AOL Time Warner Inc., the world’s largest media company, reported a net loss of $54.24 billion for its first quarter on Wednesday, the largest quarterly loss for a U.S. company, due to a massive balance sheet writedown mandated by new accounting rules.
AOL took the write-off – the same amount as the net loss – because of a sharp decline in the company’s stock, which has fallen by more than half since the merger of America Online and Time Warner was announced in January of 2000. In the same period a year ago, AOL Time Warner had a net loss of $1.4 billion.
The company also acknowledged weakness in its AOL unit, an area that has been causing increasing concern among investors. Dick Parsons, the incoming chief executive officer, said the results there were a “disappointment,” but also said the company was “underneath the situation.”
AOL, once considered the critical growth engine at the giant media conglomerate, is now the laggard. AOL reported a 15 percent decline in earnings even as earnings grew in every other category of business at AOL Time Warner – cable, publishing, cable networks, music and filmed entertainment.
Hoping to fix AOL’s problems with slowing subscriber growth and weak advertising, the company put one of its top executives, Bob Pittman, back in charge of the division – a post he had held before the merger. “Getting America Online back on track is my number one priority,” Pittman said during the company’s conference call.
Parsons sought to dispel concerns about AOL, saying the “swirl is out of line with the reality…. Anyone who doesn’t believe in the future of this medium is making a big mistake.”
Responding to weakness in online advertising, AOL Time Warner also reduced its estimate for full-year growth in earnings before interest, taxes, depreciation and amortization to 5 percent to 9 percent, below its previous estimate of 8 percent to 12 percent.
Without the effect of the accounting change and other one-time items, AOL Time Warner’s results beat analyst expectations. Earnings per share rose to 18 cents, compared with 16 cents per share in the same period a year ago and above the 14 cents per share that analysts polled by Thomson Financial/First Call had been expecting.
Earnings before interest, taxes, depreciation and amortization rose 3 percent to $2.05 billion, above the $1.98 billion reported in the same period a year ago. AOL Time Warner had a particularly strong showing at the box office thanks to the “Harry Potter” and “Lord of the Rings” movies.
Investors liked what they heard, and bid up AOL Time Warner’s stock in after-hours trading. AOL shares were up 85 cents in after-hours trading at $20.15, after rising 19 cents in regular trading to $19.30. The company announced results after the close of the regular trading day.
The balance-sheet writedown, which was previously disclosed, exceeded the previous largest quarterly loss of $41.8 billion, which the former telecom high-flier JDS Uniphase reported in its first quarter of 2001.
Under the new accounting rules, goodwill – the premium paid for an acquisition above the value of the tangible assets acquired – can no longer be written off gradually over a period of up to 40 years. Instead, companies must constantly weigh the value of their investment in the acquired company and write off any reduction in value as it occurs.
Revenues rose 7 percent to $9.76 billion compared with $9.12 billion in the same period a year ago. Revenues would have risen 4 percent if the acquisitions of AOL Europe and IPC Media, a British magazine company, had been included in both periods. That revenue growth also came in well above analysts’ estimates of $9.44 billion.