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AOL first quarter results published today "The first-quarter adoption of FAS 142 resulted in a one-time, non-cash charge that reduced the carrying value of the Company's goodwill by approximately $54 billion. After the effect of this accounting change, the Company incurred a net loss of $54.2 billion for the quarter" (Annual revenue 10 billion.) On the surface, the announcement that AOL Time Warner was writing off as much as $60 billion of the goodwill created by the merger of AOL and Time Warner just two years ago appeared to indicate something had gone terribly wrong with the deal. Indeed, such significant charges against the intangible balance sheet asset in the past were often a sign that either management had overstated earnings or that a technological change had made the acquisition worth less. But that was not the case with AOL Time Warner. In fact, the company was responding to a new accounting rule relating to how goodwill is valued. The new rule, known as FAS 142 and issued by the Financial Accounting Standards Board last summer, changed the way companies will report the deterioration, or impairment, of goodwill created in acquisitions. No longer will they have to gradually reduce the value of the intangible asset through amortization as in the past. Instead, going forward, companies will annually test to see if their goodwill has deteriorated in value or become impaired and, if so, they must write it down to its appropriate value.

-- Anonymous, April 25, 2002