Wow. I think it’s possible that the “three unnamed transactions” included the purchase of eVoice and our friends at InfoInterActive. The main concern from the SEC’s perspective is the accounting of these purchases as expenses, and the reporting of revenue from companies like Info InterActive (which is a subscription service) as Advertising and “Commerce” (which is what?).
Of course, neither IIA nor eVoice could be held responsible for how their acquirer accounted for the purchase cost or what AOL did with their revenues. Fortunately, eVoice had no revenue to speak of so that helps things a little..
AOL Restructures Business Affairs By REUTERS
Filed at 4:36 p.m. ET
NEW YORK (Reuters) – The first target of a major restructuring at the online division of AOL Time Warner Inc.(AOL.N) is the business affairs operations of America Online, whose accounting is at the center of federal inquiries, a company source said on Thursday.
The deal-making group struck many of AOL’s advertising and commerce pacts that are now the subject of an internal review as well as inquiries by the U.S. Securities and Exchange Commission and Justice Department.
After standing by AOL’s accounting for weeks, AOL Time Warner disclosed on Wednesday that AOL may have overstated revenue in three deals totaling some $49 million over a period of about 18 months. The disclosure came as a caveat as the media giant’s top executives certified its financial results.
AOL’s shares closed up more than 7 percent, or 81 cents, at $11.85 on Thursday as investors breathed a sign of relief that the disclosure so far was not bigger.
“It seems the disclosures were fairly benign in the grand scheme of things and you would think this was their last opportunity to get any skeletons out of the closet,” said Jon Friedland of investment firm porter Felleman.
The top brass of hundreds of America’s biggest companies swore by their financial results on Wednesday under a government order meant to reassure investors.
AOL Time Warner has begun an internal review of AOL’s deals, which is seen completed by the end of the third quarter.
Chief Executive Richard Parsons said in a memo Wednesday that Time Warner veteran Don Logan and new AOL chief Jon Miller planned to implement a new structure for AOL in a few weeks.
“There is no room at this company for any unethical behavior,” Parsons said in the memo, encouraging employees to raise concerns about conduct to supervisors.
OVERHAUL COMES AFTER LEADER OUSTED
The overhaul of the online division comes as weakness at AOL, once called the company’s “crown jewel,” has offset growth at AOL Time Warner’s other branches such as film and cable.
The business affairs restructuring comes in the wake of the ouster of its former head, David Colburn. A company source said Colburn, a brash, aggressive AOL veteran that set the tone for the group, was on his way out as Miller began reviewing the organization, but the disclosures accelerated his exit.
Lance Conn, a senior vice president for AOL’s business affairs, who most recently was working in Europe, last month was given many of Colburn’s responsibilities.
The restructuring of the deal-making group, which had topped 100 employees and was known as a close-knit, hard-hitting bunch, will likely decentralize it and shift many of its employees to other units, a company source said.
As the new team reviews how to run the AOL, some of the changes implemented in the early days of the merger could be dismantled, industry insiders said. At that time, the focus was on creating synergies and selling advertising across all of AOL Time Warner’s properties.
“It’s going to be more from a strategic perspective on how to approach the ad and commerce business,” said CIBC analyst Mike Gallant.
Several AOL veterans have already left or taken a back seat — including top ad man Myer Berlow — and others may yet leave as part of the pending shake up.
MORE DISCLOSURES ON TAP?
Even though AOL’s shares rose, some analysts recommended investors stay on the sidelines, citing the possibility AOL may uncover more cases of inappropriate revenue recognition.
“They were under pressure to meet their certification deadline; they found language they wanted to use to couch their certification,” said Jacob Frenkel, an attorney at Smith, Gambrell & Russell and former SEC lawyer. “Until the internal investigation is complete, you do not know.”
The three deals AOL discovered were not part of the transactions discussed in a series of Washington Post articles last month that caught regulators’ attention, the source said. The company declined to comment on details of the deals.
The deals highlighted in the Washington Post, which were struck in 2000 and 2001, totaled about $270 million and showed, for example, how AOL sold ads on behalf of eBay Inc.and then booked the sale of those ads as its own revenue.
“If that’s the only bullet I’ve got to take, I can live with that,” Gallant said. “But I just can’t get comfortable that the issue is behind us because they are continuing to review all their ad and commerce transactions and the SEC and DOJ investigation continues.”