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SEC Looking Into AOL Time Warner

7/25/2002 3:59 AM Eastern

AOL Time Warner Inc. CEO Richard Parsons revealed that the company is under
investigation by the Securities and Exchange Commission, stemming from a series
of articles in TheWashington Post that called into question some
of the accounting practices at its Internet unit.

On a conference call with analysts to discuss its second-quarter results
Wednesday night, Parsons said the SEC had initiated a 'fact-finding inquiry'
regarding its accounting practices. He stressed that he believes the allegations
brought up by the Post are groundless.

In an article July 18, the Post reported that America Online Inc.
conducted a series of 'unconventional' transactions between 2000 and 2002 to
artificially increase its revenue.

Those transactions -- including shifting revenue from one division to another
to boost its online business, booking the sale of ads it sold on behalf of
online auction site eBay Inc. as its own and counting stock rights as
advertising and commerce revenue in a deal with a Las Vegas firm -- may have
boosted revenue in those periods by about $270 million.

Aside from the SEC inquiry, AOL Time Warner had a pretty good quarter, with
revenue up 10 percent to $10.6 billion. Cash flow rose 2 percent to $2.5
billion.

That growth was mainly fueled by the cable networks and cable systems. Cash
flow at the cable segment rose 13 percent to $1.7 billion.

At the AOL unit, cash flow was down 39.6 percent in the quarter, fueled by a
42 percent decline in advertising and commerce revenue.

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