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AOL Posts Record $99-Billion Loss

Company takes a huge write-down, largely related to the drop in its online unit's value.

January 30, 2003|Edmund Sanders | Times Staff Writer

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 a 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 remains on the board, but it was unclear whether Turner would stay on the panel.

Before the announcement of the results, AOL Time Warner shares rose 30 cents to $13.96 on the New York Stock Exchange. In after-hours trading, its shares dropped 8% to $12.55.

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 noted.

Nine months ago, the company took a record charge of $54 billion to reflect the value of falling assets. Although the charges don't affect a company's cash position, they are an embarrassing reminder of business missteps. The current charge reflected the write-down of $33.5 billion in goodwill related to America Online. The balance was related to AOL Time Warner's cable and music properties.

Goodwill is the difference between the price a company pays for a business and the value of its tangible assets.

Despite the enormous loss, the company 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% to $2.8 billion from the year-earlier period. Revenue for the quarter was up 8% to $11.4 billion.

Full-year revenue from continuing operations increased 7% to $41.1 billion, and EBITDA for the year was up 5%, to $9.1 billion.

AOL Time Warner said Wednesday that it expected 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 Richard Parsons, who was named to the additional post of chairman when Case resigned.

Analysts have predicted more advertising headaches for big media companies such as AOL Time Warner, particularly if the economy were to slow in response to an invasion of Iraq.

America Online was the company's worst performer. Revenue fell 4% for the year as EBITDA plummeted 22%, largely because of a 39% drop in advertising and commerce revenue.

The conglomerate has been struggling with the online operation 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 Internet operation's value quickly collapsed with the drop in online advertising, taking the combined companies' stock price with it.

A bright spot for AOL Time Warner last year was its movie unit, including Warner Bros. and New Line Cinema, both of which reported record results. EBITDA at the film unit rose 21% 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 to an industrywide surge in DVD revenue.

AOL executives also said Wednesday that they planned to reduce the company's $28-billion debt -- among 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 tries to avoid downgrades by the leading credit-rating firms.

Analysts have worried that noncash charges could put the company in violation of lending agreements. But AOL Time Warner executives said the current write-down wouldn't affect its debt covenants.

The company hopes to raise $400 million by shedding its book-publishing unit, including Little, Brown & Co., and this week it sold its 8.4% 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 Atlanta Braves baseball franchise.

The company also plans to spin off its cable unit, Time Warner Cable, with an initial public offering this spring. AOL Time Warner said Wednesday that revenue at the cable system, the nation's second-largest, rose 15% for the year and EBITDA increased 12%.

The New York-based company's year of tumult has included an accounting scandal that sparked an ongoing criminal investigation by the Justice Department and Securities and Exchange Commission.

On Wednesday, AOL Time Warner formally restated $190 million in improperly booked ad revenue from Sept. 30, 2000, to June 30, 2003.

The company, which previously had revealed the problem, said it did not anticipate any additional restatements but could not predict the outcome of the federal probe.

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(BEGIN TEXT OF INFOBOX)

What it's worth

AOL Time Warner's annual loss is not only the biggest in U.S. history, but it also matches the original value of the AOL Time Warner merger deal. Comparing the loss with some other signposts, in billions of dollars:

AOL Time Warner's 2002 loss: $99

Value of the deal when it closed in 2001: $99

2001 gross domestic product of Egypt: $98

Auto industry's annual sales in California: $85

Net worth of Bill Gates: $53

California personal income tax receipts in 2001: $45

Homeland security budget request for 2004: $40

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Researched by Times librarian Cary Schneider

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