updated 11/3/2004 8:56:16 AM ET 2004-11-03T13:56:16

Time Warner Inc., the world’s largest media company, said Wednesday that its third quarter earnings slid 8 percent as it set aside a $500 million reserve because of pending government investigations. The company also said it would restate its accounting for its stake in AOL Europe prior to 2002.

The accounting at the America Online service has been the subject of ongoing investigations by the Securities and Exchange Commission and the Department of Justice, and regulators are still reviewing AOL’s accounting for some advertising transactions as well as the way it reports subscriber numbers.

The company said that following a review and discussions with the SEC, it found that it should have consolidated the results of AOL Europe with its own earnings results after March of 2000, when it entered an agreement with the German media company Bertelsmann under which it later acquired Bertelsmann’s 80 percent interest in AOL Europe.

As a result, Time Warner will restate its consolidated earnings for 2000, 2001, and possibly 2002.

The company said it was continuing to cooperate with the government investigations and that it may have to make other financial restatements later. The company made a $190 million adjustment in late 2002 because of incorrect accounting of some advertising and commerce transactions at AOL.

The announcement came as the company reported its third-quarter earnings.

For the three months ending Sept. 30, the company earned $499 million, or 11 cents per share, compared with $541 million, or 12 cents per share, in the year-ago period. Revenues rose to $9.97 billion from $9.50 billion.

The company’s AOL unit reported more losses in subscribers, continuing a trend that has troubled investors as users abandon AOL’s dial-up service for faster broadband connections to the Internet. As of Sept. 30, AOL had 22.7 million subscribers, a decline of 646,000 from the prior quarter and 2 million from the year-ago period.

However, revenues at AOL edged up 1 percent thanks to higher advertising revenues, including a 70 percent gain in revenues from paid search following its purchase of Advertising.com, which closed on Aug. 2. Revenues also benefited from gains in foreign exchange.

Despite the essentially flat revenues, AOL’s earnings rose 21 percent thanks to lower costs, especially network expenses. The unit is also cutting 700 jobs, or 5 percent of its U.S. work force, in a bid to boost profitability.

Other divisions of Time Warner turned in solid results. Earnings from cable TV rose 10 percent on an equivalent 10 percent rise in revenues; earnings from cable networks and the WB network rose 5 percent on an 8 percent increase in revenues; and earnings from publishing, which includes the Time Inc. family of magazines and a book publishing group, rose 15 percent on a 3 percent gain in revenues.

Earnings from Time Warner’s Hollywood studios, Warner Bros. and New Line, slipped 1 percent despite a 1 percent gain in revenues from a year ago, when results were lifted by the home video release of “The Lord of the Rings: The Two Towers.”

For the first nine months of the year, Time Warner earned $2.24 billion or 48 cents per share, versus $2 billion or 43 cents per share in the comparable period a year ago. Nine-month revenues rose 8 percent to $30.98 billion from $28.66 billion.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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