The Dot-com bubble has come back to haunt AOL Time Warner Inc.

The media giant warned Monday that it expects to take up to a $60 billion writeoff to comply with the new merger-related accounting rules that went into effect at the beginning of the year.

Remember, beginning January 1, all calendar year companies must adopt the new accounting standard, Goodwill and Other Intangible Assets, also known as FAS 142. It eliminates amortization of goodwill and other intangible assets with indefinite lives.

As a result, AOL Time Warner’s annual amortization is expected to be cut by more than $7 billion.

AOL said it expects to record a one-time, non-cash charge in its income statement for the first quarter of 2002 of between $40 billion and $60 billion to reflect overall market declines since the AOL Time Warner merger was announced in January of 2000. “This charge will reflect the cumulative effect of adopting the accounting change and does not affect the Company’s operations,” it said in a statement.

Keep in mind that in the third quarter, the most recent balance sheet available, AOL Time Warner had about $127 billion in goodwill. So, if it writes off $60 billion, that will amount to about half its total goodwill.

This writeoff could top the FAS 142 record, set by JDS Uniphase last July when it cut the value of goodwill on its books by more than $50 billion to reflect the decline in the value of acquisitions.

“All companies that have goodwill and have gone through large business combinations will be more significantly affected than others,” Chief Executive Wayne Pace told Reuters. “The amount of the charge can roughly be tied back to the change in the stock price from January 2000 to January 2001 when we closed the deal.”

SEC questions Xerox’s lease accounting

The Securities and Exchange Commission’s Chief Accountant has told Xerox Corp. its accounting for sales-type leases does not follow Financial Accounting Standards Board (FASB) guidelines, the company said in a government filing.

The big issue is when Xerox books revenue from selling and leasing its equipment.

The SEC’s review concerned whether Xerox’s method of accounting for sales-type leases applies FASB’s Statement of Financial Accounting Standards No. 13 in the allocation of gross lease payments among the various elements in its sales-type leases: equipment, financing, service and supplies. “The OCA believes that (Xerox’s) methodology for accounting for sales-type leases does not follow the methodology required by SFAS No. 13,” says the filing.

Xerox, however, argues in the filing its methodology that accounts for the fair value of the components results in no material difference between the application of its methodology and the OCA’s view. Xerox adds that it believes its financial results are in accordance with GAAP.

Xerox also says in the filing that it does not know when the SEC will complete its investigation.

Xerox also said on Monday it plans to issue $500 million of senior notes for general corporate purposes, including paying off debt.

Last week, Moody’s Investors Service placed Xerox’s long-term debt ratings under review for a possible downgrade. Xerox’s debt has already been cut to junk bond status.

Homestore.com Names New CFO, Other Honchos

Homestore.com Inc., the embattled real estate Web site that recently said it overstated its on-line advertising revenues in the first three quarters of 2001, named a new senior management team, including a chief financial officer.

Lewis Belote III was named CFO, succeeding Joseph Shew, who left in December. The 46 year-old has more than 20 years of accounting and senior financial management experience, including serving as senior vice president of finance for Healtheon and WebMD, Inc.; chief financial officer of ActaMed Corp., the first company acquired by Healtheon; and 12 years with the accounting firm, Ernst & Young.

In addition, W. Michael Long was named chairman and chief executive officer, succeeding Stuart Wolff, a co-founder of Homestore, who announced he would resign. Long was previously chairman of WebMD Corp.

And Jack Dennison was named chief operating officer. Dennison was also a former employee of WebMD.

Corporate Credit Quality Crumbled to 10-Year Low

The credit quality of US corporations declined to a 10-year low in 2001, as downgrades exceeded upgrades by 2.9-to-1, according to Moody’s.

The reasons: Rapid increases in corporate debt growth, and overly optimistic profit forecasts in the late 1990s coupled with a sharp decline in corporate earnings this year, as well as special events such as the terrorist attacks of September 11.

Moody’s said it downgraded the ratings of 645 corporations in 2001, affecting $936 billion of debt while it only upgraded the ratings of 219 corporations, affecting $420 billion of debt. “Review and outlook changes indicate that credit deterioration will continue, reflecting the above average risk environment at present,” Moody’s said in a statement.

The industrial and utility sectors were hardest hit in 2001. Industrial credit worth deteriorated severely with 548 rating downgrades outnumbering 136 upgrades. Utility ratings accounted for 54 downgrades and 27 upgrades in 2001.

On the other hand, financial institutions experienced 56 upgrades versus 43 downgrades.

Among speculative-grade debt, Moody’s reported 409 downgrades, affecting $361 billion of debt while there were 115 speculative-grade rating upgrades, affecting $75 billion.

In 2001, there was also a record 60 fallen angels–companies slipping to junk-grade status from investment-grade–totaling more than $153 billion of debt compared to 25 rising stars, affecting $31 billion.

Fallen angels were most prevalent in the industrial sector, which saw 43 fallen angels followed by the utility sector, which accounted for 15 fallen angels.

The industrial sector also accounted for 17 rising stars, followed by the financial sector and utility sector, which both produced 4 rising stars each.

Financing News

Bear Stearns Cos. plans to issue $1 billion of five-year global notes later this week, according to published reports. It would be the fourth $1 billion or larger sale announced this year by one of the major Wall Street investment banks.

Earlier on Monday, Credit Suisse Group Inc. said one of its units plans to raise $1.5 billion from a sale of 10-year global notes.

Last Thursday, Goldman Sachs Group Inc. raised $2.75 billion from the issuance of 10-year global notes while Lehman Brothers Holdings Inc. raised $1 billion.

In other financing news:

• Moody’s placed the long-term ratings of May Department Stores Co. on review for possible downgrade. Moody’s said it is concerned about May’s ability to maintain its historical superior returns in a sated apparel market and a slower economy. “Moody’s review will focus on the company’s efforts to boost sales and margins, its capital expenditure and acquisition plans, and future appetite for share repurchases,” it said in a statement.

• Moody’s also placed Georgia-Pacific Corp.’s Baa3 senior unsecured debt ratings and Prime-3 short term rating for commercial paper under review for possible downgrade. “The ratings review is based on our expectation that weakness in the company’s packaging, building materials, and paper businesses will continue over the near term, stressing debt protection measurements and inhibiting a planned reduction in debt,” it said in a statement. “In addition, the ratings review reflects uncertainty about the size, scope and ability to complete currently contemplated asset sales, and longer term uncertainty surrounding the company’s asbestos liability.”

In Brief

• Enron Corp.’s creditors are trying to move the company’s bankruptcy case from New York to its headquarters city, Houston, where many of the creditors are located.

• Americans spent $13.8 billion shopping online during the 8-week holiday shopping season in 2001, up 15 percent from the prior year, according to the eSpending report released by Goldman Sachs, Harris Interactive and Nielsen//NetRatings. Consumers said they spent 13 percent of their holiday shopping budget online. Online spending in December 2001 increased 41 percent compared to November 2001.