A state of tumult has enveloped the world’s largest media conglomerate, AOL Time Warner, culminating Wednesday with its downgrading by Moody’s Investors Service from ‘stable’ to ‘negative’.
The move coincided with an admission by AOL TW that it may have inappropriately accounted for some $49 million (€50.17m; £31.98m) in online advertising revenues – although Moody’s stressed the downgrading was not associated with this, citing instead a potential financial risk in the media giant’s attempt to sever its Time Warner Entertainment partnership with AT&T. (The latter is believed to have demanded a combination of cash and stock in compensation.)
Moody’s also emphasized that the demotion of AOL TW’s credit status did not presume any accounting malfeasance, but added that if irregularities are uncovered they will trigger added pressure on the group’s ratings
The admission of accounting uncertainties came within hours of the SEC’s deadline for US executives to personally certify their company’s accounts. It also followed months of insistence by AOL TW that its accounting was in good order.
The group claims it knew nothing of the alleged inconsistencies (concerning three advertising transactions) until week commencing August 5. These came to light during a review of past deals set in motion after AOL TW revealed the SEC was investigating its accounting practices.
The suspicious deals were booked between September 2000 and March 2002 – starting at a time when AOL executives were under intense pressure to meet stringent targets for revenue and earnings growth. The squeeze was sparked by its [then] upcoming merger with Time Warner and continued after its completion.
Having declared the suspicious transactions, AOL TW ceo Richard Parsons and cfo Wayne Pace yesterday certified the company's financial reports, at the same time warning that a restatement of past earnings was possible.
In the interim, AOL’s e-vp of sales David M Colburn, famed for his bare-knuckle negotiating tactics, and the architect of some of AOL’s most spectacular advertising and promotional deals, abruptly quit the company last week. Lips are zipped as to whether he jumped or was pushed.
Data sourced from: Multiple sources; additional content by WARC staff