AOL TIME WARNER REPORTS $54 BILLION LOSS

Largest Quarterly Corporate Loss in History

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NEW YORK (AdAge.com) -- AOL Time Warner reported a $54.2 billion first-quarter loss, the biggest quarterly corporate loss in history and one tied mostly to a massive but expected writedown of the value of America Online.

First-quarter revenue grew 4% to $9.8 billion. The loss per share of $12.25 approached the company's depressed share price of $19.30 a share.

AOL's declining value
AOL Time Warner in January announced it would take a $54 billion writedown to reflect the declining value of ailing America Online since AOL's January 2001 acquisition of Time Warner. Excluding that writedown, AOL Time Warner said it lost $1 million.

Advertising and commerce revenue dropped 13% to $1.8 billion for the quarter, led by dismal performance within the AOL unit, where advertising and commerce revenues dropped 31%. The parent company's subscription revenue grew 14% to $4.7 billion.

During a conference call with analysts, executives reduced guidance for the year, saying they don't expect an advertising upturn until the second half. The company reaffirmed its forecast that full-year revenue will increase 5% to 8%. It lowered its guidance for growth in 2002 EBITDA -- earnings before interest, taxes, depreciation and amortization -- to 5% to 9%, down from previous guidance of 8% to 12%. EBIDTA in the first quarter dropped to $1.94 billion from $2.08 billion a year ago.

TV down, publishing up
The company's TV

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networks unit posted disappointing profit results, with EBITDA down 4% on 5% revenue growth. The EBITDA drop was attributed to lower advertising revenue and increased programming and marketing costs for the networks, which include CNN, the WB and TNT.

In publishing, the story was a bit brighter. Reported EBITDA grew 28.3% and revenue 16.4% for the quarter, thanks to increases in advertising and commerce revenue and the acquisition of IPC Media. Cable also showed good results, with EBITDA up 10% and revenues up 19% due to increased digital subscriptions, higher cable rates and a 12% increase in general advertising sales.

The company's filmed entertainment unit showed a 60% increase in EBITDA despite a 3% revenue decline, due to several blockbuster movies including Harry Potter and the Sorcerer's Stone and Lord of the Rings: The Fellowship of the Ring.

AOL Time Warner continues to be a heavy advertiser on its media: Intracompany advertising/commerce revenue in the first quarter jumped 85% to $131 million, equivalent to 7.2% of AOL Time Warner's ad/commerce revenue. Divisions report that revenue in their figures, though the company factors it out from the AOL Time Warner total reported revenue.

Steep stock price decline
AOL Time Warner has seen its stock fall by 67% from a post-merger high of $58.50 nearly a year ago. The stock closed today at $19.30 a share, up 1%.

Today's news was taken as another sign that all is not well with the merger of America Online and Time Warner. Two years ago, the companies had a combined stock market value of $290 billion. Today, it hovers at around $80 billion, causing investors and analysts to wonder whether the company has hit bottom or whether there's farther to fall.

Management shakeups
Recent management shakeups within AOL Time Warner have also made investors uneasy.

The first in a series of changes occurred April 9 when Barry Schuler, CEO of AOL, stepped aside to run a new digital technology unit within AOL. Bob Pittman, AOL Time Warner COO-elect, now manages AOL operations as well. And this week, Robert Friedman, president of worldwide interactive marketing for AOL, was tapped by corporate as senior vice president of corporate marketing in charge of integrated marketing and promotions across AOL Time Warner units, a newly created position.

Robert Sherman, former president of Time Warner Cable ad sales, is now running ad sales for AOL as president-interactive marketing, essentially Mr. Friedman's old job. Jimmy de Castro is new on the job as president of AOL Interactive Services. More changes are expected.

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