Media and entertainment giant Time Warner said today that it had plunged into the red after setting aside $3 billion to cover shareholder lawsuits stemming from its 2001 merger with AOL.
Time Warner posted a loss of $321m in the second quarter to June, from a net profit of $777m the same time last year. Of the legal reserves, $2.4 billion will go to a settlement for a class-action lawsuit filed by disgruntled holders of stock in both Time Warner and its America Online division.
Time Warner's auditor Ernst & Young will pay an addition $100m to settle its end of the charges, attorneys representing the class-action plaintiffs said.
The settlement, one of the biggest in US corporate history, comes after Time Warner agreed in March to pay $30m to settle government charges that AOL fraudulently overstated ad revenues and Internet subscribers from 2000 to 2002.
Time Warner said the remaining $600m of its three-billion-dollar legal reserve would go to settle pending securities litigation.
'By working to resolve these issues now, we're aiming to avoid the costs, risks and distractions of protracted litigation,' CEO Dick Parsons said in a statement. 'Even after considering the reserve, our balance sheet remains strong,' he added.
Time Warner's second-quarter loss equated to seven cents a share, with revenue down 1% to $10.7 billion on declines from both its film and AOL divisions.
