Levin, Case: Were On Track

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Time Warner Inc. chairman Gerald Levin said his company's pending merger with America Online Inc. is on track to be completed by fall, despite speculation the deal will receive increased scrutiny from U.S. regulators.

Several published reports have characterized the AOL-Time Warner merger as in jeopardy, especially with the Federal Trade Commission.

"I know there has been a lot of speculation, but most of it has been totally off-base," Levin said in a conference call with analysts discussing Time Warner's third quarter earnings. "We're in the home stretch with U.S. regulators. We are highly confident of a successful conclusion."

In a later conference call with analysts, AOL chairman Steve Case reiterated Levin's comments, adding that he also expected the deal to close as scheduled.

Levin also seemed a bit perturbed concerning a Federal Communications Commission filing by AT & T Corp. that asked for government help in its negotiations to unwind the Time Warner Entertainment partnership. AT & T inherited a 25 percent stake in TWE through its acquisition of MediaOne Group Inc.

"In theory for many years, if there is an acceptable way that's good for our shareholders to restructure TWE, I'm perfectly delighted to do [it]," Levin said. "Despite what you read or what's been filed, we are constructively engaged in that conversation.

"There are avenues that may make sense and we need to see what can be done. It certainly shouldn't be part of the regulatory process. So, stay tuned."

For the quarter, cable networks and systems helped fuel an increase of 13 percent in earnings before interest, taxes and amortization (EBITA) and a revenue increase of 1.5 percent to $6.9 billion.

At the cable networks, EBITA was up 15 percent to $376 million, compared to $328 million last year. Cable systems' EBITA rose 13 percent to $472 million in the quarter.

Time Warner finished the quarter with 1.3 million digital cable subscribers (up from 889,000 in the second quarter) and high-speed data customers increased to 719,000 from 573,000 in the prior quarter.

Levin said that Time Warner Cable's rebuild is essentially done, except for systems that were swapped or acquired. About 85 percent of the division's systems should be capable of accessing digital services by year-end, he added.

The Time Warner chairman also tried to alleviate any fears that advertising rates would diminish in the coming months, adding that Time Warner ad sales are stronger than ever, with 17 percent growth in the quarter.

"As a company, we don't subscribe to an advertising problem that relates to us; we don't think the current environment is particularly unusual; and as we move into cable advertising on a network basis, we have inevitable mathematical growth," Levin said.

Fears that advertising revenue would fall sent Time Warner and AOL stock down sharply last Tuesday, with Time Warner's share price declining 15.7 percent, or $12.24, to $65.56 per share. AOL stock reached a new 52-week low of $43.60 each on Tuesday, down $9.01 or 17 percent.

The stocks regained some ground on Wednesday, with Time Warner finishing the day at $69.25, up $3.69 each and AOL closing at $46.91, up $3.31 each.

For its fiscal 2001 first quarter, ended Sept. 30, AOL nearly doubled earnings to $340 million (14 cents per share) from $182 million. However, some analysts were concerned about flat growth in its advertising backlog, which could mean problems in the online advertising industry.

AOL's advertising and electronic-commerce revenue was up 80 percent to $649 million, but advertising backlog was flat at $3 billion.

AOL chief financial officer J. Michael Kelly, in a conference call with analysts, downplayed any pressure in online advertising. Backlog was flat because AOL is doing more deals with more mainstream companies, he said.

"As we're doing more deals with bigger players, we're not taking as much money up front," Kelly said. "Our receivables have never been in better shape."

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