AOL Sets $54 Billion Goodwill Charge

AOL Time Warner (AOL Quote) said in its annual report filed Monday that the merger that created the media giant will lead to a stunning $54 billion goodwill charge.

The company had said in January that it would take the largest-ever charge in U.S. corporate history to slash the value of assets involved in the merger of America Online with Time Warner, which closed in January 2001. Back then the company said the charge would amount to $40 billion to $60 billion.

Goodwill represents the amount by which the purchase price for a deal exceeds the fair value of the acquired company's net assets. Under old accounting rules, companies generally wrote down such goodwill gradually, over periods as long as 40 years. But new accounting rules from the Financial Accounting Standards Board discontinue the amortization of such goodwill.

Goodwill charges, of course, are noncash and are ignored by many investors who contend that they're backward-looking and fail to reflect any changes in shareholder value.

Looking forward's not a bad direction for AOL, considering all that's happened in recent months. Investors late last year were jarred by the news that the company wouldn't meet its oft-repeated, breezily self-confident forecast of $11 billion in EBITDA for 2001. A bit later, CEO Gerald Levin rocked the boat again, announcing his surprising decision to step down and leave the reins to Dick Parsons.

AOL stock, which has lost nearly two-thirds of its value since the announcement of the merger in January 2000, dropped 6 cents to $24.44.