Time Warner Inc. said Thursday it will restate its financial results after an independent auditor found problems with the way it accounted for a number of transactions in 2000 and 2001, mainly involving online advertising.
The restatement came as part of a settlement with the Securities and Exchange Commission which was announced in March of last year and required the company to pay a $300 million penalty.
Under the agreement, Time Warner also agreed to appoint an independent examiner to review the historical accounting for several transactions, including three cable programming affiliation agreements that had online advertising components.
With that review now complete, the company will restate results going back to 2000. The examiner reviewed Time Warner’s transactions with 17 other companies and found problems in the dealings with 15 of them, involving a total of $584 million in revenue. The company did not identify the counterparties in the transactions.
The auditor found that deals often involved AOL getting advertising commitments from the counterparties while also agreeing to buy products or services from them or make an investment in the other company, Time Warner said in a regulatory filing.
In addition to the revenue recognition, the independent examiner also found that Time Warner needed to adjust the cost of acquisitions that were made, and that some marketing expenses weren’t recorded at the right time.
The final effect of the restatements will be to reduce the company’s profits by $1 million in 2000 and $161 million in 2001, while increasing its profits by $61 million in 2002, $18 million in 2003, $30 million in 2004 and $16 million last year. For the first six months of 2006, the restatement will raise its earnings by $15 million.
The amounts are relatively small for a company of Time Warner’s size. Time Warner posted profit of $1 billion on revenue of $10.7 billion for the second quarter. Time Warner said the restatements will affect the classification of certain cash flows but not the total impact of cash flows during the affected periods.
The restatements hark back to a period of turmoil and investor resentment at the company following the disastrous AOL merger deal, which was announced in January 2000. Since then the company has slashed its debt, settled shareholder lawsuits and regulatory investigations and sealed a deal together with Comcast Corp. to acquire the assets of Adelphia Communications Corp. It also fended off a drive by billionaire investor Carl Icahn to break up the company.
However, its stock is still trading at about the level it was two years ago, and investors are waiting to see if the company can execute on its strategy of turning around AOL’s business model to an advertising-supported business like Yahoo Inc. while its base of dial-up Internet access subscribers rapidly shrinks.
Time Warner’s shares edged up 5 cents to $16.48 in after-hours trading.
Time Warner is the world’s largest media company, with properties that include CNN, HBO, Time magazine and the Warner Bros. TV and movie studio.