AOL Time Warner reports 4Q
January 31, 2001: 4:27 p.m. ET

Losses widen to $1.09B after merger charges; marketing deals set
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NEW YORK (CNNfn) - AOL Time Warner Inc., the world's largest media company, made its fourth-quarter profit report Wednesday -- its first report as a combined company following the completion of an $111 billion merger earlier this month.

The New York-based conglomerate said that pro forma fourth-quarter losses widened due to merger-related charges to $1.09 billion, or 25 cents a share, from a net loss of $201 million, or 5 cents a share, for the same period last year.

AOL Time Warner also announced a series of advertising and marketing packages with leading companies and disclosed plans to revamp its CNNfn unit.

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graphicAOL Time Warner's CEO Jerry Levin and COO Bob Pittman chat with CNNfn about fourth-quarter profits and the newly merged company's future.
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AOL Time Warner said it earned 28 cents a share on a "cash" basis, excluding one-time items, versus 24 cents a share a year earlier. The combined company's operations include AOL, the nation's biggest Internet service provider, Time magazine, CNN, HBO and Warner Brothers film studio.

Sales for the combined company rose 8 percent to $10.2 billion. Subscription revenue for the company rose 11 percent to $3.8 billion for the quarter.

Wall Street analysts did not issue earnings estimates for the combined company, according to the research firm First Call. Separately, what used to be America Online earned 15 cents a share excluding one-time items in the latest quarter, versus analysts' forecasts of 14 cents a share.

The former Time Warner reported that net income fell 76 percent to $206 million, or 15 cents a share, from $848 million, or 62 cents for the previous year. Excluding one-time charges, basic net income dropped 2 cents to 18 cents a share, still ahead of Wall Street's expectations of 16 cents.

AOL Time Warner (AOL: Research, Estimates) stock closed down $1.75 at $52.56 Wednesday.

Not just an Internet company

Jerry Levin, AOL Time Warner CEO, began a day-long conference in New York by outlining his view of the merged firm, which is now no longer just a media or Internet company.

"Our highest priority actually is, over a sustained period of time, to make this a truly global company," he said. "A large-cap growth company. This is truly a one-of-a-kind company taking place on the world stage with growth aspirations that are really unmatched and unassailable."

At the conference, AOL Time Warner officials reiterated their forecasts for sales of more than $40 billion and earnings of $11 billion before taxes, interest and other items for 2001.

AOL Time Warner has initiated various restructuring measures, including cutting about 2,000 jobs from its Internet, music, film and publishing divisions in a bid to streamline operations. These cuts are in addition to the 400 job cuts at CNN News Group, which includes CNNfn. The total cuts amount to about 3 percent of the total work force of 85,000.

graphicAOL Time Warner executives indicated Wednesday that the layoffs at CNN are over for now. AOL will be taking a first-quarter $50 million restructuring charge related to the headcount reduction, said Mike Kelly, AOL Time Warner's chief financial officer. Time Warner will not be taking a charge, Kelly said.

"AOL has to expense that up front because we're the acquirer," he said.

Cash flow will also grow by 18 percent to 19 percent in the first quarter, Kelly said.

AOL also has inked an internal deal to put a high-speed AOL service on the Time Warner Cable system, Levin said at a luncheon Wednesday. Levin declined to give more details but Dick Parsons, AOL Time Warner co-chief operating officer, said the deal is comparable to the previously announced agreement to put Earthlink on Time Warner Cable.

Levin also scotched reports that AOL would hike it monthly service by $2. Earlier, AOL Time Warner Chairman Steve Case had told analysts it would not be smart to raise rates so soon after the close of the takeover. However, Case did not rule out an eventual price increase.

The merged firm has also changed the form of personnel compensation from cash base to equity. Every employee has received a stock option grant, Levin said, while all divisional cash plans were traded in for stock options.

The units

America Online, the Internet service provider, added 2.1 million new subscribers in the quarter for a total of 26.7 million subscribers. Quarterly revenue jumped 27 percent to nearly $2.1 billion.

Time Warner cable revenue for the December quarter jumped 13 percent to $1.6 billion while adjusted cash flow increased 16 percent to $767 million.

The film entertainment unit reported flat quarterly revenue at $2.4 billion while cash flow fell 16 percent to $183 million. Executives noted that the poor performance of the film "Little Nicky" and the underperformance of Warner Brother stores, which it plans to divest, contributed to the decline.

Quarterly revenue for the Warner Music Group were also flat at $1.2 billion while yearly revenue grew 5 percent to $4.1 billion. The unit benfited from the launch of pop diva Madonna's "Music" CD and global listening party in September.

Parson emphasized that the merged firm will be able to handle the challenge from free online music swapping service Napster. AOL Time Warner, one of the companies suing Napster, will continue its lawsuit, Parsons said.

"Hopefully everyone has gotten over the Napster shockwave that it is going to destroy the music business," he said. "Both the legal, political and business structures will not allow these businesses to get pirated away."

New agreements

Separately, AOL Time Warner announced a host of new advertising and marketing agreements -- including one with Cendant Corp. (CD: Research, Estimates, which agreed to promote its well-known brands such as Avis car rental and Century 21 real estate across the company's online, print and television properties.

Other marketing alliances were struck with Compaq Computer Corp. (CPQ: Research, Estimates), e-commerce service provider PurchasePro (PPRO: Research, Estimates), and communications networking company Nortel Networks Corp (NT: Research, Estimates).

The agreements come as the company reported flat fourth-quarter advertising and marketing sales at Time Warner's networks division, which includes HBO, TBS and CNN and others. Ad and commerce sales totaled $705 million.

"We've really hit the ground running. You can see not only are there a lot of these advertising and marketing agreements, but there's a whole slew of arrangements, cross-promotions that we have, so I think you're going to find almost every day AOL Time Warner is really up and running," Levin told CNNfn's Ahead of the Curve. (344K WAV) (344K AIFF)

Wall Street has its eye on such deals, since a general decline in ad revenue hastened the demise of many businesses and hurt profits at other companies.

In addition, AOL Time Warner said CNNfn, the company's business news network, will become CNN Money, and will have the support of other divisions, including Time Warner Cable, AOL and Time.

"This is something very exciting we've wanted to do for some time," Levin said. "AOL Time Warner will take CNNfn and make it part of the broader experience of personal finance. We're really talking about a broader opportunity to not only cover market activity, but to cover the way people spend money on their lifestyle."

The newly merged company faces some major struggles going forward, as media companies are slumping amid an industry-wide downturn. In December, Time Warner cut its earnings outlook for the quarter, citing weaker-than-expected music sales and sluggish cable advertising revenue. graphic