Question about iTunes server

I know that iTunes does not natively play flac files but have noticed that iTunes plays the flac files that are stored on my MBL via the iTunes server. Can anyone explain whether the flac files are being changed in order to play?

I am in the process of figuring a good way to get flac files played through my hifi amp but I wish to keep the integrity of the lossless format.

The iTunes media server will convert the audio files to the iTunes native format (AC3). 

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