By David A. Vise Washington Post Staff Writer
Thursday, July 29, 2004; Page E01
Time Warner Inc. has launched an internal investigation to determine whether America Online improperly accounted for losses at its European division before and after the AOL-Time Warner merger in 2001, the media giant disclosed yesterday.
During the period in question, AOL Europe posted significant losses that Dulles-based America Online did not incorporate in its own financial results, according to public filings. Time Warner said it may have to restate earnings as a result of its review.
The bookkeeping under scrutiny involved the sale of a small stake in AOL Europe to Goldman Sachs Group, which temporarily reduced AOL's ownership in AOL Europe to below 50 percent, according to a recent article in Business Week. Since it was no longer a majority stockholder, AOL reported AOL Europe's results separately from its own.
The maneuvers may have helped AOL keep its earnings and stock price up prior to its January 2001 merger with Time Warner, the article said. AOL eventually repurchased the stake from Goldman to again become the majority shareholder.
"The company has recently begun a review of the accounting related to the consolidation of, and equity accounting for, its interest in AOL Europe," Time Warner said in a filing with the Securities and Exchange Commission. "It is possible that further restatement of the company's financial statements may be necessary."
Time Warner revealed the internal probe in a footnote to a quarterly financial statement it released yesterday -- a report that showed a 10 percent gain in revenue for the three-month period ended June 30 compared with the same quarter a year ago.
The new revelations come amid federal probes by the SEC and the Justice Department into AOL's reporting of domestic subscriber numbers and financial results before and after the Time Warner merger.
Time Warner spokesman Ed Adler declined comment on the matter.
The fresh problems suggest that the federal probe hanging over Time Warner and America Online is dragging on and expanding, rather than wrapping up swiftly.
Yesterday, Time Warner Chief Financial Officer Wayne Pace said the SEC probe is preventing the corporation from seriously considering plans it once had to issue stock in its Time Warner Cable division that could be used for acquisitions.