At Cable News Network, the motto for Anderson Cooper’s show is “Keeping Them Honest.’’ Campbell Brown’s credo is “No Bias. No Bull.’’ Here’s a story for them: Time Warner Inc’s biased BS — balance sheet, that is.
The company that used to broadcast the Goodwill Games is playing fast and loose again with a different kind of goodwill.
At $8.61 a share, Time Warner has a stock-market value of $30.9 billion. Yet according to the balance sheet Time Warner released last week, just one of its assets, goodwill, by itself was worth $42.5 billion as of Sept 30. The company, which owns CNN, also showed $52.1 billion of other intangible assets, mostly cable-television franchise rights.
The market knows those asset values can’t be right. Time Warner executives just won’t admit it. Meanwhile, Time Warner said its net income last quarter was $1.1 billion, down slightly from a year earlier. The stock, down 48 percent this year, now trades for about half the company’s official book value, or assets minus liabilities.
The pretend asset values should concern all Americans, not just Time Warner stakeholders. That’s because Time Warner’s chairman, Richard Parsons, has Barack Obama’s ear as a member of the president-elect’s Transition Economic Advisory Board.
It’s a safe bet that Parsons, who also is a member of Citigroup Inc.’s board, won’t be pushing Obama to champion straight talk in financial reporting. While slogans about truth-telling might help CNN’s ratings, implementing those values at headquarters would hurt Time Warner’s profits.
HERE AGAIN
Time Warner has travelled this path before. In 2002, it wrote off about $100 billion of goodwill and other intangibles after disastrous results from its acquisition by America Online Inc sent the company’s shares crashing. Back then, too, the company was slow to acknowledge the decline in its asset values. A Time Warner spokesman, Keith Cocozza, declined to comment.
Goodwill can’t be sold off to pay the bills. As I’ve said in several columns this year warning about bloated goodwill at CBS Corp, Wachovia Corp, Washington Mutual Inc, Lee Enterprises Inc and others, it’s just the ledger entry one company records when it pays a premium for another company.
Specifically, goodwill is the amount by which the purchase price exceeds the fair value of the acquired company’s net assets. When the value of the purchased assets crashes, so does the value of the corresponding goodwill.
In its quarterly financial report to regulators last week, Time Warner said it will test its goodwill and other intangibles for impairment at the end of the fourth quarter. The company said it saw no need to perform such tests last quarter, although it cautioned that writedowns this quarter “could be material.’’
AWAITING MIRACLES
Barring miraculous turnarounds in the economy and the fortunes of old-school media properties, such as magazines and cable networks, my back-of-the-envelope math tells me Time Warner’s goodwill is worthless.
Other legacy-media companies have started the writedown process already. CBS wrote off $14.1 billion of goodwill and other intangibles last quarter. Even after those markdowns, it still claimed to have $15.9 billion of the stuff. By comparison, CBS’s market value is $4.1 billion.
As of November 12, there were 165 US companies worth less than their goodwill that also traded at a discount to book value, according to data compiled by Bloomberg. Combined, these companies had $364.8 billion of goodwill on their books. That was $137.6 billion, or 61 percent, more than their market values. (The figures exclude companies with market capitalizations of $100 million or less.)
Some of those are media companies, including newspaper publisher Gannett Co. Most are not, such as defense contractor Northrop Grumman Corp, drugmaker Boston Scientific Corp, retailer Macy’s Inc, and supermarket chain Supervalu Inc.
All this is further confirmation that the worst of the economic crisis lies ahead. Before we get it behind us, people like Richard Parsons will have to start facing reality about the value of the businesses they run. Further delay only makes matters worse. It’s bloodletting time.
