Risk Management

Time Warner Reserves $3 Billion

Besides setting aside funds to settle class actions, the company also launched a $5 billion share-repurchase plan.
Stephen TaubAugust 3, 2005

Time Warner Inc. has reached an agreement on a settlement of class-action lawsuits stemming from its merger with AOL and a related accounting scandal and set aside $3 billion in reserves to resolve litigation.

Under the proposed settlement of the class action, Time Warner will pay $2.4 billion into a settlement fund related to the securities litigation. The company has also set up an added reserve of $600 million in connection with other related lawsuits, including shareholder-derivative actions, suits alleging violations of the Employee Retirement Income Security Act, and securities suits brought by individual shareholders. Ernst & Young also agreed to pay $100 million to settle related litigation, Time Warner adds.

The proposed settlement is subject to completion of final documentation and preliminary and final court approval, as well as other conditions, the company stated. “Reaching an agreement in principle to settle this securities litigation and reserving for it and all other related matters mark important steps toward putting these matters behind us, ” said Dick Parsons, the media giant’s chairman and chief executive officer.

Time Warner stated that the $3 billion total reserve does not consider any future insurance recoveries under existing insurance policies because the company “cannot reliably estimate the amount of recovery at this time.”

In another move, the company’s board authorized a $5 billion stock-buyback program over the next two years. Shareholders had been pushing for a share-repurchase program as a way to elevate the company’s sluggish share price, according to the Associated Press. Time Warner’s share price dropped 30 cents, or 1.7 percent, to $17.12 in New York Stock Exchange midmorning trading, according to the news service.