AOL Time Warner Inc. (NYSE: AOL - News) today reported financial results for its second quarter ended June 30, 2002.
Revenues for the quarter increased 10% over the same period in 2001 to $10.6 billion. Subscription revenues climbed 15% to $5.0 billion, due to continued subscriber growth in the Company's AOL and Cable businesses. Content and Other revenues grew 20% to $3.5 billion, led by the home video releases of "Harry Potter and the Sorcerer's Stone" and "Ocean's Eleven" and continued robust theatrical results. Advertising and Commerce revenues declined 11% to $2.1 billion, due to weakness in the online advertising market and difficult comparisons against last year with the subsequent closure of the Warner Bros. Studio Stores.
EBITDA for the quarter rose 2% to $2.5 billion, up from $2.4 billion in 2001. Cash EPS for the quarter of $0.24 was flat compared with the prior period, as a result of increased depreciation, offset by higher EBITDA and lower interest expense and tax payments. The EBITDA margin for the second quarter of 2002 decreased to 23%, compared to 25% in the second quarter of 2001, tracking declines in high-margin advertising revenues, nearly all at America Online.
The Company generated $1.5 billion in Free Cash Flow during the quarter. For the first six months of 2002, the Company generated $2.8 billion of Free Cash Flow, up 301%, versus $697 million for the same period last year. This significant increase in Free Cash Flow was due principally to lower working capital requirements, increased EBITDA and lower capital spending. Free Cash Flow represented 62% of EBITDA for the first six months of 2002.
Consolidated Reported Results
The Company reported net income of $394 million, or $0.09 per basic common share, in the second quarter of 2002 (which includes certain nonrecurring items totaling $274 million of net pretax losses). This compares to a reported net loss of $734 million, or $0.17 loss per basic common share, in the same quarter of 2001 (which includes goodwill and intangible amortization of approximately $1.7 billion, which did not recur in 2002 due to the adoption of FAS 142).
Continued Progress in Achieving Financial Targets and Key Priorities
Chief Executive Officer Dick Parsons said: "Our operating results for the second quarter outpaced our expectations. The anticipated impact of year-over-year declines in advertising at America Online was more than made up by the collective strength in our other businesses. We expect the improving trends in our traditional media and entertainment businesses to drive accelerating growth over the second half of the year. In addition, for the second quarter in a row, we generated significant amounts of Free Cash Flow."
Mr. Parsons added: "The appointments of Don Logan and Jeff Bewkes to chair our two new operating groups represent a significant step forward in enabling our divisions to excel individually and together. We are making progress on the Company's key, near-term priorities - including securing the new, long-term $10 billion credit facilities to extend our financial flexibility at attractive rates, as well as restructuring our cable partnership with Advance/Newhouse. We will move forward as rapidly as possible with the revitalization of America Online, with particular focus on improving the AOL service and rebuilding its advertising business. As we step up our efforts to simplify our corporate structure, we intend to preserve the strength of our balance sheet and investment-grade credit ratings. At the same time, we will continue to concentrate on developing and retaining the unique diversity of our talented people who, at every level, help drive and manage AOL Time Warner's success."
Business Outlook
The Company stated that it expects full-year revenue growth to track at the upper end of the previously announced 5% to 8% range and full-year EBITDA growth at the lower end of the previously announced 5% to 9% range, primarily due to continued softness in the high-margin advertising business at America Online.
For the third quarter of 2002, the Company expects its revenue growth rate to be in the mid-single digits, and its EBITDA growth rate to be flat to down low-single digits, compared with the same period in 2001
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