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): January 31, 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 2. Acquisition or Disposition of Assets
On January 31, 1998 America Online, Inc. ("AOL") completed the acquisition
of the worldwide online services business (the "COLS Business") of CompuServe
Corporation ("CompuServe") pursuant to the previously announced Purchase and
Sale Agreement (the "Agreement") dated as of September 7, 1997 by and among AOL,
ANS Communications, Inc., a Delaware corporation and a wholly-owned subsidiary
of AOL (prior to the consummation of the Purchase and Sale) ("ANS"), and
WorldCom, Inc., a Georgia corporation ("WorldCom"). In a three-way transaction,
AOL acquired the COLS Business and $175 million ($162 million in cash after
purchase price adjustments made at closing), subject to post-closing adjustments
set forth in the Agreement, from WorldCom in exchange for AOL's network services
subsidiary, ANS, all of the outstanding capital stock of which was transferred
to WorldCom (the "Purchase and Sale").
Immediately prior to AOL's acquisition of the COLS Business, WorldCom
acquired CompuServe pursuant to an Agreement and Plan of Merger by and among H &
R Block, Inc., H&R Block Group, Inc., a wholly-owned subsidiary of H&R Block,
Inc. (and the majority shareholder of CompuServe prior to the completion of the
merger), WorldCom, and Walnut Acquisition Company, LLC, a wholly-owned limited
liability company of WorldCom. In addition to the ANS network services business
acquired from AOL, WorldCom will retain and operate the network services
business of CompuServe.
Pursuant to the Agreement, AOL purchased the COLS Business and the assets
of CompuServe relating to the COLS Business and assumed certain existing and
future liabilities and obligations relating to the COLS Business and such
assets. In addition to the subscriber base of the COLS Business, AOL acquired
assets that included contracts, equipment and other fixed assets and
intellectual property. AOL also acquired title to real property and the
improvements thereon used by CompuServe in the COLS Business located in
Arlington and Dublin, Ohio. Subject to the reorganization of the COLS Business
announced on February 9, 1998 and the ongoing review of management, AOL intends
to use these properties and assets in the operation of the COLS Business.
CompuServe Interactive Services, Inc. ("CompuServe Interactive"), a wholly-
owned subsidiary of AOL, will be headquartered in Columbus, Ohio and will
continue to operate the COLS Business as a separate CompuServe brand with
distinctive CompuServe services, including content, email service, features and
functionality both domestically and internationally through its foreign
subsidiaries.
In conjunction with this acquisition, AOL's European partner, Bertelsmann
AG, paid $75 million to AOL for a 50% interest in the European component of the
COLS Business (the "COLS European Business"). Each of AOL and Bertelsmann have
invested an additional $25 million to operate the COLS European Business as part
of an expanded joint venture between the parties.
In connection with the Purchase and Sale, AOL has entered into a strategic
relationship with WorldCom which will provide AOL with significant network
capacity. AOL, WorldCom and ANS have entered into a Master Agreement for Data
Communications, and AOL, UUNET Technologies, Inc., a wholly-owned subsidiary of
WorldCom, and CompuServe Incorporated, an Ohio corporation and wholly-owned
subsidiary of CompuServe, have entered into a Network Services Agreement, each
with an initial term ending in December 2002, subject to possible extension by
AOL under certain circumstances.
In addition, Stephen M. Case, the Chairman and Chief Executive Officer of
AOL, has agreed to become a member of the Board of Directors of WorldCom.
The description contained herein of the Purchase and Sale is qualified in
its entirety by reference to the Purchase and Sale Agreement (Exhibit 2.1) and
the Press Release (Exhibit 99), copies of which are attached hereto or
incorporated herein by reference, and by the Financial Statements, Pro Forma
Financial Information and Exhibits thereto set forth in Item 7 below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired.
The audited financial statements of the COLS business as of and for the
year ended April 30, 1997 and the unaudited interim financial statements for the
periods ended October 31, 1997 and October 31, 1996 will be filed by amendment
to this report on or before April 15, 1998.
(b) Pro forma financial information.
On January 31, 1998 America Online, Inc. ("AOL" or the "Company") completed
the acquisition of the worldwide online services business (the "COLS Business")
of CompuServe Corporation ("CompuServe") pursuant to the previously announced
Purchase and Sale Agreement (the "Agreement") dated as of September 7, 1997 by
and among AOL, ANS Communications, Inc., a Delaware corporation and a wholly-
owned subsidiary of AOL (prior to the consummation of the Purchase and Sale)
("ANS"), and WorldCom, Inc., a Georgia corporation ("WorldCom"). In a three-way
transaction, AOL acquired the COLS Business and approximately $162 million in
cash (subject to post-closing adjustments set forth in the Agreement) from
WorldCom in exchange for AOL's network services subsidiary, ANS, all of the
outstanding capital stock of which was transferred to WorldCom (the "Purchase
and Sale"). See Item 2 of this Form 8-K for a more detailed description of the
transaction.
AOL will account for the acquisition of the COLS business as a purchase business
combination under APB 16, "Business Combinations". Due to AOL's continuing
involvement with ANS and the interdependence of the Agreements entered into by
the parties, the gain on the sale of ANS will be recognized in a manner
consistent with guidance prescribed in SFAS No. 28 "Accounting for Sales with
Leaseback". The Company has not finalized the actual valuation of the COLS
business with regard to purchase accounting, but it expects to generate a gain
of approximately $350 million on the sale of ANS which will be deferred and
recognized on a straight line basis as a reduction in cost of sales over the
term of the Master Agreement for Data Communications as discussed in Item 2 of
this Form 8-K.
The unaudited pro forma condensed balance sheet gives effect to the disposition
of ANS as of December 31, 1997. The unaudited pro forma condensed statement of
operations for the year ended June 30, 1997 and for the six month periods ended
December 31, 1997 and 1996 reflects the disposition of ANS as if the disposition
had occurred at the beginning of the period presented. The pro forma financial
statements reflect the disposition of ANS only, and do not reflect the impact of
the entire Agreement entered into by the parties. The financial statements
required to be filed for the COLS business pursuant to Item 7 of Form 8-K are
not available at this time and will be filed within 60 days as provided for in
Item 7 (a)(4). In addition to those required financial statements, the Company
will file the required pro forma financial information to reflect the combined
financial impact of the entire Agreement entered into by the parties.
The pro forma information is presented for illustrative purposes only and does
not purport to be indicative of the operating results or financial position that
would actually have occurred if the disposal had been in effect on the dates
indicated, nor is it indicative of future operating results or financial
position. The pro forma adjustments are based upon available information and
assumptions that the Registrant believes are reasonable in the circumstances.
The pro forma information should be read in conjunction with the Company's June
30, 1997 financial statements and notes thereto contained in its Form 10-K dated
September 29, 1997.
America Online, Inc.
Pro Forma Condensed Balance Sheet
as of December 31, 1997
(In thousands)
(Unaudited)
<TABLE>
America Pro Forma Pro Forma
Online Adjustments Combined
(1)
ASSETS
Current Assets:
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments $ 518,436 $ 2,785 $515,651
Accounts receivable 117,848 15,597 102,251
Prepaid expenses and other current 81,150 7,942 73,208
assets
Total current assets 717,434 26,324 691,110
Property and equipment, net 336,097 36,947 299,150
Other assets:
Product development cost, net 83,635 - 83,635
Other assets including available-for- 155,097 6,513 148,584
sale securities
Deferred income taxes 48,165 - 48,165
Goodwill, net 42,733 31,325 11,408
Total Assets $ 1,383,161 $ 101,109 $ 1,282,052
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 68,485 $ 4,574 $ 63,911
Other accrued expenses and liabilities 332,660 46,942 285,718
Deferred revenue 174,392 3,882 170,510
Current portion of long-term debt and
capital lease obligations 1,971 247 1,724
Total current liabilities 577,508 55,645 521,863
Notes payable 371,391 - 371,391
Deferred income taxes 48,165 - 48,165
Deferred revenue long-term 79,384 - 79,384
Minority Interest 313 - 313
Other liabilities 843 - 843
Total Liabilities 1,077,604 55,645 1,021,959
Stockholders' equity
Preferred stock 1 - 1
Common stock 1,042 - 1,042
Additional paid-in capital 771,695 45,464 726,231
Accumulated deficit (467,181) - (467,181)
Total stockholders' equity 305,557 45,464 260,093
$ 1,383,161 $ 101,109 $ 1,282,052
See accompanying notes to unaudited pro forma condensed financial statements
</TABLE>
America Online, Inc.
Pro Forma Condensed Statement of Operations
For the six month period ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
America Pro Forma Pro Forma
Online Adjustments Combined
(2)
<S> <C> <C> <C>
Revenues $1,113,634 $23,742 $1,089,892
Costs and expenses:
Cost of revenues 712,987 5,044 707,943
Marketing 194,622 14,718 179,904
Product development 39,447 - 39,447
General and administrative 104,974 2,885 102,089
Amortization of goodwill 3,837 2,202 1,635
Restructuring charge (1,306) - (1,306)
Settlement charge (1,009) - (1,009)
Total costs and expenses 1,053,552 24,849 1,028,703
Income (loss) from operations 60,082 (1,107) 61,189
Other income, net 6,068 507 5,561
Income (loss) before provision
for income taxes 66,150 (600) 66,750
Provision for income taxes (26,218) 228 (26,446)
Net income (loss) $39,932 $(372) $ 40,304
Net income per common share - diluted $0.33 $(0.00) $ 0.33
Net income per common share - basic $0.39 $(0.00) $ 0.39
Weighted average shares outstanding - 119,376 119,376 119,376
diluted
Weighted average shares outstanding - 102,119 102,119 102,119
basic
See accompanying notes to unaudited pro forma condensed financial statements
</TABLE>
America Online, Inc.
Pro Forma Condensed Statement of Operations
For the six month period ended December 31, 1996
(In thousands, except per share data)
(Unaudited)
<TABLE>
America Pro Forma Pro Forma
Online Adjustments Combined
(2)
<S> <C> <C> <C>
Revenues $ 759,394 $ 14,205 $ 745,189
Costs and expenses:
Cost of revenues 463,042 2,699 460,343
Marketing
Marketing 230,977 4,549 226,428
Write off of deferred subscriber 385,221 - 385,221
acquisition cost
Product development 38,339 - 38,339
General and administrative 49,261 903 48,358
Amortization of goodwill 3,509 2,202 1,307
Restructuring charge 48,627 - 48,627
Settlement charge 24,300 - 24,300
Total costs and expenses 1,243,276 10,353 1,232,923
Income (loss) from operations (483,882) 3,852 (487,734)
Other income, net 1,088 - 1,088
Income (loss) before provision
for income taxes (482,794) 3,852 (486,646)
Provision for income taxes - - -
Net income (loss) $(482,794) $ 3,852 $(486,646)
Net income per common share - diluted $(5.15) $ 0.04 $ (5.19)
Net income per common share - basic $(5.15) $ 0.04 $ (5.19)
Weighted average shares outstanding - diluted 93,727 93,727 93,727
Weighted average shares outstanding - basic 93,727 93,727 93,727
See accompanying notes to unaudited pro forma condensed financial statements
</TABLE>
America Online, Inc.
Pro Forma Condensed Statement of Operations
Year Ended June 30, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
America Pro Forma Pro Forma
Online Adjustments Combined
(3) (2)
<S> <C> <C> <C>
Revenues $1,685,228 $30,092 $1,655,136
Costs and expenses:
Cost of revenues 1,074,051 5,192 1,068,859
Marketing
Marketing 421,866 11,785 410,081
Write off of deferred subscriber 385,221 - 385,221
acquisition cost
Product development 79,145 - 79,145
General and administrative 126,705 1,909 124,796
Amortization of goodwill 6,549 4,404 2,145
Restructuring charge 48,627 - 48,627
Contract termination charge 24,506 - 24,506
Settlement charge 24,204 - 24,204
Total costs and expenses 2,190,874 23,290 2,167,584
Income (loss) from operations (505,646) 6,802 (512,448)
Other income, net 6,299 20 6,279
Income (loss) before provision
for income taxes (499,347) 6,822 (506,169)
Provision for income taxes - - -
Net income (loss) $(499,347) $ 6,822 $(506,169)
Net income per common share - diluted $ (4.18) $ 0.06 $ (4.24)
Net income per common share - basic $ (5.22) $ 0.07 $ (5.29)
Weighted average shares outstanding - diluted 119,376 119,376 119,376
Weighted average shares outstanding - basic 95,607 95,607 95,607
See accompanying notes to unaudited pro forma condensed financial statements
</TABLE>
Notes to the Unaudited Pro Forma Condensed Financial Statements
(1) Reflects the disposition of the ANS assets as if the disposition had taken
place on December 31, 1997. The pro forma balance sheet does not reflect
the receipt of proceeds for the sale or the deferred gain expected to be
generated as a result of the transaction.
(2) The pro forma statements of operations assume that the transaction took
place at the beginning of the period presented. The pro forma statements of
operations reflects the elimination of all operating costs associated with
ANS except for an estimate of the costs associated with operating the
network which provides access to the Company's core internet/online
service.
In order to generate third party revenues ANS primarily used the same
personnel and network infrastructure that it used to provide access to
AOL's internet/online service. Management has made its best estimate of
the incremental variable costs it believes ANS incurred to generate third
party revenues. General and administrative expenses incurred at ANS,
including compensatory stock option charges related to the sale of ANS
of approximately $8.9 million, have been allocated to AOL based on the
ratio that AOL revenues generated by ANS bear to total ANS revenues on a
stand alone basis.
These pro forma financial statements reflect the disposition of ANS only
and therefore, given the nature of the transaction consummated by the
parties, is not intended to reflect the future operations of AOL following
the disposition of ANS. Management does not believe that these pro forma
financial statements accurately reflect the ongoing operations of the
Company following the consummation of the transaction with WorldCom.
Although, the Company does not expect the costs to operate this portion of
its network to increase as a result of the aforementioned transaction.
(3) Certain amounts in the pro forma condensed statement of operations for
the year ended June 30, 1997 have been reclassified to conform to current
year presentation.
(c) Exhibits.
The following exhibits are filed as part of this Current Report pursuant to
Item 601 of Regulation S-K:
Exhibit
Number Description
2.1 Purchase and Sale Agreement dated as of September
7, 1997, by and among America Online, Inc., ANS
Communications, Inc. and WorldCom, Inc.
(incorporated herein by reference to Exhibit 2 to
the Company's Form 8-K, Commission File No. 0-
19836, filed September 15, 1997).
99 Press Release dated February 2, 1998 announcing
America Online, Inc.'s purchase of the worldwide
online services business of CompuServe
Corporation plus the receipt of approximately
$175 million of cash in exchange for the sale to
WorldCom Inc., of ANS Communications, Inc. and
related matters.
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: February 17, 1998 By: /S/LENNERT J. LEADER
Lennert J. Leader
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer,
Treasurer and Assistant Secretary
EXHIBIT INDEX
Exhibit
Number Description
99 Press Release dated February 2, 1998 announcing
America Online, Inc.'s purchase of the
worldwide online services business of
CompuServe Corporation plus the receipt of
approximately $175 million of cash in exchange
for the sale to WorldCom Inc., of ANS
Communications, Inc. and related matters.
Exhibit 99
AMERICA ONLINE, INC. COMPLETES ACQUISITION OF COMPUSERVE WORLDWIDE ONLINE
SERVICES AND
SALE OF ANS COMMUNICATIONS
AOL Receives $175 Million from WorldCom;
Forms Strategic Alliance to Expand Access,
Develop Next-Generation Broadband Network, and Lower Network Costs
CompuServe to Remain As Separate Brand;
New President of CompuServe Interactive Services, Inc. Named
AOL and Bertelsmann AG Expand Joint Venture to Operate Leading Pan-European
Internet Online Business
DULLES, VA, February 2, 1998 - America Online, Inc. (NYSE: AOL) today announced
that it has completed the acquisition of CompuServe Corporation's worldwide
online services. With the conclusion of the deal, AOL extends its Internet
online leadership worldwide, with more than 2.5 million CompuServe members and
over 11 million AOL members in 185 countries.
AOL also announced that CompuServe Interactive Services, Inc., a wholly owned
subsidiary of America Online, will be headquartered in Columbus, Ohio under a
management team headed by Mayo S. Stuntz, Jr. As President, Mr. Stuntz will
report to Bob Pittman, President and CEO of AOL Networks. Mr. Stuntz was most
recently Executive Vice President and Chief Operating Officer of Century 21 Real
Estate Corporation and has extensive experience managing in a multi-brand
environment.
In this three-way transaction, WorldCom first acquired all of CompuServe
Corporation from H&R Block, Inc. WorldCom then exchanged CompuServe's worldwide
online services and $175 million in cash for AOL's network services subsidiary,
ANS Communications, Inc.
In addition, AOL's European partner Bertelsmann AG paid an additional $75
million to AOL for a 50-percent interest in CompuServe Europe's online business,
and each company has invested $25 million in an expanded joint venture to
operate that business. AOL also has entered into a five-year strategic
relationship with WorldCom that will provide AOL with significantly expanded
network capacity at favorable prices, and the two companies will collaborate on
the deployment of a next-generation broadband network.
AOL said that it will operate CompuServe as a separate brand on its own network,
retaining its distinctive services - with its own content, e-mail system,
features and functionality - in the U.S., Europe and other international
affiliates.
AOL Chairman and CEO Steve Case said: "This is a major step forward for AOL and
our drive to make the Internet a truly global phenomenon. The acquisition of
CompuServe's worldwide online services and our expanded partnerships with
WorldCom and Bertelsmann will help us better serve our customers and advance our
multiple brand strategy. We look forward to our new opportunities in Europe,
where AOL and CompuServe will form the leading pan-European Internet online
business in a rapidly growing market."
Mr. Case added: "The sale of ANS enables us to focus even more energy and
resources on expanding our core interactive services and content businesses.
The transaction also lets us realize the significantly increased value of ANS
while our members benefit from expanded access capacity through our long-term
agreement with WorldCom. We wish our former ANS colleagues well as they join
WorldCom and look forward to continuing to work with them as one of our network
providers."
Mr. Pittman said: "As we said when we announced this transaction, we are
committed to operating CompuServe as a separate service operating on its own
network. We plan to retain the content, features, e-mail system and
functionality that CompuServe customers have historically enjoyed."
Mr. Pittman added: "Internationally, our AOL and CompuServe services will
broaden our global reach and build on the growing worldwide popularity of the
Internet. In the U.S., our top priority is to return CompuServe's operations to
profitability by stabilizing its customer base, increasing efficiencies and
taking full advantage of AOL's scale, resources and experience. We have already
begun a comprehensive review of CompuServe's operations and expect to move
forward quickly with our revitalization plan."
New President of CompuServe Interactive Services Named
Mr. Stuntz said: "CompuServe is a terrific brand with a loyal global membership
base, popular programming and forums, strong partner relationships, a long
record of providing quality service and a superb management team. Building on
these strengths and the resources of a committed owner who knows the business,
we look forward to developing a growth strategy together that will revitalize
the brand for the benefit of CompuServe's members around the world."
Mr. Stuntz is a long-time entertainment and programming executive who has worked
with Mr. Pittman for nearly two decades in creating and building brands such as
MTV, VH-1, Nick-at-Nite, Six Flags Theme Parks and CENTURY 21. Mr. Stuntz has
also helped lead several successful post-merger integration efforts including
MTV-Viacom, Six Flags-Time Warner, and Century 21 Real Estate Corporation-HFS
(Cendant).
At Century 21 Real Estate Corporation, a subsidiary of Cendant Corporation,
where he was Chief Operating Officer and Executive Vice President, Mr. Stuntz
played a key role in introducing and executing brand-building; call-to-action
advertising; strategic alliances with other market leaders; cost-saving volume-
discounts; cutting edge automation tools and market-oriented brand extensions.
As Executive Vice President of Six Flags Theme Parks, Inc., a subsidiary of Time
Warner, Inc., Mr. Stuntz had specific responsibility for operations,
engineering, merchandise, food service, business development and family
entertainment center operations. Mr. Stuntz also has served as Executive Vice
President of Time Warner Enterprises, the business and strategic development arm
of Time Warner, Inc., where he was involved with the company's investment in 3DO
and in the development of Court TV and the Quincy Jones Entertainment Company.
In addition, Mr. Stuntz was Executive Vice President of Quantum Media, Inc.,
where he was responsible for creating numerous television programs, and Senior
Vice President, Business Management and Development of MTV Networks, where he
led the development of VH-1 and Nick-at-Nite and was responsible for the
international expansion of MTV Networks' programming through the creation of
joint ventures in Japan, Australia and Europe.
In Europe, Konrad Hilbers, who currently is the Vice President and Chief
Financial Officer of AOL Bertelsmann Online Europa GmbH, will become Executive
Vice President for CompuServe Interactive Services Europe. Mr. Hilbers, in his
new function, will continue to report to Heinz Wermelinger, who oversees all of
the AOL Bertelsmann joint venture in Europe.
America Online, Inc., (NYSE: AOL) based in Dulles, Virginia, is the world's
leading Internet online service, with over 11 million members worldwide. AOL,
founded in 1985, offers its subscribers a wide variety of interactive services
including electronic mail, Instant Message features, entertainment, reference,
financial information, computing support, interactive magazines and newspapers,
as well as easy access to all the services of the Internet.
