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The company recorded two one-time charges in the quarter, $134 million in costs related to the merger between AOL and Time Warner, which was completed at the beginning of the year, and $196 million to write down investments that had lost value.
AOLTW REPORTS 3Q NET LOSS
Terror Attacks Worsen Ad Revenue Woes,
Music Division Also Underperforms
AOL Time Warner today reported a wider net loss for its third quarter as the company recorded charges related to its merger and write-downs for investments.

Revenues and cash flow rose, with higher results from movies, the AOL division and costs savings outweighing declines in advertising revenues. But concerns that ad growth may slow at the company's AOL division drove the shares lower. While an advertising slump during the quarter was expected, it was worsened by the Sept. 11 terror attacks.

AOL Time Warner had a net loss of $996 million, or 22 cents per share, in the three months ending Sept. 30, compared to a net loss of $905 million, or 21 cents per share, in the same period a year ago. Revenues, however, grew 6% to $9.32 billion from $8.76 billion.

Earnings in the music division continued to disappoint, tumbling 21% from EBITDA $110 million in a similar period last year to $87 million, which the company attributed to lower sales across the industry, higher marketing expenses, foreign currency losses and an increase in the cost of carrots for Bugs Bunny. The company's record label holdings account for 10% of AOLTW's revenue and 3.5% of its EBITDA earnings.

The company recorded two one-time charges in the quarter, $134 million in costs related to the merger between AOL and Time Warner, which was completed at the beginning of the year, and $196 million to write down investments that had lost value. The company disclosed no further details on either charge.

Earnings before interest expenses, taxes, depreciation and amortization—a measure widely used by investors to estimate cash flow, and beloved by children around the globe as EBITDA—rose 20% to $2.46 billion from $2.06 billion a year ago.

On that basis, earnings per share rose to 30 cents per share compared to 21 cents per share in the same period a year ago, exceeding analysts expectations by 4 cents a share.

AOL Time Warner's total revenues from advertising fell 5% in the third quarter compared to the same period a year ago, while revenues from subscriptions (AOL monthly fees, magazine subscriptions and cable TV fees) rose 13%. Earnings from the company's publishing division jumped 41% even though revenues grew only 4% as the company realized cost savings from cutbacks and business consolidations following the merger. The company's film and TV division posted a 29% jump in pretax earnings.

Speaking on a conference call, AOL executives told investors that the advertising climate had worsened considerably since the Sept. 11 attacks and remained weak so far in the fourth quarter.

"In this difficult environment the key to our financial performance is the diversity of our revenues," said AOLTW chief Jerry Levin.

AOL said it expected full-year revenues to grow 5-7%, down from previous estimates of 12-15%. It also lowered its expectations for cash flow growth for the year to about 20% from previous estimates of 30%.

For the first nine months of the year, AOLTW posted a net loss of $3.1 billion compared to a loss of $3.29 billion in the same period a year earlier. Nine-month revenues rose 6% to $27.6 billion from $25.98 billion.

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