ACCT 647 601

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ACCT 647 - 601 Yael Dunn Ted Liu Jared
Rogers Christy Waggoner
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The Company

• Worlds leading media and entertainment company
• 2001 merger between America Online, Inc.
• and Time Warner, Inc.
• Dropped AOL from name in October 2003

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• Six Business Areas
• America Online
• Cable
• Filmed Entertainment
• Networks
• Music
• Publishing

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Source www.timewarner.com
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The Scandal

• WHY?
• Failing dot-coms were large portion of ad
  revenues
• Merger of AOL with TimeWarner
• WHAT?
• AOL boosted revenue through shady deals
• Converted legal disputes into ad deals
  MovieFone
• Sold ads on behalf of eBay and booked as own
  revenue
• Shifted revenues from one division to another
• Bartered ads for computer equipment with Sun
  Microsystems
• Booked short-term gains from renegotiated
  long-term contracts
• Business Affairs (BA) group helped reach
  financial targets

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Major Events

• 5/15/2000 AOL agrees to pay 3.5 million dollar
  fine for improper accounting practices
  in 1995 1996
• 1/12/2001 The FCC announces that it will approve
  the
• TW-AOL Merger
• 7/18/2002
• The Washington Post raises questions about AOL
  exaggerating revenue in 2000 and 2001
• AOL Time Warners COO , Robert Pittman, quits

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Major Events

• 7/25/2002 AOL Time Warner admits that its
  accounting practices are being investigated by
  the Justice Department (DOJ) and the SEC
• 8/15/2002 AOL admits accounting inaccuracies
• 10/16/2003 The company officially drops AOL
  from its name

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• Restatement of Prior Financial Information
• AOL Time Warner conducted an internal review of
  advertising and commerce transactions at the AOL
  Segment.

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• Potential Penalties and Consequences
• Continuing Investigation by SEC
• Additional 400 million in Bertelsmann deals
• Ongoing Investigation by DOJ
• Shareholder lawsuits
• Accusations based on insider trading by
  executives
• Anticipated payouts of 1 billion

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Questions?