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AOL merger charges hit nearly $1 billion

The Internet and media powerhouse expects to incur almost $1 billion in restructuring charges tied to the merger that formed the company, according to its annual report.

Internet and media powerhouse AOL Time Warner expects to incur nearly $1 billion in restructuring charges tied to the merger that formed the company, according to its annual report filing with the Securities and Exchange Commission.

In the filing, AOL Time Warner, which has been operating as a joint entity for the past four months, said it recorded a restructuring liability of approximately $965 million during its first quarter. That figure is mainly for costs incurred for "exiting and consolidating" activities of the company, with a huge part of that sum related to employee layoffs.

Although the company may spend close to $1 billion in post-merger expenses, costs related to mergers are tax deductible, which means the total cost could end up being much less for AOL, the company said.

Shortly after America Online and Time Warner won final approval for their marriage, the combined company laid off some 2,400 employees, many of whom came from the AOL division in Dulles, Va. Other areas affected included CNN, Time Inc. and Warner Bros.

Of the total restructuring costs, $565 million related to work force reductions and represented severance packages, AOL Time Warner said in its SEC filing. Termination payments of about $40 million were made to laid-off workers in the first quarter. As of March 31, the remaining amount of about $525 million was classified as a current liability in the company's balance sheet.

The company's restructuring plans include a $70 million charge related to the AOL segment, which was recorded in its first-quarter statement as "merger-related costs."

The restructuring charges also include approximately $400 million associated with "exiting certain activities," primarily tied to lease and contract terminations. AOL Time Warner said in its filing that it intends to consolidate certain operations and exit other under-performing operations, including the Studio Store business in its Filmed Entertainment segment and the World Championship Wrestling operations in the company's Networks division.

In the filing, the company noted the possibility of additional restructuring initiatives as management continues to evaluate the integration of the combined company.

AOL Time Warner last month posted first-quarter earnings that beat Wall Street estimates, driven primarily by strong sales and considerable growth in its online and cable businesses. The company reported revenue of $9.1 billion in the quarter, compared with $8.3 billion in the same period a year ago. Net income per share came in at 23 cents, above analysts' estimates of 20 cents per share.

News.com's Jim Hu contributed to this report.