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American Morning
'Washington Post' Reports on Accounting Problems at AOL
Aired July 18, 2002 - 07:31 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.
PAULA ZAHN, CNN ANCHOR: We're going to talk about what is going on with our company this morning with Andy Serwer, "Fortune" magazine's editor-at-large, minding your business.
It's in every single newspaper this morning there may be a change at the top.
ANDY SERWER, "FORTUNE" MAGAZINE: Yes. A swirl of news stories and activities surrounding AOL, the parent company of CNN and "Fortune" magazine, where I work.
First of all, though, Paula, you've got to give me a little credit for the stock market yesterday going up. Come on, you know?
ZAHN: Nice job. You said it couldn't happen the eighth day in a row and you were right.
SERWER: Yes, right.
ZAHN: Let's hear it for Andy.
SERWER: I'm not making any bets today, though, yes.
ZAHN: Keep that Street going, please, Mr. Bull.
SERWER: Yes, we'll try.
All right, let's bring in Carrie Lee down at the New York Stock Exchange.
Carrie, stories in the "Wall Street Journal" about Bob Pittman, the co-CEO, co-COO, I should say, of the company. Also, though, let's turn to the "Washington Post." A very extensive article there detailing the accounting at AOL. Oh, here we go again?
CARRIE LEE, CNN CORRESPONDENT: That's right. Well, it looks like in the fall of 2000 the company was facing some problems, this according to the "Washington Post," with ad revenue levels. So they basically tried to make things look a little rosier than they actually were.
Now, the newspaper says it reviewed hundreds of pages of confidential AOL documents...
SERWER: Right.
LEE: ... interviewed current and former company officials and basically showed a total of $270.1 million in unconventional deals. And you can take a look at this chart and see some of the things that they did, converting legal disputes into ad sales, shifting revenues between divisions, selling ads for eBay but then booking those sales as its own revenues and then finally trading ads for computer equipment with Sun Microsystems. So quite a laundry list here, Andy.
SERWER: Right. I want to put this into perspective a little bit, Carrie.
First of all, this is what I would consider to be aggressive accounting. There is, there are no allegations of fraud like a WorldCom here, at least my reading of this, number one.
Number two, the dollar amounts here are relatively small versus the total amount of ad revenue at the AOL part of AOL Time Warner. But, it's very significant because what the article is suggesting is that AOL was relying on these unusual deals to get that ad growth, to get the revenue growth to make the company continue to look attractive to Wall Street. Isn't that right?
LEE: Right. Of course, the reason they wanted to do this is because they wanted the AOL Time Warner deal to go through. That happened in January 2001. AOL is kind of responding in the way you just described, Andy, saying that AOL told the "Post" that the revenue represented by the deals reviewed by the "Post" were truly microscopic, less than two percent of AOL's overall revenue, including subscriber fees, and therefore immaterial to the company's business.
SERWER: Right. And what they were looking to do, the article suggests, is use legal fees and break-up fees and count that as ordinary revenue.
We've got to go, though, Carrie.
LEE: OK.
SERWER: We'll check back in with you later.
Paula, also, with regard to AOL, there's the board meeting today. The stories in the "Wall Street Journal" suggesting the departure of Bob Pittman and perhaps the elevation of Jeff Bewkes and Don Logan, two executives from the Time Warner side.
ZAHN: Oh, a couple of the New York papers went even farther than that.
SERWER: Yes.
ZAHN: Suggesting that the deals have already been done.
SERWER: Right.
ZAHN: We'll keep you posted. SERWER: Exactly. We will see.
ZAHN: And hopefully we'll find out before it hits the press, for those of us who work for the company.
SERWER: Can you imagine, right?
ZAHN: Can you imagine that, reading in the newspaper what's going to happen to your company?
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