Is Accounting Magic Making AOL Look like Pacific Gas and Electric?
You might ask, how does equity on a company’s balance sheet magically go from $16.7 billion before the merger to $157.6B after the merger. What AOL’s accountants basically did was write up the value of Time Warner’s assets, a form of reappraisal. This includes recognizing a write-up of more than $20 billion pertaining to the Cable system and also recognizing $126 billion in goodwill. This is important because it provides the illusion that AOL is well capitalized, that is, with a lot of equity. What Time Warner management has basically done is fold a debt laden marginally profitable organization with declining cash flow and significant infrastructure upgrade requirements into a company highly sensitive to cash flow. AOL is now learning, as Amazon.com has already, that Microsoft’s pyramid scheme is indeed structured to ensure its demise. Technological and Competitive Landscape AOL received enormous technology benefits from its acquisition of Netscape Communications yet the rapidly changi
