Time Warner settles shareholder lawsuit, sets aside $3 billion reserve | VailDaily.com
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Time Warner settles shareholder lawsuit, sets aside $3 billion reserve

NEW YORK (AP) – Time Warner Inc., the world’s largest media company, set aside $3 billion in reserves to cover lawsuits from shareholders over its merger with AOL, swinging the company to a loss of $321 million for the second quarter.The company, whose large stable of media assets includes HBO, CNN, Warner Bros. and Time magazine, also said it had reached an agreement with the largest group of shareholders for $2.4 billion. The shareholders claim they were cheated in the merger by inflated revenue claims and improper accounting at AOL.At the same time, Time Warner also said it would buy back $5 billion of its own shares over the next two years, a step shareholders had been clamoring for as a way to boost its sagging share price.For the three months ended in June, the company posted a net loss of $321 million, or 7 cents a share, versus a profit of $777 million, or 17 cents a share, for the comparable period a year ago. Revenue fell 1 percent in the quarter to $10.74 billion from $10.86 billion a year earlier.Excluding the effect of the litigation reserve and other one-time items, earnings were 18 cents per share in the latest quarter, a penny short of the forecast of the estimates of Wall Street analysts surveyed by Thomson Financial.The company’s shares fell 15 cents, or 0.9 percent, to close at $17.27 on the New York Stock Exchange, in the middle of its 52-week range of $15.41 and $19.90 but far below pre-merger levels.Rich Greenfield, an analyst with Fulcrum Global Partners, said he was “glad” the company announced a share buyback, though he said he would have liked to have seen a larger one. “I think they’re finally focused on returning capital to shareholders,” he said.Time Warner chief executive Dick Parsons said in a statement that even after the shareholder payout, the company’s balance sheet remains “strong.”Reaching the agreement with the main group of plaintiffs and setting aside a reserve for that and any other shareholder settlements “mark important steps toward putting these matters behind us,” Parsons said.A law firm representing the lead plaintiff group announced separately that the settlement with their group, which amounts to $2.4 billion, will benefit shareholders who bought shares of AOL or Time Warner between Jan. 27, 1999, and Aug. 27, 2002. The accounting firm Ernst & Young has also agreed to pay $100 million.The settlement deal must still be approved in court. The company also set aside another $600 million to settle other remaining shareholder litigation.The agreement marks the latest milestone in Time Warner’s efforts to put the devastating effects of the AOL merger behind it. Time Warner has already reached settlements with federal regulators over charges of improper accounting at its AOL unit, and most of the architects of the deal with AOL, which was announced at the height of the Internet bubble in early 2000, have long since left the company. Time Warner even removed “AOL” from the beginning of its name.The company’s stock, however, has yet to recover the ground it lost since then, and is still about 75 percent below the level where it was before the deal was announced.Time Warner has drastically cut back its debt in recent years, selling off a number of assets including its music company, Warner Music Group, and shareholders have been pressing the company to use its renewed financial capacity to buy back its own shares.Time Warner’s AOL division posted a 4 percent decline in revenue as subscribers to its dial-up Internet service continued to migrate toward high-speed connections. AOL lost 917,000 subscribers from the prior quarter, leaving it with a total of 20.8 million as of June 30.However, AOL’s profits rose 11 percent due to lower marketing and network costs as well as higher advertising revenue. The unit is in the midst of shifting its business strategy to bring in more advertising dollars and open access to AOL’s online material to a wider audience as its traditional dial-up service declines.Earnings from movies and TV declined sharply, as analysts had been expecting, compared with the same period a year ago when the company was enjoying blockbuster sales from its “Lord of the Rings” franchise.Movie and TV revenue fell 15 percent while profits, according to a measure called operating income before depreciation and amortization, tumbled 47 percent.Time Warner’s cable division, a stalwart provider of earnings, turned in another strong quarter. Revenue grew 11 percent and profits rose 10 percent on continued growth in premium services, especially high-speed Internet access.The cable unit signed up another 201,000 high-speed Internet customers in the quarter for a total of 4.3 million. It also added 144,000 digital video customers, and its latest offering, digital phone service over cable lines, added 242,000 new customers for a total of 614,000.Time Warner’s cable unit, with 10.9 million basic subscribers, is the second-largest in the country after Comcast Corp. The two companies have agreed to jointly acquire the assets of the bankrupt cable provider Adelphia Communications Corp., after which Time Warner intends to spin out the cable unit to public shareholders, while retaining control over the business.In other areas, revenue from Time Warner’s cable networks – which include CNN, HBO and TNT – as well as the WB broadcast network rose 5 percent while profits declined 4 percent, reflecting higher programming costs.Revenue from publishing, which include books as well as the Time Inc. stable of magazines, rose 4 percent, but profits fell 3 percent due to higher costs for magazine startups. Time’s magazines include Time, People, Sports Illustrated and Fortune.— On the Net:Company Web site – http://www.timewarner.com


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