AOL Sales Up, EBITDA Down

NEW YORK -- AOL Time Warner Inc. (NYSE:AOL) today reported financial results for its third quarter ended September 30, 2002. The Company also announced it will restate its financial results for the quarters ended September 30, 2000 through the quarter ended June 30, 2002, which will reduce, in total, revenues by $190 million and EBITDA by $97 million, as a result of the Company's previously announced internal review of certain advertising and commerce transactions at its America Online division. For the third quarter 2002, revenues increased 6% over the same period in 2001 to $10.0 billion. Subscription revenues climbed 13% to $4.8 billion, due to continued subscriber growth in the Company's America Online, Cable and Networks businesses. Content and Other revenues grew 8% to $3.5 billion, led by the quarter's home video success of The Lord of the Rings: The Fellowship of the Ring and strong theatrical results of Austin Powers in Goldmember. Advertising and Commerce revenues declined 12% to $1.7 billion, due to weakness in online advertising and difficult comparisons to last year as a result of the closure of the Warner Bros. Studio Stores, partially offset by improvements in advertising at the Networks and Publishing divisions. EBITDA for the quarter totaled $2.2 billion, down 1% from 2001, due primarily to a decline at America Online, offset partially by double-digit EBITDA growth at the Company's Networks, Cable, Publishing and Music divisions, and an 8% increase at the Filmed Entertainment division. Cash EPS for the quarter declined to $0.19 compared to $0.24 in the prior period, mainly as a result of increased depreciation. The EBITDA margin for the third quarter of 2002 decreased to 22%, compared to 23% in the third quarter of 2001, reflecting primarily declines in high-margin advertising revenues at America Online. The Company generated $1.4 billion in Free Cash Flow during the quarter. For the first nine months of 2002, Free Cash Flow totaled $4.0 billion, up 151%, versus $1.6 billion for the same period last year. This significant increase in Free Cash Flow was due principally to lower working capital requirements and lower capital spending. Free Cash Flow represented 64% of EBITDA for the first nine months of 2002. Chief Executive Officer Dick Parsons said: "In connection with our ongoing internal review of certain advertising and commerce transactions at America Online, we will be restating our financial results for a two-year period. Even though the total amount of the restatement represents a small portion of America Online's total revenues during the period, we have taken, and do take, this matter very seriously. We have devoted a significant amount of time and resources to our review and, based on the substantial work we have done to date, do not expect any further restatements from it. This restatement will not affect the Company's committed liquidity, which includes over $8 billion of cash and unused bank facilities." AOL Time Warner Inc.