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AOL Time Warner To Restate Revenue

Oct 24, 2002 | AP

AOL Time Warner plans to restate two years of financial results because of accounting practices at its America Online division in an announcement made with its third-quarter results, which showed a small profit despite lingering weakness in the online business.

AOL Time Warner said the restatements for the third quarter of 2000 through the second quarter of 2002 would reduce revenues by $190 million. The revision will affect earnings before taxes, interest, depreciation and amortization, or EBITDA, by $97 million.

The adjustments, which will primarily affect the America Online division, are expected to be filed with the Securities and Exchange Commission by year's end. They follow an internal company review of certain advertising and commerce transactions at the division.

"Although our internal review is ongoing, we do not expect this internal review will result in any further adjustments," said Richard Parsons, AOL Time Warner's chief executive.

Investors were largely unshaken by the news, finding reassurance in the robust performance of other divisions and the company's statement that it believes no additional restatements will be required. AOL Time Warner shares surged more than 6 percent in extended trading after gaining 3 cents to close at $13.53.

For the three months ending Sept. 30, the media conglomerate earned $57 million, or 1 cent per share, compared with a loss of $997 million, or 22 cents per share, in the same period a year ago. The results were in line with the expectations of analysts surveyed by Thomson First Call.

Revenues for the third quarter totaled $9.98 billion, compared to $9.07 billion during the comparable 2001 quarter.

Also Wednesday, AOL Time Warner said it plans a Dec. 3 meeting with analysts to give Wall Street more details about America Online's future business plan.

The America Online division has been struggling for months, burdened by declining advertising revenues and a government investigation into its accounting practices. AOL had previously said it may have inappropriately accounted for approximately $49 million in transactions at the online unit.

In August, Jon Miller was named the division's new chief executive and chairman, but Wall Street has remained skeptical — expressing doubts about whether America Online has the momentum and business plan to continue to grow. Some also blame America Online's troubles for the steep drop in the company's stock price, which has tumbled from a high of about $55 to as low as $10 since the merger.

"It is true that the old Time Warner assets are doing pretty well and the problem child is AOL. But in terms of valuations it's not too far from where it should be if this AOL thing wasn't a problem," said Paul Kim, a senior media analyst at Kaufman Bros. "This thing is correctly priced."

For the third quarter, revenues at America Online were $2.2 billion, compared with $2.17 billion a year earlier. But EBITDA fell to $432 million from $617 million in 2001, and total revenues dropped 7 percent in large part because of a 48 percent drop in advertising and commerce revenues. The decline reflects the expiration of some advertising contracts made years ago. Additional contracts are expected to expire in coming quarters, and America Online has said it does not expect to be able bring in replacement advertising at a fast enough pace to offset the loss.

Subscriber growth improved, with revenues rising 15 percent for the quarter to $1.83 billion.

The performance of AOL Time Warner's other divisions was far stronger. Third-quarter revenues surged 25 percent at the company's film division, while cable revenues rose 14 percent. Network revenues were up 10 percent. AOL Time Warner said that excluding the effects of America Online, revenues and EBITDA would have increased 11 percent for the quarter.

"Except for America Online all of our businesses are doing quite well," Parsons said.

For the nine months ending Sept. 30, AOL Time Warner posted a loss of $53.8 billion, or $12.09 per share, compared with a loss of $3.10 billion, or 70 cents per share, in the comparable 2001 period. Revenues totaled $29.6 billion, compared with $26.9 billion at the same point in 2001.

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