Investment charge puts AOL in the red for fourth quarter

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Posted 11:28AM on Wednesday, January 30, 2002

NEW YORK - AOL Time Warner Inc. reported a net loss of $1.8 billion for its fourth quarter Wednesday as the world's largest media company wrote down the value of some of its investments. Earnings from operations rose in line with guidance issued earlier this month, despite a slumping advertising market. The net loss reflected a $1.7 billion write-down in AOL's stakes in Time Warner Telecom Inc., a networking and telecommunications company, and in Hughes Electronics Corp. The figures also include $45 million in costs related to the merger of AOL and Time Warner. Without the effect of those charges, the company reported a 14 percent increase in earnings before taxes, interest costs, depreciation and amortization, the indicator that analysts watch most closely. That figure rose to $2.8 billion, or 33 cents a share, from $2.4 billion, or 28 cents a share, in the period a year ago. The latest earnings matched what analysts surveyed by Thomson Financial/First Call had been expecting. In the fourth quarter of 2000, the company reported a net loss of $1.1 billion, which also included write-offs for the declines in the value of some investments in its portfolio. The net per-share loss was 41 cents in the most recent quarter and 25 cents a year ago. The results overall fell in line with a preliminary earnings announcement the company made to investors on Jan. 7, when it also lowered its financial targets and said it would be more conservative in its forecasting. The company had been criticized by investors for setting and then failing to meet aggressive growth targets last year. The company also disclosed at that time that it would record a one-time balance-sheet charge of up to $60 billion during the first quarter as it adopts new accounting rules governing how the value of merged companies are calculated. That charge will be detailed when the company announces its first-quarter earnings in April. For the fourth quarter, AOL Time Warner -- whose businesses include CNN, People magazine, Warner Bros. and Time Warner Cable -- managed to post a 4 percent increase in revenues despite the severe advertising slump that has affected the entire media industry. Total revenues rose to $10.6 billion from $10.2 billion, due largely to a 16 percent rise in revenues from subscriptions, which include fees from cable TV and AOL. Revenues from advertising slumped 14 percent, and revenues from music, movies and other non-advertising media rose 4 percent. Chief executive Jerry Levin said in a statement that the results were "strong" despite "a difficult overall economy and weak advertising market." He also indicated that the company would continue "pursuing further cost reductions and productivity improvements" on top of the substantial cutbacks the company has already made. Speaking to investors on a conference call, Levin pointed to the company's ability to create valuable franchises such as the "Harry Potter" and "Lord of the Rings" movies even when advertising is weak. Levin is retiring in May, passing control of the company to co-chief operating officer Dick Parsons. For all of 2001, AOL Time Warner reported a net loss of $4.9 billion compared with a net loss of $4.4 billion in 2000, or $1.11 per share versus $1.02 per share. Both periods included various one-time charges, including investment write-downs. Without those charges, earnings before taxes, interest costs, depreciation and amortization rose 18 percent for the year to $9.9 billion from $8.4 billion in 2000. Per-share cash earnings were $1.18 versus 94 cents last year. Full-year revenues rose 6 percent to $38.2 billion from $36.2 billion in 2000. In early trading on the New York Stock Exchange, AOL Time Warner shares were down $1.10, or 4 percent, to $25.60.