AOLTW expected to take multibillion dollar charge

When AOL Time Warner (AOLTW) releases its 2002 annual results later this month, the media mammoth is expected to take another multibillion dollar charge related to the eroding value of its AOL Internet unit.

Although analysts predicted Thursday that the company is expected to take a goodwill write-down of anywhere from US$10 billion to $30 billion, the charge has been widely expected as AOLTW announced in October of last year that another write-down was probably on its way.

The charge, which is expected to be announced when AOLTW releases its 2002 full-year results Jan. 29, follows a $54 billion charge the company took last year. "Goodwill" represents the difference between what a company pays for another company's assets and what they are estimated to be worth, in this case referring to the 2001 merger of AOL and Time Warner Inc.

Although the charge would come as no surprise, given that AOLTW warned investors while revealing its third-quarter 2002 results, the sheer magnitude of the anticipated write-down and AOL's sluggish performance of late have sent some AOL watchers tittering.

Analysts Thursday eschewed speculation that the upcoming charge was a sign of further weakness in the company, however, saying that the expected write-down was due primarily to a change in accounting rules.

"Large investors have been fully aware of this charge," said UBS Warburg analyst Christopher Dixon.

Indeed, in a press release issued in October, AOLTW said the upcoming charge will be based upon "management's revised operating plan of the America Online division, the results of the company's overall current budgeting and long-term planning process, and a valuation of assets and liabilities" as well as market conditions, and "the extent to which the stock price of comparable companies in the cable industry continue to experience a sustained decline in values."

While an AOLTW spokeswoman declined to comment Thursday on the size of the upcoming charge, she did emphasize that it would not affect the company's cash flow.

Any write-down would be "a non-cash, non-operational charge" and not affect earnings before interest, taxes, depreciation and amortization (EBITDA) or operational business, said AOLTW spokeswoman Tricia Primrose.

Shares of AOLTW (AOL) traded up 1.5 percent to $14.09 Thursday.

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