U.S. corporations wrote $750 billion off their books last year to reflect the decline in value of business acquisitions. If the market continues to slide, analysts believe that goodwill write-downs could reach $200 billion in 2003.
Most of the write-downs are for businesses acquired in the merger and acquisition frenzy in the late 1990s and 2000, especially those in the technology sector. The Financial Accounting Standards Board (FASB) statement on goodwill, FASB 142, requires companies to perform an annual goodwill impairment test and write down to value.
AOL Time Warner, the world’s biggest media company, has been hard hit by FASB 142. AOL’s merger with Time Warner in January 2001 left the company with surplus goodwill on its books. In April 2002, the company took a goodwill write-down of $54 billion. By year’s end, it reported a $99 billion net loss, the largest in corporate history. As a result, the company must now renegotiate loans that require it to maintain a certain net worth.
But AOL Time Warner wasn’t the only company to take a large write-down in 2002. Major corporations, including AT&T, Boeing, Safeway, and Qwest Communications International, also made adjustments for overpayment of acquisitions.