Classmates.com 2009 Annual Report Download - page 87

Table of Contents
Foreign Currency Risk
We transact business in foreign currencies and are exposed to risk resulting from fluctuations in foreign currency exchange rates,
particularly the British Pound ("GBP"), the Euro ("EUR"), the Indian Rupee ("INR"), and the Canadian Dollar ("CAD"), which may result in
gains or losses reported in our earnings. The volatilities in GBP, EUR, INR, and CAD (and all other applicable foreign currencies) are monitored
by us throughout the year. We face two risks related to foreign currency exchange rates—translation risk and transaction risk. Amounts invested
in our foreign operations are translated into U.S. Dollars using period-
end exchange rates. The resulting translation adjustments are recorded as a
component of accumulated other comprehensive income (loss) in stockholders' equity. Revenues and expenses in foreign currencies translate
into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against other currencies. Substantially all
of the revenues of our foreign subsidiaries are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar,
which increases or decreases the related U.S. Dollar reported revenues and expenses depending on the trend in currencies. Therefore, changes in
foreign currency exchange rates may negatively affect our consolidated revenues and expenses. A 10% adverse change in overall foreign
currency exchange rates over an entire year would result in a reduction of reported annual revenues of approximately $17.1 million and a
reduction of reported annual income before income taxes of approximately $2.4 million. These estimates assume an adverse shift in all foreign
currency exchange rates against the U.S. Dollar, which do not always move in the same direction or in the same degrees, and actual results may
differ materially. Net foreign currency transaction gains or losses arising from transactions denominated in currencies other than the local
functional currency are included in other income, net in the consolidated statements of operations.
In the second quarter of 2009, we entered into foreign currency forward contracts to partially offset the economic effect of fluctuations in
the U.S. Dollar against the British Pound. These derivatives were intended to minimize the foreign currency exchange rate impact of
intercompany dividend payments in British Pounds. Changes in the fair value of these derivatives were recognized in earnings in the period of
change. We may in the future also use other hedging programs, including derivative financial instruments commonly utilized, if it is determined
that such hedging activities are appropriate to reduce risk. At December 31, 2009, there were no foreign currency forward contracts outstanding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For our Consolidated Financial Statements, Schedule I and Schedule II, see the Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as
of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting,
on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the
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