SEC: AOL May Have Misstated $400 Million

Times Staff Writer

The Securities and Exchange Commission has told AOL Time Warner Inc. that it may have improperly accounted for up to $400 million in advertising revenue from German media giant Bertelsmann, prompting the company to warn Friday of another possible earnings restatement.

In January, the media giant restated $190 million in advertising sales -- about 1% of total revenue -- from several ad deals conducted between 2000 and 2002. At the time, AOL executives said they believed there would be no further adjustments.

On Friday, company executives stressed that they disagreed with the SEC’s preliminary conclusion and were negotiating with the agency’s staff.

That there might be a restatement was revealed in AOL’s 10-K financial report to shareholders, filed Friday.


In the filing, the company said, “It is not yet possible to predict the outcome of these investigations.”

AOL has been the focus of federal investigations into its accounting practices since last year.

In addition to the SEC inquiry, the Justice Department is conducting a criminal probe into the company’s so-called barter deals, in which AOL and other firms exchanged advertising contracts, stock options and other goods and services of comparable value.

The Bertelsmann arrangement, not publicly linked to the government probe in the past, was the largest barter deal AOL made during the period under review, AOL said.

Last year, the media conglomerate paid Bertelsmann $8 billion in cash under a deal that allowed the German company to sell back its stake in the two firms’ flagging joint venture to offer Internet service in Europe.

As part of the deal, Bertelsmann agreed to buy $400 million in advertising from America Online. AOL has been accounting for that as advertising revenue, beginning in 2001 and continuing through last quarter.

In a preliminary review, SEC investigators determined that some of the $400 million should have been used instead to offset the purchase price.

A spokesperson for Bertelsmann couldn’t be reached for comment.


On Friday, AOL also disclosed that it gave $5-million bonuses last year to each of its newly installed division leaders: Jeffrey Bewkes, chairman of the entertainment and networks group, and Don Logan, chairman of media and communications properties.

For the second year in a row, Chief Executive Richard Parsons and outgoing Chairman Steve Case didn’t receive bonuses on top of their $1-million annual salaries.

In 2002, AOL posted a record-setting $99-billion loss, after taking $100 billion in noncash charges tied largely to the declining value of its Internet operations.