Huge charge stings TW

$25 bil writedown in Q4 due to cable, AOL

NEW YORK -- Time Warner expects to take an impairment charge of about $25 billion in the 2008 fourth quarter to write down the reduced value of its cable, AOL and magazine unit assets, the entertainment conglomerate said Wednesday. TW Cable said its impairment alone likely will amount to $15 billion.

As recently as early November, Time Warner had predicted 5% growth in adjusted operating income before depreciation and amortization for 2008 off a 2007 base of $12.9 billion. Now it projects only a 1% gain.

"The economic environment has proved somewhat more challenging than the company previously expected, particularly for the advertising businesses at the AOL and publishing segments," the company said.

"The advertising markets remain very challenged with limited visibility into 2009," Bernstein Research analyst Michael Nathanson said.

Time Warner also expects to record several special items totaling $370 million-$380 million in the fourth quarter that will further reduce 2008 full-year financials.

The items relate to a judgment against Turner Broadcasting System in December regarding the 2004 sale of its NBA and NHL teams ($280 million); the restructuring of a lease for space in the Time & Life Building, previously held by Lehman Bros. ($50 million-$60 million); and an increase of about $40 million in reserves for potential credit losses related to customers who recently declared bankruptcy. A source said those customers were electronics retailer Circuit City and retail giant Woolworth in the U.K.

Taking all this into account, Time Warner expects to report a net and operating loss for 2008. Its operating profit had amounted to $8.9 billion in 2007. Its net profit guidance had been for earnings from continuing operations of $1.04-$1.07 per share.

Time Warner is still finalizing its financials for the fourth quarter and all of 2008 and will report them Feb. 4.

TW shares fell 6% Wednesday to $10.29.