AOL Time Warner Reports Results for Full Year and Fourth Quarter.Business Editors NEW YORK--(BUSINESS WIRE)--Jan. 30, 2002 AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. Time Warner (NYSE NYSE See: New York Stock Exchange : AOL) NOTE:AOL Time Warner's results announced today do not include the pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma effect of the consolidation of AOL Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , which isexpected to occur on January January: see month. 31, 2002, or a full year's results of IPC Media IPC Media the UK's leading consumer magazine and digital publisher, with an unrivalled portfolio of brands, selling over 350 million copies each year. It was formed as International Publishing Company , which was acquired on October October: see month. 17, 2001. Unless otherwise specified, results discussed herein have been adjusted to normalize normalize to convert a set of data by, for example, converting them to logarithms or reciprocals so that their previous non-normal distribution is converted to a normal one. out the effect of merger-related costs and significant and non-recurring items that have occurred in each period, which are discussed in more detail in the accompanying footnotes. Supplemental financial information is attached that provides the Company's reported results and reconciles those results to the normalized results discussed herein. It should be noted that unusual or nonrecurring Non`re`cur´ring a. 1. Nonrecurrent; as, the costs of a layoff are considered as a nonrecurring expense s>. items might occur in any period and users of this financial information should consider the types of events and transactions for which adjustments have been made. In addition, 2000 results have been prepared on a pro forma basis assuming the AOL Time Warner merger was in effect January 1, 2000. AOL Time Warner Reports Results for Full Year and Fourth Quarter -- Performance in Line with Preliminary Results Announced on January 7 -- Full Year Normalized EBITDA up 18% to $9.9 Billion; Total Revenues Increase 6% to $38.2 Billion; Normalized Free Cash Flow Increases by 238% to $3.0 Billion -- Fourth Quarter Normalized EBITDA Grows 14% to $2.8 Billion; Quarterly Revenues up 4% to $10.6 Billion; Subscription Revenues Climb 16% to $4.4 Billion AOL Time Warner Inc. (NYSE: AOL) today reported financial results for its fourth quarter and full year ended December December: see month. 31, 2001, which were consistent with the preliminary results announced on January 7. Revenues for the year rose 6% to $38.2 billion, up from $36.2 billion in 2000, led by a 12% increase in subscription revenues to $16.5 billion. While content and other revenues improved 4% to $13.2 billion, advertising and commerce revenues declined 3% to $8.5 billion. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become for the year increased 18% to $9.9 billion, and cash EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. for the year rose 26% to $1.18. These compare to EBITDA of $8.4 billion and cash EPS of $0.94 in 2000. Revenues for the quarter increased 4% to $10.6 billion, from $10.2 billion in the comparable 2000 period. Subscription revenues increased 16% to $4.4 billion, and content and other revenues increased 4% to $4.0 billion. Advertising and commerce revenues declined 14% to $2.2 billion. EBITDA for the quarter increased 14% to $2.8 billion, compared to $2.4 billion in 2000. Cash EPS for the quarter rose 18% to $0.33, compared to $0.28 a year earlier. EBITDA margin for both the full year and the fourth quarter of 2001 expanded to 26% from 23% and 24% for the full year and fourth quarter 2000, respectively. Free cash flow was $3.0 billion for the year, up 238% from $888 million in 2000. For the quarter, free cash flow was $509 million, up 21% from $420 million in the fourth quarter of 2000. A Solid Foundation for Future Growth Chief Executive Officer Jerry Jer·ry n. pl. Jer·ries Chiefly British Slang A German, especially a German soldier. [Alteration of German. Levin lev·in n. Archaic Lightning. [Middle English levene, levin; see leuk- in Indo-European roots.] said: "In 2001, we achieved strong results in a difficult overall economy and weak advertising market. All our divisions, excluding the advertising segments of our businesses, finished the year with positive momentum, and we made substantial progress in our areas of greatest growth potential. We also built a solid foundation for our Company's growth by putting the right people in the right places and integrating the Company into one organization." Mr. Levin continued: "We continue to make great progress in our broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). strategy and are satisfied with our progress to date. AOL Time Warner has more broadband subscribers than any other company, and last year we nearly doubled the number of digital and high-speed high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. data customers and began offering multiple ISPs in 20 markets. Building out the broadband market will remain one of our highest priorities and most promising sources of growth, because it will allow us to offer a wide variety of valuable premium services such as on-demand On-Demand refers to a service or feature which addresses the user's need for instant gratification and immediacy of use. In most cases the value proposition for an on-demand service is wrapped up in the fact that the user or consumer of the service avoids a significant up-front programming and digital music." Mr. Levin concluded: "Looking ahead, we will continue, in both our U.S. and international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , to expand our subscriber base, launch new products and services and sustain the flow of exciting new content. We will also maintain our emphasis on financial discipline, pursuing further cost reductions and productivity improvements across the Company, beyond the substantial gains we made in 2001." Progress in Strategic Areas In the quarter and the year, the Company made progress in a number of strategic areas, including: -- Subscriptions: The AOL service added 6.5 million members in 2001 - the strongest annual growth in the Company's history - and 1.9 million in the quarter, for a year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. total of 33.2 million. HBO Hyperbaric oxygen therapy (HBO) A form of oxygen therapy in which the patient breathes oxygen in a pressurized chamber. Mentioned in: Ozone Therapy grew its subscriber base in 2001 by 1.2 million, to a total of 38.1 million subscribers. Time Warner Cable This article or section needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. added 471,000 digital subscribers in the quarter, finishing the year with approximately 3.3 million, and 256,000 high-speed data subscribers, for a total of approximately 1.9 million at December 31, 2001. Overall, AOL Time Warner's total subscriptions grew to approximately 148 million, an increase of 17.9 million over 2000, with 9.1 million of these coming from the acquisition of IPC Media, the UK's largest magazine publisher, closed on October 17, 2001. -- International Operations: Time Inc.'s purchase of IPC Media significantly enlarged the Company's international publishing business. The AOL service added 851,000 international members in the quarter, for a total of 8.0 million on December 31. AOL Time Warner's pending acquisition of Bertelsmann's interest in AOL Europe positions the Company for additional international growth. On October 22, 2001, AOL Time Warner announced that its Mandarin-language channel, CETV CETV Cash Equivalent Transfer Value (UK) CETV China Entertainment Television , was granted broadcast rights in China - a first for any foreign company. -- Box Office: AOL Time Warner ended the year with $1.8 billion in domestic box-office receipts, making it the industry leader for 2001. The Company continued to build its collection of film franchises, with two of the biggest hits of the year: Harry Potter A potter is someone who makes pottery. Potter may also refer to: People
Rings: The Fellowship fellowship Graduate education A post-residency training period of 1–2 yrs in a subspecialty–eg, hand surgery, which allows a specialized physician to develop a particular expertise that may have a related subspecialty board; fellowship time is often of the Ring. Each film is the first in a multi-picture series expected to generate revenues for years to come from ticket sales, DVD DVD: see digital versatile disc. DVD in full digital video disc or digital versatile disc Type of optical disc. The DVD represents the second generation of compact-disc (CD) technology. and video sales, television rights and licensing. Harry Potter has already surpassed $890 million in worldwide box-office receipts and was the largest advance-ticketing movie in history, and The Lord of the Rings currently exceeds $620 million worldwide. Warner Home Video Warner Home Video is the home video unit of Warner Bros. Home Entertainment Group, a division of Warner Bros. Entertainment, Inc. It was founded in 1978 as WCI Home Video (for Warner Communications, Inc.). It was re-named Warner Home Video in 1980. also sold 40 million DVDs in the fourth quarter, bringing total sales for the year to nearly 116 million units, 57% more than in 2000. -- Cross-Platform (software, hardware) cross-platform - A term that describes a language, software application or hardware device that works on more than one system platform (e.g. Unix, Microsoft Windows, Macintosh). E.g. Netscape Navigator, Java. Advertising and Marketing: Through its Global Marketing Solutions Group, the Company started selling unique advertising and marketing programs that allow major brands to reach customers through a combination of AOL Time Warner's print, television and Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the media. The Group's momentum culminated in the fourth quarter, with contracts with Burger King, Motorola (Motorola, Inc., Schaumburg, IL, www.motorola.com) A leading manufacturer of semiconductor devices, electronics, telecommunications and satellite systems. Founded in Chicago in 1928 by Paul V. , DaimlerChrysler, Kraft and Kellogg's. By December 31, 2001, AOL Time Warner had signed agreements representing more than $1 billion. Already in 2002, Wendy's
''This article or section is being rewritten at Wendy's is an international chain of fast food restaurants founded by Dave Thomas. , Unilever Unilever Either of two linked companies, Unilever PLC (based in London) and Unilever NV (based in Rotterdam). They are the holding companies for more than 500 firms worldwide that manufacture and sell soaps, foods, and other products. and American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. have announced agreements to market their products and services on AOL Time Warner properties. -- E-Commerce e-commerce, commerce conducted over the Internet, most often via the World Wide Web. E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. : Online purchases by AOL members in the fourth quarter increased by more than 72% over the previous year, with approximately $7.2 billion in sales during the 2001 holiday season. AOL members spent approximately $33 billion in e-commerce transactions last year, a 67% increase over 2000. These gains in online shopping help lay the foundation for additional e-commerce and advertising partnerships between America Online See AOL. and major consumer brands. Consolidated Reported Results For the quarter, the Company's reported net loss was $1.8 billion, or $0.41 per share, taking into account $45 million in pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta merger-related costs, and a pre-tax non-cash write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of $1.7 billion to reflect other-than-temporary declines in the value of certain of its investments. The non-cash write-off related primarily to the Company's investments in Time Warner Telecom Time Warner Telecom NASDAQ: TWTC is headquartered in Littleton, Colorado. The company provides managed network services, specializing in Ethernet and transport data networking, Internet access, local and long distance voice, VoIP and security, to enterprise Inc. and Hughes Electronics Corporation. This compares to a net loss of $1.1 billion, or $0.25 per share in the same quarter in 2000, which included $16 million in pre-tax cable-related gains, and $620 million of net pre-tax investment-related charges, including a non-cash write-off of $579 million to reflect other-than-temporary declines in the value of AOL Time Warner's investment portfolio. For the full year, the Company's reported net loss was $4.9 billion or $1.11 per share, taking into account $250 million in pre-tax merger-related costs and a pre-tax non-cash write-off of $2.5 billion to reflect other-than-temporary declines in the value of certain of its investments. This compares to a full-year net loss of $4.4 billion, or $1.02 per share in 2000, which included $155 million in pre-tax merger-related costs, $37 million in net pre-tax cable-related gains, and $540 million of net pre-tax investment-related charges, including a non-cash write-off of $579 million to reflect other-than-temporary declines in the value of AOL Time Warner's investment portfolio. Outlook for 2002 As stated on January 7, the Company's business plan for 2002 assumes no recovery in the economy. Further, its growth expectations reflect the pro forma effects on 2001 of the acquisitions of AOL Europe and IPC Media. 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 expects that EBITDA and revenues will be essentially flat compared to the same period of 2001. Division Performance The schedules below reflect AOL Time Warner's performance for the fourth quarter and the full year (in millions):
Three Months Ended
December 31:
Normalized Reported
Actual Pro Forma Actual Pro Forma
2001 2000 2001 2000
------------------------------------------
Revenues:
AOL $2,259 $2,059 $2,259 $2,059
Cable 1,887 1,594 1,887 1,594
Filmed Entertainment 2,542 2,411 2,542 2,411
Networks 1,860 1,793 1,860 1,793
Music 1,214 1,264 1,214 1,264
Publishing 1,535 1,429 1,535 1,429
Intersegment Elimination (665) (319) (665) (319)
---------- --------- -------- ----------
Total Revenues $10,632 $10,231 $10,632 $10,231
-------------- ======= ======= ======= =======
EBITDA:
AOL $ 718 $ 652 $ 718 $ 652
Cable 863 767 863 767
Filmed Entertainment 347 183 347 183
Networks 454 443 454 443
Music 151 178 151 178
Publishing 329 290 329 290
Corporate (75) (74) (75) (74)
Merger-related costs - - (45) (16)
Intersegment Eliminations (27) (18) (27) (18)
--------------------- --------- ----------
Total EBITDA $2,760 $ 2,421 $2,715 $ 2,405
------------ ====== ======== ====== =======
Years Ended December 31:
Normalized Reported
Actual Pro Forma Actual Pro Forma
2001 2000 2001 2000
---------------------------------------
Revenues:
AOL $ 8,718 $ 7,703 $ 8,718 $ 7,703
Cable 6,992 6,054 6,992 6,054
Filmed Entertainment 8,759 8,119 8,759 8,119
Networks 7,050 6,802 7,050 6,802
Music 3,929 4,148 3,929 4,148
Publishing 4,810 4,645 4,810 4,645
Intersegment Eliminations (2,024) (1,258) (2,024) (1,258)
-------------------- ------------------
Total Revenues $38,234 $36,213 $38,234 $36,213
-------------- ======= ======= ======= =======
EBITDA:
AOL $ 2,945 $ 2,350 $ 2,945 $ 2,350
Cable 3,199 2,831 3,199 2,859
Filmed Entertainment 1,017 796 1,017 796
Networks 1,797 1,502 1,797 1,502
Music 419 518 419 518
Publishing 909 747 909 747
Corporate (294) (304) (294) (304)
Merger-related costs - - (250) (155)
Intersegment Eliminations (86) (46) (86) (46)
--------------------- ---------- ----------
Total EBITDA $ 9,906 $ 8,394 $ 9,656 $ 8,267
------------ ======== ======== ======== ========
America Online America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. Online's EBITDA and revenues grew 10% in the quarter. AOL's subscription growth remained strong in the fourth quarter, with revenues from subscriptions increasing 17% to $1.4 billion. Advertising and commerce revenues decreased by 7% in the quarter to $637 million, down from $686 million in the same period of 2000, reflecting weakness in the advertising market, mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. by intercompany advertising and increased merchandise revenues. For the year, advertising and commerce revenues grew 13% to $2.7 billion. The Company's iPlanet The brand name for software from the Sun-Netscape Alliance. Most Netscape products were renamed iPlanet after the joint venture was organized. See Sun-Netscape Alliance. alliance generated $105 million in revenues and $79 million of EBITDA in the quarter, compared to $86 million of revenues and $49 million of EBITDA in the same period of 2000. As previously announced, AOL and Sun Microsystems Sun Microsystems, Inc. (NASDAQ: JAVA[3]) is an American vendor of computers, computer components, computer software, and information-technology services, founded on 24 February 1982. have terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: this alliance. For the month of December, the AOL network surpassed one billion hours of usage for the first time. Peak simultaneous usage reached 2.4 million members in December, compared to 1.9 million in the same month a year earlier. AOL 7.0, the newest version of AOL's software launched on October 16, 2001 continues to drive usage and now accounts for over 42% of total daily AOL user-hours in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Radio@AOL, AOL's first built-in built-in - (Or "primitive") A built-in function or operator is one provided by the lowest level of a language implementation. This usually means it is not possible (or efficient) to express it in the language itself. radio service and a key feature of AOL 7.0 was accessed by more than two million members in its first two weeks, and the AOL Music Channel, which allows consumers to conveniently discover, experience and purchase music online, has quickly become the leading online music destination, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Jupiter Jupiter, in Roman religion and mythology Jupiter, in Roman religion and mythology, the supreme god, also called Jove. Originally a sky deity associated with rain and agriculture, he developed into the great father god, prime protector of the state, Media Metrix. Last week, *NSYNC NSYNC Justin Chris Joey Lasten JC (last letters of first names of members of the group NSYNC) NSYNC Negative Synchronization selected AOL as its online partner, offering exclusive concert tickets to AOL members and Web music fans on America Online Web sites including Netscape (1) (Netscape Communications Corporation, Mountain View, CA, www.netscape.com) Part of America Online (AOL), Netscape specializes in Web software, including the Netscape Web browser. , AOL Instant Messenger See AIM. , ICQ ("I Seek You") A conferencing program for the Internet from Mirabilis, Tel Aviv, Israel (www.icq.com). It provides interactive chat, e-mail and file transfer and can alert you when someone on your predefined list has also come online. and CompuServe An online information service that provides access to the Internet, e-mail, instant messaging and an integrated contact list. Founded in 1969 as a timesharing service, CompuServe is one of the oldest online services, being the first to offer e-mail in 1979 and online chat a year later. . Cable Cable's EBITDA was up 13% in the quarter on an 18% increase in revenues. Cable's advertising and commerce revenues grew 44% during the fourth quarter to $231 million, and 32% during the year to $665 million as a result of intercompany promotions and increased advertising sold in conjunction with the launch of new channels. Rising programming costs as well as expenses associated with the marketing and deployment of new services contributed to a decline in EBITDA margins to 46% in the fourth quarter of 2001 from 48% in the fourth quarter of 2000. In addition to strong growth in the quarter of high-speed data and digital subscribers, Time Warner Cable added 144,000 basic subscribers, bringing its year-end total to 12.8 million. The number of high-speed data subscribers more than doubled in 2001 to 1.9 million, representing 10% of eligible homes passed and 15% of basic subscribers. The number of digital subscribers increased by 1.6 million for the year to 3.3 million. Time Warner Cable tested Video-On-Demand The ability to deliver a movie, sports event or other video program to a TV set whenever the customer requests it. Video-on-demand (VOD) typically refers to free and paid programs from the cable TV companies or the telephone companies that offer video over DSL lines. and Subscription Video-On-Demand on a limited basis in three and two markets, respectively. In 2002, Time Warner Cable expects to expand the distribution of these high-value services in a substantial number of its markets. Filmed Entertainment Filmed Entertainment's EBITDA increased 90% for the quarter on a 5% increase in revenues, driven in large part by strong theatrical releases, improved merchandise licensing revenues and higher DVD sales. The Company's Warner Bros BROS Brothers BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) . and New Line Cinema divisions led the industry in domestic box office for the year with a combined 22% market share. Ten films ranked first in their opening weekend during the year, including Harry Potter, The Lord of the Rings, Ocean's Eleven, and Rush Hour 2. Warner Home Video increased its DVD revenues by 44% to $521 million for the quarter and by 50% to $1.4 billion for the year. Networks Networks' EBITDA increased 2% in the quarter on revenue growth of 4%. HBO demonstrated continued revenue growth from increases in subscribers as well as growth in its content businesses. Turner networks were affected by industry-wide advertising revenue declines and increased marketing and newsgathering news·gath·er·ing adj. Of, relating to, or involving the research and reportage of news: a worldwide newsgathering operation. news expenses. CNN CNN or Cable News Network Subsidiary company of Turner Broadcasting Systems. It was created by Ted Turner in 1980 to present 24-hour live news broadcasts, using satellites to transmit reports from news bureaus around the world. continues to be cable TV's leading news channel with ratings up 43%, a 51% increase in household delivery and 49% growth in total viewers VIEWERS. Persons appointed by the courts to see and examine certain matters, and make a report of the facts together with their opinion to the court. In practice they are usually appointed to lay out roads and the like. Vide Experts. this quarter over the year-ago period. Additionally, CNN Headline HEADLINE Hybrid Electronic Access and Delivery in the Library Networked Environment News experienced the largest growth in prime time of any cable news network in ratings, household delivery, total viewers, adults 18-34, adults 18-49 and adults 25-54 over the year-ago quarter. HBO won six Golden Globe awards on January 20, 2002, the most of any network. HBO also dominated the first annual American Film Institute American Film Institute (AFI), nonprofit organization established in Washington, D.C., in 1967 by the National Endowment for the Arts to preserve and catalog American films and television, to provide work grants for new and established filmmakers, and to increase Television Awards, winning six of the seven award categories. The WB Network increased its advertising and commerce revenue over the year-ago quarter, launching its most successful season yet, while maintaining its position as the #1 network among female teens for the fourth consecutive season, with 7th Heaven continuing as the most popular show on television with female teens. Smallville Smallville is a generic nickname for any small town. Smallville may also refer to:
Music Warner Music Group's EBITDA decreased 15% in the quarter mainly due to higher bad debt provisions reflecting the difficult industry-wide retail environment, lower industry-wide music sales, and unfavorable foreign currency exchange rate fluctuations. Revenues decreased 4% in the quarter as a result of lower international recorded music recorded music n → música grabada and publishing sales and currency exchange rate fluctuations. In the U.S., Warner Music improved label revenues in the fourth quarter by 2%. The Company increased domestic market share, coming in second place for the year in total industry sales. WMG WMG Warner Music Group WMG Wireless Messaging Gateway WMG Williams Media Group WMG Where's My Glasses? WMG Woah My God WMG Wireless Marketing Group WMG Wisconsin Musical Groups WMG Windows Metafile Graphics WMG Wireless Media Gateway had three of the top five domestic albums of the year with Linkin Park' s Hybrid Theory holding the #1 position, and Enya's A Day Without Rain and Staind's Break The Cycle holding the #4 and #5 spots, respectively. Warner Music Group Warner Music Group (WMG) is one of the four major record labels. Warner Music Group also has a publishing arm, Warner/Chappell Music, which dates back to 1929, when Jack Warner, president of Warner Bros. Pictures Inc. finished the year with a total of 30 albums in the Billboard Top 200. In addition, Madonna's hit single Don't don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. Tell Me topped Music and Media's European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. Radioplay Top 100 chart. Publishing Publishing's EBITDA grew 13% in the quarter on revenue growth of 7%, largely from its acquisition of IPC Media. The IPC (1) (InterProcess Communication) The exchange of data between one program and another either within the same computer or over a network. It implies a protocol that guarantees a response to a request. acquisition also increased Publishing's rate base by 9.1 million. The division also acquired a majority interest in the privately held subscription marketing company Synapse synapse (sĭn`ăps), junction between various signal-transmitter cells, either between two neurons or between a neuron and a muscle or gland. A nerve impulse reaches the synapse through the axon, or transmitting end, of a nerve cell, or neuron. Group and the This Old House trademark and television assets in the quarter. The magazine industry's top three publications in terms of advertising revenue in 2001 - People, Sports Illustrated Sports Illustrated is the largest weekly American sports magazine owned by media conglomerate Time Warner. It has over 3 million subscribers and is read by 23 million adults each week, including over 18 million men, 19% of the adult males in the country. and Time - were all Time Inc. publications. AOL Time Warner Book Group had a record 39 New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Times bestsellers during 2001, breaking its previous year's record, with 13 titles added to the Times bestseller list during the fourth quarter. About AOL Time Warner AOL Time Warner is the world's first Internet-powered media and communications company Communications Company is a communications unit of the United States Marine Corps. They are part of Combat Logistics Regiment 37 , 3rd Marine Logistics Group (3MLG) and III Marine Expeditionary Force (III MEF). The unit is based out of the Marine Corps Base Camp Smedley D. , whose industry-leading businesses include interactive services, cable systems, publishing, music, networks and filmed entertainment. The Company's earnings conference call can be heard live on the Internet at 9:00 am ET on Wednesday Wednesday: see week. , January 30. To listen to the call, visit www.aoltimewarner.com/investors or AOL Keyword: IR. Caution Concerning Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are based on management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. factors, and factors affecting the integration of the businesses of AOL Time Warner 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its most recent quarterly report on Form 10-Q Form 10-Q See 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.
AOL TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(millions, except per share amounts)
(unaudited)
December 31, December 31,
2001 2000
Actual Pro Forma
------------ ------------
ASSETS
Current assets
Cash and equivalents $ 719 $ 3,300
Short-term investments - 886
Receivables, less allowances
of $1.889 and $1.725 billion 6,054 6,033
Inventories 1,791 1,583
Prepaid expenses and other current assets 1,710 1,908
--------- ---------
Total current assets 10,274 13,710
Noncurrent inventories and film costs 6,853 6,235
Investments, including
available-for-sale securities 6,886 9,472
Property, plant and equipment 12,684 11,174
Music catalogues and copyrights 2,927 2,500
Cable television and sports franchises 27,109 31,700
Brands and trademarks 10,684 10,000
Goodwill and other intangible assets 128,338 128,824
Other assets 2,804 2,432
--------- ---------
Total assets $208,559 $216,047
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,257 $ 2,125
Participations payable 1,253 1,190
Royalties and programming costs payable 1,515 1,488
Deferred revenue 1,456 1,660
Debt due within one year 48 45
Other current liabilities 6,443 6,163
--------- ---------
Total current liabilities 12,972 12,671
Long-term debt 22,792 21,318
Deferred income taxes 11,260 15,165
Deferred revenue 1,054 1,277
Other liabilities 4,819 4,050
Minority interests 3,591 3,364
Mandatorily redeemable preferred
securities of a subsidiary holding solely
debentures of a subsidiary of the Company - 575
Shareholders' equity
Series LMCN-V common stock, $.01
par value, 171.2 million shares outstanding 2 2
Common stock, $.01 par value,
4.258 and 4.101 billion shares outstanding 42 41
Paid-in capital 155,172 155,796
Accumulated other
comprehensive income (loss), net 49 61
Retained earnings (loss) (3,194) 1,727
--------- ---------
Total shareholders' equity 152,071 157,627
--------- ---------
Total liabilities and shareholders' equity $208,559 $216,047
========= =========
See accompanying notes.
AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(millions, except per share amounts)
(unaudited)
Three Months Ended Years Ended
December 31, December 31,
------------------- ------------------
2001 2000 2001 2000
Actual Pro Forma Actual Pro Forma
-------- --------- -------- ---------
Revenues:
Subscriptions $ 4,438 $ 3,825 $16,543 $14,733
Advertising and commerce 2,222 2,592 8,487 8,744
Content and other 3,972 3,814 13,204 12,736
------- ------- ------- -------
Total revenues 10,632 10,231 38,234 36,213
Cost of revenues (5,840) (5,840) (20,704) (19,887)
Selling, general
and administrative (2,573) (2,408) (9,596) (9,550)
Amortization of goodwill
and other intangible assets (1,879) (1,769) (7,231) (7,032)
Gain on sale or exchange
of cable television systems - - - 28
Merger-related costs (45) (16) (250) (155)
------- ------- ------- -------
Operating income (loss) 295 198 453 (383)
Interest expense, net (361) (352) (1,379) (1,373)
Other expense, net (1,997) (828) (3,539) (1,356)
Minority interest expense (64) (76) (310) (264)
------- ------- ------- -------
Loss before income
taxes and cumulative
effect of accounting change (2,127) (1,058) (4,775) (3,376)
Income tax provision (benefit) 305 (31) (146) (551)
------- ------- ------- -------
Loss before cumulative
effect of accounting change (1,822) (1,089) (4,921) (3,927)
Cumulative effect of
accounting change, net
of $295 million
income tax benefit - - - (443)
------- ------- ------- -------
Net loss (1,822) (1,089) (4,921) (4,370)
Preferred
dividend requirements - (3) - (14)
------- ------- ------- -------
Net loss applicable
to common shares $ (1,822) $ (1,092) $ (4,921) $(4,384)
======== ======== ======== =======
Basic and diluted loss
per common share before
cumulative effect
of accounting change $ (0.41) $ (0.25) $ (1.11) $ (0.92)
Cumulative effect
of accounting change - - - (0.10)
-------- -------- -------- -------
Basic and diluted net
loss per common share $ (0.41) $ (0.25) $ (1.11) $ (1.02)
======== ======== ======== =======
Diluted cash
earnings (loss) per share $ (0.05) $ 0.14 $ 0.57 $ 0.79
======== ======== ======== =======
Basic common shares 4,428.8 4,350.1 4,429.1 4,300.8
======== ======== ======== =======
Diluted common shares
for cash earnings
(loss) per share 4,556.2 4,581.3 4,584.4 4,588.6
======== ======== ======== =======
See accompanying notes.
AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31,
(millions; unaudited)
2001 2000
Actual Pro Forma
------- ---------
OPERATIONS
Net loss $(4,921) $(4,370)
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting change - 443
Depreciation and amortization 9,203 8,650
Amortization of film costs 2,380 2,032
Loss on writedown of investments 2,537 517
Gain on sale of investments (34) (486)
Gain on sale or exchange of
cable systems and investments - (37)
Equity in losses of investee
companies after distributions 975 1,224
Changes in operating assets
and liabilities, net of acquisitions
Receivables (484) (924)
Inventories (2,801) (2,291)
Accounts payable and other liabilities (1,952) 1,259
Other balance sheet changes 391 (1,373)
------ ------
Cash provided by operations 5,294 4,644
------ ------
INVESTING ACTIVITIES
Acquisition of Time Warner Inc. cash and equivalents 690 -
Investments and acquisitions (4,177) (3,758)
Capital expenditures and product development costs (3,634) (3,560)
Investment proceeds 1,851 1,431
Other - (2)
------ ------
Cash used by investing activities (5,270) (5,889)
------ ------
FINANCING ACTIVITIES
Borrowings 10,692 4,660
Debt repayments (9,900) (3,043)
Borrowings against future stock option proceeds - 2
Repayments of borrowings
against future stock option proceeds - (1,245)
Redemption of mandatorily redeemable
preferred securities of subsidiary (575) -
Proceeds from exercise of stock
option and dividend reimbursement plans 926 704
Repurchases of common stock (3,031) (65)
Dividends paid and partnership distributions (63) (306)
Other 36 -
------ ------
Cash (used) provided by financing activities (1,915) 707
------ ------
DECREASE IN CASH AND EQUIVALENTS (1,891) (538)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 2,610 3,838
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD $ 719 $3,300
====== ======
FREE CASH FLOW $1,597 $ 778
====== ======
See accompanying notes.
AOL TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge Note 1: Basis of Presentation Basis of Presentation On January 11, 2001, America Online, Inc. ("America Online") and Time Warner Inc. ("Time Warner") completed their previously announced merger (the "Merger") to form AOL Time Warner Inc. ("AOL Time Warner" or the "Company"). The financial statements of AOL Time Warner reflect the application of the purchase method of accounting. Under the purchase method of accounting, the estimated costs of approximately $147 billion to acquire Time Warner, including transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). , have been allocated to Time Warner's underlying net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. in proportion to their respective estimated fair values. The 2000 pro forma financial statements Pro forma financial statements A firm's financial statements as adjusted to reflect a projected or planned transaction. "What-if" analysis. are presented as if the Merger had occurred on January 1, 2000, based on a preliminary allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of the purchase price. These results reflect reclassifications of each company's historical operating results and segment information to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the Company's financial statement presentation, as follows: - Time Warner's digital media results have been allocated to the business segments now responsible for managing those operations and are no longer treated as a separate reportable business segment; - Income and losses related to equity-method investments and gains and losses on the sale of investments have been reclassified from EBITDA and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (loss) to other income (expense), net; - Corporate expenses have been reclassified to selling, general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. as a reduction of EBITDA and operating income (loss); and - Merger-related costs have been moved from other income (expense), net, to EBITDA and operating income (loss). For the historical operating results of America Online, as predecessor to AOL Time Warner, please refer to AOL Time Warner's Annual Report on Form 10-K for the year ended December 31, 2000. Description of Business The Company is the world's first fully integrated, Internet-powered media and communications company. AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services, Web brands, Internet technologies and electronic commerce services; Cable, consisting principally of interests in cable television systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music and music publishing The contractual relationship between a songwriter or music composer and a music publisher, whereby the writer assigns part or all of his or her music copyrights to the publisher in exchange for the publisher's commercial exploitation of the music. ; and Publishing, consisting principally of interests in magazine publishing, book publishing book publishing. The term publishing means, in the broadest sense, making something publicly known. Usually it refers to the issuing of printed materials, such as books, magazines, periodicals, and the like. and direct marketing. A majority of the Company's interests in the Filmed Entertainment and Cable segments, and a portion of its interests in the Networks segment are held through Time Warner Entertainment Company, L.P. ("TWE TWE Test of Written English TWE ThinkWave Educator (teacher productivity application) TWE That Was Easy TWE tap water enema TWE Threat Warning Equipment TWE Transitional Work Experience TWE Triangle Wind Ensemble "). AOL Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share. In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne MediaOne was a cable company created by U S WEST in 1995. The cable service started as a division of U S WEST Media Group. In time the service also included pay-per-view, and a self-branded high-speed cable modem internet service named Hiway1 ("Highway One"). TWE Holdings, Inc., a subsidiary of AT&T Corp. Revenue Classification Changes In the fourth quarter of 2000, both America Online and Time Warner adopted Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB SAB Spontaneous abortion. See Abortion. 101"). SAB 101 clarifies certain existing accounting principles for the timing of revenue recognition and the classification of revenues in financial statements. While America Online's and Time Warner's revenue recognition policies were consistent with the provisions of SAB 101, the new rules result in changes as to how revenues from certain transactions are classified in the AOL, Networks and Music segments. As a result of applying the provisions of SAB 101, the Company's revenues and costs were reduced by an equal amount of $82 million on a pro forma basis during the fourth quarter of 2000 and $359 million on a pro forma basis for the year ended December 31, 2000. Normalized Results In order to fully assess underlying operating results and trends, management believes that, in addition to the actual operating results, the operating results adjusted to exclude the impact of significant unusual and nonrecurring items should be evaluated. Accordingly, in addition to presenting actual operating results, the Company has presented normalized results, which exclude the impact of significant unusual and nonrecurring items, discussed in more detail in Note 2. It should be noted, however, that unusual or nonrecurring items may occur in any period; therefore, investors and other users of this financial information individually should evaluate the types of events and transactions for which adjustments have been made. Reclassifications Certain reclassifications have been made to the prior year's financial information to conform to the current presentation. Note 2: Significant Gains, Charges and Other Nonrecurring Items Investment Write-Downs The United States economy has experienced a broad decline in the public equity markets, particularly in technology stocks, including investments held in the Company's portfolio. Similarly, the Company experienced significant declines in the value of certain privately held investments, restricted securities and investments accounted for using the equity method of accounting. As a result, the Company recorded noncash pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern charges to reduce the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of certain investments that experienced other-than-temporary declines, and to reflect market fluctuations in derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. . During the fourth quarter, these charges were approximately $1.626 billion in 2001 and $579 million in 2000. The fourth quarter charge in 2001 primarily relates to an impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. on AOL Time Warner's investment in Time Warner Telecom Inc. ("Time Warner Telecom") of approximately $1.2 billion, an investment which is being accounted for under the equity method of accounting. The carrying value of the Time Warner Telecom investment was adjusted upward in the Merger by over $2 billion to its estimated fair value. Since that time, Time Warner Telecom's share price has declined significantly, thereby, resulting in the impairment charge. Also included in the fourth quarter charge is an approximate $270 million charge related to an other-than-temporary decline in the carrying value of AOL Time Warner's investment in Hughes Electronics Corp. During the full year, noncash pretax charges to reduce the carrying value of certain investments that experienced other-than-temporary declines and to reflect market fluctuations in derivative instruments totaled $2.442 billion in 2001 and $579 million in 2000. These charges have been included in other expense, net, in the accompanying statement of operations See Income statement. for the three and twelve months ended December 31, 2001 and on a pro forma basis for the three and twelve months ended December 31, 2000. In addition, the Company recognized a noncash pretax charge in the second quarter of 2001 of approximately $54 million to reduce the carrying value of certain investments, primarily due to declines in market values deemed to be other-than-temporary. However, this charge was almost entirely offset by pretax gains related to derivative instruments and the sale of certain investments. Other Investment-Related Activity During the first quarter of 2000, the Company recognized gains Recognized Gain The amount of gain reported for income tax purposes. Notes: You can defer recognizing some gains until the following year(s). See also: Capital Gain, Capital Loss, Deferred Income Tax, Drought Sale, Exempt Income, Exemption, Gain, Recognized Loss of approximately $285 million from the sale of certain investments. In addition, during the third quarter of 2000, the Company recognized a net pretax gain of approximately $65 million, principally relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc additional proceeds received in the third quarter of 2000 from the 1999 sale of an interest in CanalSatellite. These gains have been included in other expense, net, in the accompanying statement of operations on a pro forma basis for the year ended December 31, 2000. Gains on the Sale or Exchange of Cable Television Systems and Investments In 2000, largely in an ongoing effort to enhance its geographic clustering of cable television properties, the Company sold or exchanged various cable television systems and investments. In connection with the sale or exchange of consolidated cable television systems, the operating results of the Cable segment include net pretax gains of $28 million on a pro forma basis for the year ended December 31, 2000. In connection with the sale or exchange of unconsolidated cable television systems, other expense, net, includes net pretax gains of $16 million on a pro forma basis for the three months ended December 31, 2000, and $9 million on a pro forma basis for the year ended December 31, 2000. Six Flags For the national flags of Texas, see . Six Flags (NYSE: SIX) is the world's largest chain of amusement parks and theme parks and is headquartered in New York City. There are 20 such parks run by Six Flags. In December 1998, a jury returned an adverse verdict in the Six Flags Entertainment Corporation ("Six Flags") litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. in the amount of $454 million. TWE and its former 51% partner in Six Flags were financially responsible for this judgment. TWE appealed the verdict, but, in July July: see month. 2000, an appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. unexpectedly affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. the jury's verdict. As a result, TWE revised its estimate of its financial exposure and recorded a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. , pretax charge of $50 million in the second quarter of 2000 to cover its additional financial exposure in excess of established reserves, which consisted of the unrecognized portion of the deferred gain on the 1998 sale of Six Flags and accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. . The $50 million charge is classified in two components in the Company's accompanying statement of operations on a pro forma basis for the year ended December 31, 2000: $26 million of the charge, representing an accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. for additional interest, is included in interest expense, net, and the remaining $24 million is included in other expense, net. Road Runner road runner: see cuckoo. Road Runner thrives on outwitting Wile E. Coyote. [Comics: “Beep Beep the Road Runner” in Horn, 105] See : Cunning Road Runner Restructuring Charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. In the fourth quarter of 2000, the Company agreed with its partners to restructure the ownership of Road Runner. As a result of the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , the Company recognized a one-time restructuring charge of $41 million in connection with this transaction. This charge is included in other expense, net, in the accompanying statement of operations on a pro forma basis for the three and twelve months ended December 31, 2000. Columbia Columbia, cities, United States Columbia (kəlŭm`bēə). 1 City (1990 pop. 75,883), Howard co., central Md., between Washington, D.C., and Baltimore. House Investment Write-Down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. In March 2000, the proposed merger between CDNOW CDNOW.com was an online retailer, founded in February 1994 by twin brothers Jason Olim and Matthew Olim of Ambler, Pennsylvania. CDNOW was initially launched as a telnet (text-only) service in August 1994, and then as a website in September 1994. , Inc. and Columbia House Company Partnerships ("Columbia House") was terminated. In connection with the termination of the merger, the risk associated with the timely execution of certain strategic alternatives for Columbia House's operations and the transformation of Columbia House's traditional business model to an online one increased. As a result, management concluded that the decline in Columbia House's business was likely to continue through the near term and recorded a $220 million noncash pretax charge in the first quarter of 2000 to reduce the carrying value of its investment in Columbia House to an estimate of its fair value. The charge has been included in other expense, net, in the accompanying statement of operations on a pro forma basis for the year ended December 31, 2000. During 2001, Columbia House's operation experienced a continued decline which was not expected to recover in the near term. Consequently, the Company recorded a noncash pretax charge of approximately $90 million in the fourth quarter of 2001 to further reduce the carrying value of the investment in Columbia House to its fair value. Merger-Related Costs Merger-related costs consist of special charges related to mergers and merger-related restructurings, including the Merger. In the fourth quarter of 2001, the Company incurred approximately $45 million of merger-related costs, primarily related to the Music segment. For the full year 2001, merger-related costs were $250 million, primarily related to the AOL segment (approximately $201 million). On a pro forma basis in 2000, merger-related costs were $16 million for the fourth quarter and $155 million for the year, primarily costs incurred by Time Warner related to the Merger. Cumulative Effect of Change in Film Accounting Principle In June June: see month. 2000, the Company adopted Statement of Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-2"). SOP 00-2 established new film accounting standards, including changes in revenue recognition and accounting for advertising, development and overhead costs overhead costs see fixed costs. . The Company adopted the provisions of SOP 00-2 retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a to the beginning of 2000. As a result, the Company's operating results on a pro forma basis for the year ended December 31, 2000 include a one-time, noncash, after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. charge of approximately $443 million, primarily to reduce the carrying value of its film inventory. This charge has been reflected as a cumulative effect of an accounting change in the accompanying statement of operations. Note 3: Income Taxes The relationship between income before income taxes and income tax expense of the Company is affected by the amortization of goodwill and certain other financial statement expenses that are not deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). for income tax purposes. As of December 31, 2001, the Company had net operating loss carryforwards Net operating loss carryforwards Application of losses to offset earnings in future years. of approximately $12 billion, primarily resulting from stock option exercises, available to offset future U.S. federal taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . Note 4: Net Loss per Common Share Basic net loss per common share is based upon the net loss applicable to common shares after preferred dividend preferred dividend n. a payment of a corporation's profits to holders of preferred shares of stock. (See: preferred stock) requirements and the weighted average of common shares outstanding during the period. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. net loss per common share adjusts for the effect of convertible securities, stock options and other potentially dilutive financial instruments only in the periods in which such effect would have been dilutive. As described more fully in Note 2, net loss per common share has been affected by certain significant, nonrecurring items recognized in 2001 and 2000. For the quarter, if these items were excluded from reported results, the aggregate net effect would be to reduce basic and diluted net loss per common share by $0.24 in 2001 and $0.08 on a pro forma basis in 2000. If these items were excluded from reported results for the year, the aggregate net effect would be to reduce basic and diluted net loss per common share by $0.38 in 2001 and $0.20 on a pro forma basis in 2000. Note 5: Diluted Cash Earnings per Share Diluted cash earnings per share is defined as pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. excluding the effect of noncash amortization expense for consolidated and unconsolidated entities, less cash paid for taxes. Diluted cash earnings per share is calculated using weighted average shares outstanding after considering the dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of all outstanding options and dilutive securities. As described more fully in Note 2, diluted cash earnings per share has been affected by certain significant, nonrecurring items recognized in 2001 and 2000. For the quarter, if these items were excluded from reported earnings, the aggregate net effect would be to increase diluted cash earnings per share by $0.38 in 2001 and by $0.14 on a pro forma basis in 2000. If these items were excluded from reported earnings for the year, the aggregate net effect would be to increase diluted cash earnings per share by $0.61 in 2001 and $0.15 on a pro forma basis in 2000. Note 6: Free Cash Flow AOL Time Warner evaluates operating performance of its segments based on several factors including free cash flow, which is defined as cash provided by operations after deducting capital expenditures, dividend payments and partnership distributions. The comparability of AOL Time Warner's free cash flow has been affected by certain significant transactions and nonrecurring items in each period. Specifically, AOL Time Warner's free cash flow has been impacted by the cash impact of significant and nonrecurring items described in Note 2. In addition, free cash flow has been impacted by payments made in settling restructuring and merger-related liabilities. If these items were excluded from reported free cash flow for the quarter, the aggregated net effect would be to increase free cash flow by $427 million in 2001 and decrease free cash flow by $44 million on a pro forma basis in 2000. If these items were excluded from reported free cash flow for the year, the aggregate net effect would be to increase reported free cash flow by $1.408 billion in 2001 and $110 million on a pro forma basis in 2000. Note 7: Intercompany Transactions Intercompany transaction Transaction carried out between two units of the same corporation. In the normal course of business, the AOL Time Warner segments enter into transactions with one another. The most common types of intercompany transactions include: - The Networks segment generating subscription revenues by selling cable network programming to the Cable segment; - The Filmed Entertainment segment generating content revenue by licensing television and theatrical programming to the Networks segment; and - The AOL, Cable, Networks and Publishing segments generating advertising and commerce revenue by cross-promoting the products and services of all AOL Time Warner segments. These intercompany transactions are recorded by each segment at fair value as if the transactions were with third parties and, therefore, impact segment performance. While intercompany transactions are treated like third-party transactions to determine divisional performance, the revenues (and corresponding expenses recognized by the segment that is counterparty Counterparty The other participant, including intermediaries, in a swap or contract. to the transaction) are eliminated in consolidation and, therefore, do not themselves impact consolidated results. Revenues recognized by AOL Time Warner's segments on intercompany transactions are as follows:
Three Months Ended Years Ended
December 31, December 31,
------------------- ------------------
2001 2000 2001 2000
------ ------ ------ ------
AOL $ 138 $ - $ 228 $ -
Cable 33 2 57 7
Filmed Entertainment 208 135 784 560
Networks 160 112 618 451
Music 115 63 302 211
Publishing 11 7 35 29
------ ------ ------ ------
Total Intercompany Revenues $ 665 $ 319 $ 2,024 $ 1,258
====== ====== ======= =======
AOL TIME WARNER INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(millions, except per share amounts)
(unaudited)
Calculation of Reported and Normalized
Basic and Diluted Net Loss Per Common Share
Three months ended Years ended
December 31, December 31,
--------------------- --------------------
2001 2000 2001 2000
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- --------
Net loss applicable to
common shares before
cumulative effect
of accounting change $ (1,822) $ (1,092) $ (4,921) $ (3,941)
---------- -------- -------- --------
Adjustments for significant
and nonrecurring items:
Gain on sale or
exchange of cable
systems and investments - (16) - (37)
Gains on sale
of certain investments - - - (285)
Gain on sale
of CanalSatellite - - - (65)
Merger-related costs 45 16 250 155
Loss on writedown
of investments 1,626 579 2,442 579
Six Flags litigation - - - 50
Loss on writedown
of Columbia House 90 - 90 220
Road Runner restructuring - 41 - 41
--------- -------- -------- --------
Pretax impact of adjustments 1,761 620 2,782 658
--------- -------- -------- --------
Normalized loss
before income tax
impact of adjustments (61) (472) (2,139) (3,283)
Income tax
impact of adjustments (704) (254) (1,112) (230)
--------- -------- -------- --------
Normalized net loss $ (765) $ (726) $ (3,251) $ (3,513)
========= ======== ======== ========
Average common
shares outstanding - basic 4,428.8 4,350.1 4,429.1 4,300.8
========= ======== ======== ========
Basic and diluted net
loss per common share
before cumulative effect
of accounting change $(0.41) $ (0.25) $(1.11) $ (0.92)
========= ======== ======== ========
Normalized basic
and diluted net
loss per common share $(0.17) $ (0.17) $(0.73) $ (0.82)
========= ======== ======== ========
AOL TIME WARNER INC.
SUPPLEMENTAL FINANCIAL INFORMATION - (Continued)
(millions, except per share amounts)
(unaudited)
Calculation of Reported and Normalized
Diluted Cash Earnings Per Share
Three months ended Years ended
December 31, December 31,
--------------------- --------------------
2001 2000 2001 2000
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- --------
Pretax loss applicable
to common shares $ (2,127) $ (1,061) $ (4,775) $ (3,390)
Amortization of
consolidated goodwill
and intangible assets 1,879 1,769 7,231 7,032
Amortization of equity
method investee goodwill
and intangible assets 90 88 495 403
Cash taxes paid (77) (158) (340) (508)
--------- -------- -------- --------
Basic cash earnings (235) 638 2,611 3,537
--------- -------- -------- --------
Interest savings
on assumed conversion - 20 - 82
Preferred dividend savings
on assumed conversion - 3 - 14
--------- -------- -------- --------
Diluted cash earnings(a) (235) 661 2,611 3,633
--------- -------- -------- --------
Pretax adjustments
for significant and
nonrecurring items(b) 1,761 620 2,782 658
--------- -------- -------- --------
Normalized diluted
cash earnings(a) 1,526 1,281 5,393 4,291
--------- -------- -------- --------
Average common
shares outstanding - basic 4,428.8 4,350.1 4,429.1 4,300.8
Dilutive effect
of stock options 127.4 190.9 155.3 226.1
Dilutive effect
of convertible debt - 18.4 - 33.0
Dilutive effect of
convertible preferred stock - 21.9 - 28.7
--------- -------- -------- --------
Average common shares
outstanding - diluted(a) 4,556.2 4,581.3 4,584.4 4,588.6
========= ======== ======== ========
Diluted cash earnings
per common share $ (0.05) $ 0.14 $ 0.57 $ 0.79
========= ======== ======== ========
Normalized diluted cash
earnings per common share $ 0.33 $ 0.28 $ 1.18 $ 0.94
========= ======== ======== ========
Calculation of Reported
and Normalized Free Cash Flow
Three months ended Years ended
December 31, December 31,
--------------------- --------------------
2001 2000 2001 2000
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- --------
Cash flow from operations $ 1,054 $ 1,473 $ 5,294 $ 4,644
Capital expenditures and
product development costs (964) (937) (3,634) (3,560)
Dividends paid and
partnership distributions (8) (72) (63) (306)
--------- -------- -------- --------
Free cash flow 82 464 1,597 778
--------- -------- -------- --------
Adjustments for significant
and nonrecurring items(c) 427 (44) 1,408 110
--------- -------- -------- --------
Normalized free cash flow $ 509 $ 420 $ 3,005 $ 888
========= ======== ======== ========
(a) Diluted cash earnings reflect the savings associated with
reduced interest and dividends related to the assumed
conversion to equity of dilutive convertible debt and
convertible preferred stock. Similarly, diluted average common
shares outstanding assumes the conversion and exercise of all
dilutive common stock equivalents, including stock options,
convertible debt and convertible preferred stock.
(b) Adjustments to diluted cash earnings per share are the same as
the adjustments to basic and diluted earnings per share. See
itemized pretax impact of adjustments in "Calculation of
Reported and Normalized Basic and Diluted Net Loss Per Common
Share."
(c) Adjustments to free cash flow consist of the cash impact of
the significant and nonrecurring items discussed in Note 2, as
well as cash payments made in settling restructuring and other
merger-related liabilities.
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