US Set For $1 Trillion Of Internet Writeoffs

The Times UK ^

[RCW2001]

THURSDAY JANUARY 10 2002

US set for $1 trillion of Internet writeoffs

FROM CHRIS AYRES IN NEW YORK

US COMPANIES could be forced to write off a total of $1 trillion (£690 billion) in the first three months of this year to cover the cost of acquisitions made at the peak of the Internet boom, analysts said yesterday.

Under new accounting rules that have already forced AOL Time Warner to write off up to $60 billion, US companies will have to give details of the amount they overpaid for acquisitions during the boom of the late 1990s and early 2000.

The write-offs will be unprecedented in stock market history and will result in US businesses reporting losses of a magnitude never seen before. Although the write-offs are book-keeping exercises that do not involve any cash, they will prove to be embarrassing for many chief executives.

In AOL’s case, the write-off suggests that Gerald Levin, the former head of Time Warner, did not get a good deal when he merged the media group with AOL. Mr Levin is to stand down as chief executive of AOL in May.

The new accounting rules, introduced by the Financial Accounting Standards Board (FASB) on January 1, force US companies to declare any fall in the value of “goodwill” they paid for acquisitions. Goodwill is the premium paid for an acquisition over and above what accountants call the “fair value” of its assets.

The fall in the stock market value of high-tech companies since early 2000 has resulted in hundreds of billions of dollars of this goodwill being wiped out. But before the new accounting rules were introduced US companies could spread goodwill charges over a period of up to 40 years, effectively making it irrelevant. Now companies have to report changes to goodwill annually.

According to Alfred King, vice-chairman of Valuation Research, who has advised the Senate on accounting standards, AOL’s write-off will “open the floodgates”. He and other analysts believe the total could reach $1 trillion.

Other companies expected to make big write-offs include Viacom, the media group, and the telecoms companies AT&T and Qwest Communications. According to recent filings with the Securities and Exchange Commission, Viacom has about $72 billion of goodwill on its books, while AT&T has $25 billion and Qwest $34 billion. Analysts argue that the value of this goodwill has been severely reduced over the past year.

Bob Willens, an accounting analyst with Lehman Brothers, said: “If you add it all up it’s pretty easy to get to $1 trillion. I think there will be a certain amount of embarrassment about it. When you write off goodwill you acknowledge that the acquisition is not going to be as successful as you thought. But I don’t think it will have much of an effect on stocks because it is already priced into the market.”

Mr Willens added that he expected most companies to get their write-offs out of the way in the first quarter. “Companies have until the end of the year to do it,” he said. “But most will do it in the first quarter because otherwise they will have to go back and restate their results.”

[TheHeterodoxConservative]

"The write-offs will be unprecedented in stock market history and will result in US businesses reporting losses of a magnitude never seen before."

And Daschle is out on the stump, trying to hang this on Bush. . . .

[Lael]

Mr Willens added that he expected most companies to get their write-offs out of the way in the first quarter. “Companies have until the end of the year to do it,” he said. “But most will do it in the first quarter because otherwise they will have to go back and restate their results.”

Everyone will now strip their clothes off, and "Take a Bath!!"

Outfits like JDS Uniphase did that last year, and now look positively prescient...remember when they wrote off $58 BILLION in a Quarter, at that time the largest non bankruptcy loss ever??