Wall Street Lingo: You Figure

[Tarun 6]

Knock off 6 zeros; then call me back. Man oh man!

Talk about 2 Different Worlds? Try 14 Planetary Systems!

===================

What AOL Time Warner's $54 Billion Loss Means

'Goodwill impairment' — what is it, and why we'll see so much of it this year BY FRANK PELLEGRINI

Richard Drew/AP

Trading AOLTW stock on the NYSE floor

CNN/Money: AOL Logs $54 Billion Loss

Thursday, Apr. 25, 2002

Sticking out of AOL Time Warner's rather humdrum earnings report Wednesday was a very gaudy number: A one-time loss of $54 billion. It's the largest spill of red ink, dollar for dollar, in U.S. corporate history and nearly two-thirds of the company's current stock-market value. (It's also, as a lot of news outlets have noted, more than the annual GDP of Ecuador, but that's hardly relevant here.) All for something called "goodwill impairment."

 

Sound like an awful lot of money to give to charity? In Wall Street's euphemism-speak, goodwill is more like getting taken to the cleaners. "Goodwill" is the term for the premium one company pays to acquire another, over and above the acquired company's book value. Such overpayment is intentional, whether to beat out fellow suitors or woo the shareholders of the bride, and technically it's an asset (albeit an intangible one), the assumption being that all that extra dough was buying something.

 

Now "goodwill impairment" — that's when that extra millions (or billions) in the purchase price turns out to have wasted, when it becomes apparent that the value of the merged company not only isn't more than the original buyer thought it was worth, but a whole lot less. Such losses in actual value used to be quietly swept under the rug, amortized away over the course of as much as 40 years.

 

But this year the rules have changed. The Financial Accounting Standards Board (yes, there actually standards in accounting) has decreed this year that companies must test their goodwill assets for "impairment" annually — and when they find some, they've got to fess up. And while AOL Time Warner's number may be the biggest (just topping JDS Uniphase's write-down last year of just over $50 billion), the media giant (and corporate overlord of this writer) isn't standing alone. A recent Bear Stearns study anticipates that some 500 companies are candidates for write-downs this year, with perhaps a dozen in the billion-dollar club.

 

Why so many? Call it a bunch of drunken sailors nursing a hangover. When AOL and Time Warner first decided to merge, the dot-com love affair was raging and the stock of the combined companies was worth $290 billion, mostly thanks to the price of AOL. By the time the stock-swap deal closed a year later, the bubble had burst, AOL was back on earth, and even though AOL had technically been the acquirer (thanks to that high stock price), the new AOL Time Warner suddenly had a relative lemon on its hands.

 

The new rule was originally going to require companies to post such losses as a relevant part of its continuing operations — which is hard to argue with when the asset is in the company's name — but businesses successfully lobbied to have the losses classified under "cumulative effects of changes in accounting principles." And now, even though they've got the rest of the year to do it, many companies are looking to get it out of the way while their excuse — the rule change — is still fresh in investors' minds.

 

And so Qwest Communications, which acquired the former U.S. West in 2000 only to find a year later that Qwest itself was the overvalued asset, recently predicted a second-quarter goodwill write-down of $20 billion to $30 billion. Blockbuster on Wednesday logged its own loss of $1.82 billion. And the parade is just beginning — future candidates include WorldCom, which lists $50 billion in potentially-impaired goodwill but is only worth $42.7 billion in the market, and AT&T, still sporting $24.8 billion of goodwill from its hostile takeover of MediaOne in 1999. (Notice a lot of tech and telecom companies?)

 

Investors generally ignore the bad news, either because they'd seen it coming — AOL Time Warner telegraphed its loss weeks ago — and because nearly every survivor of the tech bust has a few embarrassing purchases to own up to. Besides, AOL Time Warner's shares are down 41 percent this year alone, thanks to investors doing their own writing-down of AOL's value (with most analysts pegging it at about $1 a share on top of Time Warner's assets). So the $54 billion loss — and the total $1 trillion in goodwill-impairment writedowns that some analysts expect to hit Wall Street this year — is merely an acknowledgement of what investors have already figured out.

 

Still, a mistake is a mistake, and some analysts insist that while such write-downs are paper losses, it would be a mistake to ignore them completely — particularly if the company's stock hasn't already taken the appropriate hit. And even if it has, a company that runs around overpaying for assets that don't perform — even if it's only overpaying because investors were fooled too — is one to keep a jaundiced eye on.

 

Remember, the fall of Enron started with a one-time write-down. And there's not a lot of goodwill left at that company any more.

Free Internet

Try AOL for 1000 Hours FREE

-------------------

The French Rejection

Employees and investors turn against Messier's Vivendi media empire. Can Barry Diller help?

Why the U.S. Sounded the Bank Alarm

The White House couldn't quite believe a threat to Northeast banks. But they couldn't ignore it either

The Profit Recovery: Are We There Yet?

In two sessions, Wall Street is of two minds. But nothing will matter without 'final demand'.

[Tarun 6]

Files Reveal: Bush Knew Firm's Plight Before Stock Sale

By Mike Allen

Washington Post Staff Writer

Sunday, July 21, 2002; Page A07

 

As a businessman in 1990, George W. Bush was deluged with confidential information about the financial plight of a Texas oil company before he sold the majority of his holdings and triggered a federal investigation, according to Securities and Exchange Commission records.

 

President Bush has refused to authorize the SEC to open the full file on his investigation, but selected documents have been released under the Freedom of Information Act. The president's business dealings have come under more scrutiny as he tries to restore confidence in markets hurt by business scandals. Nearly half of 1,004 respondents in a Newsweek poll released yesterday said they thought Bush took advantage of the system for personal gain with the 1990 stock sale.

 

The documents show that four months before Bush sold most of his stake in Harken Energy Corp., he and other board members received a letter from management calling the previous year's profits disappointing and warning that the company would "continue to be severely limited in our activities due to cash constraints." The letter said that "as indicated at the December board meeting," the failure of a deal involving a subsidiary had "left the company with little cash flow flexibility."

 

A management letter to the board in July 1990, a month after Bush's $848,560 stock sale, portrayed the company as enduring months of turmoil. "Due to the nature of our tasks through this past quarter the stress level is beginning to show," the letter said.

 

The documents, released Friday by the nonpartisan Center for Public Integrity, show that analysts following Harken were shocked by the losses reported for the quarter that ended eight days after Bush's sale. Harken President Mikel D. Faulkner told board members that he had received many calls from brokers, shareholders and creditors and had provided "as positive a response as is possible."

 

The White House has said Bush knew the company would record losses but did not know how large they would be. Harken's stock price initially plunged, then recovered and rose.

 

The SEC's investigation of Bush was closed after officials determined he did not have enough insider information before his stock sale to warrant a case.

 

SEC Chairman Harvey L. Pitt said last week that he would release the records if Bush asked him to. In response to a question about whether he would ask the SEC to release the file, Bush replied Wednesday that "the key document said there is no case."

 

The 150 pages of minutes and other board documents released Friday tie Bush to the company's sale of Aloha Petroleum Ltd., which was recorded in such a way that Harken masked massive losses, leading critics to compare the accounting to methods used by Enron Corp. The SEC forced Harken to restate the transaction.

 

The documents show Bush was proposed as chairman of a special committee of the board with duties that included reviewing Aloha-related debt. An analysis by the Center for Public Integrity said the documents "do not unambiguously resolve the question of what Bush knew about Harken's reporting of the sale."

 

Reflecting growing White House concern about the impact on the fall elections of corporate wrongdoing and falling stock markets, Bush used his radio address yesterday to promise that his administration "will do everything in its power to ensure business integrity and long-term growth."

[Tarun 6]

The Lady and the Snake by William Rivers Pitt

t r u t h o u t | Opinion Monday, 22 July, 2002

WorldCom has declared Chapter 11, buried under a $3.85 billion accounting scandal that has succeeded in doing what seemed impossible - their bankruptcy filing has managed to make the Enron implosion look small by comparison. WorldCom stock, once valued at $64 a share, was trading for nine cents per share when the markets closed on Friday. This is a microcosm of the disease that has rotted what was once a gloriously lucrative stock market.

 

Vice President Dick Cheney's health is so poor that he spends most of his time sleeping or resting. Perhaps he is hiding from reality in slumber - the thunderheads developing around his time as head of Halliburton Petroleum, which has recently earned itself an SEC investigation because of WorldCom-esqe accounting fudgery, led the Chicago Sun-Times to declare on its Sunday front page that Dick will likely not be on the ticket in 2004. The comic strip Doonsebury has been running cartoons of Cheney in prison as the judas goat for this administration.

 

Bush's own curious definition of business integrity has earned wraparound coverage on all the news networks of late. The Harken story just gets more and more interesting by the day. Questions pour forth regarding what Bush knew and when he knew it as a board member for the doomstruck petroleum company. It is becoming increasingly more clear that he knew how rough the profit situation was for Harken when he sold off $850,000 worth of them, just before the bottom fell out because Harken was forced to admit that they, too, had fudged the books.

 

Bush has always denied this, claiming he sold his stock to pay off baseball debts. The recently disclosed "Hold Letter" he signed two months before he sold out, which was his promise not to sell any stock for six months, blows a hole in this premise. If he was planning to sell stock to pay off debts, why sign the letter? The tiny trickle of Harken documentation that the SEC has deigned to release - because Bush won't authorize a full disclosure - reveal that he was, in fact, all too aware of how poor the company was doing before he bailed out. He was in the loop for all the letters and meeting minutes describing how bad the situation was, right up until the day he left.

 

The New York Times on Sunday ran a front-page report describing the civilian cost for Bush's war in Afghanistan. Some 812 innocents have died as a result of erroneous bombings and strafings since Bush unleashed our armed forces, a number sure to go higher as investigators continue their travels to burned-out villages. In all that blood, our actions there have failed to bring about the capture of one single Taliban leader. Most notably, of course, is the fact that Osama bin Laden still breathes free air somewhere in the world. Local Afghan officials have become incensed at this disaster, and may break from the Bush fold if it continues.

 

James Carville once said "It's the economy, stupid," and Bush's recent slump in most every respected poll shows this all too clearly. The support he has been getting comes from American's belief that he is running the war well. This speaks more to the loyalty of the American people than anything else - after 9/11, a ham sandwich would poll around 80% if it looked good in a suit and had people calling it "Mr. President." 812 families in Afghanistan, and 3,000 families connected to the WTC, may say otherwise. Osama eludes justice and children die in the shadow of the Khyber Pass.

 

More ominously, Homeland Security Director Tom Ridge has floated the idea that military troops should be given much greater police and shoot-to-kill authority while on American soil. This further erodes the Posse Comitatus Act of 1878, a law that expressly established the fundamentally important firewall between civilian and military law enforcement. The burning of our basic liberties continues apace, one drop of flame at a time.

 

Meanwhile, the stock market continues in free fall. Millions of working Americans now face the hard reality that they will have to continue working at least ten years longer than they expected to before they can afford to retire, thanks to the shredding of their retirement portfolios at the hands of corporate brigands whose version of ethics comes right out of the Harken How-To manual. The dollar is worth exactly two cents more than the Euro, a disastrous situation for the international business world. All in all, it will be a frightening week on Wall Street for a great many people.

 

Amid this blizzard of fraud, economic woe, looming indictments, shredded freedoms and dead civilians, George W. Bush has made an executive decision to spend the entire month of August on vacation down in Crawford, Texas. How convenient. How thoughtful.

 

There is an old story about a lady who found an injured snake while walking down a road. She picked it up, brought it home, and nursed it back to health. In the ensuing weeks, she and the snake became great friends.

Then, one day, the snake bit her on the neck while she was working in her garden. As she lay dying, she gasped to the snake, "Why did you bite me? I was your friend. I took care of you. Why did you do this?"

The snake replied, "Lady, you knew I was a snake when you picked me up."

-------

William Rivers Pitt is a teacher from Boston, MA. His new book, 'The Greatest Sedition is Silence,' will be published soon by Pluto Press.