AOL Time Warner Restates Two Years

An internal probe of advertising and commerce revenues results during AOL's dot-com heyday will result in a reduction in $97 million in cash earnings over the previous eight quarters.

by Erin Joyce atnewyork.com Managing Editor [October 24, 2002]

AOL Time Warner (NYSE: AOL), which is conducting an internal probe of accounting for ad sales from AOL's dot-com heyday, said it would restate financial results for eight prior quarters, resulting in a reduction of $190 million in revenues for the parent company and $97 million in cash earnings.

As a result of its ongoing investigation into how some advertising and commerce revenues were booked, AOL Time Warner said it would restate results going back to the third quarter of 2000 through the second quarter of 2002.

The company is also facing probes by the Securities and Exchange Commission (SEC) as well as the Department of Justice (DoJ) over how it booked advertising and commerce revenue during the same time period.

AOL Time Warner said the total impact of the adjustments would reduce its overall advertising and commerce revenues by $190 million over these eight quarterly periods starting with the third quarter of 2000.

"For the America Online division, the impact of the adjustments will be to reduce advertising and commerce revenues by $168 million over these eight quarterly periods, with a corresponding reduction in EBITDA (Earnings before interest, taxes, depreciation and amortization) for that same time period of $97 million."

The company said the remaining $22 million in the restatement represents "a reduction in revenues from certain transactions related to the America Online division in which the advertising was delivered by other AOL Time Warner divisions."

The company made the announcement as part of its third quarter earnings results released Wednesday afternoon, which showed AOL's results as among the media giant's weakest.

Total revenues came in at just under $10 billion, up 6 percent from the same, year-ago time period, using similar metrics the company is using to "normalize" revenue under accounting changes that have gone into effect since then.

The company said growth in subscriptions at AOL "more than offset declines in advertising, commerce, and other content revenues," which fell by 48 percent during the third quarter.

Content and other revenues fell by 63 percent to $67 million, largely due to the termination of the iPlanet agreement with Sun Microsystems.

Overall, the company said revenues for AOL were $2.2 billion, up about 1 percent from the revenue of just under $2.2 billion during the same, year-ago quarter.

Subscription revenues were up by 13 percent to $4.8 billion, which the company attributed to continued subscriber growth in the flagship AOL division, as well as in cable and networks business lines.

Advertising and commerce revenues fell by 12 percent to $1.7 billion, led by the weakness in online advertising, the company said, as well as difficult comparisons to last year as a result of the closure of the Warner Bros. Studio Stores.

The restatement of past quarters represents about 1 percent of AOL's total revenues for that same two-year period, the company said, and about 3.4 percent of its advertising and commerce revenues and close to 2 percent of its cash earnings.

The largest impact of the adjustments is in the quarter ended September 30, 2000, for which advertising and commerce revenues will be reduced by $66 million and EBITDA will be reduced by $30 million.

The company said it expected to file restated financial statements for the affected periods with the Securities and Exchange Commission sometime during the fourth quarter. Although its internal review is still ongoing, the company said it did not expect any more restatements in connection with its own review. It also continues to cooperate with SEC and DoJ probes, which are ongoing.

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