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The High Cost of Creating AOL Time Warner

Newly formed company spent almost $1 billion to complete its merger, report says.

George A. Chidi Jr., IDG News Service

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Creating a new company certainly isn't cheap--just ask the folks at AOL Time Warner. The merger, the largest in U.S. history, cost almost $1 billion to complete, according to an annual report the newly formed company filed earlier this week with the U.S. Securities and Exchange Commission.

In the 10-Q filing, AOL Time Warner says it incurred restructuring liabilities of approximately $965 million during the first quarter of 2001, most of which the company attributed to workforce reductions.

Shortly after regulators approved the merger in January, the company cut more than 2400 jobs throughout the organization, from the Internet service provider America Online, Time Magazines, the CNN News Group, and Warner Music Group divisions.

Of the $565 million the company incurred in layoff costs, AOL Time Warner has paid $40 million to its fired employees. The remaining $525 million remains on the books--certain employees can defer receipt of termination benefits for up to 24 months, according to the filing.

AOL Time Warner also took a $400 million hit to exit certain business activities, primarily related to lease and contract termination costs. Declaring plans to consolidate certain operations and exit other underperforming operations, the company specifically cited its Warner Brothers Studio Store operations and World Championship Wrestling. Of these expenses, $380 million of liabilities remain on the company's balance sheets.

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