SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 4, 1998
AMERICA ONLINE, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19836 54-1322110
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
22000 AOL Way, Dulles, Virginia 20166
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (703) 448-8700
Item 5. Other Events.
On August 4, 1998, America Online, Inc. ("AOL") issued a press release
announcing fiscal year 1998 fourth quarter and annual income before special
charges and on a fully-taxed basis. A copy of the press release is attached
hereto as Exhibit 99.1 and incorporated herein by reference. In conjunction with
this press release, the Company held a telephone conference with analysts and
others, in the course of which the Company stated that it was very comfortable
with Wall Street's analysts' current fiscal year 1999 earnings' estimates. Such
statement was made in the context of discussions of the status of on-going
analysis regarding one-time write-offs for in-process research and development
in connection with the acquisitions of Mirabilis LTD (ICQ) and NetChannel, Inc.
and responses to questions presented during the conference call.
This statement is a forward-looking statement within the meaning of the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995,
and is based on management's current expectations or beliefs and is subject to a
number of factors and uncertainties that could cause actual results to differ
materially. The following factors, among others, could cause actual results to
differ materially from those referred to in the forward-looking statement: final
accounting treatment for recent acquisitions; increased competition and its
effects on pricing, third-party relationships, the subscriber base and revenues;
inability to provide adequate network capacity; reliance on three network
service providers; slowing or reversing subscriber and/or revenue growth,
requiring the Company to increase marketing spending and causing decreased
margins; inability to establish and maintain relationships with electronic
commerce, advertising, marketing, technology and content providers; inability to
identify, develop and achieve commercial success for new access and distribution
technologies; risks of regulation in the U.S. and internationally in certain
relevant areas; and inability to successfully acquire and integrate new
companies. For a detailed discussion of these and other cautionary statements,
please refer to the Company's filings with the Securities and Exchange
Commission, especially in the Forward-Looking Statements section of the
Management's Discussion and Analysis section of the Company's Form 10-K for the
fiscal year ended June 30, 1997 and in the subsequently filed Forms 10-Q.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
99.1 Press Release Dated August 4, 1998 By America Online, Inc.
Announcing Fiscal Year 98 Fourth Quarter Operating Results
SIGNATURE
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.
AMERICA ONLINE, INC.
Date: August 5, 1998 By:/s/J. Michael Kelly
J. Michael Kelly
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer,
Treasurer and Assistant Secretary
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release Dated August 4, 1998 By America Online, Inc. Announcing
Fiscal Year 98 Fourth Quarter Operating Results
AMERICA ONLINE ANNOUNCES
FY98 FOURTH QUARTER OPERATING RESULTS
THAT SIGNIFICANTLY EXCEED EXPECTATIONS
Fully-Taxed Fourth Quarter Income, Before Special Charges,
Rises More Than Ten-Fold to $57.3 Million or $0.23 Per Share,
Exceeding Consensus Estimates of $0.19
AOL Membership Grows by 665,000 - Best Fourth Quarter in Company History
Advertising, Commerce and Other Revenues
Climb 38% to $124.8 Million in Quarter
Full Year Revenues Increase 54% to $2.6 Billion
DULLES, VA, August 4, 1998 -- America Online, Inc. (NYSE: AOL) today announced
income before special charges that is significantly better than expectations for
its fiscal fourth quarter ended June 30, 1998.
Fourth quarter income, before special charges and on a fully-taxed basis, rose
to $57.3 million, which equates to $0.23 per diluted share, up from $5.6 million
last year, or $0.03 per share, reported on a comparable basis. Revenues rose to
$792.3 million, or 67% over last year's corresponding quarter.
For the full year, America Online had revenues of $2.6 billion, up 54% from $1.7
billion a year ago. Income before special charges for fiscal 1998, on a
fully-taxed basis, amounted to $134 million, equal to $0.55 per share, versus a
net loss in the previous year of $13.4 million, or $0.07 per share, on a
comparable basis.
The Company said that it is not reporting net income today because previously
announced, one-time charges are in the process of being finalized. The Company
expects to report a charge for the settlement of a shareholder suit, as well as
write-offs for in-process research and development in connection with its
acquisitions of Mirabilis LTD (ICQ) and NetChannel, Inc. Prior to finalizing its
accounting for the acquisitions, the Company consulted with the Securities and
Exchange Commission, and these discussions are continuing.
Once the amounts of the charges are finalized, the Company will release full
financial results for its fourth quarter and fiscal 1998. The Company said its
fourth quarter and fiscal year-end 1998 operating results before special charges
are final and will not change.
Leadership Extended in Interactive Services
"AOL's business has never been stronger - with multiple brands and multiple
revenue streams, a cost-efficient infrastructure, an unparalleled relationship
with our members and a clear vision," said Steve Case, Chairman and Chief
Executive Officer of America Online.
"In a year when the interactive medium came of age, America Online emerged as
the clear choice among consumers and the Internet's first blue-chip company,"
Mr. Case continued. "In 1998, we delivered strong revenues and operating
profits, while taking the critical steps to position the Company for future
profitable growth. With this strong foundation and record of achievements, we
have great confidence in the business moving into the coming fiscal year."
Operating highlights from this year's fiscal fourth quarter include:
- - AOL Membership: The AOL service grew by 665,000 members over the quarter,
an 11% increase over fiscal 1997's fourth quarter new member additions - making
it the best fourth quarter and fiscal year in the Company's history. Over the
full year, membership climbed 3.9 million, compared to 2.4 million in 1997. AOL
ended fiscal 1998 with a total of 12.5 million members worldwide.
- - Service Revenues: AOL service revenues climbed to $667.5 million, a 73%
increase over last year's fourth quarter, reflecting higher membership and
higher revenue per member.
- - Other Revenues: Advertising, commerce and other revenues rose to $124.8
million, with the advertising and commerce fees climbing to $83.1 million, an
87% increase over 1997's corresponding quarter.
- - Advertising and Commerce Backlog: AOL increased its backlog of advertising
and commerce contract revenues from $180 million at the end of fiscal 1997 to
$510.5 million at June 30.
- - Operating Margins: Operating margins, before special charges, improved to
11.3% for the quarter from 1.6% in 1997's fourth quarter.
- - Marketing Spending: Marketing expenses were held to just 12% of revenues,
compared to 21% during last year's fourth quarter.
- - Operating Cash Flow: The Company generated approximately $55.3 million in
operating cash flow during the quarter and today has cash and cash equivalents
in excess of $1 billion, up from $124.3 million at June 30, 1997.
Bob Pittman, President and Chief Operating Officer, stated, "These results
clearly reflect the strength of our core business, which generates profitable
growth while allowing us to make investments in new products and services - our
growth vehicles for the future. Our flagship AOL service extended its worldwide
lead in the mass market and achieved breakthrough agreements with a wide range
of advertising and commerce partners. Leading consumer brands like Kodak and
Unilever are increasingly recognizing the attractiveness of AOL's customer base
and we are forging innovative relationships."
Mr. Pittman continued, "Our targeted brands - CompuServe, AOL.COM, ICQ and
Digital City - have added an important new dimension to our business model,
dramatically increasing our global audience and revenue potential. AOL's shared,
cost-effective infrastructure, scale and expertise position us uniquely to
profitably grow these other brands. We look forward to the launch of a number of
exciting new products this Fall and the continuing development of extensions of
AOL to emerging platforms."
AOL Service Highlights
Over the year, AOL undertook a number of initiatives to improve the member
experience and enhance the service's value proposition. Last month, C/NET
awarded AOL its Editors' Choice recommendation as the #1 national Internet
service provider for being "the best deal in town."
Last week, the final version of AOL's next-generation software, AOL 4.0, became
available to members for downloading - the first step of the broad-scale
consumer launch of AOL 4.0 that will culminate with the mailing of
easy-to-install CD-ROM's to millions of members and potential customers. With
its unparalleled array of new products and features that further enhance the
service's convenience, ease-of-use and seamless integration with the Web. During
its preview period and now in its launch, AOL 4.0 has generated more than 3
million downloads.
AOL members averaged 44.2 minutes a day online in the latest quarter, a 16%
increase over a year ago, during what is the seasonally slow period for usage.
The current quarter's member usage is continuing to grow. In another measure of
AOL's "ratings," simultaneous usage of the service during peak periods grew
during the quarter to more than 692,000.
As part of its commitment to provide the most advanced technology available for
the best possible member experience, AOL last month deployed the standard V.90
modem protocol for high-speed 56 Kilobits-per-second (Kbps) access throughout
AOLnet, the world's largest dial-up data network. The Company added 350,000
modems available to AOL members over the past year, for a total of 800,000, and
expects its network to surpass one million modems during fiscal 1999.
During the quarter, AOL launched the first nationwide field trials of Digital
Subscriber Line - xDSL - broadband service. The Company said that it intends to
offer its members this higher-speed option when it becomes easy-to-use and
commercially viable for the mass market.
Advertising & Commerce Agreements Highlights
Over the quarter, the Company increased to approximately 50 its number of
partners with multi-year advertising and commerce agreements valued in excess of
$1 million.
In the single largest commitment to the interactive medium made by any packaged
goods marketer to date, Unilever, the global leader in consumer packaged goods,
joined AOL in a three-year global interactive marketing agreement earlier this
month. Under the agreement, as many as 100 Unilever brands will benefit from a
prominent presence throughout the AOL service. Unilever brand advertising may
also appear on CompuServe. And Unilever will have a global advertising presence
on several of AOL's international services for specific packaged goods
categories.
Over the past several weeks, the Company announced two-year pacts with four
leading online brokerages for a combined total of $100 million. In the Fall,
DLJdirect (TM), E*TRADE, Waterhouse Securities and Ameritrade will become the
premier brokerages in AOL's new Brokerage and Mutual Fund Centers in the AOL
Personal Finance Channel -- the most frequently visited channel on AOL and
cyberspace's most popular personal finance destination.
AOL also concluded an alliance with photo giant Eastman Kodak Company to offer
members an exclusive new online service -- "You've Got Pictures!"(sm) -- that
will revolutionize how people share and store their favorite pictures and add a
compelling new dimension to both online communications and photography. The
service is scheduled for launch this Fall.
In addition, AOL entered into key marketing alliances with a series of major
personal computer manufacturers. The new multi-year agreements make AOL the
featured Internet service on a range of computers made by the Compaq Computer
Corporation, Packard Bell NEC, Inc., and IBM. Consumers will be able to access
the pre-installed AOL software by simply clicking on the prominently displayed
AOL icon during the computer's initial setup process.
The Company said these pacts underscore the power of the AOL brand and the
increasing importance that consumers put on the Internet experience in buying
personal computers.
AOL International Highlights
AOL International enjoyed strong growth during the quarter, surpassing 2.5
million combined AOL and CompuServe members. In France, America Online,
Bertelsmann, Canal+ and Cegetel signed agreements to establish a new strategic
alliance to serve a combined 285,000 French members.
AOL International built its advertising and commerce revenues with the
international component of the Unilever agreement, the first-ever global
interactive marketing pact. In addition, AOL Europe, the joint venture between
America Online and Bertelsmann, reached an agreement with N2K Inc., the leading
online music entertainment company, to make N2K's Music Boulevard the exclusive
music partner for AOL's European services. And AOL and Excite, Inc. announced an
agreement to launch localized versions of the AOL NetFind product, powered by
Excite's search and navigation technology, on the AOL Japan and AOL Canada
services.
Highlights from CompuServe, AOL.COM, Digital City, and ICQ
In June, CompuServe launched its new client, CompuServe 4.0, and CompuServe
Instant Messenger in the United States. Together these new products deliver a
faster, more convenient and more productive Internet experience for today's busy
adults. Early next year, CompuServe plans to introduce its 5.0 software, based
on AOL's state-of-the-art technology platform while preserving the distinctive
CompuServe look and feel.
As part of its agreement with AOL, Packard Bell NEC also will be promoting
CompuServe within the initial setup process on its personal computers.
AOL continues to expand its portal strategy, through the continued development
of AOL.COM as well as the expansion and repositioning of ICQ. Last month, the
Company introduced the preview version of the redesigned AOL.COM, the #1 Web
site among home users. With a fresh look and new Web content and product
offerings, it is becoming a premier destination site for both AOL members and
the Internet audience at large. AOL.COM will continue to evolve over the coming
months before the launch of the final version sometime later this year.
Since its acquisition, ICQ -- the fastest-growing instant communications service
on the Internet -- has continued its phenomenal growth, totaling 13.9 million
registered users including 6.8 million active users recording 263 million hours
of usage per month by the end of the quarter. Last month, ICQ was named the
overall winner of PC Magazine's Shareware Awards, as well as of the e-mail, news
readers, and chat awards.
While operating ICQ as a separate brand, the Company said it will continue to
develop the ICQ instant communications and chat technology to improve the
service and establish its revenue-generating capabilities as a major Web portal
built around an active and rapidly growing community.
During the quarter, AOL Studios' Digital City, the #1 branded local content and
community guide on the Internet and the AOL service, expanded into 12 new cities
- -- bringing to 50 the number of markets it now serves. Digital City was also
launched on CompuServe and on AOL.COM. In addition, AOL launched its
next-generation Digital City Los Angeles, an interactive online city guide with
enhanced features and functionality and availability on the World Wide Web.
Digital City and Netscape Communications Corporation announced a two-year
strategic agreement yesterday to make Digital City the exclusive local content
provider to the co-branded Local Channel of Netscape's Netcenter 2.0.
* * * *
America Online, Inc., based in Dulles, Virginia, is the world's leader in
branded interactive services and content. America Online, Inc. operates two
worldwide Internet online services: America Online, with more than 12.5 million
members; and CompuServe, with approximately 2 million members. America Online,
Inc. also operates AOL Studios, the world's leading creator of original
interactive content. Other branded Internet services operated by America Online,
Inc. include AOL.COM, the world's most accessed Web site from home; Digital
City, Inc., the #1 branded local content network and community guide on AOL and
the Internet; AOL NetFind, AOL's comprehensive guide to the Internet; AOL
Instant Messenger, an instant messaging tool available on both AOL and the
Internet; and ICQ, an instant communications and chat technology on the
Internet.
This release contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations or beliefs and are
subject to a number of factors and uncertainties that could cause actual results
to differ materially from those described in the forward-looking statements. The
forward-looking statements in this release address the following subjects:
accounting charges and treatment in connection with the Mirabilis LTD and
NetChannel, Inc. acquisitions, the Company's expectations regarding fiscal 1998
financial results and future financial results, timing for launch of new
products, services and platforms, and the growth of the Company's network.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: final
accounting treatment for recent acquisitions; increased competition and its
effects on pricing, third-party relationships, the subscriber base and revenues;
inability to provide adequate network capacity; reliance on three network
service providers; slowing or reversing subscriber and/or revenue growth,
requiring the Company to increase marketing spending and causing decreased
margins; inability to establish and maintain relationships with electronic
commerce, advertising, marketing, technology and content providers; inability to
identify, develop and achieve commercial success for new access and distribution
technologies; risks of regulation in the U.S. and internationally in certain
relevant areas.
For a detailed discussion of these and other cautionary statements, please refer
to the Company's filings with the Securities and Exchange Commission, especially
in the Forward-Looking Statements section of the Management's Discussion and
Analysis section of the Company's Form 10-K for the fiscal year ended June 30,
1997 and in the subsequently filed Forms 10-Q, and in the Risk Factors section
of the Company's most recently filed registration statement on Form S-3 filed in
June 1998.
