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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended June 30, 2002

For the Transition Period from                              to                             

Commission File Number 000-29423

FAIRMARKET, INC.
(Exact name of registrant as specified in its charter)

500 Unicorn Park Drive, Woburn, MA 01801-3341
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (781) 376-5600

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    ý    No    o

        The number of shares outstanding of the registrant's common stock as of August 9, 2002 was 26,239,682.

FAIRMARKET, INC.

FORM 10-Q

For the Quarter Ended June 30, 2002

INDEX

FAIRMARKET is a registered service mark, and FairMarket Network, MarketSelect and the FairMarket logo are service marks, of FairMarket, Inc. The names of other companies and products mentioned in this Report may be the trademarks of their respective owners.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FAIRMARKET, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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FAIRMARKET, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

4

FAIRMARKET, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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FAIRMARKET, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.    Nature of Business

        FairMarket, Inc. ("FairMarket" or the "Company") provides private-label, Internet-based marketing and commerce solutions that incorporate dynamic pricing. The Company offers a range of services, technology and expertise to help large merchants maximize yield on clearance, excess and off-lease inventory and to realize process efficiencies. FairMarket's solutions enable merchants to sell to consumers or wholesale buyers on the merchants' own sites or to buyers on eBay. FairMarket's technology is designed to enable our customers to leverage their existing inventory, transaction and fulfillment infrastructures by integrating seamlessly with those systems.

2.    Basis of Presentation

        The accompanying consolidated interim financial statements of FairMarket are unaudited and have been prepared on a basis substantially consistent with the Company's audited financial statements for the year ended December 31, 2001. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Consequently, these statements do not include all disclosures normally required by generally accepted accounting principles for annual financial statements. These consolidated interim financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2001, which are contained in FairMarket's Annual Report on Form 10-K, as amended, for the year ended December 31, 2001 filed with the Securities and Exchange Commission. The consolidated interim financial statements, in the opinion of management, reflect all adjustments (including all normal recurring accruals) necessary for a fair presentation of the results of operations and cash flows for the interim periods ended June 30, 2002 and 2001. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. The consolidated interim financial statements include the accounts of FairMarket, Inc. and its wholly owned subsidiaries, FairMarket UK Limited, The FairMarket Network Pty Ltd, FairMarket GmbH and FairMarket Securities Corporation. All intercompany transactions and balances have been eliminated in consolidation.

3.    Equity-related and Unutilized Space Charges

        Equity-related charges consist of the amortization of (i) deferred stock compensation resulting from the grant of stock options to employees at exercise prices subsequently deemed to be less than the fair value of the common stock on the grant date and (ii) the fair value of warrants issued to strategic customers and shares of Series D convertible preferred stock issued to strategic customers at prices below their fair value. At June 30, 2002, deferred stock compensation was $475,000, net of amortization of $6.2 million and canceled stock options valued at $6.6 million. This amount is being amortized ratably over the vesting periods of the applicable stock options, typically four years, with 25% vesting on the first anniversary of the grant date and the balance vesting 6.25% quarterly thereafter. For the three and six months ended June 30, 2002 and 2001, related expense recognized was $60,000 and $236,000, and $747,000 and $1.2 million, respectively.

        At June 30, 2002, other deferred equity-related charges, which is a component of deferred compensation and equity-related charges in stockholders' equity, totaled $875,000, net of amortization of $46.8 million. Included in other deferred equity-related charges is the value of shares of Series D convertible preferred stock issued to Excite, Inc. (now known as At Home Corporation), which

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converted into shares of the Company's common stock upon the Company's initial public offering. The Company recorded the shares at fair value for a total of $15.0 million at December 31, 1999. The value of the shares was remeasured at the date of the Company's initial public offering and the Company recorded an additional $10.5 million in the first quarter of 2000 as a deferred charge to be amortized over the remaining term of the Company's original auction services agreement with Excite. As a result of the termination of the original Excite agreement in December 2000, the remaining term of that agreement was modified to the initial 18-month term of the new auction services agreement entered into by the Company and At Home at that time. During the second quarter of 2002, the Company expensed the remaining $3.3 million of unamortized value of the stock issued to Excite.

        Other deferred equity-related charges are being amortized ratably over the terms of the related agreements, from 18 months to three years (ending in September 2002) for the three and six months ended June 30, 2002 and from 18 months to five years for the three and six months ended June 30, 2001. For the three and six months ended June 30, 2002 and 2001, related expense recognized was $4.2 million and $8.5 million, and $5.7 million and $11.5 million, respectively. At June 30, 2002, the unamortized value of deferred charges on the Company's balance sheet was $875,000, which will be expensed in the third quarter of 2002.

        In the first quarter of 2002, the Company recorded a one-time charge of $4.5 million for unutilized office space at the Company's Woburn, Massachusetts headquarters. This charge includes rent payments and other related costs for a significant portion of the Company's leased space which has been vacated for the remaining lease term and the write-down of related leasehold improvements and furniture and fixtures.

4.    Net Loss per Share

        Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common shares outstanding during the period plus the effect of any dilutive potential common shares. Dilutive potential common equivalent shares consist of the assumed exercise of stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method, and the assumed conversion of convertible preferred stock and warrants. Potential common shares were excluded from the calculation of net loss per common share for the periods presented since their inclusion would be anti-dilutive. For the three and six months ended June 30, 2002 and 2001, basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding during the period because the effect of common equivalent shares would be anti-dilutive.

        Certain securities were not included in the computation of diluted net loss per share for the quarters ended June 30, 2002 and 2001, because they would have had an anti-dilutive effect due to net losses for such periods. These securities include: (i) options to purchase 4,646,162 shares of common stock with exercise prices of $0.10 to $9.66 per share at June 30, 2002 and options to purchase 5,338,000 shares of common stock with exercise prices of $0.10 to $9.66 per share at June 30, 2001; and (ii) 952,380 shares of Series B preferred stock convertible into common stock on a one-for-one basis, subject to adjustment, at June 30, 2002.

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5.    Comprehensive Loss

        For the three and six months ended June 30, 2002 and 2001, total comprehensive loss was as follows (in thousands):

6.    Stock Option Exchange

        On January 16, 2001, the Company implemented a one-time employee incentive program under which employees had the opportunity to exchange, on a one-for-one basis, their outstanding employee stock options with exercise prices of $3.00 or more for new options with an exercise price of $2.1875, the closing price of the Company's common stock on the January 16, 2001 exchange date. Options held by executive officers and directors were not included in the exchange. Under this program, options covering approximately 1,155,000 shares of the Company's common stock were exchanged for options covering an equal number of shares. Options granted under this program have special terms, with the options vesting quarterly over two years, beginning on the three-month anniversary of the grant date, if the option exchanged was unvested, or vesting on the six-month anniversary of the grant date, if the option exchanged was vested, and having a term of two and one-half years. For accounting purposes, the exchange constituted a repricing of the existing options and will require variable accounting for the new options granted in the exchange. As a result, the Company (i) will recognize a non-cash compensation charge each quarter with respect to vested options if and to the extent that the per share fair market value of the Company's common stock at the end of the quarter exceeds $2.1875, the per share exercise price of the new options, and (ii) will adjust deferred compensation each quarter for unvested options. There is a potential for such a variable non-cash charge in each quarter until all of the new options are exercised or until the date the options expire (July 16, 2003) or otherwise terminate. The closing price of the Company's common stock on June 30, 2002 was below $2.1875, therefore no related charge was recognized for the three and six months ended June 30, 2002.

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7.    Revenues and Long-lived Assets by Geographic Region

        The table below presents revenues by principal geographic region for the three and six months ended June 30, 2002 and 2001 (in thousands):

        The table below presents long-lived assets by principal geographic region as of June 30, 2002 and December 31, 2001 (in thousands):

8.    Accounting for Consideration Given by a Vendor to a Customer

        Effective January 1, 2002, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" ("EITF 01-09"). EITF 01-09 addresses whether a vendor should recognize consideration, including equity instruments, given to a customer as an expense or as an offset to revenue being recognized from that same customer. Consideration given to a customer is presumed to be a reduction of revenue unless both the following conditions are met:

(a)

the vendor receives an identifiable benefit in exchange for the consideration, and the benefit is sufficiently separable from the customer's purchase of the vendor's products and services such that the customer could have purchased the products from another third party; and



(b)

the vendor can reasonably estimate the fair value of the benefit received.

        If both criteria are met, consideration paid to the customer may be recognized as an expense. If consideration, including equity instruments, does not meet the above criteria, the vendor must characterize the recognition of such consideration as a reduction of revenue, to the extent there is cumulative revenue from such customer. Any recognition in excess of cumulative revenue for such consideration is recorded as an expense.

        During the second quarter of 2002, the Company recorded a one-time charge of $114,200 against revenue to reflect the amount by which the estimated fair value of the shares of the Company's Series B redeemable convertible preferred stock issued to eBay Inc. in May 2002 exceeded the amount paid by eBay (see Note 11).

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        During the three and six months ended June 30, 2001, the Company recognized amortization of equity-related charges for Excite and Microsoft Corporation as sales and marketing expense. In those same periods, the Company recognized revenue of $231,000 and $463,000, respectively, from Excite and Microsoft. As a result of the adoption of EITF 01-09, the Company has reclassified $231,000 and $463,000 of equity-related charges for the three and six months ended June 30, 2001 as a reduction of revenue since it did not meet both of the above criteria. There was no impact to net loss. The Company will reclassify $5,000 of equity-related charges for the quarter ended September 30, 2001 as a reduction of revenue for comparative purposes when it reports its financial results for the third quarter of 2002.

9.    Commitments and Contingencies

        FairMarket has been named as a defendant in certain purported class action lawsuits filed by individual shareholders in the U.S. District Court for the Southern District of New York against FairMarket, Scott Randall (former President, Chief Executive Officer and Chairman of the Board of FairMarket), John Belchers (former Chief Financial Officer of FairMarket), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been filed by individual shareholders who purport to seek class action status on behalf of all other similarly situated persons who purchased the common stock of FairMarket between March 14, 2000 and December 6, 2000. The lawsuits allege that certain underwriters of FairMarket's initial public offering solicited and received excessive and undisclosed fees and commissions in connection with that offering. The lawsuits further allege that the defendants violated the federal securities laws by issuing a registration statement and prospectus in connection with FairMarket's initial public offering which failed to accurately disclose the amount and nature of the commissions and fees paid to the underwriter defendants. FairMarket intends to defend the lawsuits vigorously.

10.  Restructuring Charge

        In late June 2002, as part of the Company's plan to continue to implement cost-cutting measures, the Company eliminated 18 positions worldwide, representing approximately 31% of its total employee base. In addition, the Company relocated its U.K. data center to the U.S. The Company recognized a charge of $530,000 in the second quarter of 2002 for the costs related to these initiatives, of which $200,000 relates to non-cash costs. At June 30, 2002, $200,000 of the total charge remained unpaid, primarily related to severance payments to certain employees. The Company expects to pay substantially all of these remaining expenses by the end of the third quarter of 2002.

11.  Redeemable Convertible Preferred Stock

        On May 17, 2002, the Company completed a private placement of 952,380 shares of its Series B redeemable convertible preferred stock, par value $0.001 per share, to eBay Inc. for an aggregate purchase price of $2.0 million. The Series B preferred stock is entitled to cash dividends payable quarterly at the rate of 6.5% per annum in preference to any dividend on any other series of preferred stock or common stock. The dividends are cumulative and are entitled to participate on a pro rata basis in any dividend paid on the common stock on an as if converted basis. At June 30, 2002, the Company accrued $16,000 for dividends payable. The Series B preferred stock is convertible into shares of common stock on a one-for-one basis, subject to certain adjustment mechanisms including a weighted average anti-dilution mechanism. In the event of any liquidation, dissolution or winding up of the Company (a "Liquidation"), the holders of the Series B preferred stock are entitled to receive, in

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preference to the holders of certain junior securities, as defined, a per share amount equal to $2.10 plus all accrued and unpaid dividends (the "Liquidation Preference"). In the event of a Liquidation, after payment of the Liquidation Preference and any other liquidation preference on any other series of stock, the Series B preferred stock is entitled to participate on a pro rata basis with the common stock in the distribution of the remaining assets of the Company on as if converted basis. The holders of the Series B preferred stock have the right to require the Company to redeem the Series B preferred stock at any time after the earlier of (a) May 17, 2003, and (b) the happening of a material adverse effect on the Company's business, as defined. The Company has the right, at any time after May 17, 2004, to redeem the outstanding Series B preferred stock at $2.10 per share plus all accrued and unpaid dividends. The net proceeds from this offering, after issuance costs, totaled $1.8 million. At the issuance date, the Company estimated the fair value of the Series B preferred stock to be in excess of the amount paid by eBay by $114,200. As a result, the Company recorded an $114,200 adjustment to increase the carrying value of this investment and decrease revenue in accordance with EITF 01-09 (see Note 8.) The Company is accreting the carrying value of the Series B preferred stock up to $2.0 million through May 2003 in accordance with the redemption feature described above. The Company recorded $24,000 in accretion during the second quarter of 2002. At June 30, 2002, the carrying value of the Series B preferred stock was $1.9 million.

12.  Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001, and thus were adopted by the Company on January 1, 2002. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 are effective from the date of acquisition. The adoption of SFAS No. 141 and 142 had no impact on the Company's financial statements and related disclosures.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121 that companies (i) recognize an impairment loss only if the carrying amount of the long-lived asset is not recoverable based on its undiscounted future cash flows and (ii) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues surrounding long-lived assets to be disposed of by sale. The Company adopted SFAS No. 144 on January 1, 2002 and the adoption had no impact on its financial statements and related disclosures.

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        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its financial position or results of operations.

13.  Subsequent Event

        On August 8, 2002, the Company repurchased the 3,181,000 shares of its common stock, par value $.001 per share, held by Scott Randall, the original founder of FairMarket, at a price of $1.27 per share. These shares represented 10.8% of the Company's outstanding common stock. After giving effect to this repurchase, there were 26,239,682 shares of common stock outstanding.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume" and other similar expressions which predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include the following: market acceptance of our online auction and other e-commerce services; growth of the market for dynamic e-commerce services; the competitive nature of the online markets in which we operate; economic conditions; our ability to generate significant revenue to reach profitability; our ability to retain existing customers and to obtain new customers; our ability to attract and retain qualified personnel; our ability to expand or maintain our operations in our geographic markets and the currency, regulatory and other risks associated with doing business in international markets; the operation and capacity of our network system infrastructure; our limited operating history; and the other risks and uncertainties discussed under the heading "Factors that May Affect Results of Operations and Financial Condition" on page 19 of this Form 10-Q. You should not place undue reliance on our forward-looking statements, and we assume no obligation to update any forward-looking statements.

        The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those statements included elsewhere in this Report and in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2001 and in other reports filed by us with the Securities and Exchange Commission.

Overview

        FairMarket provides private-label, Internet-based marketing and commerce solutions that incorporate dynamic pricing. We offer a range of services, technology and expertise to help large merchants maximize yield on clearance, excess and off-lease inventory and to realize process efficiencies. Our solutions enable merchants to sell to consumers or wholesale buyers on the merchants' own sites or to buyers on eBay. Our technology is designed to enable our customers to leverage their existing inventory, transaction and fulfillment infrastructures by integrating seamlessly with those systems.

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        Our services are used in four primary areas: (1) retail and discount clearance; (2) promotions and interactive marketing; (3) business-to-business surplus; and (4) outsourced auctions and e-commerce to portals and other web communities. We provide a broad suite of dynamic pricing formats, including auctions, our primary format, as well as fixed and falling price formats.

        We offer our customers the ability to distribute their listings to other sites through two methods. First, through our MarketSelect^sm service, we enable customers (with or without their own FairMarket-hosted site) to list, manage and transact sales on eBay. Second, because we host our customer's dynamic pricing sites on our central systems, we have the ability to aggregate listings of goods and services available for sale on our customers' commerce sites and make those listings available for display and sale on other FairMarket-hosted customer sites.

        Beginning in the second half of 2001, we began to experience a shift in the nature of our revenue, from the fixed monthly fees we traditionally charge for hosting and maintaining customers' sites, to transaction-based fees. We believe that this revenue shift is partly a result of recent economic conditions and pricing competition, and partly a result of an increasing portion of our customers using our MarketSelect service (which we launched during the second quarter of 2001), the fees for which are primarily transaction-based.

        We believe our success is dependent in large part on increasing our customer base and further developing the breadth and functionality of our service offerings, as well as on the volume of our customers' sales on their FairMarket-hosted sites and through our MarketSelect service. We intend to continue to invest in the further development of our service offerings and technology and in the promotion of our service offerings.

        Because of our limited operating history, there is limited operating and financial data about our business upon which to base an evaluation of our performance. Period-to-period comparisons of operating results should not be relied upon as an indicator of future operating results.

Recent Developments

        On August 8, 2002, we repurchased the 3,181,000 shares of our common stock, par value $.001 per share, held by Scott Randall, the original founder of FairMarket, at a price of $1.27 per share. These shares represented 10.8% of our outstanding common stock. After giving effect to this repurchase, there were 26,239,682 shares of common stock outstanding.

        In late June 2002, as part of our plan to continue to implement cost-cutting measures, we eliminated 18 positions worldwide, representing approximately 31% of our total employee base. In addition, we relocated our U.K. data center to the U.S. We recognized a charge of $530,000 in the second quarter of 2002 for the costs related to these initiatives, of which $200,000 relates to non-cash costs. At June 30, 2002, $200,000 of the total charge remained unpaid, primarily related to severance payments to certain employees. We expect to pay substantially all of these remaining expenses by the end of the third quarter of 2002.

        In May 2002, we sold 952,380 shares of our Series B convertible preferred stock to eBay Inc. for net proceeds of $1.8 million.

Critical Accounting Policies

        We identified critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2001. These critical accounting policies relate to revenue recognition and allowance for doubtful accounts. No changes to these critical policies have taken place in the three- and six-month periods ended June 30, 2002.

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New Accounting Pronouncements

        Effective January 1, 2002, we adopted Emerging Issues Task Force ("EITF") Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" ("EITF 01-09"). EITF 01-09 requires that companies report cash and non-cash stock compensation to customers as a reduction in revenue, rather than as equity-related charges expense, for all periods presented. During the second quarter of 2002, we recorded a one-time charge of $114,200 against revenue to reflect the amount by which the fair value of the shares of our Series B preferred stock issued to eBay in May 2002 exceeded the amount paid by eBay.

        During the three and six months ended June 30, 2001, we recognized amortization of equity-related charges for Excite, Inc. (now known as At Home Corporation) and Microsoft Corporation as sales and marketing expense. In those same periods, we recognized revenue of $231,000 and $463,000, respectively, from Excite and Microsoft. As a result of the adoption of EITF 01-09, we have reclassified $231,000 and $463,000 of equity-related charges for the three and six months ended June 30, 2001, respectively, as a reduction of revenue. There was no impact to net loss. We will reclassify $5,000 of equity-related charges for the quarter ended September 30, 2001 as a reduction of revenue for comparative purposes when we report our financial results for the third quarter of 2002.

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001, and thus were adopted by us on January 1, 2002. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 are effective from the date of acquisition. The adoption of SFAS No. 141 and 142 had no impact on our financial statements and related disclosures.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 further refines the requirements of SFAS No. 121 that companies (i) recognize an impairment loss only if the carrying amount of the long-lived asset is not recoverable based on its undiscounted future cash flows and (ii) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. In addition, SFAS No. 144 provides guidance on accounting and disclosure issues surrounding long-lived assets to be disposed of by sale. We adopted SFAS No. 144 on January 1, 2002 and the adoption had no impact on our financial statements and related disclosures.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after

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December 31, 2002, with early adoption encourag