ServiceMagic 2010 Annual Report Download - page 55

Table of Contents
IAC holds approximately 6.1 million shares of common stock (a 27% stake) in Meetic, an online dating company based in France. Meetic's
shares are listed on the Euronext stock exchange (EPA: MEET). As a result, IAC is exposed to changes in Meetic's stock price. The investment
in Meetic is accounted for using the equity method and the Company records its share of the results of Meetic and related amortization of
intangibles on a one-quarter lag within "Equity in (losses) income of unconsolidated affiliates" in the accompanying consolidated statement of
operations. The carrying value of the Meetic investment is $130.0 million at December 31, 2010, which is lower than the carrying value of
$156.5 million at December 31, 2009, primarily due to changes in foreign currency exchange rates and a dividend of $11.4 million. The fair
value of the Meetic investment, based on its quoted market price, is $130.0 million at December 31, 2010. Because our investment in Meetic is
accounted for using the equity method, it is not reported at fair value. In the event the fair value of Meetic were to decline below its carrying
value, this decline would be only one factor in an assessment for other-than-temporary impairment.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in the European Union. The Company's primary exposure to foreign
currency risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar, primarily the
British Pound Sterling and Euro. However, the exposure is mitigated since the Company has generally reinvested profits from international
operations in order to grow the businesses. As a percentage of total IAC revenue (which excludes revenue related to discontinued operations),
international operations represented approximately 17%, 15% and 20% in 2010, 2009 and 2008, respectively. The statements of operations of the
Company's international operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S.
dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions results in reduced revenues and
operating income. Similarly, the Company's revenue and operating income will increase for our international operations if the U.S. dollar
weakens against foreign currencies. The Company is also exposed to foreign currency risk related to its assets and liabilities denominated in a
currency other than the functional currency.
The economic impact of currency exchange rate movements on the Company is often linked to variability in real growth, inflation, interest
rates, governmental actions and other factors. These changes, if material, could cause the Company to adjust its financing and operating
strategies. Foreign exchange gains and losses were not material to the Company's earnings in 2010, 2009 and 2008. As currency exchange rates
change, translation of the income statements of the Company's international businesses into U.S. dollars affects year-over-year comparability of
operating results. Historically, the Company has not hedged foreign currency translation risks because cash flows from international operations
were generally reinvested locally. However, the Company periodically reviews its strategy for hedging foreign currency translation risks. The
Company's objective in managing its foreign currency risk is to minimize its potential exposure to the changes that exchange rates might have on
its earnings, cash flows and financial position.
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