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Goodwill write-offs starting to spread. (Business Briefs).

The list of companies deciding to bite the bullet and take huge write offs on impaired goodwill -- a mandate of Financial Accounting Statement 142 -- continues to grow.

AOL Time Warner Inc. really kicked off the process in late March, when it took a $54 billion write-off, reflecting the erosion of value in the merger between AOL and Time Warner. A week later, Qwest Communications International -- which acquired US West in 2000 -- announced that it expected to take a charge of $20 billion to $30 billion, probably at the end of this quarter, to reflect a slide in the value of acquired assets.

Telecommunications firms are at the center of the goodwill write-off wave. WorldCom Inc., which had acquired MCI Corp., is expected to take a slightly smaller one, of $15 billion to $20 billion. Nextel Communications' $335 million charge, announced in mid-April, was a pittance in comparison. The telecom industry has been mired in a horrendous slump created by a glut of competition and oceans of overvalued assets from unused capacity. largely the result of a tremendous build-out of fiber-optic lines in the late 1990s. A number of troubled telecom companies that might be expected to take the goodwill impairments may file bankruptcy first.

FAS 142, which has been controversial since its inception last year, requires an annual "impairment test" of purchased intangible assets and goodwill. If the value is deemed to have fallen, companies are required to write it down to the appropriate number and record a charge against earnings.
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Publication:Financial Executive
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 1, 2002
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