AOL-TW Q4 Losses Up in Tough Ad Year

By Erin Joyce

AOL Time Warner said subscription revenues grew by 12 percent during 2001, which helped to offset a difficult year for ad revenues and wider net losses for the fourth quarter.

The world’s largest media company said its net loss for the final quarter of 2001 was $1.8 billion, or 41 cents per share, compared to a (pro forma) estimated net loss of $1.1 billion, or 25 cents per share in the same period a year-ago.

(The comparison numbers for 2000 assume that the merger of America Online and Time Warner, Inc. had already closed.)

Revenues for the quarter were up 4 percent from the prior year to $10.6 billion.

The results were in line with what the company had discussed with analysts and investors on January 7th, when it announced goodwill write-off charges related to the merger of the two companies such as a $45 million merger charge and a $1.7 billion charge from investment losses.

Shares of AOL Time Warner had dropped by almost 9 percent to $24.48 after the results were announced Wednesday morning.

Subscription revenues continued to help ease the advertising difficulties, gaining by 16 percent during the fourth quarter to contribute $4.4 billion to the bottom line, while content and other revenues were up by 4 percent to $4 billion.

For the year, subscription revenues were up 12 percent to contribute $16.5 billion of the company’s annual sales of $38.2 billion, which overall were up by 6 percent over 2000.

Not surprisingly, advertising and commerce revenues declined by 14 percent to $2.2 billion for the quarter, reflecting the advertising recession that is buffeting the media industry.

Within its America Online division, advertising and commerce revenues fell by 7 percent for the quarter to $637 million but for the year, they were up by 13 percent to $2.7 billion.

Earnings before interest, taxes, depreciation and amortization (EDITDA), which cable and media companies have historically used to measure cash growth, were $2.8 billion, or 33 cents per share for the quarter. The cash earnings growth was up 14 percent compared to the same time last year, helped by the new subscribers in its divisions.

Subscriptions across all properties now number 148 million, an increase of 17.9 million over 2000 (which includes the 9.1 million subscribers it acquired when it purchased British magazine publisher IPC Media).

The flagship AOL service added 6.5 million subscribers during the year and 1.9 million during the quarter to end the year with 38.1 million subscribers.

Outgoing CEO Gerald Levin called the overall results particularly solid “in light of the precipitous fall in the economy and recession we have in the advertising market.”

Throughout the company’s first merged year, it made significant progress in fulfilling its vision of combining how people communicate and transact across new media, especially its deployment of broadband services, Levin said.

“We know broadband like no other company. And no other company is better positioned to both drive and capitalize on the emerging opportunities in this sector,” Levin said.

The Time Warner Cable division said it added 471,000 digital subscribers in the quarter, finishing the year with approximately 3.3 million. Within that number, it added 256,000 high-speed data subscribers for a total of about 1.9 million high speed subscribers as of the end of 2001, the largest number of broadband subscribers in the nation.

During today’s meeting with analysts to discuss the results, and before turning the floor over to his successor as CEO, Richard Parsons, Levin stressed the possibilities that the cable division’s expanding broadband base represented for added revenues as digital services multiply in customers’ homes.

“We have the assets that will help us to (manage) that direct relationship with consumers that is the most fundamental dimension of growth in the company,” said Levin.

In his comments, Parsons got to work mending fences with the Wall Street community which was disappointed by the aggressive growth estimates the company provided earlier in the year.

Parsons told analysts that AOL Time Warner would seek to earn their trust by managing in a way that establishes credibility. “Ultimately, it’s the cornerstone of the success of any truly great company,” he said, while taking his relationship-building efforts a step further.

“If you see us falling short, or managing in a way that falls short of the highest standards of American industry, let us know,” Parsons said. “I don’t bite and I’m committed to keeping AOL Time Warner, a company that my friend and mentor (Levin) has built over 30 years, at the forefront of American companies.”

For the full year, the company’s net loss was $4.9 billion, or $1.11 per share, which reflected a $250 million pre-tax merger charge and a charge of $2.5 billion to reflect declines in the value of some investments.

The year-end results were up over the prior year’s full-year net loss of $4.4 billion, or $1.02 per share, which also included merger-related charges and write-offs.

As it had said earlier this month, AOL Time Warner also said it assumes no economic recovery this year and expects revenue growth to be relatively flat in the 5 percent to 8 percent growth range.

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