AOL Time Warner Inc has uncovered revenue overstatements to the tune of $190 million over two years during a recent investigation into its accounting practices. The news came as the company reported that in the third quarter its flagship online unit saw advertising sales decline for the fourth quarter in a row.
For the eight quarters to June 30 2002, AOL will reduce its reported revenue by $190m, which represents about 1% of its total revenues for that period, and will reduce its reported EBITDA by $97m, which represents 1.9% of the total. About $168m relates to the advertising and commerce segment and accounts for 3.4% of the total.
The company said that $66m of the revenue and $30m of the EBITDA overstatement occurred in the third quarter 2000, but did not say which transactions were involved. Newspaper reports previously claimed AOL had accounted for brokered third-party advertising as top-line revenue.
CEO Dick Parsons said: 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, this matter very seriously… This restatement will not affect the company’s committed liquidity, which includes over $8bn of cash and unused bank facilities.
While the internal review is still ongoing, based on the substantial work done to date, the company does not expect any further restatements as a result of this review, AOL said. The company added, however, that an investigation by the US Securities and Exchange Commission is also ongoing, and its conclusions cannot be predicted
It is perhaps not surprising that the restatements reach only as far back as mid-2000, when the dot-com bubble was beginning to deflate and advertising contracts were drying up. Unfortunately, AOL’s results for the third quarter reveal that advertising dollars are still hard to come by at the online unit.
I’m pleased that our overall performance was right in line with expectations, Parsons said in a statement. Our operating results reflected the continued collective strength of our traditional media and entertainment businesses, offset by the declining trend in advertising at America Online.
America Online’s EBITDA declined 30% in the quarter to $1.3bn on revenues that fell 7% to $6.8bn. The majority of the decline was blamed on a 48% reduction in advertising sales, as more long-term contracts dry up. A 15% increase in subscription revenue was not enough to offset this decline.
Including all AOL’s other business units, the company reported total third-quarter net income of $57m, compared to a net loss of $997m a year ago, on revenue that was up 6% at $10bn. EBITDA, a value AOL uses to measure its financial performance, fell 1% to $2.2bn, the company reported