ServiceMagic 2012 Annual Report Download - page 32

Table of Contents
equity method investment in Meetic to fair value (i.e., the tender offer price of €15.00 per share) in connection with our acquisition of a
controlling interest. Partially offsetting these losses are earnings related to Meetic through August 31, 2011.
Equity in losses of unconsolidated affiliates in 2010 includes an $18.3 million impairment charge to write-down one of the Company's
equity method investments to fair value. The decline in value was determined to be other-than-temporary due to the investee's continued losses
and negative operating cash flows. The Company estimated the fair value of its investment using a multiple of revenue approach. In addition, the
Company recognized a loss in 2010 related to its investment in Meetic primarily due to the amortization of intangibles, which was required by
purchase accounting rules.
Other (expense) income, net
Other expense, net in 2012 is primarily due to an $8.7 million other-than-temporary impairment charge related to a long-term marketable
equity security. The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of its unrealized loss and
based on that evaluation recorded an impairment charge in the fourth quarter of 2012.
Other income, net in 2011 is primarily due to $4.6 million in gains associated with certain non-
income tax refunds related to Match Europe,
which was sold in 2009, and a foreign currency exchange gain of $3.3 million related to the funds that were held in escrow for the Meetic tender
offer.
Other expense, net in 2010 is primarily due to a $7.8 million impairment charge related to one of the Company's cost method investments.
The impairment charge was determined to be other-than-
temporary due to the investee's inability to achieve its 2010 cash flow forecast during its
seasonally strongest fourth quarter and the Company's assessment that the investee would be unable to continue to operate without new outside
funding. Partially offsetting the impairment charge is a gain of $4.0 million related to the sale of certain securities.
Income tax (provision) benefit
In 2012, the Company recorded an income tax provision for continuing operations of $ 119.2 million , which represents an effective
income tax rate of 41%. The 2012 effective rate is higher than the statutory rate of 35% due primarily to an increase in reserves for and interest
on reserves for income tax contingencies, a valuation allowance on the deferred tax asset created by the other-than-
temporary impairment charge
related to a long-term marketable equity security and state taxes, partially offset by foreign income taxed at lower rates. In 2011, the Company
recorded an income tax benefit for continuing operations of $ 4.0 million despite pre-tax income of a $ 171.5 million . The income tax benefit is
due principally to the reversal of a previously established deferred tax liability described in the next sentence, the effective settlement of audits,
expirations of statutes of limitations and foreign income taxed at lower rates. In connection with the acquisition of a controlling interest in
Meetic in 2011, the Company concluded that it intends to indefinitely reinvest the earnings of Match’
s international operations related to Meetic,
including the 2009 gain on sale of Match Europe, outside of the United States which resulted in a deferred tax liability reversal of $43.7 million.
In 2010, the Company recorded an income tax provision for continuing operations of $ 32.1 million , which represents an effective tax rate of
141%. The 2010 tax rate is higher than the federal statutory rate of 35% due principally to non-deductible impairment charges related to
goodwill and intangible assets, interest on reserves for income tax contingencies, a valuation allowance on the deferred tax asset created by the
impairment charge for an equity method investment and state taxes, partially offset by foreign tax credits and foreign income taxed at lower
rates.
At December 31, 2012 and 2011, the Company has unrecognized tax benefits of $379.3 million and $351.6 million, respectively.
Unrecognized tax benefits at December 31, 2012 increased $27.7 million from December 31, 2011 due principally to a net increase in deductible
timing differences and additions for tax positions related to prior years. The Company recognizes interest and, if applicable, penalties related to
unrecognized tax benefits in income tax provision. Included in income tax
29
Years Ended December 31,
2012
$ Change % Change 2011 $ Change % Change 2010
(Dollars in thousands)
Other (expense) income, net $(9,161) $(19,221) NM $10,060 $11,493 NM $(1,433)
Years Ended December 31,
2012
$ Change % Change 2011 $ Change % Change 2010
(Dollars in thousands)
Income tax (provision)
benefit $(119,215)
NM NM $4,047 NM NM $(32,079)