- The Washington Times - Thursday, April 25, 2002

AOL Time Warner Inc. yesterday reported a $54.2 billion first-quarter loss, the biggest in U.S. history.
A massive charge related to AOL's purchase last year of Time Warner and declining advertising revenue at America Online accounted for the company's historic loss.
The world's largest media company said in March that it would take a $54 billion charge to account for a decline in market value since AOL completed its purchase of Time Warner in January 2001. The writedown reduces the value of goodwill, or the difference between the purchase price of an asset and its book value, created when AOL bought Time Warner for $124 billion.
"There's a lot of good news, but one area of real disappointment," Chief Executive-elect Richard Parsons said in a conference call yesterday.
Telecom-equipment maker JDS Uniphase had held the record for the largest quarterly loss, taking a $41.8 billion loss in the first quarter of 2001.
AOL Time Warner's stock has fallen 59 percent since AOL completed its purchase from $47.23 Jan. 11, 2001, to yesterday's close of $19.30 a share on the New York Stock Exchange. AOL announced its earnings after the market closed.
AOL Time Warner advertising revenue declined 13 percent, from $2.1 billion a year ago to $1.8 billion. At AOL alone, advertising revenue dropped 31 percent, and rebuilding AOL has become a key initiative, Mr. Parsons said.
"We expect AOL to turn around its advertising revenue and be a key growth driver for the company," Mr. Parsons said.
Mr. Parsons, who will replace Gerald Levin as the company's chief executive next month, estimated that 2002 revenue at AOL will fall short of the $2.7 billion in 2001 revenue, reaching $1.8 billion to $2.2 billion this year.
Mr. Parsons has replaced Barry Schuler with chief operating officer Robert Pittman to help turn around AOL, the Sterling, Va.-based Internet unit.
"Getting AOL back online is my priority," Mr. Pittman said.
AOL's plummeting advertising revenue is a symptom of lower spending on advertising generally, said Paul Cook, portfolio manager at Birmingham, Mich., Munder Capital Management Inc., which owns 2.5 million shares of AOL Time Warner stock.
"They are highly leveraged to the advertising industry, and the advertising markets have been fraught with angst. So some of this is not of their making," Mr. Cook said.
Mr. Parsons tried to assure investors that AOL Time Warner will be able to reverse the trend.
"We think we have our arms around [the problem]," he said.
Mr. Pittman predicted that AOL's advertising revenue will begin to rebound in the second half of the year.
Not all of the news about AOL was bad. The Internet unit added 1.4 million subscribers during the first quarter, increasing the number of worldwide subscribers to 34.6 million, and revenue from subscriptions grew 19 percent. That boosted AOL revenue 9 percent compared with last year to $2.3 billion.
Despite the disappointment surrounding the Internet business, AOL Time Warner revenue rose 7 percent in the quarter from $9.12 billion a year ago to $9.76 billion.
Without the one-time, $54 billion charge, AOL Time Warner lost $1 million compared with a loss of $1.4 billion a year ago.
Revenue at the company's cable, networks, music and publishing units increased.
"AOL Time Warner is a big, dynamic company, and our online company is only part of the whole," Mr. Parsons said. "All our businesses except AOL will experience growth this year."
Revenue from films fell 3 percent compared with a year ago, even though the movie "Harry Potter and the Sorcerer's Stone" has had worldwide box office sales of $960 million and "The Lord of the Rings: The Fellowship of the Ring" has had worldwide box office sales of $830 million.
The company said annual revenue will increase 5 to 8 percent over last year.

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