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| Time Warner
Inc., the world's largest media company, on Wednesday posted a
quarterly loss, dragged down by a $3 billion legal reserve to settle
a fraud class-action
lawsuit. |
Time Warner Inc., the world's largest media company, on Wednesday said
it would pay $2.4 billion to settle charges it overstated revenue and
posted a second quarter net loss as a result of the settlement.
The company, whose shares fell 1.7 percent in
early trading, also said it plans to repurchase
up to $5 billion in stock over the next two years.
Time Warner said it agreed to pay $2.4 billion to a lead group of
shareholders who accused AOL with inflating its revenue by $1.7 billion
between January 1999 and August 2002 as part of a scheme to gain approval
for its 2002 merger with Time Warner.
The settlement brings the world's largest media company closer to
ending a painful chapter in the disastrous 2002 merger that wiped away
more than $200 billion in shareholder value and gave media consolidation a
bad name.
New York-based Time Warner reported a second-quarter net loss of $321
million, or 7 cents a share, compared with a year-earlier net profit of
$777 million, or 17 cents.
Excluding a number of items, including a $3 billion reserve for the
settlement and other pending suits, the company said it posted a profit of
18 cents per share, falling just below Wall Street expectations for profit
of 19 cents per share.
"By acting now to put these matters behind us we avoid the costs and
distractions of protracted litigation," Chief Executive Richard Parsons
said during a conference call.
Revenue fell 1 percent to $10.7 billion, missing analysts' expectations
of $11 billion, according to Reuters Estimates.
The estimated after-tax impact of the legal reserves reduced earnings
per share by 44 cents, the company said. That's below the $1 per share
Wall Street feared Time Warner would have to take, analysts said.
"It's less than the worst-case scenario," said Richard Greenfield, an
analyst at Fulcrum Global Partners.
But some on Wall Street said the company's legal woes may not yet be
over. "They need to show us the light at the end of the tunnel,"
Christopher Marangi, an analyst at Gabelli & Co. said. Gabelli's
sister company owned 275.6 million shares of Time Warner stock as of March
31.
As of Aug. 1, 42 class action and shareholder
derivative lawsuits
remain, the company said in a filing.
The settlement, which will go to millions of shareholders who invested
in the company during that time, is the second-largest paid by a publicly
traded company, Heins Mills & Olsen, the law firm representing the
shareholders said. Time Warner's auditor, Ernst & Young, agreed to pay
$100 million as part of the settlement.
In March, the company said it would pay $300 million to settle charges
with the U.S. Securities and Exchange Commission, stemming from similar
allegations. Time Warner also agreed to pay $210 million as part of a
deferred prosecution agreement with the U.S. Justice Department to resolve
criminal charges of aiding and abetting securities fraud.
Time Warner restated its results from 2000 through 2003 to reduce
online advertising by a total of $679 million. Further restatements could
happen, pending an independent examiner's review of the company's
accounting, expected to be completed by the end of this year.
With the most recent settlement, Time Warner has paid more than $3.5
billion to resolve the accounting issues.
(Agencies) | 
Updated: 2005-08-04 14:22
