AOL May Have to Restate $400 Million

AOL Time Warner said it may have to restate up to $400 million in revenues as the result of an ongoing Securities and Exchange Commission probe over how its AOL unit accounted for advertising deals.

In its annual report filed with the SEC Friday, AOL Time Warner said the transactions were related to advertising sales it booked with German media company Bertelsmann in the time frame covering the first quarter of 2001 through the fourth quarter of 2002.

The disclosure would mark the second time in less than six months that the media giant has had to restate its revenues related to advertising accounting in the AOL division, many of them related to barter deals, which were prevalent during the late 1990s dot-com boom.

In 2000, AOL paid $6.7 billion for about 50 percent of Bertelsmann’s stake in AOL Europe. As part of a series of complex transactions that followed, Bertelsmann agreed to purchase advertising from AOL in transactions of $125 million and $275 million respectively, according to the annual report with the SEC.

Although the advertisements purchased by Bertelsmann in these transactions were in fact run, the SEC staff has told the company that at least some portion of the revenue recognized for that advertising should have been treated as a reduction in the purchase price rather than as advertising revenue, the filing said.

AOL Time Warner said it does not agree with the assessment, and that its auditors continue to believe these transactions were accounted for correctly.

The SEC is still looking into a range of other transactions involving the AOL unit, the filing said, and the company “may not currently have access to all relevant information that may come to light in these investigations. It is not yet possible to predict the outcome of these investigations, but it is possible that further restatement of the Company’s financial statements may be necessary.”

In October of 2002, AOL Time Warner said it would restate financial results for eight prior quarters, resulting in a reduction of $190 million in revenues and $97 million less in cash earnings, also related to how the AOL unit accounted for revenues during the end of the dot-com heyday.

The latest news related to the AOL unit comes as the media giant is working to rebuild its trust with Wall Street after a tumultuous two years in which shareholders’ revolted over the merger of AOL and Time Warner, resulting in a stock slide of 70 percent in one year alone.

It also hits just before a major announcement on Monday by AOL regarding its enhanced services for broadband subscribers and as the parent company looks to reduce its $26 billion debt load by selling off some “non-core” assets.

The SEC is continuing to look into other AOL transactions, the filing said. It was also facing lawsuits from former investors regarding AOL’s accounting practices with its former business partner Homestore.com . The lawsuits charge that the companies engaged in a series of “round-tripping” transactions on barter deals that inflated their revenues. The company has denied the allegations.