As expected, the news out of

AOL Time Warner

(AOL)

isn't good.

In addition to announcing preliminary financial results for 2001 that fall short of long-trumpeted, albeit recently retracted, guidance, the company forecast only modest growth for 2002 and warned of billions of dollars in forthcoming one-time charges.

But investors apparently were prepared for worse news from the media giant, and sent the company's shares higher in after-hours trading once the company released the details. In Monday trading, the company's shares gained 73 cents to close at $32.68, but in after-hours trading on Island, the price jumped to $33.50.

Acknowledging that AOL Time Warner has been suffering public relations problems of its own making, CEO-designate Dick Parsons said the company hadn't gotten credit for its achievements of the past year -- and indeed had possibly been penalized -- "because of the high expectations we ourselves set." Added Parsons, "We will try not to overpromise, and we

will

deliver."

The company's forecast for 2002 takes into account the forthcoming integration of

AOL Europe

into AOL Time Warner's financials. AOL Time Warner said it would be paying for Bertelsmann's 49.5% stake with $6.75 billion in cash using its current credit lines. That move apparently eased the fears of investors who worried that if AOL Time Warner used its own stock in the buyout, Bertelsmann would flip those shares, driving AOL Time Warner's stock down.

AOL Time Warner says the European venture lost $600 million in 2001 on $800 million in revenue; the company hopes to cut European losses in half in 2002, with revenue perhaps exceeding $1 billion.

Slowing Growth

For 2001, the company says it expects to post growth of 18% to $10 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) -- a common yardstick for media companies. The company

warned last September that it wouldn't meet its original target of 30% growth in EBITDA. Revenue for 2001 is expected to grow about 5% to just over $38 billion.

Those figures don't include up to $1.8 billion in noncash charges AOL Time Warner says it's taking in the fourth quarter, primarily due to a decline in the value of the company's

Time Warner Telecom

(TWTC)

communications subsidiary.

For 2002, the company says it expects EBITDA growth of 8% to 12% over 2001. That forecast scrapes the bottom of the amended guidance AOL Time Warner has been giving Wall Street, which is that the company would have double-digit EBITDA growth in 2002. Revenue in 2002 should grow by 5% to 8% over 2001, says AOL, and first-quarter 2002 EBITDA and revenues will be "essentially flat" when compared with last year.

In accordance with the company's cautious mood, Parsons insisted that the 2002 forecasts were predicated on the assumption that the economy, and the weak advertising market in particular -- would not improve. "We're not looking for any help from the economy," he said.

As has been the case in 2001, the company says its growth driver in 2002 will be its subscription-based businesses, with subscription-revenue growth anticipated to be in the low to midteens on a percentage basis. Though the company says its advertising revenues will be down year over year in the first half of 2002, AOL Time Warner says it believes it will perform better than the overall advertising market in 2002, gaining share in a market that will be flat or down. Revenues from content and other areas at AOL Time Warner will have percentage growth in the low single digits, the company says.

More Charges to Come

Dwarfing the fourth-quarter charge is the one-time charge AOL Time Warner plans to take for the first quarter of 2002 as the company adopts the new FASB 142 accounting standard governing the amortization of goodwill and other intangible assets.

AOL Time Warner says it expects to record a one-time, noncash charge of $40 billion to $60 billion, based on overall market declines since the announcement of the AOL Time Warner merger in January 2000. The elimination of the rule allowing amortization of goodwill over time should reduce the company's annual amortization expenses by over $7 billion.

"In 2002, we will focus on execution and investing in our future," CEO Jerry Levin, who's due to step down as CEO in May, said on the call.