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AOL sees $40B-60B write-off

AOL Time Warner expects to take a massive charge against earnings to write
down the value of acquisitions.

In issuing an unenthusiastic forecast of earnings for 2002, the company said
new accounting standards will prompt a writedown of $40 billion to $60 billion
for the value of past acquisitions on its balance sheet.

AOL Time
Warner CFO Wayne Pace said the said the move will cover the drop in
value since January 2000 of companies and assets acquired earlier.

The company did not specify what assets that it covers, but one analyst said
the company is writing down much of the value of Time Warner, which was acquired
for $147 billion.

The write-off accounts for 25%-30% of AOL's asset base.

The move is a non-cash write-off and, hence, does
not affect the company's operation or cash flow.

But it does indicate how dramatically the value of many assets have dropped
in the past 24 months.

The move
is related to new standards on how companies account for acquisitions, Financial Accounting
Standard 142.

Takeovers create what is called 'goodwill' on a company's balance sheet.

A cable systems has copper wires and other video gear worth perhaps $1,000
per subscriber.

But a buyer is willing to pay about $4,500 per subscriber based on the amount
of cash flow each customer generates.

The difference between those numbers is goodwill.

And-like other assets-companies depreciate goodwill a little bit each year,
depressing the earnings they report even though the write-off doesn't affect how
much cash the companies generate.

AOL Time Warner revealed part of its
outlook for 2002, projecting lame revenue growth and modest cash-flow gains.

AOL said late Monday that it revenue growth to be in the 5%-8% range and cash
flow to run 8%-12% range.

That revenue level would be pretty similar with the company's 2001
performance and the cash-flow gain would be much slower.

The recession is so bad that for the first quarter of 2002 ending March, cash
flow and revenues will be essentially flat.

The company said its outlook assume 'no recovery in the economy'.

AOL Time Warner said it expects its 2001 cash flow to
show growth of approximately 18% to just under $10 billion.

Revenues for the full year are expected to grow approximately 5% to just over
$38 billion.

That's much different than AOL executives' projections
12 months ago.

At the beginning of 2001, AOL projected 12%-15% revenue growth and stubbornly
stuck by it long after the recession made outsiders extremely skeptical, even
before the Sept. 11 attacks.

After the events, AOL revised its outlook 5%-7% to $40