VideoManagement at AOL Time Warner Inc. said late Wednesday the company will restate revenues downward for the eight quarters ended June 30, 2002 stemming from advertising and commerce transactions at its America Online division. The adjustment will lower AOL's revenue for the two-year period by $190 million.
The adjustments represent just 1 percent of the AOL division's total revenues for the eight quarters.
Back in August, AOL said it may have overstated $49 million in advertising and e-commerce revenues at its AOL unit.
Management at the media giant added it does not expect any further restatements as a result of its review. It also said it will continue to cooperate with separate investigations being conducted by the SEC and the Department of Justice.
"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," said chief executive officer Dick Parsons. "This restatement will not affect the company's committed liquidity, which includes over $8 billion of cash and unused bank facilities."
AOL management said it has been conducting an internal review of advertising and commerce transactions at the America Online division under the direction of its chief financial officer.
At the same time that it announced the revenue restatement, AOL management warned it will probably report "a substantial overall goodwill impairment" when it completes its impairment analysis under FAS 142 at the end of the fourth quarter.
The anticipated impairment is "based on current market conditions and lower than expected performance at the America Online division," AOL's management stated.
The company also indicated it could not reasonably estimate the magnitude of the impairment at this point in time.
"The factors that will affect the magnitude of impairment include management's revised operating plan of the America Online division, the results of the company's overall current budgeting and long-term planning process, and a valuation of assets and liabilities," AOL management noted.
In addition, the AOL impairment will take into consideration market conditions, including the decline in stock prices of comparable companies in the cable industry.
In the first quarter of the year, AOL took a record $54 billion charge to write off goodwill to reflect the sharp decline in the value of its $106.2 billion purchase of Time Warner in 2000.
The company's management had earlier warned that the writeoff could be as high as $60 billion.
Lots of Downgrades Coming
How bad is the global economy?
Well, according to a new report from Moody's Investors Service, one out of every 13 rated global corporate bond issuers is currently under review for downgrade. Researchers at Moody's examined recent and historic trends in rating actions and rating reviews to come up with that number.
According to the study, three sectors alone account for nearly 65 percent of the credit reviews. Utilities and telecommunications companies account for 40 percent of the total number of issuers currently under review for downgrade. Financial institutions account for another nearly 25 percent (that group includes banks, thrifts, finance and securities firms, real estate investment trusts, and insurance companies.
Moody's said historically, about two-thirds of all reviews are ultimately resolved in the direction in which they are initiated.
"The current trend of credit deterioration is likely to continue for the foreseeable future as indicated by our Watchlist statistics, although they also clearly reveal that some industries are under far more strain than others," said Richard Cantor, managing director of Moody's ratings research & analysis.
According to the report, 11 percent of utilities have been downgraded over the past three months and 20 percent are currently under review for downgrade.
Nearly one-third of telecom companies are under consideration for downgrade.
Airlines have also been under tremendous credit pressure. Most of the carriers have been downgraded since September 11, 2001, in many cases more than once. Even so, 20 percent are still under review for possible further downgrade.
The banking industry seems to be undergoing a real reversal of fortune. From September 2001 to September 2002, banking upgrades outnumbered downgrades by 2-to-1. But in the past three months, downgrades have exceeded upgrades by that same ratio, and downgrade reviews now exceed Watchlists for upgrade by 6-to-1.
"It is important to note, however, that all recent downgrades involve non-U.S. banks, as do all but a few of the current negative reviews," Moody's Cantor added.
SEC Advises Insurer's Restatement
Penn-America Group Inc. Wednesday said it would restate earnings lower for the years 1999 through 2001, after "extensive discussions" with the Securities and Exchange Commission.
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