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Merger widens 4th-quarter loss for AOL Time Warner Inc.

SHARE Merger widens 4th-quarter loss for AOL Time Warner Inc.

NEW YORK (Bloomberg) — AOL Time Warner Inc., the world's biggest media and Internet company, said its fourth-quarter loss widened to $1.09 billion because of costs related to America Online Inc.'s $124 billion purchase of Time Warner Inc.

The company stands by its 2001 forecast of more than $40 billion in revenue and $11 billion in cash flow, or earnings before interest, taxes, depreciation, amortization and certain items, Chief Executive Gerald Levin said in an interview. AOL Time Warner declined to say what those items would be.

Fourth-quarter cash flow growth fell short, partly because of lower-than-expected advertising sales at its cable channels and declining profit from music, films, television production and Warner Bros. retail stores. The new company must turn around those businesses amid a slowing U.S. economy to meet the financial goals that it promised investors.

"A slowdown in the economy can't be good for them," said Peter Doyle, manager of the Kinetics New Paradigm Fund, which owns 300 AOL Time Warner shares after selling most of its position last year. "People are paying less on ads. If things get bad enough, people start considering cutting cable, at least the premium channels. If the economy is bad, AOL is certainly not exempt from the slowdown."

Advertising makes up about 20 percent of AOL Time Warner's annual revenue, less than for most other media companies. Investors still are concerned that an industrywide slump in advertising spending will hurt the company's fastest-growing divisions, such as online services and cable networks.

Investor Meeting

AOL Time Warner Co-Chief Operating Officer Robert Pittman sought to assuage these concerns at an investor meeting in New York today. Pittman said AOL Time Warner is protected from a slowdown because the company has such a vast array of media properties that most big advertisers can't avoid them.

He also said that if advertising spending slows significantly, the company could divert its own ad spending from other outlets back into the company.

Investors and analysts said today's meeting was upbeat and helped persuade at least some people that the company won't have trouble meeting its financial goals.

"I'm leaving here feeling more positive than I did going in," said Ned Brines, a portfolio manager at Roger Engemann & Associates Inc., which owns AOL Time Warner shares. Brines said he's been positive about the merger since it was announced a year ago.

"The question is, can they weather the next three quarters if advertising remains slow?" he asked.