AOL Time Warner Profits Swell

Second-quarter profit at AOL Time Warner Inc., the world's largest media company, jumped to $1.06 billion thanks to several one-time gains, including the sale of a 50 percent stake in Comedy Central and a settlement with Microsoft Corp., the company reported Wednesday.

The company, whose vast holdings include CNN, Warner Bros., HBO and Time Inc. magazines, earned $396 million in the April-June period a year ago. On a per-share basis, earnings rose to 23 cents from 9 cents.

Revenues rose 6 percent to $10.82 billion from $10.2 billion.

The company said the Securities and Exchange Commission was still investigating several transactions the company made, mainly at its AOL unit. The SEC has determined that its accounting of two transactions between AOL and Bertelsmann was faulty, the company said.

The SEC has not taken any action on the matter, and the company said it still stands by its accounting for those deals. However, AOL Time Warner acknowledged that the SEC's judgment could delay an initial public offering of its cable TV division.

Chief executive Richard Parsons told analysts and investors on a conference call that the company was still looking to proceed with the spinoff, but that the timing would be guided by strategic considerations rather than bolstering its balance sheet.

Parsons said that AOL Time Warner, which is already the nation's No. 2 cable company behind Comcast, would like to grow further as the industry consolidates. "We'd like to be a player, and it may be good to have a cable-only currency with which to play," he said.

The results included several one-time factors in the second quarter, including an investment gain of $542 million, which was mainly attributable to the company's sale of its stake in the Comedy Central cable channel to Viacom Inc.

The unusual items also included a gain of $760 million related to a settlement of AOL's claim that Microsoft used strong-arm tactics to make its Internet Explorer the dominant Web browser over AOL's Netscape.

Before the effects of those gains and other one-time factors, operating income fell 15 percent to $1.29 billion from $1.52 billion, due partly to higher levels of amortization and depreciation. Without depreciation and amortization, operating income rose 6 percent.

Income without the one-time effects was 12 cents per share, the company said, ahead of the 10 cents per share that analysts polled by Thomson First Call had been expecting and even with the same period a year ago.

The company's shares were off $1, or 5.9 percent, at $15.85 in midday trading on the New York Stock Exchange. The stock had been on the rise in recent months, trading up 29 percent since the beginning of the year through Thursday.

The troubled AOL division continued to suffer, posting a decline of 23 percent in operating income as growth in subscription revenues were more than offset by declines in advertising. The company repeated its earlier forecast that full-year advertising revenues at AOL are likely to fall between 35 percent and 45 percent from $1.3 billion last year.

The division lost 846,000 subscribers in the quarter, more than many analysts were expecting, as the company trimmed out non-paying customers. It now has 25.3 million subscribers.

Cable TV earnings rose 6 percent on higher subscription revenues; film and TV profits rose 26 percent thanks to "The Matrix Reloaded" movie from Warner Bros. and higher earnings from syndicated television; and profits at the networks division, which includes CNN, HBO and the WB, fell 18 percent due to an accounting charge.

Parsons said the company's "solid" results in the second quarter and first half of the year "give us confidence that we can deliver on all of our 2003 financial objectives."

He said the company would continue to focus on reducing its debt, which stood at $24.2 billion at the end of the quarter, compared with $26.3 billion as of March 31.

AOL Time Warner has been shedding assets to reduce its debt and simplify its corporate structure. Just last week, the company said it was selling its DVD and CD manufacturing business for $1.05 billion.

Analysts have praised those efforts as well as Parson's drive to restore stability and credibility to the company following a period of tumult in the wake of the merger between AOL and Time Warner.

The company also took two write-downs during the second quarter to reduce the value of its winter sports teams and its book division, both of which were put up for sale.

The book group, which is no longer on the auction block, took a write-down of $99 million, while the Atlanta Thrashers hockey team and the Atlanta Hawks basketball team took a combined write-down of $178 million.

For the first six months of the year, AOL Time Warner earned $1.46 billion, or 32 cents a share, compared with a net loss of $53.85 billion, or $12.12 a share, in the same period a year ago, when the company took a $54 billion accounting charge to reflect the declining value of its assets.

Six-month revenues rose 6 percent to $20.82 billion compared with $19.61 billion.