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Table of Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—FAIR VALUE MEASUREMENTS (Continued)
The following table presents the changes in the Company's assets and liabilities that are measured at fair value on a recurring basis using
significant unobservable inputs (Level 3):
Auction rate securities
Historically, the Company's auction rate securities ("ARS") had determinable market values arising from the auction process. However,
these auctions began to fail in the third quarter of 2007. As a result of these failed auctions, the ARS no longer have readily determinable market
values and are instead valued by discounting the estimated future cash flow streams of the securities over the lives of the securities. Credit
spreads and other risk factors are also considered in establishing a fair value. At December 31, 2010, the ARS are rated either A+/WR or A/WR.
The cost basis of these ARS is $15.0 million at December 31, 2010 and December 31, 2009, with gross unrealized losses of $1.9 million and
$2.4 million at December 31, 2010 and December 31, 2009, respectively. Due to their high credit rating and because the Company does not
intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before the recovery of
their amortized cost bases, which may be maturity, the Company does not consider the ARS to be other-than-temporarily impaired at
December 31, 2010. The unrealized losses are included in "Accumulated other comprehensive income" in the accompanying consolidated
balance sheet. The ARS mature in 2025 and 2035.
Derivative asset related to ARO stock
The CVR was accounted for as a derivative asset and maintained at fair value relying on significant unobservable inputs including credit
risk. During 2009, the Company wrote the value of the CVR down to zero. This reflected the increased credit risk due to ARO's insolvency filing
and the Company's assessment of the value that it expects to recover. The charge resulting from this write-down totaled $58.1 million.
86
For the Year Ended
December 31, 2010
December 31, 2009
Auction Rate
Securities Auction Rate
Securities
Derivative
Asset Related
to ARO Stock
(In thousands)
Balance at January 1
$
12,635
10,725
57,189
Total net gains (losses) (realized and unrealized):
Included in earnings(a)
—
—
(
57,189
)
Included in other comprehensive income
465
1,910
—
Balance at December 31
$
13,100
12,635
—
(a) The loss associated with the derivative asset related to the ARO stock consists of a write-down of $58.1 million, described
below, partially offset by foreign currency translation gains. This loss is unrealized and included in "Other (expense)
income, net" in the accompanying consolidated statement of operations.