SEC CHALLENGES AOL ON $400 MILLION AD DEAL

Says Reported Revenue May Need to Be Restated

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NEW YORK (AdAge.com) -- AOL Time Warner said as much as $400 million booked as advertising revenue in transactions with Bertelsmann AG has been challenged by the Securities and Exchange Commission and may have to be restated.

The new accounting issue was

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disclosed in AOL Time Warner's 10K annual report filed March 28.

The SEC believes at least some of the $400 million should have been treated as a reduction in the price AOL paid for Bertelsmann's 50% stake in AOL Europe; at the same time AOL Time Warner was negotiating a buyback of that stake in 2001, Bertelsmann agreed to run $400 million in ads on AOL. AOL recorded that as ad revenue over three years.

An AOL spokeswoman refused to comment, saying the company continues to cooperate with the SEC.

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