AOL bombshell

Louis Proyect lnp3 at
Wed Apr 24 06:40:57 MDT 2002

(Reading this on top of the Enron fiasco, one has to begin to seriously
wonder whether the 1990s economic expansion was just a mirage.)

LA Times, April 24, 2002

AOL's $50-Billion Loss Is One From the Books

By JAMES BATES, Times Staff Writer

Sometime this afternoon AOL Time Warner Inc. probably will earn the dubious
honor of spilling more red ink than any company in U.S. corporate history.

With a quarterly loss expected to exceed $50 billion, in one fell swoop the
world's biggest media company will lose more than the annual gross domestic
product of Ecuador, Croatia, Uruguay, Kenya or Bulgaria.

The loss--which is largely on paper and reflects new accounting
rules--essentially acknowledges that the merger between Internet giant
America Online Inc. and media conglomerate Time Warner Inc. has fallen
dramatically short of expectations.

Two years ago when the deal was announced, the two companies had a combined
stock market value of $290 billion. Today, AOL Time Warner's stock is worth
about $85 billion.

"It's an appalling number, bigger than the [gross domestic product] of some
countries," said entertainment analyst Harold Vogel of Vogel Capital
Management in New York. "Most analysts will dismiss it and say it's now
behind them and doesn't matter because it's noncash. But it's an admission
of a humongous mistake."

For the most part, Wall Street already has factored in the loss. AOL Time
Warner's shares have fallen 41% this year, partly because the company
telegraphed the eye-popping losses a few weeks ago and because of the
slowdown in advertising that is hurting its properties. An AOL Time Warner
spokesman declined to comment.

The accounting losses are a morning-after hangover of the wild run-up in
the stock market in the late 1990s. Many companies, including America
Online, used their inflated stock to buy other companies. Now, new
accounting rules set by the Financial Accounting Standards Board are
forcing companies to more accurately state the fair market value of those
acquired assets. Often, the result is huge write-offs.

AOL Time Warner has said it expects its asset write-down to be $54 billion.

The new rules have been especially tough on industries such as
entertainment, technology and telecommunications. Their stocks were hyped
in the '90s, when promise often meant more than profit.


Louis Proyect
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