Time Warner settles shareholder lawsuit, sets aside $3 billion reserve

Wednesday, August 3rd 2005, 8:38 am

By: News On 6

NEW YORK (AP) _ Time Warner Inc., the world's largest media company, is setting aside $3 billion in reserves to settle shareholder lawsuits filed against the company in the wake of its disastrous merger with AOL.

Time Warner announced Wednesday it had reached a tentative settlement with the lead group of shareholder plaintiffs, who claimed they lost money when the company's shares declined following the merger.

The company also said it had authorized a program to 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 lagging share price.

The announcement came as Time Warner released its second-quarter earnings report. For the three months ending 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 ago.

Without the effect of the litigation reserve or other one-time items, earnings were 18 cents per share in the latest quarter. Wall Street analysts had been looking for 19 cents per share, according to Thomson Financial.

The company's shares fell 22 cents or 1.3 percent to $17.20 in pre-market trading. They have been trading about in the middle of their 52-week range of $15.41 and $19.90 on the New York Stock Exchange.

Time Warner CEO 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 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 revenues 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 revenues. AOL 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 revenues 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. Revenues grew 11 percent and profits grew 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, revenues 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.

Revenues 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 Inc.'s magazines include Time, People, Sports Illustrated and Fortune.