AOL expects slow 2002

AOL Time Warner pre-announced earnings for the fourth quarter and full year 2001 and provided guidance for 2002, including a goodwill write-down of at least $40 billion.

For 2001, the company anticipates revenues of just more than $38 billion, representing about 5% growth year-over-year. Fourth-quarter revenues will grow about three percent to $10.5 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) should jump about 14% to more than $2.7 billion. Previously the company expected EBITDA to rise 20% for the year.

Assuming there is no economic recovery, AOL Time Warner’s revenue growth for 2002 should be between 5% and 8%, while its EBITDA should increase between 8% and 12%. EBITDA for Q1 2002 is expected to be flat.

Because of accounting changes, the company should report one of the largest losses on record during the first quarter. Beginning Jan. 1, companies no will longer amortize goodwill and other intangible items with indefinite lives. Instead, companies will be required to write down goodwill assets whose value has permanently declined.

The value of the AOL’s merger with Time Warner dropped sharply with the economic downturn, so the company is in the process of re-evaluating its assets. It expects to take a non-cash charge of between $40 billion and $60 billion.

Despite the lowered numbers and the large write-down, AOL Time Warner’s stock has remained largely unchanged in today’s trading, a situation reflecting the at least one analyst’s opinion that this is part of the company’s expected evolution in the current market.

“I think it was less a of negative pre-announcement then a sort of resetting of expectations as a new year beings and new management team [with new CEO Richard Parsons] is effectively taking leadership,” said James Goss, media and entertainment analyst with Barrington Research Associates.