AOL Time Warner Provides Update On 2002 With Consolidation of AOL Europe; Company Reports Preliminary Results For 2001.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 7, 2002

Will Acquire Bertelsmann's Interest and Consolidate AOL Europe

in Financial Results in 2002

AOL Time Warner today announced preliminary results for the full year 2001 and fourth quarter.

The Company also provided financial guidance for 2002 based on expectations for its operating businesses and the consolidation of AOL Europe, and the effects of its 2002 adoption of the new accounting standard FAS 142.

2001 Preliminary Results

For the full year 2001, AOL Time Warner said it expects to post EBITDA growth of approximately 18% to just under $10 billion. Revenues for the full year are expected to grow approximately 5% to just over $38 billion. Free cash flow for 2001 will increase by more than 200% to approximately $3 billion. The Company said that fourth quarter EBITDA is expected to grow approximately 14% to over $2.7 billion and that revenues will grow approximately 3% to $10.5 billion.

The 2001 results exclude certain one-time nonrecurring charges that are expected in the fourth quarter, including approximately $50 million of merger-related costs and approximately $1.5 to $1.8 billion of non-cash charges primarily related to the revaluation of certain equity investees and market declines in the Company's investment portfolio.

Chief Executive Officer Jerry Levin said: "In 2001, AOL Time Warner achieved important goals in all of its divisions despite a difficult economic environment that included the weakest advertising market in memory. The balance and strength of our diverse businesses helped us ride out the tough economy, led by robust subscriber growth across America Online, Time Inc., HBO and Time Warner Cable. Total AOL Time Warner subscribers now exceed 147 million worldwide. We also reduced costs substantially, and financial discipline and productivity gains will continue to be major priorities in the years ahead."

Mr. Levin continued: "The creative side of AOL Time Warner also flourished, adding great value to the Company with an industry-leading portfolio of content, including `Harry Potter' and `Lord Of the Rings,' which represent powerful franchises that will pay dividends well into the future. And, America Online proved to be a unique and highly efficient vehicle to help launch and promote our movies, music, magazines, books and television programming throughout the Company."

Among the other 2001 accomplishments the Company cited were:

-- AOL Membership, including impressive AOL member growth in the fourth
quarter, when 1.9 million new members joined the service, for a total of 33.2
million at December 31, 2001. On December 26, the Company posted its
second-best day for subscriber growth ever, adding 63,700 new members.

-- Broadband, including the essential completion of the Company's cable
broadband and digital pipeline build-out and the introduction of multiple ISPs,
including AOL, in its 20 largest cable markets, passing 15 million digital
households. Starting in 2002, the system will carry an increasing variety of
high-value services to consumers such as Video on Demand and Subscription Video
on Demand.

During the year, the Company added more than 1.5 million

digital subscribers, for a year-end total of approximately 3.3

million. At the same time, the number of high-speed data

subscribers more than doubled to approximately 1.9 million.

-- Box Office Results, which totaled $1.8 billion in domestic

ticket sales for Company releases in 2001, gaining the

number-one position in the industry. Warner Bros. and New Line

created hits and franchise movies such as "Harry Potter and

the Sorcerer's Stone," "The Lord of the Rings: The Fellowship

of the Ring," and "Rush Hour 2," as well as "Ocean's 11" and

"Cats and Dogs."

-- Cross-Company Advertising, based on the success of the Global

Marketing Solutions group, which signed more than $1 billion

in cross-divisional advertising and marketing agreements. Key

cross-company advertising agreements included Toyota, Burger

King, Kraft, Kellogg's, H&R Block, Motorola, and Chrysler.

-- E-Commerce Performance, with online purchases from AOL

customers jumping more than 67% in 2001 to approximately $33

billion, led by a 72% increase in online shopping in the

fourth quarter and approximately $7.2 billion in online

shopping during the holiday season. Nearly 80% of members

shopped online during the past six months, with over 90%

planning additional purchases in the next six months.

AOL Europe

AOL Time Warner said it is acquiring Bertelsmann AG's 49% interest in AOL Europe. Bertelsmann, which has funded AOL Europe since its creation, will transfer 80% of its current stake to AOL Time Warner on January 31, 2002 in return for $5.3 billion in cash. AOL Time Warner will acquire the remaining 20% for $1.45 billion in cash in July 2002. AOL Time Warner will begin consolidating AOL Europe financial results effective at the beginning of 2002.

Since the Company established the terms of its agreement with Bertelsmann in March 2000, AOL Europe has experienced significant growth, with membership in its AOL services climbing by 40% to 5.5 million in the past year alone. It is the only online service operating in the three largest European countries - Germany, France and the UK - with a single brand, business model and platform. AOL Europe's services are number-one or -two in each of those countries, based on the number of subscribers, and their usage is significantly higher per member than any other European online service. AOL Europe has substantial growth potential in those countries alone, where current household penetration ranges from under 30% to less than 40%.

AOL Germany has more than 2.5 million members, while AOL France has more than a million members and, in the UK, AOL is the leading ISP with more than 1.5 million members. Usage of AOL UK accounts for 16% of all consumer time spent online in that country, compared to just 1% for the next largest ISP, while usage of AOL France represents 20% of all time spent online versus 5% for the country's largest ISP. Usage of AOL Germany averages five times greater than its chief competitor.

Mr. Levin added: "Looking ahead, we see our expansion in international markets as one of the major contributors to sustained strong performance. This is particularly true in Europe, with AOL Europe and IPC Media, the UK's leading magazine publisher. By leveraging AOL Europe's infrastructure, cross-company promotional abilities and other assets, AOL Europe can become the driver for Company-wide growth in international consumer markets that AOL has become in the US."

Expectations for 2002

For 2002, AOL Time Warner said its business plan assumes no recovery in the economy. In addition, the Company will make substantial investments in its businesses to increase the market shares of its operations and ensure they are positioned to take full advantage of an upturn in the economy. Further, the Company's growth expectations for 2002 reflect the pro forma effects on fiscal 2001 of the AOL Europe and IPC acquisitions.

In light of these factors, AOL Time Warner expects revenue growth to be in the 5%-8% range and EBITDA to increase in the 8%-12% range. For the first quarter of 2002, the Company said EBITDA and revenues will be essentially flat.

Mr. Levin concluded: "Looking at 2002, we have made conservative assumptions about the economic environment and the state of advertising. We're giving high priority to investing in the development of new products and services, accelerating our international expansion, reinvesting in our core businesses and acquiring new businesses. We are determined to put this Company in the strongest possible competitive position to take full advantage of the eventual renewed growth in the economy and the advertising market."

Longer-Term Outlook

The Company said that an economic upturn in 2002 could lead to EBITDA growth in the low-to-high teens in 2003 and beyond. The Company said that, whatever the state of the economy, it will continue to outperform its competitors, due to its subscription relationships, the strength of its content and the disciplined management of its cost base.

The Company will report its full financial results for 2001 on January 30, 2002.

FAS 142

Effective January 1, 2002, all calendar year companies will be required to adopt the new accounting standard "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 142 eliminates amortization of goodwill and other intangible assets with indefinite lives, which is expected to reduce AOL Time Warner's annual amortization by over $7 billion.

FAS 142 provides new measurement techniques for goodwill and other intangible assets resulting from business combinations. While its revaluation has not been completed, the Company said it expects to record a one-time, non-cash charge in its income statement for the first quarter of 2002 in the $40-$60 billion range to reflect overall market declines since the AOL Time Warner merger was announced in January of 2000. This charge will reflect the cumulative effect of adopting the accounting change and does not affect the Company's operations.

About AOL Time Warner

AOL Time Warner (NYSE: AOL) is the world's first Internet-powered media and communications company, whose industry-leading businesses include interactive services, cable systems, publishing, music, networks and filmed entertainment.

The Company's conference call to discuss these preliminary results can be heard live on the Internet at 5:00 pm ET on Monday, January 7. To listen to the call, visit www.aoltimewarner.com/investors or AOL Keyword: IR.

Caution Concerning Forward-Looking Statements 

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and factors affecting the integration of the businesses of Time Warner Inc. and America Online, Inc. More detailed information about these factors may be found in filings by AOL Time Warner with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and its most recent quarterly report on Form 10-Q. AOL Time Warner is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.