Time Warner trims outlook
December 18, 2000: 11:48 a.m. ET

Trims profit growth outlook, rejigs Road Runner Internet service, stock drops
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NEW YORK (CNNfn) - Entertainment conglomerate Time Warner Inc. announced a restructuring Monday of Road Runner, its high-speed Internet service, and trimmed its earnings growth forecast, citing weaker-than-expected music, cable advertising and movie sales.

graphicThe New York-based media concern is home to such properties as the WB television network, Time Warner Music recording company and the second-biggest U.S. cable TV system, as well as CNNfn. It did not supply earnings-per-share guidance for the December quarter. But it said that earnings before interest, taxes and other items are likely to grow 11 percent for the full year of 2000, rather than its previous forecasts of 12 to 13 percent.

Analyst surveyed by First Call before the warnings had forecast a profit of 20 cents a share on average, although their predictions ranged from 12 cents to 25 cents a share. Analysts are expected to tweak their estimates in light of Time Warner's announcement.

The company attributed its reduced outlook for the December quarter on disappointing box office sales for its movie "Little Nicky," starring comedian Adam Sandler, as well as recent softness in cable network advertising revenues, and weaker-than-anticipated music sales.

It added that it expects annual growth in total advertising revenue of about 15 percent.

Time Warner (TWX: Research, Estimates) stock fell $9.84, or nearly 12 percent, to $62.88 Monday afternoon, despite a rally in blue chip stocks.

Scott Davis, analyst from First Union Securities, told CNNfn that the warning was not a great surprise, noting that some the company's fiscal challenges were apparent earlier this year, and that the stock's weakness will be short lived.

"The lower guidance is certainly disappointing but not especially surprising," he said. "I don't think many people thought that Time Warner was knocking the cover off of the ball heading into the merger and we are seeing some of that today." (274K WAV) (274K AIFF)

Cash payments to Compaq, Microsoft

The warning and Road Runner restructuring comes shortly after the Federal Trade Commission's approval last week of the $111 billion merger between Time Warner (TWX: Research, Estimates) and America Online (AOL: Research, Estimates). With this key regulatory hurdle cleared, the merger need only pass muster with the Federal Communications Commission, which is expected to be less resistant than was the FTC.

AOL shares also fell Monday, sliding $5.98 to $42.98.

The restructuring of Road Runner, which supplies consumers with high-speed access to the Internet many times faster than via dial-up connections, is a result of a consent decree between AT&T (T: Research, Estimates) and the Justice Department in connection with AT&T's acquisition of MediaOne Group, which is expected to be completed by April 2001.

Currently, Time Warner, AT&T Broadband and Advance/Newhouse together own an 80 percent interest in Road Runner LLC and Microsoft Corp. (MSFT: Research, Estimates) and Compaq Computer Corp. (CPQ: Research, Estimates) have a combined 20 percent preferred interest in Road Runner LLC.

  graphic A HIGH-SPEED SAGA  
    Time Warner's cable modem service, whichs deliver Internet connections 50 times faster than a standard telephone modem, had been a key factor in the fight to win approval of its merger with AOL.
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    Under the new agreement, Time Warner will receive the national assets of Road Runner, and will pay about $570 million in cash to Microsoft and Compaq.

    Time Warner said it expects to take a one-time restructuring charge of $20 million to $40 million in the fourth quarter of 2000 in connection with the transaction.

    In a statement, AT&T, it expects the 21 regional data centers -- which provide critical operations for the high-speed network -- will be distributed to AT&T Broadband or Time Warner Cable, based on which company's cable operations are the predominant users of the facility.

    AT&T, the biggest cable television operator, said its Road Runner customers will continue to receive the AT&T Road Runner service and will retain their current e-mail addresses. It expects the restructuring tp be completed in the first quarter of 2001.

    The reorganization will end Road Runner's exclusivity on Time Warner cable, which was to run through the end of 2001. Time Warner said this will accelerate its ability to offer multiple Internet service providers, one of the key concessions that the company agreed to in order to win FTC approval.

    Beginning in April, AT&T broadband will continue to offer the Road Runner service to cable customers for a transitional period of up to 15 months under a new service agreement with Time Warner Cable's new Road Runner company. graphic


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