-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Byfjglw6z5E6+lEbHxMsK4A9MScnbmHt4z5AP6rOM3b3mAJMhJ+FYbVkWGekttTd T9aR/L/qIVPoESqfAPeAsw== 0000950152-01-506027.txt : 20020411 0000950152-01-506027.hdr.sgml : 20020411 ACCESSION NUMBER: 0000950152-01-506027 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010912 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13859 FILM NUMBER: 1798247 BUSINESS ADDRESS: STREET 1: ONE AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: ONE AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 8-K/A 1 l91474ae8-ka.txt AMERICAN GREETINGS 8-K/AMENDMENT NO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) September 12, 2001 ------------------ AMERICAN GREETINGS CORPORATION ------------------------------ (Exact name of registrant as specified in Charter) 1-13859 ------- Commission File Number Ohio 34-0065325 ---- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One American Road, Cleveland, Ohio 44144 - -------------------------------------------------------------------------------- (Address of principal executive Offices) (Zip Code) (216) 252-7300 -------------- Registrant's telephone number, including area code ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS This Current Report on Form 8-K/A (Amendment No. 1) amends the Current Report on Form 8-K previously filed with the Securities and Exchange Commission on September 27, 2001 relating to the acquisition by American Greetings Corporation, an Ohio corporation ("American Greetings") through its subsidiary AmericanGreetings.com, Inc., of the BlueMountain.com division ("Blue Mountain Arts") of At Home Corporation, a Delaware corporation ("Excite@Home"), on September 12, 2001. The following documents are included as part of this report: (a) Financial Statements of Business Acquired The audited financial statements of Blue Mountain Arts as of and for the year ended December 31, 2000 with the report of independent auditors and the financial statements as of and for the six months ended June 30, 2000 and 2001 (unaudited) are included as Exhibit 99 of this Form 8-K/A. (b) Unaudited Pro Forma Financial Information The accompanying unaudited pro forma financial information has been prepared to give effect to the acquisition of Blue Mountain Arts by American Greetings. The unaudited pro forma combined statement of operations for the year ended February 28, 2001 gives effect to the acquisition as if the acquisition had occurred on March 1, 2000. The unaudited pro forma combined statement of operations presented for the year ended February 28, 2001 includes the historical financial results of American Greetings for the year ended February 28, 2001 and of Blue Mountain Arts for the year ended December 31, 2000. The unaudited pro forma combined statement of operations for the six months ended August 31, 2001 gives effect to the acquisition as if the acquisition had occurred on March 1, 2001. The unaudited pro forma combined statement of operations presented for the six months ended August 31, 2001 includes the historical financial results of American Greetings for the six months ended August 31, 2001 and of Blue Mountain Arts for the six months ended June 30, 2001. Synergies and expected cost savings from the integration of Blue Mountain Arts with American Greetings' existing businesses or any additional profitability resulting from the application of American Greetings revenue enhancement measures have not been included in the unaudited pro forma combined statement of operations. The unaudited pro forma combined statement of financial position as of August 31, 2001 gives effect to the acquisition as if the acquisition had occurred on that date. The unaudited pro forma combined statement of financial position includes the balance sheet of American Greetings as of August 31, 2001 and the balance sheet of Blue Mountain Arts as of June 30, 2001. The unaudited pro forma financial information includes the adjustments that have a continuing impact to the combined company to reflect the transaction using purchase accounting. The pro forma adjustments are described in the notes to the unaudited pro forma financial information. The adjustments are based upon preliminary information and certain management judgments and estimates. The purchase accounting adjustments are subject to revisions which will be reflected in future periods. Revisions, if any, are not expected to have a material effect on the statement of operations or financial position of American Greetings. Certain reclassifications have been reflected to conform Blue Mountain Arts' financial information to American Greetings' presentation. The unaudited pro forma financial information and accompanying notes are presented for illustrative purposes only and do not purport to be indicative of and should not be relied upon as indicative of the financial position or operating results which may occur in the future, or that would have occurred if the acquisition had been consummated on March 1, 2000. The unaudited pro forma financial information should be read in conjunction with: (a) American Greetings' consolidated financial statements and notes thereto and management's discussion and analysis for the year ended February 28, 2001 filed as part of American Greetings' Form 10-K; (b) American Greetings' consolidated financial statements and notes thereto and management's discussion and analysis for the six months ended August 31, 2001 filed as part of American Greetings' Form 10-Q; (c) Blue Mountain Arts' audited financial statements and notes thereto as of and for the year ended December 31, 2000 and the financial statements as of and for the six months ended June 30, 2000 and 2001 (unaudited) included as Exhibit 99 of this Form 8-K/A. Unaudited Pro Forma Combined Statement of Operations For the Year Ended February 28, 2001 Thousands of dollars except per share amounts
Historical -------------------------------- American Blue Greetings Mountain Pro Forma Pro Forma Corporation Arts Adjustments Combined --------------- -------------- ----------------- -------------- Net sales $ 2,518,814 $ 13,867 $ 2,532,681 Costs and expenses: Material, labor and other production costs 999,271 9,073 1,008,344 Selling, distribution and marketing 1,068,543 10,111 1,078,654 Administrative and general 280,202 10,121 290,323 Interest expense 55,387 -- 55,387 Other expense -net 16,778 924,207 (1) $ 1,810 (2) 942,795 ----------- ---------- ---------- ----------- 2,420,181 953,512 1,810 3,375,503 ----------- ---------- ---------- ----------- Income (loss) before income tax provision (benefit) and cumulative effect of accounting change 98,633 (939,645) (1,810) (842,822) Income tax provision (benefit) 191,306 -- (6,382) (3) 184,924 ----------- ---------- ---------- ----------- Net (loss) income before cumulative effect of accounting change $ (92,673) $ (939,645) $ 4,572 $(1,027,746) =========== ========== ========== =========== Loss per share and loss per share assuming dilution before cumulative effect of accounting change $ (1.46) $ (16.15) Weighted average number of shares outstanding for loss per share and loss per share assuming dilution 63,646,405 63,646,405
See Notes to Unaudited Pro Forma Combined Statement of Operations. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (1) Includes $684,205 related to write-down of goodwill, other intangible assets and other assets. See Notes 1 and 2 to the Financial Statements of Blue Mountain Arts included in Exhibit 99 for further discussion. (2) Represents interest income foregone due to use of cash in acquisition. (3) Income tax benefit at statutory rate of 37% for loss incurred by Blue Mountain Arts (but for which no benefit was available to Blue Mountain Arts due to its having no operating profits in any of its periods), except amortization of other intangible assets, and including the impact of interest income foregone due to use of cash in acquisition. Unaudited Pro Forma Combined Statement of Operations For the Six Months Ended August 31, 2001 Thousands of dollars except per share amounts
Historical ------------------------------- American Blue Greetings Mountain Pro Forma Pro Forma Corporation Arts Adjustments Combined --------------- ------------- ----------------- -------------- Net sales $ 993,965 $ 4,345 $ 998,310 Costs and expenses: Material, labor and other production costs 438,017 3,896 441,913 Selling, distribution and marketing 514,264 4,795 519,059 Administrative and general 143,198 4,984 148,182 Restructure charges 52,925 -- 52,925 Interest expense 35,525 -- 35,525 Other expense (income) -net (4,070) 19,485 (1) $ 905 (2) 16,320 ------------ ------------ ------- ----------- 1,179,859 33,160 905 1,213,924 ------------ ------------ ------- ----------- (Loss) before income tax benefit (185,894) (28,815) (905) (215,614) Income tax (benefit) (70,082) -- (3,787) (3) (73,869) ------------ ------------ ------- ----------- Net (loss) income $ (115,812) $ (28,815) $ 2,882 $ (141,745) ============ ============ ======= =========== Loss per share and loss per share assuming dilution $ (1.82) $ (2.23) Weighted average number of shares outstanding for loss per share and loss per share assuming dilution 63,500,674 63,500,674
See Notes to Unaudited Pro Forma Combined Statement of Operations. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (1) Includes $15,503 related to write-down of goodwill, other intangible assets and other assets. See Notes 1 and 2 to the Financial Statements of Blue Mountain Arts included in Exhibit 99 for further discussion. (2) Represents interest income foregone due to use of cash in acquisition. (3) Income tax benefit at statutory rate of 37% for loss incurred by Blue Mountain Arts (but for which no benefit was available to Blue Mountain Arts due to its having no operating profits in any of its periods), except amortization of other intangible assets, and including the impact of interest income foregone due to use of cash in acquisition. Unaudited Pro Forma Combined Statement of Financial Position August 31, 2001 Thousands of dollars except per share amounts
Historical ----------------------------- American Blue Greetings Mountain Pro Forma Pro Forma ASSETS Corporation Arts Adjustments Combined ------------ ------------ --------------- -------------- CURRENT ASSETS Cash and cash equivalents $ 74,883 $ (36,200) (1) $ 38,683 Trade accounts receivable, less allowances for sales returns and for doubtful accounts 369,544 $ 355 (241) (2) 369,658 Inventories 429,657 429,657 Deferred and refundable income taxes 164,924 164,924 Prepaid expenses and other 215,298 215,298 ----------- ---------- ---------- ------------ Total current assets 1,254,306 355 (36,441) 1,218,220 GOODWILL 227,202 37,384 (3) 264,586 OTHER ASSETS 906,291 12,350 (12,332) (4) 906,568 260 (5) (1) (2) PROPERTY, PLANT AND EQUIPMENT-NET 454,587 1,757 (121) (2) 456,223 ----------- ---------- ---------- ------------ $ 2,842,386 $ 14,462 $ (11,251) $ 2,845,597 ============ ============ ============ =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Debt due within one year $ 141,311 $ 141,311 Accounts payable 152,574 $ 74 152,648 Accrued liabilities 198,340 669 $ 1,980 (2) 200,989 Accrued compensation and benefits 86,667 250 13 (2) 86,930 Dividends payable 6,367 6,367 Income taxes 128,303 128,303 Other current liabilities 132,014 199 132,213 ----------- ---------- ---------- ------------ Total current liabilities 845,576 1,192 1,993 848,761 LONG-TERM DEBT 850,250 850,250 OTHER LIABILITIES 199,585 199,585 DEFERRED INCOME TAXES 23,005 23,005 SHAREHOLDERS' EQUITY Common shares - par value $1 Class A 58,877 58,877 Class B 4,626 4,626 Capital in excess of par value 286,054 993,461 (993,461) (6) 286,054 Treasury stock (447,124) (447,124) Accumulated other comprehensive loss (58,844) (58,844) Retained earnings 1,080,381 (980,191) 980,191 1,080,381 26 (7) 26 ----------- ---------- ---------- ------------ Total shareholders' equity 923,970 13,270 (13,244) 923,996 ----------- ---------- ---------- ------------ $ 2,842,386 $ 14,462 $ (11,251) $ 2,845,597 =========== ========== ========== ============
See notes to Unaudited Pro Forma Combined Statement of Financial Position. NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION (1) Represents cash paid in acquisition ($35,000 plus $1,200 of acquisition-related expenses). (2) Certain items included in Blue Mountain Arts' balance sheet have been adjusted to reflect their fair value at the date of acquisition. (3) Represents goodwill established in purchase accounting, representing excess of purchase price over fair value of assets acquired and liabilities assumed. (4) Intangible assets included in Blue Mountain Arts' results have been written off to reflect their fair value to the combined entity. (5) Represents establishment of fair value for Blue Mountain Arts' Universal Resource Locator acquired. (6) Represents the elimination of the shareholders' equity related to Blue Mountain Arts. (7) Difference in acquisition date net book value as compared to June 30, 2001 net book value. (c) Exhibits:
Page Number --------- Exhibit 23 Consent of Ernst & Young LLP A-1 Exhibit 99 Financial Statements of Blue Mountain Arts for A-2 year ended December 31, 2000 and six months ended June 30, 2000 and 2001 (unaudited)
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN GREETINGS CORPORATION By: /s/ Joseph B. Cipollone ----------------------- Joseph B. Cipollone Vice President, Corporate Controller Chief Accounting Officer November 21, 2001 EX-23 3 l91474aex23.txt EXHIBIT 23 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in (i) Post-Effective Amendment Number 1 dated May 27, 1986 to Registration Statement No. 2-89471 on Form S-3, (ii) Post-Effective Amendment Number 1 dated May 31, 1984 to Registration Statement No. 2-84911 on Form S-8, (iii) Registration Statement No. 33-975 on Form S-8 dated November 7, 1985, (iv) Registration Statement No. 33-16180 on Form S-8 dated July 31, 1987, (v) Registration Statement No. 33-45673 on Form S-8 dated February 4, 1992, (vi) Registration Statement No. 33-58582 on Form S-8 dated February 22, 1993, (vii) Registration Statement No. 33-61037 on Form S-8 dated July 14, 1995, (viii) Registration Statement No. 33-08123 on Form S-8 dated July 15, 1996, (ix) Registration Statement No. 333-41912 on Form S-8 dated July 21, 2000, (x) Registration Statement No. 333-65534 on Form S-8 dated July 20, 2001, and (xi) Amendment Number 1 dated October 19, 2001 to Registration Statement No. 333-68526 on Form S-3 of our report dated September 13, 2001 with respect to the financial statements of Blue Mountain Arts, a division of At Home Corporation, included in this Current Report on Form 8-K/A of American Greetings Corporation dated November 21, 2001. /s/ Ernst & Young LLP Cleveland, Ohio November 19, 2001 A-1 EX-99 4 l91474aex99.txt EXHIBIT 99 Exhibit 99 FINANCIAL STATEMENTS Blue Mountain Arts (a division of At Home Corporation) Year ended December 31, 2000 and six months ended June 30, 2000 and 2001 (Unaudited) A-2 Blue Mountain Arts (a division of At Home Corporation) Financial Statements Year ended December 31, 2000 and six months ended June 30, 2000 and 2001 (Unaudited) CONTENTS Report of Independent Auditors.............................................A-4 Financial Statements Balance Sheets.............................................................A-5 Statements of Operations...................................................A-6 Statements of Equity in Division..........................................A-7 Statements of Cash Flows...................................................A-8 Notes to Financial Statements..............................................A-9 A-3 Report of Independent Auditors The Board of Directors and Stockholders of At Home Corporation We have audited the accompanying balance sheet of Blue Mountain Arts, a division of At Home Corporation, as of December 31, 2000, and the related statements of operations, equity in division, and cash flows for the year then ended. These financial statements are the responsibility of At Home Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Mountain Arts, a division of At Home Corporation, at December 31, 2000 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP September 13, 2001 A-4 Blue Mountain Arts (a division of At Home Corporation) Balance Sheets (In thousands)
DECEMBER 31, JUNE 30, 2000 2001 ---------------------------------------- (Unaudited) ASSETS Current assets: Accounts receivable, net of allowance of $13 in 2000 and $204 in 2001 $ 1,785 $ 355 ---------------------------------------- Total current assets 1,785 355 Property, equipment, and improvements, net 2,365 1,757 Goodwill and other intangible assets, net 31,585 12,332 Other assets 21 18 ---------------------------------------- Total assets $ 35,756 $ 14,462 ======================================== LIABILITIES AND EQUITY IN DIVISION Current liabilities: Accounts payable $ 166 $ 74 Accrued compensation and related expenses 549 250 Deferred revenue 1,080 199 Accrued colocation services 228 276 Other accrued liabilities 424 393 ---------------------------------------- Total current liabilities 2,447 1,192 Commitments and contingencies Equity in division: Advances from Excite@Home 1,007,079 1,011,656 Deferred compensation (22,394) (18,195) Accumulated deficit (951,376) (980,191) ---------------------------------------- Total equity in division 33,309 13,270 ---------------------------------------- Total liabilities and equity in division $ 35,756 $ 14,462 ========================================
See accompanying notes. A-5 Blue Mountain Arts (a division of At Home Corporation) Statements of Operations (In thousands)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------- 2000 2000 2001 ----------------------------------------------------------- (Unaudited) (Unaudited) Net revenues $ 13,867 $ 5,232 $ 4,345 Operating costs: Cost of services 4,203 2,391 2,136 Product development and engineering 4,870 2,266 1,760 Sales and marketing 10,111 3,111 4,795 General and administrative 1,937 886 785 Amortization of deferred compensation 8,184 3,985 4,199 Amortization of goodwill and intangible assets 240,002 118,933 3,982 Write-down of goodwill and other intangible assets 684,205 - 15,503 ----------------------------------------------------------- Total operating costs 953,512 131,572 33,160 ----------------------------------------------------------- Net loss $ (939,645) $ (126,340) $ (28,815) ===========================================================
See accompanying notes. A-6 Blue Mountain Arts (a division of At Home Corporation) Statements of Equity in Division (In thousands)
ADVANCES DEFERRED ACCUMULATED TOTAL EQUITY FROM Excite@Home COMPENSATION DEFICIT IN DIVISION -------------------------------------------------------------------- Balances at December 31, 1999 $ 1,001,635 $ (30,578) $ (11,731) $ 959,326 Cash investment by Excite@Home to fund operations 5,444 - - 5,444 Amortization of deferred compensation - 8,184 - 8,184 Net loss - - (939,645) (939,645) -------------------------------------------------------------------- Balances at December 31, 2000 1,007,079 (22,394) (951,376) 33,309 Cash investment by Excite@Home to fund operations (unaudited) 4,577 - - 4,577 Amortization of deferred compensation (unaudited) - 4,199 - 4,199 Net loss (unaudited) - - (28,815) (28,815) -------------------------------------------------------------------- Balances at June 30, 2001 (unaudited) $ 1,011,656 $ (18,195) $ (980,191) $ 13,270 ====================================================================
See accompanying notes. A-7 Blue Mountain Arts (a division of At Home Corporation) Statements of Cash Flows (In thousands)
YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 31, ----------------------------------- 2000 2000 2001 --------------------------------------------------- (Unaudited) (Unaudited) OPERATING ACTIVITIES Net loss $(939,645) $(126,340) $(28,815) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 1,464 744 709 Amortization of deferred compensation 8,184 3,985 4,199 Amortization of goodwill and other intangible assets 240,002 118,933 3,982 Impairment write-down of goodwill and acquired intangible assets 684,205 - 15,503 Changes in assets and liabilities: Accounts receivable (548) 82 1,430 Other assets 81 47 3 Accounts payable (14) 139 (92) Accrued compensation and related expenses 269 77 (299) Accrued colocation services 228 - 48 Other accrued liabilities (157) (14) (31) Deferred revenues 1,080 174 (881) --------------------------------------------------- Cash used in operating activities (4,851) (2,173) (4,244) --------------------------------------------------- INVESTING ACTIVITIES Sales and maturities of short-term investments 257 257 - Purchases of property, equipment, and improvements (178) (107) (101) Capitalized software development costs (794) - (232) --------------------------------------------------- Cash provided by (used in) investing activities (715) 150 (333) --------------------------------------------------- FINANCING ACTIVITIES Proceeds from cash investments by Excite@Home 5,444 1,901 4,577 --------------------------------------------------- Cash provided by financing activities 5,444 1,901 4,577 --------------------------------------------------- Net decrease in cash and cash equivalents (122) (122) - Cash and cash equivalents, beginning of period 122 122 - --------------------------------------------------- Cash and cash equivalents, end of period $ - $ - $ - ===================================================
See accompanying notes. A-8 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements December 31, 2000 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Blue Mountain Arts (Bluemountain), a division of At Home Corporation or Excite@Home (Excite@Home), is a provider of free online greeting cards. Bluemountain also offers users the ability to purchase gifts from national merchants to send along with electronic greeting cards. Excite@Home acquired Bluemountain on December 13, 1999 in a transaction accounted for as a purchase. Bluemountain has since operated within the Media/Advertising business segment of Excite@Home. Excite@Home's total purchase consideration for Bluemountain amounted to $1,000.7 million based on a cash payment of $350 million, the issuance of Series A nonvoting preferred stock convertible into approximately 0.7 million shares of Excite@Home's Series A common stock with a fair value of $418.2 million, 3.5 million shares of Series A common stock with a fair value of $149.4 million, stock options to acquire 3.6 million shares of Excite@Home's Series A common stock with a fair value of $76.1 million, and $7 million of direct acquisition costs consisting primarily of investment banking and legal fees. The purchase consideration was allocated to the acquired assets and assumed liabilities based on fair values as follows (in thousands): Cash $ 611 Accounts receivable and other assets 1,204 Property and equipment 3,577 Purchased technology 800 Other identified intangible assets 27,000 Goodwill 938,585 Deferred compensation 30,922 Liabilities assumed (1,986) ---------------- Total purchase consideration $1,000,713 ================ On September 12, 2001, American Greetings Corporation acquired Bluemountain from Excite@Home for $35 million in cash in a transaction accounted for as a purchase. A-9 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BASIS OF PRESENTATION The accompanying financial statements have been derived from Excite@Home's consolidated historical financial statements and reflect the "carve out" financial position, results of operations, and cash flows of Bluemountain for the periods presented. The financial statements for Bluemountain include allocations from Excite@Home of certain expenses totaling $7.9 million, $2.2 million (unaudited), and $3.3 million (unaudited) for the year ended December 31, 2000 and the six months ended June 30, 2000 and 2001, respectively. Excite@Home provides various administrative services to Bluemountain including sales and account management, marketing and business development, and corporate general and administrative costs. These expense allocations have been determined on the basis that the expenses were a reasonable reflection of the services provided to Bluemountain or the benefit received by Bluemountain. It is Excite@Home's policy to charge these expenses and all other central operating costs, first on the basis of direct usage when identifiable, with the remainder allocated to Bluemountain on the basis of their respective annual sales and/or headcount. In the opinion of management, this method of allocation is reasonable. The financial information included herein does not necessarily reflect the financial position and results of operations of Bluemountain had the business unit been a separate, stand-alone entity for the periods presented, and may not be indicative of future operations or financial position. UNAUDITED INTERIM RESULTS The accompanying interim financial statements and related disclosures for the six-month periods ended June 30, 2000 and 2001 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments and an impairment write-down of goodwill and other intangible assets of $15.5 million (unaudited) for the six months ended June 30, 2001, necessary to present fairly the financial statements for the six-month periods ended June 30, 2000 and 2001. The results for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year ended December 31, 2001. A-10 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH MANAGEMENT During the year ended December 31, 2000 and the six months ended June 30, 2001, Excite@Home provided cash management services to Bluemountain through a centralized treasury system with the associated transactions recorded via intercompany accounts. During these periods, Bluemountain did not maintain cash balances and no interest was charged by Exite@Home. Advances from Excite@Home has been classified in equity in division in the accompanying balance sheet. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Bluemountain records revenues in accordance with the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition" (SAB 101). Bluemountain recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, fees are fixed and determinable, and collectibility is reasonably assured. For contracts with multiple elements, Bluemountain allocates the contract value to each element based on its fair value and recognizes revenue as each element is delivered. Bluemountain revenues include online advertising revenue derived from short-term advertising contracts in which they guarantee a minimum number of impressions (a view of an advertisement by a consumer) for a fixed fee. Bluemountain also enters into a number of longer-term advertising and sponsorship agreements. Under these agreements, which range from one month to two years, Bluemountain earns fees for generating impressions, which in some instances are guaranteed. Bluemountain generally recognizes advertising revenue on a straight-line basis over the term of the agreements, provided that they do not have any significant remaining obligations such as impression guarantees and collection of the resulting receivable is probable. To the extent that impression deliveries do not meet the guarantees, Bluemountain defers recognition of the corresponding revenue until impressions are delivered. A-11 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION (CONTINUED) Revenue from barter transactions involving the exchange of advertising for online advertising was $1.2 million for the year ended December 31, 2000, $0.1 million (unaudited) for the six months ended June 30, 2000, and $1.1 million (unaudited) for the six months ended June 30, 2001. Revenue from these exchanges is recorded at the lower of the fair value of the advertising delivered or the advertising received. In accordance with Emerging Issues Task Force (EITF) Issue No. 99-17, "Accounting for Advertising Barter Transactions," effective January 20, 2000, the fair value of advertising delivered is based on similar advertising transactions for which Bluemountain received cash during the six months prior to the advertising barter transactions. Advertising barter transactions generally result in the recognition of equivalent amounts of revenue and expense. PROPERTY, EQUIPMENT, AND IMPROVEMENTS Property, equipment, and improvements are stated at cost. Depreciation is computed using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. INTANGIBLE ASSETS Intangible assets consist of purchased technology, acquired workforce, acquired brand name and content, and goodwill related to the acquisition of Bluemountain by Excite@Home in December 1999. Amortization of goodwill and intangible assets are provided on the straight-line basis over the estimated useful lives of the assets, which range from three to four years. A-12 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS (CONTINUED) Bluemountain records impairment losses or write-downs on intangible assets when events and circumstances indicate that an impairment assessment should be performed and that assessment indicates that there is an impairment. Events and circumstances that would trigger an impairment assessment include a significant decrease in the market value of an asset, a significant change in the manner or extent that an asset is used including a decision to abandon acquired products, services, or technologies, a significant adverse change in operations or business climate affecting the asset, and historical operating or cash flow losses expected to continue for the foreseeable future associated with the asset. An asset is considered impaired when the undiscounted cash flows projected to be generated from the asset over its remaining useful life is less than the recorded amount of that asset. Impairment losses are measured based on the difference between the asset's fair value and carrying amount and are recorded as impairment write-downs in the statement of operations in the period that an indicator of impairment arises. Measurement of fair value is based on estimated expected future cash flows, including terminal value cash flows expected to result from the disposition of the asset at the end of its useful life, discounted at Bluemountain's weighted-average cost of capital. Weighted-average cost of capital is based on historical risk premiums required by investors for companies of Bluemountain's size, industry, and capital structure and includes risk factors specific to Bluemountain. In some instances, the measurement of fair value includes a factor, if appropriate, for market comparables, representing Bluemountain's estimate of the value that a buyer is willing to pay for similar assets in terms of products and services, customer base, risks, and earnings capabilities. STOCK-BASED COMPENSATION Bluemountain accounts for stock-based awards to employees in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and have adopted the disclosure-only alternative of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Deferred compensation resulting from the assumption of employee stock options of Bluemountain by Excite@Home in December 1999 is being amortized on a straight-line basis over the vesting term of the awards. A-13 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING COSTS All advertising costs are expensed as incurred. Advertising costs, which are included in sales and marketing expenses, were $3.1 million for the year ended December 31, 2000, $0.4 million for the six months ended June 30, 2000 (unaudited), and $0.6 million for the six months ended June 30, 2001 (unaudited). INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, the liability method is used in accounting for income taxes, whereby deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. SEGMENT INFORMATION Bluemountain operates in one business segment comprised of Media and Advertising, based on how management organizes, manages, and internally reports revenues. Bluemountain's revenues were derived predominantly from customers located in the United States during the year ended December 31, 2000 and the six-month periods ended June 30, 2000 and 2001 (unaudited). All significant assets are located in the United States. A-14 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE DEVELOPMENT COSTS Costs of software developed internally for use in Bluemountain's operations are accounted for under the American Institute of Certified Public Accountants' Statement of Position (SOP) No. 98-1, "Internal Use Software" (SOP 98-1). In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-2, "Accounting for the Web Site Development Costs" and Bluemountain adopted this consensus on July 1, 2000. This consensus requires that entities treat most Web site development as internal use software under SOP 98-1. Under these accounting pronouncements, costs of research, including predevelopment efforts related to determining technological or product alternatives, and costs incurred for training and maintenance are expensed. Software and Web site development costs, which include direct costs such as labor and contractors, are capitalized when it is probable that the project will be completed and the software will be used as intended. Costs incurred for upgrades and enhancements to software or Web sites are capitalized when such efforts result in additional functionality. Capitalized software costs and Web site costs are amortized to expense over the estimated useful life of the software, which range from one to three years. Costs capitalized under SOP 98-1 were $794,000 during the year ended December 31, 2000 and $232,000 during the six months ended June 30, 2001 (unaudited). Amortization of capitalized costs was $134,000 during the six months ended June 30, 2001 (unaudited) and was not significant during the year ended December 31, 2000. COMPREHENSIVE LOSS Comprehensive loss is comprised of net loss and other comprehensive income. Other comprehensive income includes certain changes in equity that are excluded from net income. To date, Bluemountain has not had any significant transactions that are required to be reported in comprehensive loss other than the Company's net loss. EFFECT OF NEW ACCOUNTING STANDARDS In December 1999, the SEC issued SAB 101, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 outlines the basic criteria that must be met in order to recognize revenue and provides guidance for disclosures related to revenue recognition policies. In October 2000, the SEC issued additional written guidance to further supplement SAB 101. The adoption of SAB 101 in 2000 did not have a material impact on Bluemountain's financial position and results of operations. A-15 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EFFECT OF NEW ACCOUNTING STANDARDS (CONTINUED) In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44). FIN 44 clarifies the application of APB 25 for certain issues relating to stock compensation such as criteria for determining when a plan is noncompensatory, the accounting consequences of modifications to the terms of a fixed award, and the accounting for stock compensation related to business combinations, among others, and is effective July 1, 2000. The adoption of FIN 44 did not have a material impact on Bluemountain's financial position or results of operations. On June 29, 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS 141), and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 and SFAS 142 significantly change the accounting for goodwill acquired in a purchase business combination. Under the new rules, goodwill acquired prior to June 30, 2001 will no longer be amortized after December 31, 2001, and will be reviewed for impairment, using a complex methodology different from the original proposal, when an event occurs indicating the potential for impairment. The nonamortization approach applies to previously recorded goodwill as well as goodwill arising from acquisitions completed after the application of SFAS 141 and SFAS 142. Bluemountain has not yet determined what impact, if any, the adoption of SFAS 142 will have on the carrying value or classification of its remaining acquired intangible assets. 2. IMPAIRMENT WRITE-DOWN OF GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS In December 2000, Bluemountain identified indicators of possible impairment of its long-lived assets (principally, goodwill and other acquired intangible assets). The impairment indicators included continued deterioration in the business climate of, and reduced levels of venture capital funding activity for, Internet advertising and other Internet-based companies, continued significant declines in the market values of its competitors in the Internet advertising industry, and recent changes made to its operating and cash flow forecasts. A-16 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 2. IMPAIRMENT WRITE-DOWN OF GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS (CONTINUED) With the assistance of independent valuation experts, Bluemountain performed asset impairment tests as of December 31, 2000, by comparing the expected undiscounted cash flows for a five-year period, plus a terminal value for future cash flows, to the carrying amount of the goodwill and other intangible assets. Bluemountain determined that the carrying amount of property and equipment and other tangible assets was not significant to be tested for impairment. Based on the results of these tests, Bluemountain determined that goodwill and other intangible assets initially recorded in connection with the acquisition of Bluemountain by Excite@Home were impaired. Fair value of the impaired long-lived assets was determined using the discounted cash flow method and the market comparison method. A write-down of goodwill totaling $684.2 million was recorded during the fourth quarter of 2000, reflecting the amount by which the carrying amount of the assets exceeded their respective fair values. In March 2001, Bluemountain identified further indicators of impairment of its goodwill and other acquired intangible assets and recorded an additional write-down of $15.5 million (unaudited), consisting of $9.6 million for goodwill and $5.9 million for other acquired intangible assets. Goodwill and other intangible assets consists of the following (in thousands): DECEMBER 31, JUNE 30, 2000 2001 -------------------------------- (Unaudited) Goodwill $ 938,585 $ 254,380 Write-down of goodwill (684,205) (9,596) -------------------------------- Adjusted basis 254,380 244,784 Less accumulated amortization (243,912) (244,784) -------------------------------- Goodwill, net 10,468 - -------------------------------- Acquired identifiable intangible assets 27,800 27,800 Capitalized software development costs 794 1,026 Write-down of intangible assets - (5,907) -------------------------------- Adjusted basis 28,594 22,919 Less accumulated amortization (7,477) (10,587) -------------------------------- Other intangible assets, net 21,117 12,332 -------------------------------- Goodwill and other intangible assets, net $ 31,585 $ 12,332 ================================ A-17 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 3. PROPERTY, EQUIPMENT, AND IMPROVEMENTS The components of property, equipment, and improvements were as follows (in thousands):
DECEMBER 31, JUNE 30, ESTIMATED 2000 2001 USEFUL LIVES ------------------------------------------------------------ (Unaudited) Computer equipment and software $4,484 $4,605 3 to 4 years Furniture and fixtures 213 213 5 years Shorter of 7 years Leasehold improvements 20 - or the lease term ---------------------------------------- Total property, equipment, and improvements 4,717 4,818 Less accumulated depreciation and amortization (2,352) (3,061) ---------------------------------------- Net property, equipment, and improvements $2,365 $1,757 ========================================
4. CONCENTRATION OF CREDIT RISK Bluemountain's concentration of credit risk consists primarily of trade accounts receivable. Ongoing credit evaluations of corporate customers and other counterparties are performed to limit credit risk. While trade accounts receivable generally do not require collateral, reserves are maintained for potential credit losses. Credit losses to date have been within management's expectations. The carrying amounts reported in the balance sheets for accounts receivable, which are presented net of reserves, approximate their fair value as of December 31, 2000. Three customers comprised 21%, 14%, and 11% of accounts receivable as of December 31, 2000. Three customers comprised 31%, 28%, and 17% of accounts receivable as of June 30, 2001 (unaudited). No other customer comprised over 10% of accounts receivable at December 31, 2000 or June 30, 2001 (unaudited). A-18 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 4. CONCENTRATION OF CREDIT RISK (CONTINUED) Two customers accounted for 19% and 15% of total revenues for the year ended December 31, 2000. Three customers accounted for 24%, 14%, and 13% of total revenues for the six months ended June 30, 2001 (unaudited). Two customers accounted for 41% and 27% of total revenues for the six months ended June 30, 2000 (unaudited). No other single customer accounted for more than 10% of total revenues for the year ended December 31, 2000 or for the six-month periods ended June 30, 2001 and 2000 (unaudited). 5. COMMITMENTS AND CONTINGENCIES Bluemountain leases certain office facilities under noncancelable operating leases that expire at various dates through 2002, and which require Bluemountain to pay operating costs, including property taxes, insurance, and maintenance. These facility leases generally contain renewal options and provisions adjusting the lease payments based upon changes in the consumer price index and increases in real estate taxes and operating expenses or in fixed increments. Rent expense is recorded on a straight-line basis over the terms of the leases. Facility rent expense amounted to approximately $280,000 for the year ended December 31, 2000. Future minimum lease payments under noncancelable operating leases having original terms in excess of one year were as follows as of December 31, 2000: OPERATING LEASES ------------------- Year ending December 31: 2001 $123,000 2002 46,000 Thereafter - ------------------- Total minimum lease payments $169,000 =================== Excite@Home is subject to legal proceedings and claims that arise in the normal course of business. Excite@Home believes no proceeding will have a material adverse effect on the financial position or results of operations of Bluemountian. A-19 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 6. STOCK OPTION PLANS The Bluemountain stock option plan (the BM Plan) was assumed by Excite@Home in conjunction with Excite@Home's acquisition of Bluemountain in December 1999. Stock options available for grant under the BM Plan were eliminated at the date of acquisition. Shares issuable under the BM Plan were converted to approximately 3.5 million stock options to purchase shares of Excite@Home's Series A common stock. Options issued under the BM Plan vest at the rate of 12.5% after six months with the remainder vesting ratably over 42 months. During the year ended December 31, 2000 and the six months ended June 30, 2001, Excite@Home stock options were also issued to Bluemountain employees from various other stock option plans adopted by Excite@Home. These plans authorize incentive stock options to be granted to employees at an exercise price not less than 100% of the fair value at the date of grant as determined by the board of directors. These plans also authorize nonqualified stock options to be issued to nonemployee officers, directors, and consultants at an exercise price of not less than 85% of the fair value at the date of grant. Stock options under these plans generally vest at the rate of 25% after one year and ratably on a monthly basis for three years thereafter. The exercise period of options granted under these plans generally expires in 10 years or 90 days subsequent to the employee's termination, whichever is earlier. The following summarizes the activity related to Excite@Home stock options issued to Bluemountain employees for the periods indicated:
DECEMBER 31, JUNE 30, 2000 2001 ---------------------------- ---------------------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE SHARES PRICE SHARES PRICE ---------------------------- ---------------------------------- Outstanding at beginning of period 1,310,668 $18.61 1,800,757 $17.66 Options granted 616,983 $15.71 18,250 $4.38 Options exercised (126,894) $18.59 - - ----------------- ------------------ Outstanding at end of period 1,800,757 $17.66 1,819,007 $17.53 ================= ================== Options exercisable at end of period 675,406 $18.23 883,251 $18.10 ================= ==================
A-20 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 6. STOCK OPTION PLANS (CONTINUED) The following table summarizes information about Excite@Home stock options outstanding held by Bluemountain employees as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------------------------------------ WEIGHTED-AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE - ---------------------------------------------------------------------------------------------------------- (In years) $3.09-$10.13 174,151 9.57 $9.52 13,785 $6.31 $11.28-$16.56 370,076 9.04 $15.96 99,022 $15.51 $17.63-$18.59 1,185,376 8.76 $18.55 545,222 $18.58 $25.13-$45.06 71,154 8.53 $31.67 17,377 $32.06 ------------------ ----------------- $3.09-$45.06 1,800,757 $17.66 675,406 $18.23 ================== =================
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION PLANS Pro forma information regarding results of operations is required by SFAS 123. Such pro forma information summarizes our results of operations as if stock-based awards to employees had been accounted for using a valuation method permitted under SFAS 123. The fair value of stock-based awards granted to Bluemountain employees have been valued using the Black-Scholes option pricing model assuming no expected dividends and the following weighted-average assumptions: YEAR ENDED DECEMBER 31, 2000 ------------ Expected life of options 4 years Expected volatility 0.76 Risk-free interest rate 6.20% A-21 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 6. STOCK OPTION PLANS (CONTINUED) PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION PLANS (CONTINUED) The following summarizes the pro forma results of operations for the periods indicated had Bluemountain accounted for stock-based awards in accordance with SFAS 123 (in thousands): YEAR ENDED DECEMBER 31, 2000 ------------ Net loss as reported $ 939,645 Pro forma net loss $ 940,406 The weighted-average fair value of options granted to Bluemountain employees during the year ended December 31, 2000 was $9.33. 7. RETIREMENT PLAN Excite@Home has a retirement plan under Section 401(k) of the Internal Revenue Code. Under the retirement plan, participating Bluemountain employees may defer a portion of their pretax earnings up to the Internal Revenue Service annual contribution limit. Excite@Home makes contributions to the plan at the discretion of the board of directors. To date, no such contributions have been made. 8. INCOME TAXES Bluemountain is a business unit within the legal entity At Home Corporation. Bluemountain is included in the consolidated U.S. federal and state income tax returns of Excite@Home. The provision for income taxes has been determined as if Bluemountain had filed separate tax returns as if it was a stand-alone company for the periods presented. Accordingly, the effective tax rate of Bluemountain in future years could vary from its historical financial information. Given that the revenues and expenses of these components of the statements of operations have been prepared on a carve-out basis from Excite@Home, the resulting deferred income tax assets and net operating losses were included in Excite@Home's financial statements. Provision has been made for income taxes in accordance with SFAS 109. A-22 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 8. INCOME TAXES (CONTINUED) There was no current tax expense or benefit on federal or state taxes for the year ended December 31, 2000. The provision (benefit) for income taxes for December 31, 2000 are as follows (in thousands): YEAR ENDED DECEMBER 31, 2000 --------------------- Current tax expenses (benefits): Federal $(6,084) State (1,060) Deferred tax expenses 1,006 --------------------- Subtotal (6,138) Valuation allowance 6,138 --------------------- Total provision $ - ===================== The effective tax rate differs from the prevailing statutory federal tax rate for the year ended December 31, 2000 as follows: YEAR ENDED DECEMBER 31, 2000 --------------------- Statutory federal tax rate 35.00% State tax rate, net of federal benefit 0.07% Goodwill (34.42%) Valuation allowance (0.65%) --------------------- Effective tax rate 0.00% ===================== A-23 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 8. INCOME TAXES (CONTINUED) The components of the income tax assets and liabilities at December 31, 2000 are as follows (in thousands): YEAR ENDED DECEMBER 31, 2000 --------------------- Deferred tax assets: Net operating losses $ 6,084 Accrued costs and expenses 73 Deferred revenue 125 Deferred compensation 7,837 --------------------- Total deferred tax assets 14,119 Valuation allowance (14,119) --------------------- Net deferred tax assets $ - ===================== Realization of deferred tax assets is dependent on future earnings. Bluemountain has a history of losses, therefore, Bluemountain cannot accurately predict the timing of profitability and the use of tax assets to offset current tax payables. Accordingly, a valuation allowance, in an amount equal to the net deferred tax assets as of December 31, 2000, has been established to reflect these uncertainties. As of December 31, 2000 as a separate entity, Bluemountain would have had net operating loss carryforwards for federal tax purposes of approximately $17.3 million. These carryforwards would expire beginning in the year 2020, if not utilized. A-24 Blue Mountain Arts (a division of At Home Corporation) Notes to Financial Statements (continued) 9. RELATED PARTY TRANSACTIONS Bluemountain is involved in transactions with related parties in the ordinary course of business. These related parties include stockholders and partners with significant investments in Excite@Home common stock and companies in which Excite@Home has significant investments. Total revenue from related parties was $3.0 million for the year ended December 31, 2000, $2.2 million (unaudited) for the six months ended June 30, 2000, and $0.1 million (unaudited) for the six months ended June 30, 2001. A-25 -----END PRIVACY-ENHANCED MESSAGE-----