Copyright 2003 Newsday Inc.

Newsday (New York, NY)...01/31/2003

AOL Time Warner's stock price plunged 14 percent yesterday as investors reacted to news that the world's biggest media company posted a $99 billion loss for 2002 and that recovery is not imminent.

The stock price closed yesterday at $12 per share, off $1.96 for the day, and 68 percent lower than in early 2001, before the now-soured megamerger of America Online and Time Warner became official.

The company's forecast was disappointing not only on America Online, whose fortunes analysts have become accustomed to downgrading, but also for Time Warner Cable, which is preparing to sell stock to the public for the first time.

"Management's outlook is far more pessimistic than our recently reduced expectations," Merrill Lynch analyst Jessica Reif Cohen said in a research report yesterday.

AOL Time Warner's news came after the stock market closed Wednesday in an earnings announcement and conference call full of negative surprises.

The record-high loss for a U.S. company reflected a new $45.5 billion writedown in the value of the company's assets for the fourth quarter of 2002 on top of a $54 billion writedown in the first quarter, mostly related to America Online but also Time Warner Cable and Warner Music. Much of that was on paper and reflected the shrunken market value of the 2-year-old merger.

But in addition, chief executive Richard Parsons said in the conference call that 2003 would be a "challenging" year of "reset" rather than recovery—before new momentum arrives in 2004—as the company seeks to stabilize America Online.

Reif Cohen called the company's sluggish outlook "underwhelming at best," citing the surprises.

The earnings measure called EBITDA (earnings before interest, taxes, depreciation and amortization) would be flat, the company said. The number of U.S. subscribers for America Online—which is trying to cut back on unprofitable customers—fell for the first time, by 176,000, in the fourth quarter, rather than just seeing a further slowdown in growth.

Despite strong gains in digital video and Internet subscribers, Time Warner Cable would see slower growth reflecting a sharp cut in launch fees from new cable networks. Pension expenses would jump by $100 million this year. And cable industry pioneer Ted Turner, who has called the AOL merger a "big mistake," is resigning as vice chairman.

"The biggest surprise...is the guidance for cable," Reif Cohen said, citing the company's forecast that the unit's EBITDA would rise less than or not much more than 10 percent. She said Turner, the CNN founder, "has been proactive and vocal on several fronts as both a board member and large AOL Time Warner equity shareholder" and may decide to sell much of his 132 million-share stake, putting further pressure on the price.