 prescribes the minimum recognition threshold a tax posi- tion is required to meet before being recognized in the financial  statements, and also provides guidance on derecognition, measure- ment, classification, interest and penalties, accounting in interim  periods, and disclosure for uncertain tax positions. We recognize interest and penalties related to unrecognized tax  benefits as part of income tax expense in our Consolidated  Statements of Income. We classify liabilities related to unrecognized  tax benefits as either current liabilities or “Other long-term liabilities”  in our Consolidated Balance Sheet, depending on when we expect  to make payment. Income per Share.  We compute and present income per share in  accordance with FASB ASC 260,  Earnings Per Share . The difference  between weighted average shares outstanding and diluted shares  outstanding primarily reflects the dilutive effect associated with  our stock-based compensation plans. Beginning in 2010, we compute income per share in accordance  with FASB ASC 260-10-45-59A,  Participating Securities and the  Two Class Method . In May 2010, we issued restricted stock in con- junction with the acquisition of Realpoint, LLC. Because the restricted stock contains nonforfeitable rights to divi- dends, it meets the criteria of a participating security. Under the  two-class method, we allocate earnings between common stock  and participating securities. The two-class method includes an earn- ings allocation formula that determines earnings per share for each  class of common stock according to dividends declared and undis- tributed earnings for the period. For purposes of calculating earnings  per share, we reduce our reported net earnings by the amount allo- cated to participating securities to arrive at the earnings allocated  to common stock shareholders. Morningstar, Inc. 2010 Annual Report 111 The following table shows how we reconcile our net income and  the number of shares used in computing basic and diluted income  per share: 4. Income Per Share ASC 260-10-45-59A requires the dilutive effect of participating  securities to be calculated using the more dilutive of the treasury  stock or the two-class method. We have determined the two-class  method to be the more dilutive. As such, we adjusted the earnings  allocated to common stock shareholders in the basic earnings per  share calculation for the reallocation of undistributed earnings to  participating securities to calculate diluted earnings per share. Foreign Currency.  We translate the financial statements of non-U.S.  subsidiaries to U.S. dollars using the period-end exchange rate for  assets and liabilities and an average exchange rate for revenue and  expense. We use the local currency as the functional currency for  all of our non-U.S. subsidiaries. We record translation adjustments  for non-U.S. subsidiaries as a component of “Accumulated other  comprehensive income (loss)” in our Consolidated Statements of  Equity and Comprehensive Income (Loss). We include exchange  gains and losses arising from transactions denominated in curren- cies other than the functional currency in “Other income (expense),  net” in our Consolidated Statements of Income. (in thousands, except per share amounts)  2010 2009  2008 Basic net income per share attributable to Morningstar, Inc.: Net income attributable to $ 86,370 $ 82,129  $ 89,629 Morningstar, Inc. Less: Distributed earnings available (10) —  — to participating securities  Less: Undistributed earnings available (335) —  — to participating securities Numerator for basic net income $ 86,025 $ 82,129  $ 89,629 per share—undistributed and distributed earnings available to common shareholders Weighted average common 49,249  48,112   46,139 shares outstanding  Basic net income per share $  1.75 $  1.71  $  1.94 attributable to Morningstar, Inc. 