AOL lowers 2002 guidance

January 7, 2002: 6:47 p.m. ET

Company stands by 2001 forecast but lowers the bar for next year.

NEW YORK (CNN/Money) - AOL Time Warner on Monday stood by its financial targets for the fourth quarter, but executives told analysts they should ratchet down expectations for 2002.

The company also said it will take a charge of $40 billion to $60 billion in the first quarter of 2002 to reflect overall market declines since the merger was announced in January 2000. The largest charge to date is $50.1 billion recorded by JDS Uniphase (JDSU: Research, Estimates) for fiscal 2001.

AOL Time Warner blamed lingering weakness in the global economy, a continued slowdown in the advertising market, and a more conservative approach to providing financial guidance for its lower 2002 expectations.

"We will try not to over-promise and we will deliver," said Richard Parsons, who will take over as CEO when Jerry Levin retires in May.

For 2001, the company's total revenue is likely to come in at about $38 billion, Parsons said. That would be in line with the current consensus estimate of analysts polled by First Call.

At the same time, Parsons said AOL, the parent company of CNN/Money, is aiming for revenue in 2002 to rise between 5 percent and 8 percent, where analysts recently had expected an annual increase nearer to 9 percent.

The company, also said it now anticipates its earnings before interest, taxes, depreciation and amortization (EBITDA) for 2002 will rise about 8-to-12 percent from 2001. Previously executives had said they expected it to rise in the "double digits."

Monday's teleconference also gave executives the opportunity to reflect on the first full year as a combined company after AOL bought Time Warner for more than $100 billion and for analysts to get a sense of how the company will be run under Parsons' watch.

"I am 100 percent committed to the strategic vision that drove Steve Case and Jerry Levin to fashion the merger of AOL Time Warner in the first instance," Parsons said.

"The strength of our company lies in the relationships each of our businesses has to the other. The value of each is better because they are all part of one family," he said.

Company watchers had been expecting Parsons to take a more conservative stance when setting expectations for the year ahead. Executives had set lofty growth forecasts shortly after the merger that ultimately were deflated by a sharp decline in advertising spending.

The company's current outlook for 2002 assumes no economic growth and is based on the assumption that advertising revenue, which declined 3 percent in 2001, will remain flat as well, Parsons said.

"We are not counting on any growth in the advertising market in 2002," he said.

Moving forward, AOL Time Warner - whose properties include movie studios, cable TV service and networks, book and magazine publishing as well as the AOL Internet service - will concentrate this year on building its subscriber base, Parsons said.

The company said it closed out 2001 with 147 million subscribers to its various services.

It also will focus its research and development dollars on developing new products and services such as interactive television and video-on-demand, he said.

AOL Time Warner also plans to sharpen its focus internationally, particularly in Europe, Parson's said.

Toward that end, the company also confirmed Monday it will buy Bertelsmann AG's 49 percent stake in AOL Europe for roughly $6.75 billion in cash.

The company also said it would take a one-time charge of $40 billion to $60 billion in the first quarter because of new accounting rules.

AOL (AOL: down $0.17 to $31.83, Research, Estimates) shares rose 2.3 percent in New York Stock Exchange trading ahead of the company's update, which it provided after the closing bell. The stock has fallen more than 44 percent over the past year.