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Time Warner swings to 4Q loss on hefty writedown

Media and entertainment giant Time Warner Inc. reported a fourth-quarter loss, hurt by a previously expected $24.2 billion writedown for its cable, publishing and AOL assets.
/ Source: The Associated Press

Media and entertainment giant Time Warner Inc. reported a fourth-quarter loss, hurt by a previously expected $24.2 billion writedown for its cable, publishing and AOL assets.

The company predicted flat earnings in the year ahead as it takes on major restructuring charges amid a declining advertising market.

"We're considering that the tough advertising environment continues," Chief Financial Officer John Martin told analysts on a conference call. "While it doesn't assume any considerable improvement, it also doesn't assume that things are going to get much worse."

Its cable unit, meanwhile, also reported a loss and said it plans to cut 1,250 jobs, or about 2.6 percent of the unit's work force, as its business slows. Time Warner owns 85 percent of Time Warner Cable and plans a spinoff of that interest.

Time Warner shares ended Wednesday down 36 cents, or 3.7 percent, at $9.42.

The New York-based company, which owns Time magazine, cable networks CNN and HBO and the Warner Bros. movie studio, posted a loss of $16.03 billion, or $4.47 per share, in the three months to Dec. 31. That compared with a profit of $1.03 billion, or 28 cents per share, a year ago.

Quarterly results were dragged down $4.70 per share mostly due to the $24.2 billion writedown.

Time Warner had anticipated the writedown, predicting in January that it would record an operating loss for the fourth quarter and the full year.

Excluding the writedown, adjusted earnings were 23 cents per share.

Revenue dipped 3 percent to $12.31 billion from $12.64 billion.

Analysts polled by Thomson Reuters forecast earnings of 26 cents per share on revenue of $12.71 billion. Analysts' estimates typically exclude one-time items.

Martin said Time Warner predicted flat earnings per share in 2009, compared with profit of 66 cents per share in 2008, adding that "it could swing a few pennies in either direction."

The outlook excludes the Time Warner Cable business, which will soon be spun off, but includes a charge of $250 million to cover restructuring at AOL and Warner Bros.

Those units last month announced cuts of 700 jobs and 800 jobs respectively to cope with the weak economy. Cuts at AOL are expected to save $250 million annually starting this year, while the $100 million charge at Warner Bros. was expected to pay for itself in 2010 and 2011.

At AOL, revenue slid 23 percent to $968 million as subscription revenue tumbled 27 percent and ad sales dipped 18 percent. The company ended the year with 6.9 million Internet-access subscribers, down 573,000 from September.

Chief Executive Jeffrey Bewkes said Time Warner continued to be open to merging or selling off its AOL division.

"AOL management is pretty flexible and aggressive about looking at any opportunity to strengthen their position, whether it's in combination with somebody or not," he said.

The company also said it was evaluating its options after Google Inc. requested late last week to exercise special rights on its 5 percent stake in AOL, an acquisition it completed in 2006 for $1 billion. The move could force Time Warner to buy back the shares, or spin off the Google stake in AOL to the public. It could also delay a decision "for some time," the CFO Martin said.

"We're reviewing what we received, and we're evaluating our options," he said.

Google said last month it had written off $726 million on the investment, meaning it valued the stake at around $274 million now.

Time Warner Cable revenue rose 8 percent to $4.4 billion, while filmed entertainment revenue dropped 11 percent to $3.1 billion, despite the smash success of "The Dark Knight," which was released to the home video market in December.

Time Warner is nearing completion of the Time Warner Cable spinoff, which it anticipated would close in the first quarter. The cable company will pay a one-time dividend of $9.25 billion to Time Warner.

The move is expected to help the remaining company better focus on its strengths in content, especially if it can also shed all or part of AOL, acquired as part of AOL's $106 billion purchase of Time Warner in 2001.

Time Warner Cable said Wednesday the planned layoff of 1,250 workers over the next few weeks will eventually save $90 million a year.

Revenue from Time Warner's networks, which include CNN, HBO and Turner Broadcasting, climbed 9 percent to $2.9 billion, on the back of a surprising 10 percent growth in advertising revenue, driven by higher ratings and popular election coverage on CNN.

"That was certainly an upside compared to what we're seeing in other media companies," said analyst Robin Diedrich of Edward Jones.

The publishing division reported a 13 percent decline in revenue to $1.3 billion, primarily pulled down by a 20 percent drop in ad sales.

For the year, the company reported a loss of $13.4 billion, or $3.74 per share, compared with profit of $4.39 billion, or $1.17 per share, in the previous year.

Annual revenue grew 1 percent to $46.98 billion from $46.48 billion.

Time Warner also said it planned to maintain its dividend, which had been 25 cents per year, despite the loss of the cable division.

Diedrich said that would raise the dividend payout from about 25 percent of earnings to about 40 percent of earnings, a move she said could boost the share price, especially because earnings growth has slowed.

"We've seen investors react positively in the past to higher dividends at media companies of late. That change has been welcomed," she said.


Business Writer Michelle Chapman in New York contributed to this report.