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AOL lowers earnings estimates for 2002

Updated:

NEW YORK (AP) _ AOL Time Warner Inc. said it would take a non-cash charge of up to $60 billion this quarter to comply with new accounting rules on how goodwill is measured. The media company also cut its forecasts for 2002 and said it would pay Bertelsmann $6.75 billion in cash for its half-share of AOL Europe.

AOL said Monday that the one-time accounting charge, which would fall between $40 billion and $60 billion, was due to overall market declines since the AOL merger with Time Warner was announced in early 2000. AOL shares have fallen by about half in that time.

The charge is a result of the company adopting a new standard governing the measurement of goodwill, a kind of financial yardstick that companies use on their balance sheet to show the value of companies and businesses they've acquired.

AOL said its operations wouldn't be affected by the charge, and that it would save more than $7 billion a year in accounting adjustments from writing down the value of goodwill.

In a statement released late Monday, AOL said it now expects its earnings before interest, taxes, depreciation and amortization to grow between 8 percent and 12 percent in 2002. Previously the company had said it expected EBITDA to grow in the double digit range.

AOL also said it expected revenues to grow between 5 percent and 8 percent in 2002. During the first quarter of the year, AOL said it expects revenues and EBITDA to be essentially flat. AOL said it is assuming no recovery in the economy in its current business plan for 2002.

The revisions mark a step back for AOL, which disappointed investors last year in sticking by aggressive growth targets even as the economic environment deteriorated. The company eventually lowered its targets.

AOL also said it had agreed to pay Bertelsmann a total of $6.75 billion in cash, parsed out in two installments, for the 49 percent stake in AOL Europe that AOL doesn't already own.

Some investors had expressed concern that AOL was paying Bertelsmann a rich price in the deal, which was reached in March 2000 when the Internet rage was still booming. But the market seemed pleased by the final outcome of the deal, which calls for AOL to pay the full price in cash rather than issuing stock as part of the payment.

AOL made its announcement after stock trading closed, but reports during the day that AOL would make the payment in cash helped drive the company's shares up 73 cents to $32.68 in heavy trading on the New York Stock Exchange. The stock had traded at more than $70 in January 2000, when the merger of AOL and Time Warner was announced.

In a conference call to investors late Monday, outgoing chief executive Gerald Levin said the company ``rode out a very rough economic environment'' in 2001. ``When the advertising rebound comes, we expect to be one of the very first beneficiaries of that upturn,'' he said.
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