International Operations How We Evaluate Our Business Organic revenue is considered a non-GAAP financial measure under  Securities and Exchange Commission (SEC) regulations. We define  organic revenue as consolidated revenue excluding acquisitions  and foreign currency translations. We present organic revenue  because we believe it helps investors better compare our period- to-period results, and our management team uses this measure to  evaluate the performance of our business. We have majority-owned operations in 24 countries outside of the  United States and include these in our consolidated financial state- ments. We account for our minority-owned investments in Japan  and Sweden using the equity method. When our analysts evaluate a stock, they focus on assessing the  company’s estimated intrinsic value—the value of the company’s  future cash flows, discounted to their worth in today’s dollars. Our  approach to evaluating our own business works the same way. Free cash flow is also considered a non-GAAP financial measure.  We present this measure as supplemental information to help inves- tors better understand trends in our business results over time. Our  management team uses free cash flow to evaluate our business.  Free cash flow is not equivalent to any measure required under U.S. generally accepted accounting principles (GAAP) and should not be  considered an indicator of liquidity. Moreover, the free cash flow  definition we use may not be comparable to similarly titled measures  reported by other companies. Our goal is to increase the intrinsic value of our business over time,  which we believe is the best way to create value for our sharehold- ers. We do not make public financial forecasts for our business  because we want to avoid creating any incentives for our manage- ment team to make speculative statements about our financial results  that could influence the stock price, or to take actions that help us  meet short-term forecasts but may not be in the long-term interest  of building shareholder value. To evaluate how successful we’ve been in maintaining existing busi- ness for products and services that have renewable revenue, we  calculate a retention rate. We use two different methods for cal- culating retention. For subscription-based products (including our  print newsletters, Morningstar.com Premium Membership service,  and Principia software), we track the number of subscriptions  retained during the year. For products sold through contracts and  licenses, we use the contract value method, which is based on  tracking the dollar value of renewals compared with the total dollar  value of contracts up for renewal during the period. We include  changes in the contract value in the renewal amount, unless the  change specifically results from adding a new product that we can  identify. We also include variable-fee contracts in this calculation  and use the previous quarter’s actual revenue as the base rate for  calculating the renewal percentage. The retention rate excludes  setup and customization fees, migrations to other Morningstar  products, and contract renewals that were pending as of January  31, 2011. We provide three specific measures that can help investors gener- ate their own assessment of how our intrinsic value has changed  over time: U  Revenue (including organic revenue); U  Operating income (loss); and U  Free cash flow, which we define as cash provided by or used for  operating activities less capital expenditures. Morningstar, Inc. 2010 Annual Report 65