Update: Time Warner makes 2003 gains, despite AOL drag

Box office success and increased cable rollouts helped boost Time Warner Inc.’s full-year and fourth-quarter 2003 results, despite continuing losses in the company’s America Online (AOL) Internet division.

The New York media conglomerate said Wednesday that fourth quarter revenue was up 6 percent to $10.9 billion, compared to revenue of $10.2 billion for the year ago quarter.

Net income for the quarter ended Dec. 31 was $638 million, compared to $44.9 billion for the year-earlier quarter, which was largely affected by a $44 billion non-cash charge, Time Warner said.

“If you remember, I said that 2003 would be a reset year for the company and I’m proud to say that we made progress,” Time Warner Chairman and Chief Executive Officer Richard Parsons said during a conference call to discuss the results Wednesday.

Faced with a huge debt load and ramped up competition, the company’s “reset” entailed shaking the AOL moniker from its official name, revamping the Internet service and shedding noncore businesses. The strategy appears to be working, Parsons said, touting the fourth-quarter numbers.

Income per share for the quarter landed at $0.14, just shy of the $0.15 per share figure predicted by analysts polled by Thomson First Call.

Operating income for the quarter came in at $1.5 billion, compared to a loss of $42.4 billion for the year-ago quarter.

Time Warner reported an increase in all segments during the quarter, except for AOL, which saw its quarterly revenue decline 7 percent, from $2.32 billion in 2002 to $2.16 billion in the fourth quarter of 2003.

Dogged with mounting competition from low-cost rivals and questions surrounding its past accounting methods, AOL has posted revenue and customer losses over the past few quarters. At Dec. 31, 2003 AOL had 24.3 million members in the U.S., 2.2 million fewer than it did the previous year, Time Warner said. In Europe, the service ended the year with nearly 6.4 million members, essentially flat from the year-ago figure.

The company expects AOL to continue to bleed narrrowband customers, and it hopes to offset the losses with growth in broadband and premium services revenue, according to Parsons. It is also looking to compete with lower-cost ISPs (Internet service providers) through its newly launched Netscape service.

While the company is concentrating on shoring up the Internet business, it is still considered to be the conglomerate’s Achilles heel. Indeed, Parsons conceded that AOL’s subscriber numbers would “move around a lot this year” as they work on stabilizing the business.

The company’s filmed entertainment division reported a 17 percent increase in revenue for the quarter, however, boosted by money-makers like the latest Lord of the Rings movie. The cable division also helped boost results, reporting a 9 percent increase in the quarter thanks to continued deployments of high-speed data services. Time Warner Cable introduced a new VOIP (voice over Internet protocol) service last year and expects to have the service rolled out across its entire cable network by the end of this year, Parsons said.

Filmed entertainment and cable also led Time Warner’s full-year 2003 revenue gain of 6 percent year-over-year to $39.6 billion.

Operating income for the full year, before depreciation and amortization and including charges, rose to $8.5 billion compared to a loss of $35.8 billion in 2002. The 2002 income results were also affected by the $44 billion charge, Time Warner said.

The results released Wednesday present the company’s music business as a discontinued operation, given the recent sale of Time Warner’s DVD and CD manufacturing and distribution business, and the pending sale of Warner Music Group’s recorded music and music publishing business.

The decision to shed Time Warner’s music businesses allows the company to focus on core operations and further reduce its debt, Parsons said.

With the $2.6 billion sale of Warner Music Group’s recorded music and music publishing properties, Time Warner’s debt load will be whittled down to $20 billion, from $25.8 billion at the end of 2002.

With less debt pressure, the company will not only be able to invest in key initiatives such as AOL’s broadband and premium services and Time Warner Cable’s new VOIP offerings, it will also be able to consider investing outside the company, Parsons said.

For 2004, Time Warner expects year-over-year growth in all segments except in its New Line studio division, saying it would be difficult to exceed the success it achieved last year. The company also predicted that AOL would generate $1 billion in free cash flow in 2004, as it stems narrowband losses with broadband subscriber gains.

Shares of Time Warner (TWX) fell 3.4 percent to $18.17 after the results were released Wednesday.