You’ve Got Mail! AOL Time Warner Unexpectedly Reassigns CFO

Current finance chief at TBS brought in as new CFO. Also, Enron rating cut. Plus, the old college try: University accountant accused of embezzlement.


Management at AOL Time Warner Inc. stunned the business world when it announced Thursday that the company is changing chief financial officers.

Outgoing CFO Michael Kelly has been reassigned as chief operating officer of America Online, the company’s largest business unit.

He will be replaced as CFO by vice chairman Wayne Pace, who currently serves as CFO and chief administration officer of Turner Broadcasting Systems.

“The moves are designed to further position America Online as a key driver of growth and convergence across the entire company,” according to a company press release. “Pace will play a pivotal role in driving value creation across AOL Time Warner,” it also noted.

Back in September, AOL Time Warner management warned that that the media giant would not meet 2001 growth expectations.

In his new position, Kelly will be responsible for managing America Online’s day-to-day operations, reporting to America Online chairman and CEO Barry Schuler. He will also work with AOL Time Warner’s other divisions to fully leverage AOL’s platforms, according to the company. Kelly had been CFO of Turner Broadcasting when it was a public company.

Pace has spent eight years with Turner Broadcasting. He has a broad background in finance, strategic planning, and mergers and acquisitions. In his new role, Kelly will oversee all of AOL Time Warner’s finance functions, including tax, financial planning, mergers and acquisitions, treasury, accounting, and capital allocation.

In making the announcement, AOL Time Warner CEO Jerry Levin said, “As chief operating officer of America Online, Mike Kelly will be in the perfect position to further drive convergence across AOL Time Warner. He has played an instrumental role in the successful integration of the company, developing close working relationships with all of our division CEOs. And as the lines between our divisions blur, he is now uniquely positioned to further advance America Online as the central growth engine of all our media and entertainment businesses.”

Levin continued: “Pace is a multitalented executive who will help ensure that we maintain our financial discipline and use our strong balance sheet to its best advantage.”

The executive has served as vice president and chief financial officer of AOL Time Warner since January 2001. From 1998 to January 2001, he was SVP and CFO of America Online Inc. Before joining America Online, Kelly held a variety of positions at GTE Corp., including EVP for finance and planning and chief financial officer, senior vice president of finance, vice president, controller, and vice president of finance and business development for the company’s Telecommunications Products & Services Group.

Pace was named vice chairman, CFO, and chief administrative officer of Turner Broadcasting System Inc. in March 2001, with oversight responsibilities for all financial, corporate, and administrative functions. From July 1993 to March 2001, he served as vice president of finance and CFO for Turner Broadcasting, responsible for all company financial activities, investor relations, and mergers and acquisitions — which included the company’s acquisitions of New Line Cinema and Castle Rock Entertainment and its October 1996 merger with Time Warner Inc.

Prior to joining Turner in 1993, Pace served as an audit partner at Price Waterhouse, where he played a key role in advising Turner Broadcasting.

Asked by Reuters whether these moves were a demotion for Kelly, Levin said: “How can you make someone the chief operating officer of the biggest growth engine of the company and call that a demotion? I believe that AOL is the pivot for AOL Time Warner. That’s a promotion. That’s an advancement in someone’s career.”

Maybe so. Still, we’d like to see the company’s organizational chart.

The Old College Try: University Accountant Accused of Embezzlement

David Wright, an accountant in the California State University, Hayward, fund- raising department, has been accused of embezzling $150,000, according to

Wright allegedly stole cash, a personal computer, and other items, according to the Web site’s account.

The apparent embezzlement was discovered after a recent audit, which uncovered forged documents and fraudulent disbursements, according to the site.

Wright was the accountant for the university’s Educational Foundation, which solicits and collects donations from alumni and grant makers.

“The campus has been working on improving accounting procedures so this won’t happen again,” the Web site quoted Colleen Bentley-Adler, a spokeswoman for the CSU Chancellor’s office.

Enron’s Latest Woes

It just gets worse for Enron Corp.

On Thursday, Standard & Poor’s Corp. cut the company’s long- and short- term ratings and warned it may cut the ratings again due to “uncertainties” surrounding the company and the possibility of further problems in the capital markets.

S&P cut the company’s senior unsecured debt to BBB, two notches above junk status, from BBB-plus, and its commercial paper to A-3 from A-2.

On Monday, Moody’s cut Enron’s long-term debt to Baa2 and warned it may cut that rating and Enron’s commercial paper rating.

In other rating news:

  • Moody’s downgraded a number of debt issues of Primedia. “The downgrade and negative outlook reflects a material deterioration in Primedia’s cash flow, operating results well below Moody’s expectations, and uncertainty surrounding the company’s ability to recover in the intermediate-term,” the credit rating agency said in a press release. “Primedia’s ratings remain constrained by its high financial leverage and modest coverage of interest plus dividends.”
  • Moody’s changed the rating outlook for the debt of cable operator Charter Communications and its subsidiaries to stable from positive. The senior secured and senior unsecured debt of Charter’s subsidiaries is rated Ba3 and B2, respectively, while the convertible senior unsecured debt of parent company Charter is rated B3. The company’s senior implied rating is Ba3. The senior unsecured issuer rating for Charter is B3. “The outlook revision incorporates the cumulative affect of several factors and correspondingly reflects a reduced likelihood that Charter’s debt ratings will be upgraded, at least not in their entirety, over the near-to-medium term rating horizon,” noted the Moody’s release.

Financing News

  • First Data Corp. issued $1 billion of global notes in two tranches, led by J.P. Morgan and Bear, Stearns. The company issued $450 million of 5- year notes priced to yield 4.733 percent, or 122 basis points over comparable Treasurys and $550 million of 10-year notes priced to yield 5.666 percent, or 143 points over Treasurys. It was rated A1 by Moody’s and A-plus by S&P.
  • USA Education Inc. issued $500 million of three-year medium- term notes, led by Banc of America Securities Inc. and J.P. Morgan. The coupon on the MTNs was set at the three-month Libor plus 33 basis points. It was rated A3/A.
  • Tesoro Petroleum Corp. issued $215 million of 7-year senior subordinated notes in the private placement market, led by Lehman Brothers Inc. It was priced at par to yield 9.625 percent.
  • Washington Mutual Inc., the largest savings and loan in the United States, filed a shelf registration to periodically sell up to $1 billion in debt securities. Managers at the thrift plan to use the proceeds for general corporate purposes, including working capital, debt repayment, acquisitions and office expansions.

In Brief

  • The National Labor Relations Board has issued a complaint against Coyne Textile Services, a privately-held textile company, for not bargaining in good faith.

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