SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| (Mark One) | ||
 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended June 30, 2002 | ||
| or | ||
 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission File Number: 0-26063
barnesandnoble.com inc.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 13-4048787 | |||
| (State or Other Jurisdiction of | (I.R.S. Employer | |||
| Incorporation or Organization) | Identification No.) | |||
| 76 Ninth Avenue, New York, NY | 10011 | |||
| (Address of Principal Executive Offices) | (Zip Code) |
(212) 414-6000
(Registrant’s Telephone Number, Including Area Code)
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 No
Number of shares of $.001 par value Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding as of August 7, 2002 was 47,946,566, one and one, respectively.
barnesandnoble.com inc.
June 30, 2002
Index to Form 10-Q
| Page No. | ||||||||
| PART I - | FINANCIAL INFORMATION |
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| Item 1: | Financial Statements |
3 | ||||||
| Item 2: | Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
12 | ||||||
| Item 3: | Quantitative and Qualitative Disclosure About Market Risk |
16 | ||||||
| PART II - | OTHER INFORMATION |
17 | ||||||
| Item 1: | Legal Proceedings |
17 | ||||||
| Item 2: | Changes in Securities and Use of Proceeds |
17 | ||||||
| Item 3: | Defaults upon Senior Securities |
17 | ||||||
| Item 4: | Submission of Matters to a Vote of Securities Holders |
17 | ||||||
| Item 5: | Other Information |
17 | ||||||
| Item 6: | Exhibits and Reports on Form 8-K |
18 | ||||||
Signatures |
19 | |||||||
2
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements
barnesandnoble.com inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share data)
(unaudited)
| Three months ended | Six months ended | ||||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Net sales |
$ | 85,837 | $ | 83,684 | $ | 192,372 | $ | 192,725 | |||||||||||
Cost of sales |
65,665 | 63,195 | 149,038 | 147,109 | |||||||||||||||
Gross profit |
20,172 | 20,489 | 43,334 | 45,616 | |||||||||||||||
Operating expenses: |
|||||||||||||||||||
Fulfillment and customer service |
8,525 | 9,929 | 17,997 | 22,300 | |||||||||||||||
Marketing, sales and editorial |
7,773 | 14,930 | 18,050 | 32,363 | |||||||||||||||
Technology and web site
development |
9,256 | 10,843 | 18,832 | 24,790 | |||||||||||||||
General
and administrative
|
6,417 | 7,453 | 12,803 | 15,806 | |||||||||||||||
Depreciation and amortization |
8,433 | 10,404 | 16,525 | 20,356 | |||||||||||||||
Equity
in net loss of equity investments including related amortization of
intangibles |
845 | 7,051 | 1,374 | 13,209 | |||||||||||||||
Total operating expenses |
41,249 | 60,610 | 85,581 | 128,824 | |||||||||||||||
Loss from operations |
(21,077 | ) | (40,121 | ) | (42,247 | ) | (83,208 | ) | |||||||||||
Interest income, net |
457 | 1,719 | 1,092 | 4,965 | |||||||||||||||
Loss before minority interest |
(20,620 | ) | (38,402 | ) | (41,155 | ) | (78,243 | ) | |||||||||||
Minority interest |
14,934 | 27,812 | 29,806 | 56,666 | |||||||||||||||
Net loss |
$ | (5,686 | ) | $ | (10,590 | ) | $ | (11,349 | ) | $ | (21,577 | ) | |||||||
Basic net loss per common share |
($0.13 | ) | ($0.24 | ) | ($0.26 | ) | ($0.49 | ) | |||||||||||
Basic weighted average common
shares outstanding (1) |
43,788 | 43,787 | 43,788 | 43,787 | |||||||||||||||
| (1) | Excludes assumed conversion of Membership Units and the elimination of minority interest, as it is not dilutive. |
See accompanying notes to consolidated financial statements.
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barnesandnoble.com inc.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data)
(unaudited)
| June 30, | December 31, | |||||||||||||||
| 2002 | 2001 | |||||||||||||||
| (unaudited) | ||||||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 87,607 | $ | 105,125 | ||||||||||||
Marketable securities |
— | 10,141 | ||||||||||||||
Receivables, net |
9,813 | 15,698 | ||||||||||||||
Merchandise inventories |
37,746 | 48,563 | ||||||||||||||
Prepaid expenses and other current assets |
5,745 | 3,874 | ||||||||||||||
Total current assets |
140,911 | 183,401 | ||||||||||||||
Fixed assets, net |
72,358 | 85,771 | ||||||||||||||
Other non-current assets |
15,266 | 18,204 | ||||||||||||||
Total assets |
$ | 228,535 | $ | 287,376 | ||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 5,182 | $ | 4,652 | ||||||||||||
Accrued liabilities |
75,571 | 90,590 | ||||||||||||||
Payable to affiliate |
40,347 | 43,531 | ||||||||||||||
Total current liabilities |
121,100 | 138,773 | ||||||||||||||
Minority interest |
76,025 | 105,845 | ||||||||||||||
Stockholders’ equity: |
||||||||||||||||
Preferred Stock: $0.001 par value; 50,000,000 shares authorized; none
issued and outstanding |
— | — | ||||||||||||||
Common Stock Series A; $0.001 par value; 750,000,000 shares authorized;
43,788,478 shares issued and outstanding |
44 | 44 | ||||||||||||||
Common Stock Series B; $0.001 par value; 1,000 shares authorized; 1 share
issued and outstanding |
— | — | ||||||||||||||
Common Stock Series C; $0.001 par value; 1,000 shares authorized; 1 share
issued and outstanding |
— | — | ||||||||||||||
Paid-in capital |
189,280 | 189,279 | ||||||||||||||
Accumulated deficit |
(157,914 | ) | (146,565 | ) | ||||||||||||
Total stockholders’ equity |
31,410 | 42,758 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||
Total liabilities and stockholders’ equity |
$ | 228,535 | $ | 287,376 | ||||||||||||
See accompanying notes to consolidated financial statements.
4
barnesandnoble.com inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
| Six Months Ended | |||||||||||
| June 30, | June 30, | ||||||||||
| 2002 | 2001 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
$ | (11,349 | ) | $ | (21,577 | ) | |||||
Adjustments to reconcile net loss to net cash flows from operating activities: |
|||||||||||
Depreciation and amortization |
16,760 | 29,796 | |||||||||
Decrease in receivables, net |
5,885 | 15,510 | |||||||||
Decrease in merchandise inventories |
10,817 | 7,538 | |||||||||
Increase in prepaid expenses and other current assets |
(1,871 | ) | (4,771 | ) | |||||||
Increase (decrease) in accounts payable |
530 | (2,301 | ) | ||||||||
Decrease in payable to affiliate |
(3,184 | ) | (7,618 | ) | |||||||
Decrease in accrued liabilities |
(15,019 | ) | (34,341 | ) | |||||||
Minority interest in loss |
(29,806 | ) | (56,666 | ) | |||||||
Net cash flows used in operating activities |
(27,237 | ) | (74,430 | ) | |||||||
Cash flows from investing activities: |
|||||||||||
Purchases of fixed assets |
(3,361 | ) | (8,577 | ) | |||||||
Gain on disposal of fixed assets |
— | 336 | |||||||||
Sales of marketable securities |
10,141 | — | |||||||||
Decrease in other non-current assets |
2,938 | 80 | |||||||||
Net cash flows from (used in) investing activities |
9,718 | (8,161 | ) | ||||||||
Cash flows from financing activities: |
|||||||||||
Proceeds from exercise of stock options |
1 | — | |||||||||
Net cash flows from financing activities |
1 | — | |||||||||
Net change in cash and cash equivalents |
(17,518 | ) | (82,591 | ) | |||||||
Cash and cash equivalents at beginning of period |
105,125 | 217,304 | |||||||||
Cash and cash equivalents at end of period |
$ | 87,607 | $ | 134,713 | |||||||
See accompanying notes to consolidated financial statements.
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barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
The unaudited consolidated financial statements include the accounts of barnesandnoble.com inc. (the “Company”) and barnesandnoble.com llc (“B&N.com”).
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position as of June 30, 2002 and the results of its operations and its cash flows for the six months then ended. These consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. The Company followed the same accounting policies in preparation of this report as in such Annual Report. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
1. ORGANIZATION
The Company is a holding company whose sole asset is a 27.6% equity interest in B&N.com, an internet-based retailer of books, music, DVD/video and online courses, and whose sole business is to manage the operations of B&N.com. As the sole manager of B&N.com, the Company controls all of the affairs of B&N.com and as a result, B&N.com is consolidated with the Company for financial statement purposes. Barnes & Noble, Inc. (“Barnes & Noble”) and Bertelsmann A.G. (“Bertelsmann”) each beneficially own a 36.2% equity interest (equivalent to an aggregate of 115 million Membership Units) in B&N.com. Each Membership Unit held by these companies is convertible into one share of the Company’s Class A Common Stock. As reflected in the consolidated statements of operations, the loss before minority interest represents the total loss for the period and the net loss represents the portion of the loss attributable to the Company.
2. RECLASSIFICATIONS
Certain prior-period amounts have been reclassified for comparative purposes to conform to the 2002 presentation.
3. ACCRUED SPECIAL CHARGES
In connection with the November 16, 2000 acquisition of Fatbrain.com, Inc. (“Fatbrain”), B&N.com assessed and formulated plans to restructure certain operations of Fatbrain. These plans involved the closure of the Fatbrain fulfillment facility in Kentucky as well as a consolidation of administrative operations reducing the workforce at Fatbrain’s office in Santa Clara, California. The objectives of the plans were to consolidate operations and leverage overhead expenses. The costs associated with the consolidation effort were recorded as liabilities in the purchase business combination and consist of severance and other employee costs of $1,059, all of which had been paid by the end of the first quarter of 2002, and facility closure costs of $1,876, of which $1,839 has been paid through the end of the second quarter 2002. Unpaid balances are included in accrued liabilities.
An impairment of fixed assets and other special charges of $88,213 ($0.56 per share assuming conversion of membership units) and $75,051 ($0.51 per share assuming conversion of membership units) were recorded as a component of operating expenses during the fourth quarters of 2001 and 2000, respectively. These charges were primarily related to the impairment of fixed and other assets, including equity investments, as well as the consolidation of fulfillment operations and administrative functions. At June 30, 2002, the accrued liability associated with the special charges was $6,496 and consisted of the following:
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barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
| Balance | 2002 | Balance | Due within | Due after | ||||||||||||||||
| 31-Dec-01 | Payments | 30-Jun-02 | 12 Months | 12 Months | ||||||||||||||||
Facility/Lease Termination Costs |
$ | 6,997 | $ | 1,636 | $ | 5,361 | $ | 1,528 | $ | 3,833 | ||||||||||
Employee Termination Benefits |
4,436 | 3,799 | 637 | 637 | — | |||||||||||||||
Other Impairment Charges |
2,014 | 1,516 | 498 | 498 | — | |||||||||||||||
| $ | 13,447 | $ | 6,951 | $ | 6,496 | $ | 2,663 | $ | 3,833 | |||||||||||
4. INVESTMENTS IN EQUITY METHOD INVESTEES
The Company has made certain investments in business entities accounted for under the equity method of accounting. The Company accounts for an investment under the equity method if the investment gives the Company the ability to exercise significant influence over the operating and financial policies of such entity. An investment of 20% or more of the voting stock typically denotes such influence, in the absence of other evidence to the contrary.
In January 2000, B&N.com acquired a 32% common stock interest in enews, inc. (“enews”), a retailer of magazine subscriptions on the Internet, and warrants to acquire additional common stock, for $26,428 in cash and 714 shares of the Company’s stock valued at $12,857, to expand its presence in the on-line magazine subscription market. Through June 30, 2002, B&N.com’s investment in enews was approximately 46.8%.
In July 2002, the Board of Directors of enews approved a Plan of Complete Liquidation (the “Liquidation Plan”), which was then approved by stockholders of enews owning at least a majority of the outstanding shares of capital stock of enews. Currently the Company is assessing the impact of the Liquidation Plan on its financial position and results of operations, which the Company believes will not be material.
5. RELATED PARTY TRANSACTIONS
B&N.com has entered into agreements with Barnes & Noble, Bertelsmann and their affiliates. The Company believes that the transactions and agreements discussed below (including renewals of any existing agreements) between B&N.com and its affiliates are at least as favorable to B&N.com as could be obtained from unaffiliated parties. The Board of Directors and its Audit Committee must approve in advance any proposed transaction or agreement with affiliates and will utilize procedures in evaluating the terms and provisions of such proposed transaction or agreement as are appropriate in light of the fiduciary duties of directors under Delaware law.
B&N.com entered into a Supply Agreement dated October 31, 1998, as amended, with Barnes & Noble (the “Supply Agreement”), whereby Barnes & Noble has agreed to supply inventory to B&N.com through Barnes & Noble’s distribution facilities and purchasing departments. Pursuant to the Supply Agreement, Barnes & Noble charges B&N.com its actual cost to acquire the inventory plus any incremental overhead incurred by Barnes & Noble in connection with providing such merchandise supply services. The Company purchased $50,659 and $56,277 from Barnes & Noble representing 39% and 49% of the Company’s purchases for the six months ended June 30, 2002 and 2001, respectively. The charges for incremental overhead for the six months ended June 30, 2002 and 2001 were $1,169 and $1,057, respectively. At June 30, 2002, $40,347 remained payable to Barnes & Noble in connection with such purchases.
Under a Services Agreement, dated as of October 31, 1998, as amended, between B&N.com and Barnes & Noble (the “Services Agreement”), B&N.com receives various administrative services from Barnes & Noble, including, among other things, services for payroll processing, benefits administration, insurance (property and casualty, medical, dental and life) and tax administration. In accordance with the terms of the Services Agreement, B&N.com reimburses Barnes & Noble
7
barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
in an amount equal to the third-party expenses it incurs to provide such services, plus any incremental internal costs. B&N.com was charged $596 and $789 for such services during the six months ended June 30, 2002 and 2001, respectively.
B&N.com purchased merchandise from Calendar Club, L.L.C. (“Calendar Club”), a company engaged in the wholesaling and retailing of calendars, in which Barnes & Noble owns a 73.9% interest. B&N.com’s purchases from Calendar Club for the six months ended June 30, 2002 totaled $304.
B&N.com subleases from Barnes & Noble approximately one-third of a 300,000 square foot warehouse facility located in New Jersey. B&N.com was charged by Barnes & Noble $249 and $230 for such subleased space during the six months ended June 30, 2002 and 2001, respectively. The amount paid to Barnes & Noble by B&N.com approximates the cost per square foot paid by Barnes & Noble as tenant pursuant to its lease of the space from an unaffiliated third party.
Since 1999, B&N.com has used AEC One Stop Group, Inc. (“AEC’), as its main music supplier, and as one of its suppliers of DVD/video. AEC is among the largest wholesale distributors of music, videos and DVDs in the United States. AEC also provides B&N.com with a music, DVD and video product database. Subsequent to the initial supply arrangement between AEC and B&N.com, AEC’s parent corporation was acquired by an investor group in which Leonard Riggio, Chairman of the Board of the Company and B&N.com, became a minority investor. B&N.com was charged by AEC $14,015 and $11,338 in connection with this agreement for merchandise purchased during the six months ended June 30, 2002 and 2001, respectively. In addition, B&N.com was charged by AEC $136 and $100 for database services during the six months ended June 30, 2002 and 2001, respectively. At June 30, 2002, $4,481 remained payable to AEC.
B&N.com licenses the “Barnes & Noble” name under a royalty-free license agreement, dated as of October 31, 1998, as amended, between B&N.com and Barnes & Noble College Bookstores, Inc. (the “License Agreement”), of which Leonard Riggio is the principal stockholder. Pursuant to the License Agreement, the Company has been granted an exclusive license to use the “Barnes & Noble” name and trademark for the purpose of selling books over the internet (excluding sales of college textbooks). Under a separate agreement dated as of January 2001, between the Company and Textbooks.com, Inc. (“Textbooks.com”) a corporation owned by Leonard Riggio, B&N.com was granted the right to sell college textbooks over the Internet using the “Barnes & Noble” name. Pursuant to this agreement, B&N.com pays Textbooks.com a royalty on revenues (net of product returns, applicable sales tax and excluding shipping and handling) realized by the Company from the sale of books designated as textbooks. The term of the agreement is for five years and renews annually for additional one-year periods unless terminated 12 months prior to the end of any given term. For the six months ended June 30, 2002 and 2001, the Company recorded royalty expense of $1,864 and $2,166, respectively, under the terms of this agreement.
B&N.com has various royalty-free non-exclusive licenses dated October 31, 1998, as amended, from Barnes & Noble and Bertelsmann Online (“BOL”). B&N.com licenses from Barnes & Noble the right to use Barnes & Noble’s database of book bibliographic data as well as certain software applications. B&N.com licenses from BOL, the subsidiary through which Bertelsmann conducts its Internet business, its name and trademark for use in B&N.com’s operations. Under Technology Sharing License Agreements, B&N.com was granted a royalty-free license to view, access and use BOL’s computer technology and systems, and B&N.com granted BOL a license to view, access and use B&N.com’s computer technology and systems. All of the agreements described in this paragraph are subject to certain renewal and termination provisions.
Barnes & Noble commenced a marketing program in November 2000, whereby a customer purchases a “Readers’ AdvantageTM Card” for a non-refundable annual membership fee of $25.00. With this card, customers can receive discounts of 10% on all Barnes & Noble store purchases and 5% on all of their purchases through the B&N.com Web site. B&N.com and Barnes & Noble have agreed to share the revenue, net of expenses, generated from the sale of the cards, related to this program in proportion to the discounts customers receive on purchases with each company. B&N.com’s share of the card revenue generated from this program for the six months ended June 30, 2002 and 2001 was $788 and $248, respectively.
8
barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
B&N.com ships, through its fulfillment centers, customer orders on behalf of Barnes & Noble to Barnes & Noble retail stores as well as to Barnes & Noble customers’ homes. B&N.com charges Barnes & Noble the costs associated with such shipments plus any incremental overhead incurred by B&N.com to process these orders. The fees received are recorded as a reduction of B&N.com’s total fulfillment expense. For the six months ended June 30, 2002 and 2001, B&N.com recorded $205 and $506, respectively, for shipping and handling from Barnes & Noble. In addition, during the year 2001, B&N.com and Barnes & Noble entered into an agreement whereby B&N.com receives a commission on all items ordered by customers at Barnes & Noble stores and shipped directly to customers’ homes by B&N.com. Commissions for these sales were recorded as revenue and amounted to $572 for the six months ended June 30, 2002.
Barnes & Noble subleased warehouse space from the Company in Reno, Nevada. B&N.com charged Barnes & Noble $500 and $909 for such subleased space for the six months ended June 30, 2002 and 2001, respectively. Additionally, B&N.com sold $6,186 of warehouse equipment from its Reno warehouse to Barnes & Noble in 2001. The equipment was sold to Barnes & Noble at its original cost. In January 2002, B&N.com determined it could not effectively utilize the full capacity of its Reno, Nevada distribution center. Accordingly, following Board approval on January 29, 2002, B&N.com agreed to transfer the Reno warehouse lease and sell B&N.com’s inventory located in Reno to Barnes & Noble. Barnes & Noble purchased the inventory from B&N.com at cost for approximately $9,877. The Board of Barnes & Noble also approved Barnes & Noble’s assumption of the lease obligation and the hiring of all of the employees at the Reno facility. The Reno lease assignment and the transfer of the operations of the Reno facility to Barnes & Noble was completed in April 2002. In connection with the transfer, B&N.com agreed to pay one-half of the rent charged for the facility through December 31, 2002. B&N.com paid $306 in relation to these expenses for the six months ended June 30, 2002.
In 2000, B&N.com began purchasing new and used textbooks directly from MBS Textbook Exchange, Inc. (“MBS”), a corporation majority-owned by Leonard Riggio and one of the nation’s largest wholesalers of college textbooks. B&N.com’s total purchases for the six months ended June 30, 2002 and 2001 were $8,822 and $7,538, respectively. In addition, B&N.com maintains a link on its Web site called “Sell Your Textbooks” which is hosted by MBS and through which B&N.com customers are able to sell used books directly to MBS. B&N.com is paid a commission based on the price paid by MBS to the consumer. Total commissions received for the six months ended June 30, 2002 and 2001 were $29 and $5, respectively.
Under a Strategic Relationship Agreement, dated as of May 1, 2001 (the “Strategic Relationship Agreement”), between B&N.com and GameStop, Inc. (“GameStop”), a majority-owned subsidiary of Barnes & Noble, B&N.com’s Web site refers customers to the GameStop Web site for purchases of video game hardware, software and accessories and PC entertainment software. GameStop pays B&N.com a referral fee based on its net sales revenue from certain eligible purchases made by customers as a result of the redirection from the B&N.com Web site. Either party may terminate the Strategic Relationship Agreement after May 1, 2002 on 60 days’ notice. Commissions of $59 were recorded for the six months ended June 30, 2002 under this agreement. Commissions for the six months ended June 30, 2001 were negligible.
B&N.com has an approximate 46.8% equity stake in enews, a company engaged in selling magazine subscriptions on the Internet, and accounts for this investment under the equity method. Substantially all of the balance of the shares are owned by Barnes & Noble. B&N.com fulfills a majority of orders for magazine subscriptions through enews and records a commission on these sales. Beginning in October 2000, enews subleased space from B&N.com at its New York office for an annual rent of $95. B&N.com recorded commissions of $697 and $131 for the periods ended June 30, 2002 and 2001, respectively, and was reimbursed $232 for expenses incurred on behalf of enews for the period ended June 30, 2002.
Michael N. Rosen, a director of the Company, is also a member of Bryan Cave Robinson Silverman, outside counsel to the Company and B&N.com.
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barnesandnoble.com inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the six months ended June 30, 2002 and June 30, 2001
(in thousands of dollars, except per share data)
(unaudited)
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (“SFAS 141”), and No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires that, upon adoption of SFAS 142, the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company reassessed the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.
The Company’s previous business combinations were accounted for using the purchase method. As of June 30, 2002, the net carrying amount of goodwill is $13,777. As required by SFAS 142, the C