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"Washington Post": AOL Used Aggressive Accounting to Inflate Revenue

Aired July 18, 2002 - 11:43   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: A report today is out that AOL, American Online, used aggressive accounting to inflate revenue in the face of the dot-com collapse, and even in the days after the blockbuster merger with Time Warner. The story is in "The Washington Post" this morning, and it's making some waves there and across the country this morning.

Our financial correspondent Greg Clarkin is checking in now from Dulles, Virginia, which is the headquarters for AOL, for more on this story.

Greg, hello.

What's the word there?

GREG CLARKIN, CNN CORRESPONDENT: Good morning there, Leon.

We are looking at not only that issue that AOL Time Warner executives have to grapple with, but a number of other issues as well as they meet at a board meeting in a building behind me, which gets under way in about a half hour. It's a highly anticipated board meeting. It looks like there's another management shakeup on tap for AOL Time Warner.

Now, a little while ago, we saw CEO of the company Dick Parsons arriving for this board meeting. He was followed shortly by Ted Turner, founder of CNN and also a board member of AOL Time Warner. Turner has seen his role expanded under Richard Parsons, more of a role than he had under Parson's predecessor, Gerald Levin.

Now, as far as the management shakeup goes, it looks like Robert Pittman, who now is running the fractured America Online Internet unit, will be leaving the company. It's widely expected that will be happening shortly. It could be as early as this board meeting this afternoon.

That leaves Richard Parsons as the CEO. And he faces a number of challenges as he tries to repair this company and make this merger work. Most importantly, according to Wall Street analysts, is that Parsons needs to outline his strategy. He needs to come out with a very clear, a very decisive, a very definitive direction for the company. That's something he has been criticized for lacking over recent weeks. And then also stop the infighting among the divisions. A lot of analysts say if you look at how this company is being operated these days, it harkens back to the old days of Time Warner, when you had various units battling each other. This was supposed to me more of a meshing of new and old media. This deal (UNINTELLIGIBLE) has yet to happen, that promise, at this point at least, unfulfilled.

And then also explain more clearly AOL's revenue model. That is called into question in this article this morning in "The Washington Post," the "Post" focussing on how some revenue was accounted for, specifically from advertising from failing dot-coms for America Online. And a lot of analysts say if you don't get that today, what they do expect is to get more clarity into that situation next week when the company reports earnings.

And for the record, Leon, America Online spokesman saying the "Post" article is misleading in its conclusions, and he called it flawed. But still, nonetheless, a lot of folks raising some eyebrows with this article this morning in the "Post."

Leon, back to you.

HARRIS: All right, Greg Clarkin. Thank you very much. Greg is standing by, of course, in Dulles, Virginia.

Also, in the interest of full disclosure, CNN is a unit of AOL Time Warner.

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