National Post
AOL reports largest loss in corporate history US$98.7B: Ted Turner resigns as vice-chairman of company
Steve Maich Financial Post, with files from news services Thursday, January 30, 2003
AOL Time Warner Inc., the world's biggest Internet service provider and media conglomerate, reported a 2002 loss of US$98.7-billion, the largest loss in U.S. corporate history, and announced that vice-chairman Ted Turner had resigned from the company.
The loss resulted from US$99.2-billion in asset writedowns to reflect the falling value of assets acquired in the late 1990s, when optimism about the future of the Internet sent AOL shares soaring as high as US$94 in 1999.
In the fourth quarter, AOL posted a net loss of US$44.9-billion due to a US$45.5-billion writedown of its Internet and cable-TV businesses. The non-cash charge was more than double what analysts were expecting.
The results sent the stock tumbling 9% to US$12.69 in after-hours trading.
AOL's record loss represents the climactic chapter in the company's astonishing fall. And for many analysts, it is the clearest possible indictment of the US$124-billion merger that brought together the America Online Internet provider with Time Warner, the company behind CNN, Time magazine and the Warner Bros. movie studios, in 2000.
"It was a merger that AOL probably had to do, and as an AOL shareholder, I'd be glad they bought something real with it," said Duncan Stewart a technology fund manager with Tera Capital Corp. in Toronto. "But as a Time Warner shareholder, I'd have to wonder why we sold. Time Warner would've been much better off had the merger never happened."
AOL Time Warner was the original architect of the much-debated "media convergence" strategy that soon became an industry buzzword. But the company's plan to distribute news and entertainment content across every possible medium, from the Internet to print publications and its collection of cable-TV companies, was soon hobbled by heavy debt and sluggish advertising sales.
When subscriber growth at America Online faltered, and profits missed expectations, the stock began its three-year, 90% slide. Along the way, angry shareholders forced the resignation of chairman Steve Case and former chief executive Gerald Levin.
And now, former Time Warner head, Ted Turner, has become the latest casualty of market fallout.
The question facing CEO Richard Parsons is how to rebuild the company's shattered image. Reducing AOL Time Warner's roughly US$27-billion in debt is one of his top goals, he said. The company's plan is to reduce its debt burden to US$20-billion by the end of 2004.
"AOL is trying to clean house and get the balance sheet in order," said Michael Levine, manager of the Oppenheimer Capital Income Fund, which owns the company's convertible bonds. "There's probably a lot of pressure on them from the credit- ratings agencies."
To that end, AOL announced yesterday it has sold its 8.4% stake in Hughes Electronics Corp. for about US$800-million.
It is also hoping to sell shares of its cable television unit to the public, again to raise cash and reduce debt. And Standard & Poor's has already warned that if the cable IPO isn't completed this year, the company's credit rating may be cut, further exacerbating its debt problems.
For now, investors are buoyed the fact the firm's senior management is now dominated by former Time Warner executives.