Entertainment Industry News SampleFeb 3, 2006 12:00:27
TIME WARNER: Allotting $300M for Securities Suit Settlement Fund
UNITED STATES (SunStream News) -- There is no assurance that Time Warner Inc.'s proposed securities class action settlement will receive final court approval, the company said at its financial statement for 2005. A final approval hearing on the case is set Feb. 22, 2006.
In July 2005, Time Warner Inc. reached agreement in principle to settle securities class action included in the matters consolidated under the caption In re: AOL Time Warner Inc. Securities & "ERISA" Litigation described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2004. The settlement is reflected in a written agreement between the lead plaintiff and the Company. On Sept. 30, 2005, the court issued an order granting preliminary approval of the settlement and certified the settlement class. The court scheduled the final approval hearing next month.
In connection with reaching the agreement in principle on the securities class action, the Company established a reserve of $2.4 billion during the second quarter of 2005. Ernst & Young LLP also agreed to a settlement in this litigation and will pay $100 million.
Pursuant to the settlement, in October 2005 Time Warner paid $2.4 billion into a settlement fund (the MSBI Settlement Fund) for the members of the class represented in the action. In addition, the $150 million previously paid by Time Warner into a fund in connection with the settlement of the investigation by the U.S. Department of Justice (DOJ) was transferred to the MSBI Settlement Fund, and Time Warner is using its best efforts to have the $300 million it previously paid in connection with the settlement of its Securities and Exchange Commission investigation, or at least a substantial portion thereof, transferred to the MSBI Settlement Fund.
In addition to the $2.4 billion reserve established in connection with the agreement in principle regarding the settlement of the MSBI consolidated securities class action, during the second quarter of 2005 the Company established an additional reserve totaling $600 million in connection with the other related securities litigation matters, described in pages 39-42 of the 2004 Form 10-K, that are pending against the Company.
This $600 million amount continues to represent the Company's current best estimate of its potential financial exposure in these matters, including the remaining individual shareholder suits, the derivative actions and the actions alleging violations of the Employee Retirement Income Security Act (ERISA).
The Company reached an agreement with the carriers on its directors and officers insurance policies in connection with the securities and derivative action described above and in pages 38-42 of the 2004 Form 10-K (other than the actions alleging violations of ERISA described on page 39 of the 2004 Form 10-K). As a result of this agreement, the Company has recorded a recovery of approximately $185 million, which is expected to be collected in the first quarter of 2006 and is reflected as a reduction to "Amounts related to securities litigation and government investigations" in the accompanying consolidated statement of operations for the year ended December 31, 2005.
Update on Status of Government Investigations
As previously disclosed by the Company, the SEC and the DOJ had been conducting investigations into the accounting and disclosure practices of the Company. Those investigations focused on advertising transactions, principally involving the Company's America Online segment, the methods used by the America Online segment to report its subscriber numbers and the accounting related to the Company's interest in AOL Europe prior to January 2002. During 2004, the Company established $510 million in legal reserves related to the government investigations, the components of which are discussed in more detail in the following paragraphs.
The Company and its subsidiary, AOL, entered into a settlement with the DOJ in December 2004 that provided for a deferred prosecution arrangement for a two-year period. As part of the settlement with the DOJ, in December 2004, the Company paid a penalty of $60 million and established a $150 million fund, which the Company could use to settle related securities litigation. The fund is reflected as restricted cash on the Company's consolidated balance sheet at December 31, 2004.
During October 2005, the $150 million was transferred by the Company into the settlement fund for the members of the class covered by the consolidated securities class action described above under the heading "Amounts Related to Securities Litigation." In addition, on March 21, 2005, the Company announced that the SEC had approved the Company's proposed settlement, which resolved the SEC's investigation of the Company.
Under the terms of the settlement with the SEC, the Company agreed, without admitting or denying the SEC's allegations, to be enjoined from future violations of certain provisions of the securities laws and to comply with the cease-and-desist order issued by the SEC to AOL in May 2000. The settlement also required the Company to:
(1) Pay a $300 million penalty, which will be used for a Fair Fund, as authorized under the Sarbanes-Oxley Act;
(2)
(i) Adjust its historical accounting for Advertising revenues in certain transactions with Bertelsmann, A.G. that were improperly or prematurely recognized, primarily in the second half of 2000, during 2001 and during 2002;
(ii) as well as adjust its historical accounting for transactions involving three other AOL customers where there were Advertising revenues recognized in the second half of 2000 and during 2001;
(3) adjust its historical accounting for its investment in and consolidation of AOL Europe; and
(4) Agree to the appointment of an independent examiner, who will either be or hire a certified public accountant.
The independent examiner will review whether the Company's historical accounting for transactions with 17 counter-parties identified by the SEC staff, principally involving online advertising revenues and including three cable programming affiliation agreements with related advertising elements, was in conformity with GAAP, and provide a report to the Company's audit and finance committee of its conclusions, originally within 180 days of being engaged. The transactions that would be reviewed were entered into between June 1, 2000 and December 31, 2001, including subsequent amendments thereto, and involved online advertising and related transactions for which revenue was principally recognized before January 1, 2002.
The Company paid the $300 million penalty in March 2005; however, it will not be able to deduct the penalty for income tax purposes, be reimbursed or indemnified for such payment through insurance or any other source, or use such payment to setoff or reduce any award of compensatory damages to plaintiffs in related securities litigation pending against the Company.
As described above, in connection with the pending settlement of the consolidated securities class action, the Company is using its best efforts to have the $300 million, or a substantial portion thereof, transferred to the settlement fund for the members of the class represented in the action. The historical accounting adjustments were reflected in the restatement of the Company's financial results for each of the years ended December 31, 2000 through December 31, 2003, which were included in the Company's 2004 Form 10-K.
The independent examiner has begun its review, which as a result of an extension, is expected to be completed in the second quarter of 2006. Depending on the independent examiner's conclusions, a further restatement might be necessary. It is also possible that, so long as there are unresolved issues associated with the Company's financial statements, the effectiveness of any registration statement of the Company or its affiliates may be delayed.
Time Warner Inc. on the Net: http://www.timewarner.com/corp/ss/car
Source: Class Action Reporter
Publication Date: 2006-02-03
COY: AOL
IND: ENT MLM
GEO: n-us
 |
 |
