AOL to Restate Results Due to Internet Unit

NEW YORK -- Acknowledging deeper problems at America Online than previously reported, AOL Time Warner Inc. said Wednesday that it would restate eight quarters of financial results and reduce its revenue by $190 million, as part of an in-house review of its troubled Internet unit, which also is the focus of federal probes.

Meanwhile, strong earnings for movies, cable TV, broadcasting and publishing helped offset a sharp advertising slowdown at America Online, enabling AOL Time Warner to eke out a third-quarter profit of $57 million, or 1 cent per share, as contrasted with a loss of $997 million, or 22 cents per share, a year ago.

The world’s largest media and entertainment firm said that its quarterly revenue rose 10% to $9.9 billion, from $9.1 billion a year ago. AOL Time Warner’s EBITDA , or earnings before interest, taxes, depreciation and amortization -- a common profit yardstick for media companies -- fell to 19 cents a share from 24 cents a share a year earlier. Both matched the expectations of Wall Street analysts.

Despite the flat results, AOL Time Warner Chief Executive Richard D. Parsons stuck to an earlier projection that the company would finish the full year with 5% to 8% growth in revenue and about 5% growth in EBITDA.

During a conference call with financial analysts, Parsons said that the company’s internal review turned up “several more” advertising deals at the American Online unit for which revenue had been improperly booked. In August, the company revealed that three deals at the Internet unit involved $49 million in wrongly booked revenue. That same month Parsons acknowledged that the company was under investigation by the Securities and Exchange Commission and the Department of Justice.

AOL Time Warner announced the results for the quarter ended Sept. 30 after the close of the stock market Wednesday.

AOL Time Warner shares rose 3 cents Wednesday to $13.53 on the New York Stock Exchange. In after-market trading, after the restatement and earnings results, the shares gained sharply to $14.45. The stock is still down about 55% this year, largely because of investor concerns about America Online -- not only the federal investigations but plunging ad sales and sharply lower subscriber growth.

In the latest quarter, America Online’s revenue dropped 7% to $2.22 billion, as ad sales fell 48%.

Reviving the Internet unit is the company’s top operating priority, Parsons said, but he deferred any discussion of specifics to Dec. 3, when the company will unveil a strategic plan that the division’s executives have been working on for months.

“They keep delaying announcing a strategy or answering questions about AOL in any concrete manner, but investors remain impatient,” Jefferies & Co. analyst Frederick W. Moran said Wednesday night.

The restatements announced Wednesday will lower AOL Time Warner’s previously reported revenue by $190 million for the two-years from July 1, 2000, through June 30, 2002, or about 1%. The biggest change will be for the quarter ended Sept. 30, 2000, with a drop in revenue of $66 million. The restatements also will reduce the company’s EBITDA by $97 million.

The in-house probe of America Online is continuing, but Parsons said the company doesn’t expect any further restatements.

“Even though the total amount of the restatement represents a small portion of America Online’s total revenues during the period, we have taken, and do take, the matter very seriously,” Parsons said.

The restatements result from information and analysis that wasn’t available in August, he added. Since then, Parsons said, the firm’s in-house investigators have examined deals going back to mid-1999, involving 70% of AOL’s advertising and commerce revenue over that period.

Parsons did not identify any of the companies involved in the ad deals with AOL and declined to provide further details, citing the federal investigation.

On Monday, two former executives of Homestore Inc., an Internet real-estate firm that was a former advertising partner of America Online, pleaded guilty to taking part in a conspiracy to try to boost Homestore’s stock price by inflating revenue.

Chief Financial Officer Wayne H. Pace also warned Wednesday that the company could take another substantial “asset-impairment charge” later this year to reflect the declining value of the online business. The firm already took a $54-billion impairment charge this year.