Huge charges drive biggest loss in U.S. history
NEW YORK — Two giant charges plunged AOL Time Warner’s finances into the realm of fantasy Wednesday as the conglom reported 2002 losses of nearly $100 billion. To put it in perspective, that’s roughly the gross domestic product of Hungary.A $54 billion accounting charge earlier in the year was followed by a $45 billion hit in the fourth quarter to write down the value of assets, including a $33 billion writeoff for America Online, a $10 billion writeoff for cable and a $650 million writeoff for music. Revenue for the company, which lost $4.9 billion in 2001, rose 10% to $37 billion. An angry Ted Turner had the satisfaction of rubbing salt in the company’s wounds, announcing his resignation as AOL TW vice chairman. “Last night, Ted informed me that he will step down in May. It’s something he’s contemplated for some time, and it will allow him to devote more time to his philanthropic interests,” the conglom’s unflappable CEO Richard Parsons told investors and analysts during a conference call. Ironically, Turner has less to give than ever before. He’s already had to extend the payment period of a promised $2 billion donation to the United Nations as his portfolio shrank –thanks to the AOL merger. Wall Streeters were doubly dismayed by the conglom’s forecast of stagnant cash flow this year. Many were looking for growth of 5% or more. One fund manager called the numbers “a disaster.” For the fourth quarter, losses ballooned to $45 billion from $1.8 billion the year before. Revenue rose 10% to $11.4 billion. Parsons described 2003 as a “reset” year for the company. He stressed that divisions beside AOL are growing and promised the conglom will slash its debt and get itself back on track in 2004. “The bottom line is, we think we’ve got a lot of ways to get home,” Parsons said, giving few specifics on how. AOL top brass outlined a sweeping strategic restructuring for the unit in early December and the parent company badly needs it to pan out. AOL subs lost Meanwhile, AOL lost subscribers in the fourth quarter from the third. Parsons and chief financial officer Wayne Pace said that was expected as AOL focuses more on making each sub more profitable. Parsons expects to reduce AOL TW’s debt to $20 billion from its current level of $28 billion by the end of 2004, although the figure may actually rise this year due to several commitments. These include a $2.1 billion payment due Comcast over a resolution of the TWE partnership and $800 million toward AOL TW’s new headquarters at New York’s Columbus Circle – a project launched in rosier days. A planned spinoff of Time Warner Cable later this year will bring in some needed cash to help pay down debt. Assets for sale Parsons said the sale this week of AOL TW’s stake in Hughes Electronics delivered net proceeds of about $800 million. He’s looking at other nonstrategic assets to sell and will be clamping down hard on costs throughout the company. Separately, Bear Stearns, Salomon Smith Barney and Deutsche Bank are said to have won the coveted lead underwriter positions for the cable IPO, which will bring in millions of dollars in investment banking fees. The huge charge took AOL close to breaching covenants of its credit agreement – an embarrassing fix for a company of AOL TW’s size and stature. Pace said the conglom had renegotiated its credit line and replaced the so-called net-worth covenant. It looks like soon-to-be-former chairman Steve Case ankled in the nick of time, as the results are sure to fuel the ire of Time Warner staffers. Parsons praised Case on Wednesday for “putting the company’s interest ahead of his own” in stepping down earlier this month. TW’s strong numbers That’s especially true because most of the old Time Warner businesses continued to post strong numbers. Revenue and cash flow in filmed entertainment both rose 13% in the quarter to $3.9 billion and $392 million, respectively. For the year, studio revenue jumped 15% and cash flow soared 21%. The company cited theatrical and homevideo home runs with the two “Harry Potter” pics, “Scooby Doo,” both installments of “Lord of the Rings” and “Austin Powers in Goldmember.” Warner Bros. and New Line combined ranked No. 1 in the global box office race. And Warner Home Video also raked in the bucks, grabbing a dominant 21.7% share of domestic homevideo sales last year. Worldwide revenue from DVDs jumped 90% year on year to $2.6 billion. At the networks division, revenue rose 12% to $2 billion and cash flow grew 46% to $661 million for the quarter. The figures rose 9% and 13% for the year, respectively. Company cited higher subscription rates and more domestic subs. Advertising and commerce revenue rose 6% for the year, reflecting a boost at the WB network and a modest recovery in cable advertising. Also noted: Homevideo sales of HBO’s original programming and higher licensing and syndication revenue from TV series “Everybody Loves Raymond.” Music, cable systems up Music revenue rose 6% to $1.3 billion and cash flow grew 25% to $188 million for the quarter. For the year, revenue and cash flow grew, respectively, 4% and 15%. The cable systems biz saw revenue rise 12% to $1.8 billion and cash flow grow 13% to $753 million for the quarter. For the year, revenue was up 14% and cash flow up 12%. Publishing revenue rose 5% to $1.6 billion with cash flow up 21% to $397 million for the quarter. America Online’s revenue fell 6% to $2.3 billion for the quarter with cash flow off 11% to $474 billion. For the year revenue fell 4% and cash flow dropped 22%. AOL TW shares rose 2.20% to $13.96 Wednesday as the markets were closed when the company announced its financial results and Ted Turner’s departure.