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To: Jim Willie CB who wrote (2518)	1/8/2003 9:20:54 PM
From: 4figureau	Read Replies (1) of 5423

AOL-TW May Write Down Billions Again Reuters Wednesday, January 8, 2003; 6:29 PM By Reshma Kapadia NEW YORK (Reuters) - AOL Time Warner Inc. is expected to write off several billion dollars -- on top of the record $54 billion charge it took last year -- increasing the strain on its balance sheet, analysts and investors say. The world's largest media company said in October it was probable it would take a "substantial" noncash goodwill impairment charge in the fourth quarter to reflect the reduced value of its America Online unit since its 2001 merger with Time Warner. While AOL Time Warner executives have said debt covenants would not be affected by the noncash charge, accounting experts say such charges can hurt a company's debt rating as well as its ability to borrow. Large charges "could very well have material impact on debt covenants because it erodes net worth and net worth has some meaning in the world of debt covenants," said Robert Willens, an accounting specialist at Lehman Bros. "It reduces shareholder equity." Media veterans said the looming charge was a reminder that merging America Online and Time Warner was a bad idea. The stock price is down 70 percent since the deal was completed. The AOL unit, once called the crown jewel of the combined company, has struggled with a sharp slowdown in advertising spending and subscriber growth. A new management team cut financial targets again last month. Chief Financial Officer Wayne Pace told analysts in October that any charges taken in the fourth quarter would not affect compliance with debt covenants or liquidity. Many investors and analysts said the charge may further constrain AOL Time Warner's financial flexibility. Chief Executive Richard Parsons has said paying off some of the company's approximate $26 billion debt is a top priority. The company last year posted a record $54 billion charge, leading to the largest ever corporate quarterly loss. The charge was taken amid new accounting rules for goodwill and amortization and to reflect the decline in the value of the company since AOL bought Time Warner for $106.2 billion. Financial consultant Peter Cohan said AOL Time Warner has to maintain about $50 million shareholder equity for its debt covenants, and would have to take a charge of nearly $50 billion to be in violation -- something widely unexpected. Some investors and analysts said company executives have suggested the charge could be among the top five thus far but much smaller than the record one it took last year. A company spokesman declined to comment on the size of the charge. Other companies that have taken massive charges include JDS Uniphase Corp., which took a $50 billion write-down in 2001 and a $5.6 billion goodwill and intangible asset write-down last year. Nortel Networks had a $14 billion write-down of acquisitions in the second quarter of 2001. washingtonpost.com

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