Time Warner Profit Rises 76 Percent, Beats Forecasts

Time Warner Inc. (TWX), the world's largest media company, on Friday said its quarterly net profit rose by 76 percent, boosted by digital video, high-speed Internet and higher advertising sales at its cable networks.

The owner of Internet provider America Online (search) and cable channel HBO, which is wrapping up a Securities and Exchange Commission (search) probe, said it planned to restate financial results from 2000 to 2003 to adjust its accounting for a deal with Bertelsmann.

"It sounds like they're taking their medicine," said Oppenheimer & Co. analyst Peter Mirsky.

Fourth-quarter net profit rose to $1.13 billion, or 24 cents a share, from $639 million, or 14 cents a share, a year earlier.

Excluding a series of one-time benefits, the company posted a profit of 20 cents a share, ahead of analyst estimates of 16 cents, according to Reuters Estimates.

Revenue rose about 2 percent to $11.1 billion from $10.9 billion. Wall Street had expected the company would post revenue of $11.16 billion, according to Reuters Estimates.

Chairman and Chief Executive Richard Parsons, in a conference call with analysts, said the company has worked over the last year to get beyond its past and focus more fully on its businesses.

"We are now sort of operating a fully settled down Time Warner," he said.

Adjusted operating income rose 2.4 percent to $2.4 billion, with growth at all segments excluding films.

Analysts said film segment profit, which dropped 27 percent to $284 million, was worse than expected, hurt by big-budget box-office flops "Alexander" and "Catwoman."

The unit also faced a difficult comparison to the year-earlier period, when "Lord of the Rings: The Return of the King (search)" boosted results.

Profit at AOL, which lost 464,000 subscribers during the quarter, was lower than it had been in the last three quarters. Profit before items rose 8 percent to $326 million on higher online advertising revenue.

"It probably signals at least a refocused effort on the AOL division. ...They will probably spend more money to promote that part of the business in 2005," said Paul Kim, an analyst at Tradition Asiel.

AOL said earlier this week it planned to convince its dial-up Internet subscribers within regions served by Time Warner Cable (search) to upgrade to high-speed service. Meanwhile, Time Warner's cable Internet customers are also expected to get AOL for free.

Time Warner is also in the final stages of wrapping up a two-year SEC investigation of accounting at the AOL division.

It earlier pledged to pay $300 million to settle charges, in a deal that is under review by the SEC commissioners.

The company said it was unable to estimate the amount to set aside for legal reserves, which it previously set at $500 million.

Time Warner said it planned to restate financial results for the years 2000 to 2003 to adjust the accounting for about $489 million in advertising revenue in connection with a deal with Germany's Bertelsmann to buy its stake in AOL Europe.

Time Warner will now account for that deal as a reduction in the purchase price of AOL Europe in 2002, rather than as advertising revenues during 2001 and 2002.

Looking ahead the company expects adjusted operating income before depreciation and amortization to rise in the high-single digits-percentage compared to $9.9 billion in 2004.

Time Warner said it expects to convert 30 percent to 40 percent of its adjusted operating income before depreciation and amortization into free cash flow.

"High single digits (forecast) is a little disappointing," Mirsky said. "It's not a shock, though."

The New York-based owner of the Warner Bros. movie studio and Time magazine is leading a joint bid with Comcast Corp. worth around $17 billion to purchase the assets of bankrupt cable operator Adelphia Communications Corp. .

Time Warner in an SEC filing on Friday said it holds an 8 percent stake in Google Inc. (GOOG), making it among the biggest investors in the Web search leader. Time Warner in the third-quarter had reported a pre-tax gain $188 million on the sale of Google shares.

Shares of Time Warner were unchanged at $18.16 in early trade on the New York Stock Exchange (search).