## International Operations 

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. 

## How We Evaluate Our Business 

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. 

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. 

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. 

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. 

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. 

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. 

