AOL Time Warner loss widens after write-down

Reshma Kapadia

NEW YORK: AOL Time Warner Inc. said on Wednesday its fourth-quarter net loss

widened due to a $1.7 billion write-down of some investments, while cash

earnings fell short of the rosy predictions it issued after merging, as the

online business matured and advertising slumped.

The world's largest Internet and media company said the net loss rose to

$1.82 billion, or 41 cents a share, from $1.09 billion, or 25 cents a share, a

year earlier.

The latest results included the noncash write-down of such investments as

Time Warner Telecom Inc., and a charge from the decline in the carrying value of

its investment in Hughes Electronics Corp.

AOL Time Warner, which houses cable news network CNN, People magazine,

artists like Madonna, and television shows like "Friends," said

earnings before amortization of goodwill and charges rose to 33 cents a share

from 28 cents a year earlier. Revenues increased 4 per cent to $10.63 billion,

boosted by strong subscriptions at AOL and its cable units.

The results were in line with its own lowered outlook earlier this month and

with analysts' estimates. "There were no surprises based on what we heard

on Jan. 7," said Friedman Billings Ramsey analyst Robert Martin.

For the first quarter, it said it expects cash flow and revenues to be little

changed from a year earlier. The company reiterated its 2002 outlook of 5 per

cent to 8 per cent growth in revenues, and 8 per cent to 12 per cent growth in

cash flow, including its acquisition of AOL Europe and magazine publisher IPC

Media.

AOL Time Warner revised its growth projections twice after standing for

months by aggressive targets it set last January, even as rivals lowered

expectations. After the Sept. 11 attacks, the protracted ad slump and the

economic slowdown, the company was forced to reduce expectations and again

lowered targets earlier this month.

AOL Time Warner said earnings before interest, taxes, depreciation and

amortization (EBITDA), a widely watched measure of cash flow for media

companies, rose 14 per cent to $2.76 billion in the quarter.

For the 2001 year, EBITDA rose 18 per cent to $9.91 billion, while revenues

climbed 6 per cent to $38.23 billion. The results fell short of targets of $11

billion in EBITDA and $40 billion in revenues that were set after AOL bought

Time Warner, but in line with its revised outlook this month.

The company calculated year-earlier results on a pro-forma basis, assuming

that America Online had completed its $106.2 billion purchase of Time Warner by

January 2000, rather than the actual closing date of January 2001.

AOL cash flow up 10%



It added 1.9 million new members to its flagship Internet service in the fourth
quarter, bringing the AOL subscriber base to 33.2 million. AOL added 851,000

international members in the quarter, for a total of 8 million.

Cash flow and revenues at AOL grew 10 per cent during the quarter. The unit

has come under pressure as the company tries to shift some subscribers and sign

up new ones to its high-speed services. "AOL (Internet unit) was a little

light on the top line but made it up on the cost line," Martin, the

analyst, said.

AOL advertising and commerce revenues fell 7 per cent to $637 million from

$686 million a year earlier. "I think the good piece of news out of it was

that the ad business was to blame for this slowdown in the US access

business," said Mike Gallant, analyst at CIBC. "So investors should

take some comfort in that. There doesn't appear to be anything funny going on

(in the AOL unit)."

The company's shares have taken a beating in recent sessions, hovering near

lows not seen since December 1998. Shares fell 50 cents to $26.20 on Wednesday

on the New York Stock Exchange.

Some institutional investors said they were waiting to see what the new

management will do in the current difficult climate. AOL Time Warner has named

co-chief operating officer Richard Parsons to replace chief executive Gerald

Levin, who is retiring in May.

So far this year, AOL Time Warner has taken a conservative outlook, a marked

contrast to the aggressive growth targets it set last year, in hopes of

promising less and delivering more.

"The key areas of focus from an investor point of view are: the path to

broadband and signing major (cable) relationships, progress and perspective on

TWE (Time Warner Entertainment) and commitment to maintaining an investment

grade credit rating," said Anthony Noto, analyst at Goldman Sachs.

(C) Reuters Limited.