Time Warner’s Earnings Drop 8%

America Online continued causing headaches for parent Time Warner Inc. as its third-quarter profit fell 8%, mostly from a $500-million charge recorded to reflect the expected cost of resolving investigations into the Internet provider’s accounting.

In reporting the results Wednesday, Chief Executive Richard Parsons also told analysts that the company would restate earnings for 2000 and 2001 to reflect additional losses for AOL Europe.

AOL’s problems overshadowed Time Warner’s operating results, which slightly exceeded Wall Street expectations, driven by such improved businesses as cable television, cable channels and publishing.

Net income fell to $499 million, or 11 cents a share, from $541 million, or 12 cents, a year earlier. Excluding the charge and other items, profit was $722 million, or 15 cents a share, slightly better than the 14 cents expected by analysts polled by Thomson First Call. Revenue rose 5% to $10 billion.

Still, AOL continues as a problem for the New York media giant. The unit’s 74% increase in operating profit, to $261 million, was damped by news that AOL lost 646,000 subscribers. AOL has been losing dial-up customers to rival high-speed Internet services.

Despite the effect on earnings, Wall Street welcomed the $500-million pretax charge as a signal that Time Warner may be near resolving the probes that have cast a shadow over the company’s future.

The Securities and Exchange Commission as well as the Justice Department are investigating whether AOL improperly booked advertising revenue and subscriber numbers.

Parsons told analysts that the investigations had “progressed significantly” and that he was “moving this company forward.” Analysts believe that settling the probes is crucial to Parsons’ efforts to rebuild the media company in the wake of its ill-fated AOL merger in 2001.

“This indicates that they are moving forward with the SEC and it’s at least nearing a close, which will be very welcome news for investors,” said analyst Jessica Reif Cohen at Merrill Lynch.

Jeffrey Logsdon, an analyst at Harris Nesbitt, also characterized the move as positive. “You’re lifting a cloud of doubt and suspicion that has affected the company’s operations,” he said.

The SEC probe has hindered Time Warner’s acquisition plans, such as its unsuccessful efforts to buy Metro-Goldwyn-Mayer Inc., because it cannot issue stock as currency. Time Warner is considering other deals, such as joining Comcast Corp. in a joint bid for bankrupt cable TV operator Adelphia Communications Corp.

In its earnings report, Time Warner said its cable division’s operating profit rose 11% to $438 million. Profit for the company’s TV networks climbed 13% to $574 million. Publishing jumped 28% to $203 million.

Time Warner’s weakest performer was its film division, which includes Warner Bros. and New Line. Results were up against big year-earlier numbers boosted by DVD sales of “The Lord of the Rings: The Two Towers.” The film division’s operating profit dropped 4% to $282 million.