- The Washington Times - Wednesday, November 3, 2004

NEW YORK (AP) — Time Warner Inc., the world’s largest media company, reported an 8 percent decline in third-quarter earnings yesterday as it set aside a $500 million reserve in anticipation of settling government investigations into its bookkeeping.

The company also said it would restate its earnings for 2000 and 2001 to correct its accounting for AOL Europe.

The moves put the company a step closer to resolving the investigations, which have caused anxiety among investors after dragging on for more than two years. The Securities and Exchange Commission and the Department of Justice are still investigating accounting practices at America Online, including its advertising arrangements and the way it reports subscriber numbers.

Dick Parsons, Time Warner’s CEO, told investors and analysts on a conference call that while the investigations were ongoing, the company had “some visibility” into the costs that would likely be required to resolve the inquiries. But he cautioned that the outcome of the investigations couldn’t be predicted.

“These are clearly significant matters … and we take them very seriously,” Mr. Parsons said.

He noted that the company was also focusing on new business initiatives, including rolling out digital phone service to all of its cable TV customers by the end of the year and starting several magazines at its Time Inc. publishing unit.

For investors, the progress toward resolving the long-standing accounting issues came as a relief. “We may be getting nearer to a solution to a multiyear overhang,” said Richard Greenfield, an analyst at Fulcrum Global Partners.

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

Excluding several one-time items, including the $500 million legal reserve and gains from investments in Google Inc. and Viva Media, the owner of a German music TV channel, the company earned 15 cents per share. This contrasts with 11 cents per share in the same period a year ago on a comparable basis.

Time Warner’s shares rose 31 cents, or 1.9 percent, to close at $16.59 yesterday on the New York Stock Exchange, where shares moved generally higher as Sen. John Kerry conceded the election to President Bush.

Time Warner said that after a review and discussions with the SEC, it found that the company should have included the financial results of AOL Europe in its own earnings after March 2000. That was when it entered into an agreement with Bertelsmann under which it later acquired 80 percent of the German media company’s stake in AOL Europe.

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

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

Time Warner’s AOL division reported more losses of subscribers, 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 previous quarter and 2 million from the year-ago period.

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