As CFO.com reported on Friday, managers at AOL Time Warner Inc. transferred CFO Mike Kelly to the chief operating officer position at AOL, the media giant’s largest revenue producer. Wayne Pace, CFO of AOL’s Turner Broadcasting Systems unit, replaces Kelly. Pace will report directly to company CEO Gerald Levin. Kelly, who is taking on a newly created position, will report to America Online CEO Barry Schuler. The surprise move, announced late last week, came shortly after AOL Time Warner reported it would not meet its aggressive 2001 growth targets.
Pace, who steps in for Kelly, is an eight-year veteran of Turner Broadcasting and will oversee all of AOL Time Warner’s finance functions — including tax, financial planning, mergers and acquisitions, treasury, accounting, and capital allocation. The moves are the latest in a series of shuffles at the media specialist. In August the company announced Time Warner Cable CEO Joseph Collins was named chairman of the company’s new interactive video division. Glenn Britt, Time Warner Cable’s president, was promoted to CEO. And back in March the company combined all its television and cable network operations. That merged unit was then placed under the direction of Jamie Kellner, who replaced longtime Ted Turner associate Terence McGuirk as chairman and chief executive.
The shakeup in the financial department came only weeks after the company announced negative third-quarter results. AOL Time Warner’s loss climbed to $996 million (22 cents per share), from $902 million (21 cents per share) in the previous year’s period. Revenue rose 6.4 percent to $9.3 billion from $8.8 billion, helped by gains in subscriber numbers at the Internet and cable businesses. Meanwhile, the America Online Internet services unit saw Q3 EBITDA earnings increase 22 percent to $742 million. Revenues increased 13 percent to $2.2 billion. The service added 1.3 million new members in the quarter for a total of 31.3 million. Advertising and commerce revenues rose 5 percent to $624 million.
In making the announcement, AOL Time Warner CEO Jerry Levin said: “As chief operating officer of America Online, Mike Kelly will be in the perfect position to further drive convergence across AOL Time Warner. And as the lines between our divisions blur, he is now uniquely positioned to further advance America Online as the central growth engine of all our media and entertainment businesses.” Added Levin, “Wayne Pace is a multitalented executive who will help ensure that we maintain our financial discipline and use our strong balance sheet to its best advantage.”
Pace’s appointment was welcomed by analysts on Wall Street. A number of analysts told Reuters that under Kelly, the company had not been as forthright in communicating with them in recent months as they had hoped. Indeed, The Wall Street Journal reported last week that Kelly and AOL Time Warner’s investor relations department had begun to shun Merrill Lynch analysts covering the company, following Merrill’s recent downgrade of AOL Time Warner’s shares from buy to neutral. After refusing to revise aggressive financial targets even as rivals — including Viacom, News Corp., and Walt Disney — tempered their projections in the wake of an advertising slump, AOL Time Warner finally lowered its targets. But it lost some of its financial credibility with many on the Street, analysts said.
Asked if the move was a demotion, Levin told Reuters in an interview: “How can you make someone the chief operating officer of the biggest growth engine of the company and call that a demotion? I believe that AOL is the pivot for AOL Time Warner. That’s a promotion. That’s an advancement in someone’s career.” Some analysts agreed. Soundview Technology analyst Jordan Rohan told Reuters: “Working in the operations of the company’s most important business unit, in its highest valued business unit is a huge responsibility, but it’s a different kind of responsibility from CFO. If he were named COO of a smaller business unit I may see it as a demotion. But that’s not what this is.” Although Levin denied that the failure of the company to meet its financial targets played a role in the shuffle, analysts wouldn’t rule out the company’s financial performance as a factor in the moves, said Reuters.
What’s more, Wall Street analysts told Reuters that these changes could point to mounting tensions following AOL and Time Warner’s $106.2 billion merger last January. One media investment banker told Reuters that Kelly’s departure, and fewer public appearances by the company’s co-chief operating officer, Bob Pittman, seems to indicate that the former Time Warner guard is slowly tightening its grip. That’s not all too surprising, given the Internet sector’s fall from grace.
Dennis Glass, CFO at Jefferson-Pilot Corp., a Greensboro, North Carolina-based life insurer, was promoted to chief operating officer. He will be responsible for running the day-to-day operations of the company. Theresa Stone, who has served as president of Jefferson-Pilot Communications Co. since joining the company in 1997, will assume Glass’ responsibilities as chief financial officer. She will continue in her communications role and will now report to Glass.
Given the company’s recent performance, Glass’s promotion is no shocker. Third-quarter operating profits rose 7 percent on stronger sales of fixed annuities. The company earned $117.8 million (77 cents per share), excluding one-time items, versus $112.1 million (72 cents per share) in the year-ago quarter. Wall Street expected Jefferson-Pilot to earn between 75 and 77 cents per share in the quarter, with a mean estimate of 76 cents per share, according to Thomson Financial/First Call, which tracks analysts’ estimates. Jefferson-Pilot shares dropped 11 percent in the first nine months this year, outperforming the Standard & Poor’s index of insurance stocks, which fell 15.4 percent. The company was upgraded by Merrill Lynch in March. It is scheduled to disclose Q4 financial results this week.
Jefferson-Pilot’s life insurance and annuity companies offer full lines of individual life insurance, group life, disability, and dental insurance, in addition to annuity and investment products. Jefferson- Pilot Communications owns and operates 3 network television stations and 17 radio stations, and produces and syndicates sports programming.
Ronald Alexander is the new finance chief at Hadron Inc., a developer of intelligence and biodefense technology for national security. Alexander joins the Alexandria, Virginia-based company with experience as a senior financial executive in a number of public companies. He has held the CFO post at TTC, a telecommunications equipment and software provider, and AppNet Systems Inc., an E-commerce infrastructure professional services provider. Alexander holds a bachelor’s degree in math and physics from Columbia College, a law degree from Columbia Law School, and a master’s in taxation from the New York University School of Law.
Hadron has been struggling in recent months, but has been boosted by the anthrax scare. The company had been working with Army researchers on developing medical defenses against anthrax prior to 9/11. Last March the Army awarded a one-year research contract valued at $2.6 million to a Hadron subsidiary. In early October the government awarded the company an $800,000 grant to produce an anthrax vaccine. In the most recent quarter the company’s operating profit declined to $107,000 for the three months ended June 30, 2001. That was down from the $262,000 operating profit posted in the year-earlier period. Managers attributed the decrease to customers’ budget reductions resulting from changes in Department of Defense allocations, and increased expenses associated with new business initiatives. Net income in the quarter decreased to $72,000, down from $204,000 for the same period in the prior year. Revenues in the quarter were down 11 percent to $4.4 million in the quarter.