AOL Time Warner posts record $98 billion loss
By Edmund Sanders
Los Angeles Times
Battered media giant AOL Time Warner Inc. posted an annual loss of $98.7 billion, the largest in corporate history, after taking another massive charge to reflect the falling value of its Internet unit and other properties.
The company's $45.5 billion fourth-quarter write-off, tied largely to the America Online division, was more than double Wall Street expectations. The noncash charge resulted in a loss of $44.9 billion, or $10.04 per share, for the quarter.
Management turmoil, meanwhile, continued to rock the conglomerate, as media mogul Ted Turner resigned his post as vice chairman. Earlier this month, AOL founder Steve Case resigned as chairman. Case, a Hawai'i native, remains on the board, but it was unclear whether Turner would stay on the panel.
AOL Time Warner's already depressed stock dropped about 8 percent to $12.55 a share in after-hours trading, which followed the earnings announcement. Analysts, who had expected a charge of $20 billion or less, were braced for the possibility of another rough ride in the market.
"The last time this happened, the stock got killed," Kaufman Bros. analyst Mark May said.
Nine months ago, the company took a record charge of $54 billion to reflect the value of falling assets. While the charges don't affect a company's cash position, they are an embarrassing reminder of past business missteps. The current charge reflected the write-down of $33.5 billion in good will related to America Online. The balance was related to AOL Time Warner's cable and music properties.
Good will is the difference between the price a company pays for a business and the value of its tangible assets.
Despite the enormous loss, the media giant showed strong operating performance in most of its units, including the movie, music and cable divisions.
Fourth-quarter earnings before interest, taxes, depreciation and amortization — or EBITDA, a common measure of media businesses — rose 16 percent to $2.8 billion from the year-earlier period. Revenue for the quarter was up 8 percent to $11.4 billion.
Full-year revenue from continuing operations increased 7 percent to $41.1 billion, while EBITDA for the year was up 5 percent, to $9.1 billion.
AOL Time Warner said it expects EBITDA to be flat this year because of declines at its Internet, cable and music divisions. "2003 will be a challenging year," said Chief Executive Officer Richard Parsons, who was named to the additional post of chairman when Case resigned.
Analysts have predicted more advertising headaches for big media companies like AOL Time Warner, particularly if the economy slows down in response to an invasion of Iraq.
America Online was the company's worst-performer. Revenue fell 4 percent for the year while EBITDA plummeted 22 percent, largely because of a 39 percent drop in advertising and commerce revenue. The conglomerate has been struggling with the online operation ever since it was merged with what was then known as Time Warner Inc. in 2001. The merger, which occurred at the height of the Internet boom, was valued at $99 billion. But the Web operation's value quickly collapsed with the fall-off in online advertising, taking the combined companies' stock price with it.
A bright spot for AOL Time Warner was its movie unit, including Warner Bros. and New Line Cinema, both of which reported record results for the year. EBITDA at the film unit rose 21 percent for the year to $1.2 billion thanks to the box-office success of the latest installments of "Harry Potter" and "The Lord of the Rings" and an industrywide surge in DVD revenue.
AOL officials also said they plan to reduce their $28 billion debt — one of the highest in the media industry — to $20 billion by 2004. "While our balance sheet remains strong, we have a lot of debt," Parsons said. The debt-reduction effort has accelerated in recent weeks, as the company struggles to avoid downgrades by the leading credit-rating agencies.
The media company hopes to raise $400 million by shedding its book-publishing unit, including Little, Brown & Co., and this week sold its 8.4 percent stake in Hughes Electronics Corp, parent of DirecTV, for about $800 million.
Other assets that might be shed include AOL's stake in cable network Comedy Central and its baseball franchise the Atlanta Braves.
The company also plans to spin off its cable unit, Time Warner Cable, with an initial public offering this spring. AOL Time Warner said that revenue at the cable system, the nation's second largest, rose 15 percent for the year and EBITDA increased 12 percent.
The New York media giant's year of tumult has included an accounting scandal that sparked an ongoing criminal investigation by the Justice Department and Securities and Exchange Commission. Earlier, AOL Time Warner formally restated $190 million in improperly booked advertising revenue booked between Sept. 30, 2000, and June 30, 2003.
The company, which had previously revealed the problem, said it does not anticipate any additional restatements, but cannot predict the outcome of the federal probe.
