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. Prior to dissolution of the Venture Fund, its investments were therefore adjusted to their fair value, resulting in the
recognition of $2.3 million of unrealized losses and $17.1 million of losses due to impairment on an investment in the quarter ended March 31,
2001. As of March 31, 2001, the Venture Fund was dissolved and the investments that were held by the Venture Fund were transferred to
InfoSpace. A gain of $3.2 million for the dissolution of the Venture Fund was also recorded in 2001. During 2000, we recorded gains of $14.8
million for appreciation of investments held by the Venture Fund.
Realized gains and losses on investments:
Realized losses on the sale of an investment during the year ended December 31, 2001 were
$2.7 million. Realized gains on sales on investments during the year ended December 31, 2000 were $4.9 million.
Impairment on investments:
We determined that the decline in value of our investments was other than temporary for twenty two
investments in the year ended December 31, 2001 and for four investments in the year ended December 31, 2000. For the year ended December
31, 2001, we recorded impairment and write off charges of $100.9 million, which includes the $17.1 million impairment on the Venture Fund
investment discussed above. For the year ended December 31, 2000, we recorded impairment and write off charges of $20.4 million.
Other Income, Net.
Other income, consisting primarily of interest income, was $17.4 million in the year ended December 31, 2001
compared to $27.7 million in the year ended December 31, 2000 and $22.3 million in the year ended December 31, 1999. The decrease is
primarily due to re investment of funds to equity securities from interest bearing fixed income securities and from cash used for operating
activities and acquisitions in 2001 and the fourth quarter of 2000.
We have reinvested and may in the future reinvest part of our fixed income securities in non interest bearing equity instruments and
investments. With the prevailing lower short term rates, we expect lower yields on our marketable investments and expect our interest income
to be lower in 2002 compared to 2001.
Income Tax Expense.
We have recorded tax expense of approximately $664,000 for the year ended December 31, 2001 and
approximately $137,000 for the year ended December 31, 2000, for our international operations. We expect to continue to record a tax
provision for our international operations and do not anticipate recording a U.S. federal tax provision for 2002.
Cumulative Effect of Change in Accounting Principle.
On January 1, 2001, we adopted SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities.
SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts. All derivatives, whether designated in hedging relationships or not, are required to be
recorded on the balance sheet at fair value and changes in fair value are recognized in earnings unless certain hedge criteria are met. As a result
of adopting SFAS No. 133, we recorded a charge of $3.2 million to record warrants held to purchase stock in other companies at their fair
value as of January 1, 2001 as a cumulative effect of change in accounting principle. As of December 31, 2000 warrants to purchase stock in
public companies were held at fair value, with unrealized gains and losses included in accumulated other comprehensive loss, and warrants to
purchase stock in private companies were held at cost.
On January 1, 2000, we adopted Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements
. Prior to
January 1, 2000, we recorded revenues from customers for development fees, implementation fees and/or integration fees when the service was
completed. If this revenue were recognized on a straight lined basis over the term of the related service agreements, in accordance with SAB
No. 101, we would have deferred revenue of $2.1 million as of January 1, 2000 originally recorded in prior years. In accordance with SAB No.
101, we recorded a charge for the cumulative effect of change in accounting principle of $2.1 million.
We adopted SFAS No. 142 on January 1, 2002. We expect to record a cumulative effect adjustment in the first quarter of 2002 as
described above under Impairment of Intangibles.