AOL Time Warner Reports Results

Revenue gains among AOL Time Warner's old media assets helped offset a slide in flagship ISP AOL's sales during the media titan's second quarter.

by Erin Joyce Managing Editor of www.atnewyork.com [July 25, 2002]

Revenue gains among AOL Time Warner's old media assets helped offset a slide in flagship ISP AOL's sales during the second quarter, as the company posted its first profit since the merger of America Online and Time Warner.

The sales increases among the cable, film, and music divisions dovetailed with a senior management shakeup that put Time Warner executives in new top jobs. Last week Chief Operating Officer and AOL interim chairman Robert Pittman resigned. His duties are being split among two Time Warner executives, Don Logan, chairman of Time Inc., and Jeffrey Bewkes, chairman of HBO.

Separately, AOL Time Warner (NYSE: AOL) CEO Richard Parsons announced that the Securities and Exchange Commission was looking into its accounting practices after a published report raised questions about how it booked some ad deals between 2000 and 2002.

But the main event was the world's largest media company's results. Net income was $394 million (9 cents per common share) on revenues of $10.6 billion for the quarter, up 10 percent over revenues from the same, year-ago period.

Last year at the same time, the company posted a net loss of $734 million, or 17 cents per common share (which included goodwill and intangible amortization charges of about $1.7 billion) on revenues of $9.6 billion.

All divisions posted increased sales except for AOL, whose revenues were down by 3 percent to $2.3 billion. Advertising and commerce revenues decreased by 42 percent in the quarter, largely due to the soft online advertising market.

Content and other revenues were down 45 percent in the quarter to $68 million, primarily as a result of the termination of the iPlanet agreement with Sun Microsystems, which took over $40 million out of the unit's cash earnings. Cash earnings were down by 27 percent in the quarter.

"The online ad market has not improved over the past few months," said Richard Parsons, AOL Time Warner's CEO. "My sense is the third quarter will be comparable in absolute dollars to the second quarter."

However, AOL's 20 percent boost in subscription revenues more than offset its declines in advertising, commerce and content revenues. The company said membership grew despite the usually slow summer period, helped by price increases in the U.S. and Europe.

During a conference call discussing the outlook for the AOL unit's revenues, Parsons stuck with prior expectations of $1.8 billion to $2.2 billion in revenues, about the same for the second quarter.

After praising Pittman's contributions to the company, Parsons said the appointments of Don Logan and Jeff Bewkes to chair the company's two new operating groups "represent a significant step forward in enabling our divisions to excel individually and together."

Under the new structure, Logan is to become chairman of the newly created media & communications group, which includes the AOL unit, Time Inc., Time Warner Cable, AOL Time Warner Book Group and its Interactive Video unit.

Bewkes is to head up the company's new entertainment & networks group, which includes HBO, New Line Cinema, The WB, Turner Networks, Warner Bros. and Warner Music. Both report directly to Parsons.

The company is making progress on its key, near-term priorities, Parsons continued, "including securing the new, long-term $10 billion credit facilities to extend our financial flexibility at attractive rates, as well as restructuring our cable partnership with Advance/Newhouse. We will move forward as rapidly as possible with the revitalization of America Online, with particular focus on improving the AOL service and rebuilding its advertising business."

Parsons defended the company's accounting practices in response to a recent Washington Post article that raised questions about how it booked advertising revenues. He said as a matter of procedure, the SEC was looking into the issues raised in the article. He and other company officials stressed that the fact-finding query was routine and would agree with its auditor's opinion that its accounting was appropriate.

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