28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended October 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to ___________
Commission file number 2-53193
COMPUSERVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-1459598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 Arlington Centre Boulevard
Columbus, Ohio 43220
(Address of principal executive offices, including zip code)
(614) 457-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
As of December 05, 1997, the Registrant had outstanding 92,600,000 shares
of common stock.
TABLE OF CONTENTS
Page
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
October 31, 1997 (Unaudited) and
April 30, 1997 (Audited).................... 3
Consolidated Statements of Operations
Three Months Ended October 31, 1997
and 1996 (Unaudited)........................ 4
Consolidated Statements of Operations
Six Months Ended October 31, 1997
and 1996 (Unaudited)........................ 5
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1997
and 1996 (Unaudited)........................ 6
Notes to Consolidated Financial
Statement(Unaudited)........................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations.............................. 10
PART II - OTHER
INFORMATION.......................................... 15
SIGNATURES........................................... 17
COMPUSERVE CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
October 31, April 30,
1997 1997
----------- ----------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $214,231 $138,777
Investments 24,199 22,642
Receivables, net 115,433 118,336
Due from parent 13,421 70,228
Other current assets 41,498 32,833
---------- ----------
TOTAL CURRENT ASSETS 408,782 382,816
INTANGIBLE ASSETS, net 6,074 8,153
PROPERTY AND EQUIPMENT, net 325,415 355,212
OTHER ASSETS
Deferred subscriber acquisition costs, net 33,353 43,959
Other assets 18,785 12,396
---------- ----------
TOTAL OTHER ASSETS 52,138 56,355
---------- ----------
TOTAL ASSETS $792,409 $802,536
========== ==========
CURRENT LIABILITIES
Accounts payable $42,946 $54,529
Other current liabilities 67,755 46,620
Accrued taxes 10,620 8,016
Deferred revenues 5,552 5,824
---------- ----------
TOTAL CURRENT LIABILITIES 126,873 114,989
DEFERRED INCOME TAXES 30,904 36,111
STOCKHOLDERS' EQUITY 634,632 651,436
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $792,409 $802,536
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUSERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3 Months Ended October 31,
--------------------------
1997 1996
----------- ----------
REVENUES
Interactive Services revenues $116,129 $144,093
Network Services revenues 84,141 63,607
Other revenues 5,132 6,643
----------- ----------
TOTAL REVENUES 205,402 214,343
COSTS AND EXPENSES
Costs of revenues 116,126 146,185
Marketing 43,331 110,923
General and administrative 13,465 11,280
Depreciation and amortization 29,483 27,864
Equipment leasing 5,307 -----
Product development 6,682 4,736
Nonrecurring items 15,500 7,850
---------- ----------
TOTAL COSTS AND EXPENSES 229,894 308,838
OPERATING LOSS (24,492) (94,495)
INTEREST INCOME 2,636 2,380
---------- ----------
LOSS BEFORE TAXES (21,856) (92,115)
---------- ----------
INCOME TAX BENEFIT (8,399) (34,080)
---------- ----------
NET LOSS ($13,457) ($58,035)
========== ==========
LOSS PER COMMON SHARE ($0.15) ($0.63)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 92,600,000 92,600,000
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUSERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6 Months Ended October 31,
--------------------------
1997 1996
----------- -----------
REVENUES
Interactive Services revenues $240,363 $285,507
Network Services revenues 159,516 122,885
Other revenues 11,262 14,593
----------- -----------
TOTAL REVENUES 411,141 422,985
COSTS AND EXPENSES
Costs of revenues 233,245 285,881
Marketing 88,289 169,954
General and administrative 25,987 20,774
Depreciation and amortization 59,175 54,717
Equipment leasing 9,202 -----
Product development 12,555 11,792
Nonrecurring items 15,500 25,563
---------- -----------
TOTAL COSTS AND EXPENSES 443,953 568,681
OPERATING LOSS (32,812) (145,696)
INTEREST INCOME 5,013 5,511
---------- -----------
LOSS BEFORE TAXES (27,799) (140,185)
INCOME TAX BENEFIT (10,256) (52,535)
---------- -----------
NET LOSS ($17,543) ($87,650)
========== ===========
LOSS PER COMMON SHARE ($0.19) ($0.95)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 92,600,000 92,600,000
========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUSERVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
6 Months Ended October 31,
--------------------------
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($17,543) ($87,650)
Noncash, nonrecurring items ----- 10,156
Depreciation and amortization 59,175 54,717
Deferred subscriber acquisition costs (22,053) (39,832)
Amortization of deferred subscriber 32,659 86,255
acquisition costs
Provision for deferred taxes (5,107) (14,405)
Changes in net working capital 62,829 (42,281)
----------- -----------
Net cash provided/(used) by operating 109,960 (33,040)
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (23,602) (86,213)
Purchases of short-term investments (40,991) (123,848)
Maturities and sales of short-term 39,435 66,124
investments
Other, net (9,348) (3,605)
---------- -----------
Net cash used by investing (34,506) (147,542)
activities
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 75,454 (180,582)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 138,777 280,646
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $214,231 $100,064
========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CompuServe Corporation
Notes to Consolidated Financial Statements
(Unaudited, amounts in thousands, except share data)
1. The Consolidated Balance Sheet as of October 31, 1997, the Consolidated
Statements of Operations for the three and the six month periods ended
October 31, 1997 and 1996, and the Consolidated Statements of Cash Flows
for the six month periods ended October 31, 1997 and 1996 have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash
flows at October 31, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto in the Company's April 30, 1997 Form 10-K/A,
and are not necessarily indicative of the operating results for the full
fiscal year.
2. CompuServe Corporation ("Company") is a majority-owned (80.1%) subsidiary
of H&R Block Group, Inc. ("Parent"). Parent is a wholly-owned subsidiary
of H&R Block, Inc. ("Block").
On July 16, 1996, Block announced its intent to complete its disposition
of the Company by means of a pro rata distribution of the remaining
74,200,000 shares of CompuServe stock to shareholders of Block on or about
November 1, 1996, subject to certain conditions including shareholder
approval of the distribution at the 1996 annual meeting of shareholders of
Block and the receipt of a favorable ruling from the Internal Revenue
Service as to the tax-free nature of the transaction.
On August 28, 1996, Block's Board of Directors announced its decision not
to proceed with the proposed pro rata distribution of the remaining
CompuServe shares at that time. The decision was based, in part, on the
Company's first quarter and projected second quarter losses for fiscal
year 1997, uncertainties related to the online industry, and the planned
September introduction of new interfaces for CompuServe's online services
("CSi"). The August 28 announcement reiterated the Board of Director's
belief that a disposition of CompuServe by Block was in the best
interests of Block shareholders and stated that the Board would continue
to consider the matter.
On September 7, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Block, Parent, WorldCom, Inc., a
Georgia corporation ("WorldCom"), and Walnut Acquisition Company, L.L.C.,
a Delaware limited liability company which is wholly-owned by WorldCom
("WAC"). Pursuant to the Merger Agreement, WorldCom would acquire the
Company through a merger of WAC with and into the Company (the "Merger")
in accordance with the laws of the state of Delaware and the provisions of
the Merger Agreement. Pursuant to the Merger Agreement, at the Effective
Time (as defined in the Merger Agreement), each of the CompuServe Common
Shares (as defined in the Merger Agreement) outstanding as of the
Effective Time shall be converted into the right to receive, and there
shall be paid and issued as provided in the Merger Agreement in exchange
for each of the CompuServe Common Shares, 0.40625 of a share of WorldCom
Common Stock (as defined in the Merger Agreement), subject to adjustment
as provided in the Merger Agreement.
On November 10, 1997, the Company and Block jointly announced that the
Antitrust Division of the U.S. Department of Justice had advised the
companies that it will permit the statutory waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, to expire
without seeking additional information in connection with the merger of
WAC with and into the Company pursuant to the Agreement and Plan of
Merger, dated as of September 7, 1997, by and among Block, Parent, the
Company, WorldCom and WAC.
Block has agreed to vote all of the shares directly or indirectly owned by
it, which number of shares is sufficient to approve the Merger Agreement
and the Merger. The closing of the Merger is expected to occur as soon as
practicable after the satisfaction of all the conditions set forth in the
Merger Agreement.
3. The Company files consolidated federal and state income tax returns with
Block on a calendar year basis. The Consolidated Statements of Operations
reflect the effective tax rates expected to be applicable for the
respective full fiscal years.
4. In the second quarter of fiscal 1998, the Company incurred a nonrecurring
pretax charge of $15.5 million relating to incentive bonuses to be paid to
the Company's associates who remain with the Company until the date of the
merger with Worldcom. Such bonuses are to be paid to associates regardless
of whether the merger is consummated.
In the first quarter of fiscal 1997, the Company incurred a nonrecurring
pretax charge of $17.7 million relating to the sale of certain assets and
business operations of the corporate computer software group of SPRY; the
consolidation of U.S.-based staff functions and office facilities; the
renegotiation of certain third-party customer service agreements; and the
write-off of certain obsolete software costs for billing and customer
service systems. Of the total charge, $9.8 million required the outlay of
cash; the remaining $7.9 million involved no commitment of funds.
In the second quarter of fiscal 1997, the Company incurred a nonrecurring
pretax charge of $7.9 million relating to the withdrawl of the family-
oriented WOW! online service. Of this total charge, $5.6 million required
the outlay of cash, the remaining $2.3 million involved no commitment of
funds. The revenues of the withdrawn service were not material to the
consolidated revenues of the Company.
5. During fiscal 1997, the Company, certain current and former officers and
directors of the Company, and Parent were named as defendants in six
lawsuits pending before the State and Federal courts in Columbus, Ohio.
All but two of the original six cases were brought as putative class
actions. All the suits allege similar violations of the Securities Act of
1933 based on assertions of omissions and misstatements of fact in
connection with the Company's public filings related to its initial
public offering. Relief sought in each suit is unspecified, but
includes pleas for rescission and damages. One purported class action
lawsuit was voluntarily dismissed by the plaintiffs and such plaintiffs
have joined in one of the remaining class action lawsuits in Federal
court. The other Federal lawsuit names the lead underwriters of the
Company's initial public offering as additional defendants and as
representatives of a defendant class consisting of all underwriters who
participated in such offering. The Federal suits are both subject to
pending motions to dismiss filed on behalf of the defendants, and they
are being consolidated pursuant to a scheduling order that has been
entered in the first Federal lawsuit. The first State court lawsuit
also alleges violations of the Ohio Securities Code and common law of
negligent misrepresentation, while another State lawsuit alleges
violations of Colorado, Florida, and Ohio statutes and common law of
negligent misrepresentation in addition to the 1933 Act claims. Three
of the State lawsuits have been consolidated. A fourth State lawsuit
was filed recently, and is expected to be consolidated with the other State
lawsuits in due course. The defendants are vigorously defending these
lawsuits.
On November 7, 1997, TeleTech TeleServices, Inc., TeleTech Customer Care
Management, Inc. (f/k/a TeleTech Telecommunications, Inc.) and CompuServe
Incorporated agreed to dismiss (without prejudice) their respective
claims and counterclaims asserted in the lawsuit captioned TeleTech
TeleServices, Inc., et al. v. CompuServe Incorporated, United States
District Court, Southern District of Ohio, Case No. C-2-96-1252 (the
"Lawsuit"). On November 13, 1997, the parties filed a Stipulated Joint
Notice of Dismissal Without Prejudice with the United States District
Court, Southern District of Ohio thereby dismissing (without prejudice)
their respective claims and counterclaims under the Lawsuit. Subject to
the provisions of the agreement, any party may refile the Lawsuit at any
time.
In July 1997, the Company received an assessment from the German taxing
authority related to value-added taxes on the Company's services provided
in Germany. Management is not able to estimate the amount of potential
loss related to this assessment. The Company believes that after
reviewing such matters and consulting with the Company's counsel that the
ultimate resolution of this matter will not have a material adverse
effect on the Company's consolidated financial statements.
The Company in the ordinary course of business is threatened with or
named as a defendant in various lawsuits. It is not possible to
determine the ultimate disposition of these matters; however, management
is of the opinion that, except for the matters described herein, the
final resolution of any threatened or pending litigation is not likely to
have a material adverse effect on the financial statements of the
Company.
6. In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information." This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
This statement is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company does not feel that this
Statement will have a significant impact on its financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income." This Statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This
Statement is effective for fiscal years beginning after December 15,
1997. The Company does not feel that this Statement will have a
significant impact on its financial Statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 "Earnings Per Share." This Statement simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. The Company does not feel that this Statement will have
a significant impact on its financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The following discussion should be read in conjunction with the Consolidated
Balance Sheets and Consolidated Statements of Cash Flows appearing elsewhere
herein.
The Company is aware of the complexity and significance of the "Year 2000"
issue. The Company has created a project team comprised of internal and
external resources to help identify products and systems where the "Year 2000"
problem may exist, and to renovate, replace, or retire those products or
systems. At this time, management has not yet made a definitive determination
as to the costs associated with completing this project or the related
potential effect on the Company's earnings.
CompuServe obtains cash to fund its working capital and capital requirements
from, among other things, available cash, cash equivalents and investments, and
operating activities.
At October 31, 1997, the Company had cash, cash equivalents and investments
totaling $238.4 million, an increase of $77.0 million from April 30, 1997. Net
cash provided by operating activities totaled $110.0 million including the
receipt of $67.1 million from Parent for income tax benefits resulting from the
Company's pretax losses for the twelve months ended December 31, 1996. Net
cash used by investing activities totaled $34.5 million (including $1.6 million
of net purchases of short-term investments and $23.6 million of purchases of
property and equipment).
Investments consist principally of commercial paper, corporate bonds and U.S.
government agency obligations that have maturities of three to twelve months at
date of purchase. At October 31, 1997, the investment portfolio had an average
23 days term to maturity.
Working capital increased to $281.9 million at October 31, 1997 from $267.8
million at April 30, 1997. As a ratio, working capital decreased slightly to
3.22 to 1 as of October 31, 1997, compared to 3.33 to 1 at April 30, 1997. The
increase in working capital dollars is primarily due to the positive
operational cash flows generated by the Company during the current six month
period.
A portion of the Company's operations are conducted in leased facilities.
During the second quarter of fiscal 1997, the Company initiated an equipment
leasing program. During the second quarter of fiscal year 1998, equipment with
an equivalent cash purchase value of $16.5 million was put in place through
operating leases.
At October 31, 1997, the Company is owed $13.4 million from Parent due
primarily for income tax benefits resulting from the Company's pretax losses
for the ten months ended October 31, 1997. During the second quarter, the
Company received a payment of $67.1 million from Parent, due for income tax
benefits resulting from the Company's pretax losses for the twelve months ended
December 31,1996. The Company is part of the calendar year consolidated U.S.
tax filings of the Parent.
The Company believes that its current cash reserves will be sufficient to meet
the Company's anticipated funding requirements for the next twelve months.
Thereafter, if internally generated cash is insufficient to meet the Company's
capital needs, the Company may be required to seek additional sources of funds.
RESULTS OF OPERATIONS
The analysis that follows should be read in conjunction with the Consolidated
Statements of Operations.
In September 1995, the Company began to collect and track subscriber retention
data based upon the month a subscriber signed up. With over 12 months of data,
this now provides the most accurate means for measuring subscriber retention.
Retention statistics were previously aggregated and calculated in quarterly
pools.
For the quarter ended October 31, 1997, the Company had retained, on average,
54% of new CSi subscribers after 3 months, 43% after 6 months, 38% after 9
months and 28% after 12 months on the service. In the immediately preceding
quarter, the Company had retained, on average, 57% of new CSi subscribers after
3 months, 41% after 6 months, 34% after 9 months and 30% after 12 months of
service. In the second quarter of last fiscal year, the service retained 55% of
new subscribers through its first three months of membership, 44% after 6
months, 36% after 9 months, and 36% after 12 months. Since April 30, 1996, the
Company has generally seen a small but steady decline in its CSi quarterly
subscriber retention rates. There can be no assurance that the Company's
subscriber retention rates or member net revenues will not decline further.
In August 1997, in an effort to increase the CSi subscriber base and improve
subscriber retention, the Company announced the introduction of a $24.95 per
month flat-rate pricing option in the United States and Canada. The new
pricing plan was first offered to existing CSi subscribers as of October 1,
1997. The plan provides unlimited access to the Internet plus the basic
CompuServe Interactive service for a single, flat rate with some value-added
surcharged services continuing to carry additional fees. At the close of the
second quarter, approximately 8% of the eligible subscriber base was registered
for the new flat-rate option, about half of that total coming from new
subscribers. Given the recent implementation of this new pricing plan, the
Company can not yet estimate the impact it will have on subscriber retention or
revenue per subscriber.
Except for historical information contained herein, the statements contained
herein are forward looking statements that are subject to risks and
uncertainties which could result in the Company's inability to meet its funding
requirements for the time period indicated or to reach or exceed the break-even
point during the 1998 fiscal year. Such risk and uncertainties include the
risk that the Company's new pricing program and related marketing strategies
will not produce the anticipated results.
Three Months Ended October 31, 1997 Compared to Three Months Ended October 31,
1996
Interactive Services Revenues. Interactive Services revenues decreased 19.4%
to $116.1 million from $144.1 million reported in the second quarter of fiscal
1997. The decrease in Interactive Services revenues was primarily the result
of a decrease in the Company's U.S. subscriber base. Since October 31, 1996,
the Company has seen a decline of 462,000 in its U.S. subscriber base. This
decrease in subscribers is attributable, in part, to a decline in the Company's
acquisition marketing efforts as the Company refocused its CSi flagship service
in the U.S. toward the business, professional, and technical user communities.
At October 31, 1997, the Company had 2.8 million direct subscribers worldwide,
and a total of 5.3 million subscribers including NIFTY SERVE subscribers, a
distinct online service owned and managed by the Company's Japanese licensee.
The number of CSi subscribers at October 31, 1997, exclusive of NIFTY SERVE
subscribers, decreased 16.8% to 2.5 million from 3.0 million last year. The
average monthly CSi total revenue per subscriber (including fees, usage,
product sales, online advertising, mall, magazine and CD-ROM revenues)
decreased to $14.88 for the quarter from $15.06 for the second quarter of
fiscal 1997. The average monthly CSi revenue, from fees and usage only,
decreased to $14.75 for the quarter from $14.77 for the second quarter of
fiscal 1997.
Interactive Services revenues also includes fees earned from SPRYNET, the
Company's Internet-access only subsidiary. Subscribers to SPRYNET increased to
311,000 as of October 31, 1997 compared with 218,000 as of October 31, 1996.
Network Services Revenues. Network Services revenues increased 32.3% to $84.1
million from $63.6 million in 1996, while the number of customers increased
28.3% to 1,361. The increase in revenue was due to the increase in the number
of network customers and higher usage by existing customers.
Other Revenues. Other revenues decreased 22.7% to $5.1 million from $6.6
million. The decrease in other revenues is due primarily to decreased
utilization by the Company's commercial timeshare customers.
Costs of Revenues. Costs of revenues consist primarily of data communication
costs, royalties paid to information and service providers, salaries and other
costs associated with providing customer support and operating the data centers
and related property and other direct costs. Costs of revenues decreased as a
percent of total revenues to 56.5% from 68.2% in 1996. The 11.7 percentage
point decrease is largely attributable to lower customer service costs (3.8
percentage points) due primarily to the discontinuation of WOW!, lower network
hours and associated costs (3.0 percentage points), lower royalty expense (1.8
percentage points) due to a decline in the subscriber base and decreased usage,
lower subscriber collection costs (1.3 percentage points) due to changes in the
acceptable forms of subscriber payments, and a decrease in salaries and other
related costs (1.1 percentage points) due to operations staff reductions.
Marketing. Marketing expenses include costs incurred to acquire and retain
subscribers, the Network Services sales organization and other marketing
expenses. Through the first quarter of fiscal year 1997, acquisition costs for
online subscribers were deferred and charged to operations over 24 months
beginning the month after such costs were incurred, with 60% amortized in the
first twelve months. Effective in the second quarter of fiscal 1997, deferred
acquisition costs for online subscribers were charged to operations over 24
months, with 50% amortized in the first three months, 30% in the next 9 months
and 20% in the subsequent year.
Marketing expenses as a percent of total revenues decreased in fiscal 1998 to
21.1% (19.0% before deferral and amortization of subscriber acquisition costs)
compared to last year's 51.8% (26.5% before deferral and amortization of
subscriber acquisition costs). The decrease in marketing expenses is primarily
attributable to the prior year write-off of previously deferred subscriber
acquisition costs related to the SPRYNET and WOW! services combined with the
one-time adjustment to accelerate the amortization of such CSi costs as
discussed above. The decrease is also attributable to the refocusing of the
Company's CSi flagship service in the U.S. to the business, professional, and
technical user communities.
General and Administrative. As a percent of total revenues, general and
administrative expenses increased to 6.6% in 1998 from 5.3% in 1997 primarily
reflecting higher accruals for full-year incentives based upon the Company's
better-than-planned financial performance to date.
Depreciation and Amortization. Depreciation and amortization as a percent of
total revenues increased to 14.3% in 1998 from 13.0% in 1997. The increase in
depreciation and amortization expense reflects the continued investments in
upgrading the network infrastructure and the migration to the 32-bit platform
for the CompuServe Interactive service.
Equipment Leasing. Equipment leasing represents the costs incurred for the
operating leases for portions of the Company's network switching equipment and
servers. The Company's network leasing program began late in the second
quarter of fiscal year 1997.
Product Development. Product development costs increased slightly over last
year to 3.2% of revenues for 1998 from 2.2% in 1997. This increase primarily
reflects the effort behind the migration to a web-based information service,
major portions of which are at or nearing completion.
Nonrecurring items. In the second quarter of fiscal 1998, the Company incurred
a nonrecurring pretax charge of $15.5 million relating to incentive bonuses to
be paid to the Company's associates who remain with the Company until the date
of the merger with WorldCom. Such bonuses are to be paid to associates
regardless of whether the merger is consummated.
In the second quarter of fiscal 1997, the Company incurred a nonrecurring
pretax charge of $7.9 million relating to the withdrawal of the family-oriented
WOW! online service. Of the total charge, $5.6 million required the outlay of
cash; the remaining $2.3 million involved no commitment of funds. The revenues
of the withdrawn service were not material to the consolidated revenues of the
Company.
Income Taxes. The effective tax rate increased to 38.4% for the second quarter
of fiscal 1998 from 37.0% for fiscal 1997 primarily reflecting finalization of
Parent's 1996 calendar year tax return.
Six Months Ended October 31, 1997 Compared to Six Months Ended October 31,
1996.
Interactive Services Revenues. Interactive Services revenues decreased 15.8%
to $240.4 million from $285.5 million reported for the six months year-to-date
of fiscal 1997. The decrease in revenues was primarily the result of an
decrease in the Company's subscriber base.
The average monthly CSi total revenue per subscriber (including fees, usage,
product sales, online advertising, mall, magazine and CD-ROM revenues)
decreased to $14.72 for the six month period ended October 31, 1997 from $14.76
for fiscal 1997. The average monthly CSi revenue from fees and usage only
increased to $14.57 for the current six month period from $14.47 for the six
months ended October 31, 1996.
Network Services Revenues, Network Services revenues increased 29.8% to $159.5
million from $122.9 million in fiscal 1997. The increase in revenue was due to
the increase in the number of network customers and higher usage by existing
customers.
Other Revenues. Other revenues decreased 22.8% to $11.3 million from $14.6
million for fiscal 1997. The decrease is due primarily to decreased
utilization by the Company's commercial timeshare customers offset by an
increase in corporate remote computing services and fees from H&R Block Tax
Services for electronic tax filing support.
Costs of Revenues. Costs of revenues consist primarily of data communication
costs, royalties paid to information and service providers, salaries and other
costs associated with providing customer support and operating the data centers
and related property and other direct costs. Costs of revenues decreased as a
percent of total revenues to 56.7% for the six month period ended October 31,
1997 from 67.6% in 1996. The 10.9 percentage point decrease is largely
attributable to lower customer service costs (4.0 percentage points) due
primarily to the discontinuation of WOW!, lower royalty expense (2.6 percentage
points) due to a decline in the subscriber base and decreased usage, a decrease
in salaries and other related costs (1.2 percentage points) due to operations
staff reductions, and lower network hours and associated costs (1.1 percentage
points).
Marketing. Marketing expenses as a percent of total revenues decreased in
fiscal 1998 to 21.5% (18.9% before deferral and amortization of subscriber
acquisition costs) compared to last year's 40.2% (29.2% before deferral and
amortization of subscriber acquisition costs). The decrease in marketing
expenses is primarily attributable to the prior year write-off of previously
deferred subscriber acquisition costs related to the SPRYNET and WOW! services
combined with the one-time adjustment to accelerate the amortization of such
CSi costs as discussed above. The decrease is also attributable to the
refocusing of the Company's CSi flagship service in the U.S. to the business,
professional, and technical user communities.
General and Administrative. As a percent of total revenues, general and
administrative expenses increased to 6.3% in 1998 from 4.9% in fiscal year 1997
primarily reflecting higher accruals for full-year incentives based upon the
Company's better-than-planned financial performance to date.
Depreciation and Amortization. Depreciation and amortization as a percent of
total revenues increased to 14.4% in 1998 from 12.9% in fiscal year 1997. The
increase in depreciation and amortization expense reflects the continued
investments in upgrading the network infrastructure and the migration to the 32-
bit platform for the CompuServe Interactive service.
Equipment Leasing. Equipment leasing represents the costs incurred for the
operating leases for portions of the Company's network switching equipment and
servers. The Company's network leasing program began late in the second
quarter of fiscal year 1997.
Product Development. Product development costs decreased slightly over last
year to 3.1% of revenues for 1998 from 2.8% in 1997. Increase in these costs
as a percent of revenue is a result of decrease consolidated revenues combined
with the effort behind the migration to a web-based information service, major
portions of which are at or nearing completion.
Nonrecurring items. In the second quarter of fiscal 1998, the Company incurred
a nonrecurring pretax charge of $15.5 million relating to incentive bonuses to
be paid to the Company's associates who remain with the Company until the date
of the merger with WorldCom. Such bonuses are to be paid to associates
regardless of whether the merger is consummated.
In the first quarter of fiscal 1997, the Company incurred a pretax charge of
$17.7 million relating to the sale of certain assets and business operations of
the corporate computer software group of SPRY; the consolidation of U.S.-based
staff functions and office facilities; the renegotiation of certain third-party
customer service agreements; and the write-off of certain obsolete software
costs for billing and customer service systems. Of the total charge, $9.8
million required the outlay of cash; the remaining $7.9 million involved no
commitment of funds.
In the second quarter of fiscal 1997, the Company incurred a nonrecurring
pretax charge of $7.9 million relating to the withdrawal of the family-oriented
WOW! online service. Of the total charge, $5.6 million required the outlay of
cash; the remaining $2.3 million involved no commitment of funds. The revenues
of the withdrawn service were not material to the consolidated revenues of the
Company.
Income Taxes. The effective tax rate decreased to 36.9% for the current six
month period from 37.5% for fiscal 1997 due primarily to lower than anticipated
state income tax benefits.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During fiscal 1997, the Company, certain current and former officers and
directors of the Company, and Parent were named as defendants in six
lawsuits pending before the State and Federal courts in Columbus, Ohio. .
All but two of the original six cases were brought as putative class
actions. All the suits allege similar violations of the Securities Act
of 1933 based on assertions of omissions and misstatements of fact in
connection with the Company's public filings related to its initial
public offering. Relief sought in each suit is unspecified, but includes
pleas for rescission and damages. One purported class action lawsuit was
voluntarily dismissed by the plaintiffs and such plaintiffs have joined
in one of the remaining class action lawsuits in Federal court. The
other Federal lawsuit names the lead underwriters of the Company's
initial public offering as additional defendants and as representatives
of a defendant class consisting of all underwriters who participated in
such offering. The Federal suits are both subject to pending motions to
dismiss filed on behalf of the defendants, and they are being
consolidated pursuant to a scheduling order that has been entered in the
first Federal lawsuit. The first State court lawsuit also alleges
violations of the Ohio Securities Code and common law of negligent
misrepresentation, while another State lawsuit alleges violations of
Colorado, Florida, and Ohio statutes and common law of negligent
misrepresentation in addition to the 1933 Act claims. Three of the State
lawsuits have been consolidated. A fourth State lawsuit was filed
recently, and is expected to be consolidated with the other State
lawsuits in due course. The defendants are vigorously defending these
lawsuits.
On November 7, 1997, TeleTech TeleServices, Inc., TeleTech Customer Care
Management, Inc. (f/k/a TeleTech Telecommunications, Inc.) and CompuServe
Incorporated agreed to dismiss (without prejudice) their respective
claims and counterclaims asserted in the lawsuit captioned TeleTech
TeleServices, Inc., et al. v. CompuServe Incorporated, United States
District Court, Southern District of Ohio, Case No. C-2-96-1252 (the
"Lawsuit"). On November 13, 1997, the parties filed a Stipulated Joint
Notice of Dismissal Without Prejudice with the United States District
Court, Southern District of Ohio thereby dismissing (without prejudice)
their respective claims and counterclaims under the Lawsuit. Subject to
the provisions of the agreement, any party may refile the Lawsuit at any
time.
The Company in the ordinary course of business is threatened with or
named as a defendant in various lawsuits. It is not possible to
determine the ultimate disposition of these matters; however, management
is of the opinion that, except for the matters described herein, the
final resolution of any threatened or pending litigation is not likely to
have a material adverse effect on the financial statements of the
Company.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(2) Agreement and Plan of Merger, dated as of September 7, 1997, by
and among H&R Block, Inc., a Missouri corporation, H&R Block
Group, Inc., a Delaware corporation and a wholly-owned
subsidiary of the H&R Block, the Registrant, WorldCom, Inc., a
Georgia corporation, and Walnut Acquisition Company, L.L.C., a
Delaware limited liability company which is wholly-owned by
WorldCom (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K (filed September 10,
1997)).
(10) Agreement dated November 7, 1997 among CompuServe Incorporated,
TeleTech Teleservices, Inc., and TeleTech Customer Care
Management, Inc. (f/k/a TeleTech Telecommunications, Inc.)
(27) Financial Data Schedule.
B.Current Report on Form 8-K dated September 7, 1997 (filed September 10,
1997) reporting under Item 5, Other Information, information relative
to the Company's execution of an Agreement and Plan of Merger, pursuant
to which the Company will be merged with and into Walnut Acquisition
Company L.L.C., a wholly owned subsidiary of WorldCom, Inc. (incorporated
herein by reference)
Current Report on Form 8-K dated November 10, 1997 (filed November 13,
1997) reporting under Item 5, Other Information, information relative
to the Company's announcement that the Antitrust Division of the U.S.
Department of Justice which had advised the Company and Parent that it
will permit the statutory waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, to expire without
seeking additional information in connection with the merger of WAC, a
wholly-owned subsidiary of WorldCom, Inc. (incorporated herein by
reference)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUSERVE CORPORATION
Date December 05, 1997 By: /s/ Lawrence A. Gyenes
Lawrence A. Gyenes
Executive Vice President
and Chief Financial Officer
(Principle Accounting Officer)
<TABLE> <S> <C>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1998
<PERIOD-START> AUG-01-1997 MAY-01-1997
<PERIOD-END> OCT-31-1997 OCT-31-1997
<CASH> 214,231 214,231
<SECURITIES> 24,199 24,199
<RECEIVABLES> 115,433 115,433
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 408,782 408,782
<PP&E> 325,415 325,415
<DEPRECIATION> 0 0
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<CURRENT-LIABILITIES> 126,873 126,873
<BONDS> 0 0
0 0
0 0
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<OTHER-SE> 634,632 634,632
<TOTAL-LIABILITY-AND-EQUITY> 792,409 792,409
<SALES> 0 0
<TOTAL-REVENUES> 205,402 411,141
<CGS> 0 0
<TOTAL-COSTS> 229,894 443,953
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (21,856) (27,799)
<INCOME-TAX> (8,399) (10,256)
<INCOME-CONTINUING> (13,457) (17,543)
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7
AGREEMENT
THIS AGREEMENT (the "Agreement") is effective as of November 7, 1997, by
and between CompuServe Incorporated ("CompuServe") and TeleTech Teleservices,
Inc., and TeleTech Customer Care Management, Inc. (f/k/a TeleTech
Telecommunications, Inc.). TeleTech Teleservices, Inc. and TeleTech Customer
Care Management, Inc. are collectively referred to herein as "TeleTech." The
signatories to this Agreement are collectively referred to as the " Parties."
WITNESSETH
WHEREAS, on or about December 6, 1996, TeleTech instituted a lawsuit
against CompuServe in the United States District Court, Southern District of
Ohio, Eastern Division, and CompuServe has, in turn, filed certain
counterclaims in said action. Such lawsuit is captioned TeleTech Teleservices,
Inc., et al. v. CompuServe Incorporated, United States District Court, Southern
District of Ohio, Case No. C-2-96-1252 ("the Lawsuit").
WHEREAS, since July, 1997, the Parties have explored non-litigation
alternatives for resolving the Lawsuit and, in exploring such options, have
deferred discovery necessary to the pursuit and defense of the Lawsuit.
WHEREAS, CompuServe entered into an Agreement and Plan of Merger ("Merger
Agreement") with H&R Block, Inc. ("H&R Block"), H&R Block Group, Inc.,
WorldCom, Inc. ("WorldCom"), and Walnut Acquisition Company, L.L.C. under
which, among other things, CompuServe will be merged (the "Merger") into a
subsidiary of WorldCom. Under the Merger Agreement, H&R Block is not obligated
to indemnify any of the contracting parties to the Merger Agreement with
respect to the Lawsuit.
WHEREAS, because the Merger Agreement is executed but not closed and
because H&R Block is not indemnifying WorldCom for the Lawsuit, it is
impractical for the Parties to engage in further discussions about the non-
litigation resolution of the Lawsuit until it is determined whether or not the
Merger is actually consummated.
WHEREAS, the Parties wish to continue with their discussions related to
the nonlitigation resolution of the Lawsuit before devoting significant
resources to litigating the Lawsuit.
WHEREAS, the Parties are concerned, however, that, because the District
Court will likely schedule a trial date for the Lawsuit in early 1998 (the
"Trial Date") and will likely not be receptive to a continuance, the Parties
may not have sufficient time to complete discovery and other remaining pre-
trial preparation between the consummation of the Merger and the anticipated
Trial Date.
WHEREAS, as a result, the Parties believe that it is in their best
interests to dismiss the Lawsuit without prejudice, pursuant to Rule 41 of the
Federal Rules of Civil Procedure, and, if necessary, re-file it at a later time
so they will not be under the pressure of proceeding immediately with discovery
and other pre-trial preparation in anticipation of the Court potentially
setting a Trial Date in early 1998.
NOW, THEREFORE, for good and valuable consideration, the adequacy of which
is hereby acknowledged, the Parties agree and covenant as follows:
TERMS AND CONDITIONS
Section 1. Notice of Dismissal Without Prejudice. Within three (3)
business days of execution of this Agreement, the Parties shall file in the
Lawsuit a Notice of Dismissal Without Prejudice, pursuant to Rule 41 of the
Federal Rules of Civil Procedure, in the form attached hereto as Exhibit A,
which will result in the dismissal without prejudice of TeleTech's Second
Amended Complaint and CompuServe's Second Amended Counterclaims. Except as
specifically provided herein, the Notice of Dismissal Without Prejudice and
refiling of the Lawsuit shall not cause any loss of rights to any Party, create
any additional defense for any Party or prejudice any Party in any manner.
Section 2. Tolling of Limitation Period. From the date of the filing
of the Notice of Dismissal Without Prejudice through the earlier of the (a)
refiling of the Lawsuit or (b) November 9, 1998, there shall be, in all
Parties' favor, a tolling of all statute of limitations and all other time bars
of any nature whatsoever, whether in law or in equity, including but not
limited to defense of laches, equity, waiver, contractual limitation period and
all other defenses premised upon untimeliness, delay, or lack of notice, that
apply to any complaints, claims, counterclaims, causes of action or legal
proceedings asserted in the Lawsuit. Provided the Lawsuit is refiled on or
before November 9, 1998, all statute of limitations and other time bars shall
be calculated as if the refiled action (and any counterclaims thereto) was
filed on the filing date of the Lawsuit. Provided further, however, nothing
contained in this Agreement shall toll any statute of limitations or time bar
defense after the earlier of the (a) refiling of the Lawsuit or (b) November 9,
1998.
Section 3. Notice Prerequisite to Refiling. The Parties acknowledge
that, subject to the provisions of this Agreement, that all or any one of the
Parties may refile the Lawsuit at any time. Provided, however, TeleTech shall
not refile the Lawsuit, or initiate any other litigation based upon the
transactions or occurrences that are the subject matter of the Lawsuit, unless
it first provides CompuServe ten (10) calendar days advance notice, pursuant to
Section 8 herein, of its intentions to refile the Lawsuit or institute related
litigation. CompuServe shall not refile the Lawsuit, or initiate any other
litigation based upon the transaction or occurrences that are the subject
matter of the Lawsuit, unless it first provides TeleTech twenty (20) calendar
days advance notice, pursuant to Section 8 herein, of its intentions to refile
the Lawsuit or institute related litigation.
Section 4. Refiling In Federal or State Court. Any refiling of the
Lawsuit, or the filing of any claims or counterclaims based upon the
transactions or occurrences that are the subject matter of the Lawsuit, shall
be governed by the terms of section 13.5 of the parties' June 16, 1995
agreement entitled "Master Agreement Telemarketing Outsourcing Services Client
Services Agreement." The Parties agree that the trial calendar and all
scheduling matters for any refiled litigation shall be determined as if the
refiled litigation were an entirely new case and as if the Lawsuit had never
existed between the Parties. Neither Party shall use the former existence of
the Lawsuit to attempt to establish an early trial date or shorten the time
with respect to any other pre-trial matter in any refiled litigation.
Section 5. Copying of Documents. Upon reasonable notice and request,
CompuServe shall provide to TeleTech a copy of the bates-stamped documents that
TeleTech produced in the Lawsuit. TeleTech shall be responsible for all costs
incidental to the copying of these documents.
Section 6. Discovery Produced In the Lawsuit.
6.1. Pending Discovery Motions. The Parties agree that upon the
filing of the Notice of Dismissal Without Prejudice all pending discovery
motions, orders, appeals, and disputes shall be rendered moot and void,
including but not limited to CompuServe's Motion For Default Judgment Pursuant
to Rule 37 of the Federal Rules of Civil Procedure, CompuServe's Objections to
the Magistrate Judge's July 2, 1997 Order, and the Magistrate Judge's July 2,
1997 Order.. Nothing herein shall preclude any Party from filing any discovery
motions that they or it may deem necessary in any refiled litigation or
responding with any necessary defense to said motions, so long as the basis for
any such motion(s) or defense is not premised upon any alleged delays in
production; improper withholding of documents; discovery disputes; any
discovery requests, answers or responses thereto; and/or any discovery orders
issued in the Lawsuit.
6.2. Use of Existing Discovery in Refiled Litigation. Except for (a)
deposition testimony which has been taken and transcribed in the Lawsuit and
(b) documents previously actually produced, pursuant to Rule 34 of the Federal
Rules of Civil Procedure, all discovery which has been propounded (including
but not limited to any responses and answers to interrogatories, requests for
admission, document requests and other discovery) in the Lawsuit shall be
deemed to be void and inadmissible, as if they were never in existence.
Nothing herein shall prohibit any Party from conducting discovery in any
refiled litigation that was previously conducted or sought in the Lawsuit.
Section 7. Confidentiality and Protective Order. The Stipulation and
Protective Order Governing Confidential Material issued by the Court on April
23, 1997 shall remain effective through and including the later of (a) the
termination of any refiled litigation and (b) November 9, 1998. If no
litigation is refiled by November 9, 1998, all Confidential Discovery Material
(as defined in the April 23, 1997 Order) shall be returned to the producing
party or, in the alternative, destroyed and certified to the producing party to
have been destroyed.
Section 8. Notices. All notices required herein shall be in writing
and shall be effective upon receipt when delivered in person or by facsimile
transmission:
If to CompuServe:
Marion H. Little, Jr., Esq.
Zeiger & Carpenter
41 South High Street, Suite 1600
Columbus, Ohio 43215
Fax No.: (614) 365-9145
and
c/o General Counsel
CompuServe Incorporated
5000 Arlington Centre Boulevard
Columbus, Ohio 43220
Phone No.: (614) 365-4113
Fax No.: (614) 457-9665
If to TeleTech:
Lonnie C. Blanchard, III, Esq.
Berman, Blanchard, Mausner & Resser
4727 Wilshire Blvd., Suite 500
Los Angeles, CA 90010-3874
Phone No.: (213) 965-1200
Fax No.: (213) 965-1919
and
Joel H. Mirman, Esq.
Buckingham, Doolittle & Burroughs
88 E. Broad Street
Columbus, OH 43215-3506
Fax No.: (614) 221-8590
All form of notices set forth above shall be contemporaneously accompanied by a
telephonic notice to, if by Teletech, to Marion H. Little, Jr., and, if by
CompuServe, to Lonnie Blanchard. Any Party may give notice of a change of
address, telephone number or fax number by providing notice in the manner set
forth above.
Section 9. Miscellaneous.
9.1. Entire Agreement. This Agreement sets forth the entire
understanding among the Parties concerning the subject matter of this
Agreement, and incorporates all prior negotiations and understandings, but
shall not affect any other agreement or contract between the Parties that does
not relate to the Notice of Dismissal Without Prejudice or the refiling of the
Lawsuit. No covenants, promises, agreements, conditions or understandings,
either oral or written, exist between the Parties relating to the subject
matter of this Agreement other than those set forth herein. No alteration,
amendment, or change to this Agreement shall be binding upon any party hereto
unless in writing, and signed by all Parties.
9.2. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more
counterparts.
9.3. Joint Preparation. This Agreement is to be deemed to have been
prepared jointly by the Parties. Any uncertainty or ambiguity existing herein
shall not be interpreted against any party.
9.4. Counsel. Each of the Parties hereby represents and warrants
that they are executing this Agreement after having received legal advice as to
their rights from their respective legal counsel.
9.5. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Ohio.
9.6. No Admission. This Agreement is entered into by the Parties
solely for the purpose of effectuating dismissal without prejudice of the
Lawsuit. This Agreement does not constitute, nor shall it be construed as, an
admission by any Party of the truth or validity of any claims or contentions
asserted by any other Party or as a ratification of any past conduct by any
other Party, or as a waiver of any rights previously asserted. Neither this
Agreement nor any discussion occurring to or in contemplation of this Agreement
shall be admissible in evidence in any action, except as necessary to enforce
its terms.
9.7. Authority to Execute. Each Party hereto represents and warrants
on its own behalf that the individual signing this Agreement on its behalf is
fully authorized to sign on behalf of and bind it, and that it has the power
and authority to enter into this Agreement.
9.8. Further Acts. Each Party agrees to take such further acts and
execute such further documents that are reasonably necessary to carry out the
terms and conditions and intent of this Agreement.
9.9. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto, and each of them, and each and
all of their representatives, officers, directors, shareholders, partners,
successors, assigns, employees and agents.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date
first above written.
WITNESSES:
TELETECH TELESERVICES, INC.
/s/ Lonnie C. Blanchard II By:/s/ Joseph D. Livingston
___________________ Its: Executive Vice President and Chief
Operating Officer
TELETECH CUSTOMER CARE
MANAGEMENT, INC.
___________________ By:/s/ Joseph D. Livingston
___________________ Its: Executive Vice President and Chief
Operating Officer
COMPUSERVE INCORPORATED
/s/ Miriam Seijo By:/s/ Russell P. Austin
___________________ Its: Assistant Secretary
