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): April 21, 1999
AMERICA ONLINE, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 001-12143 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) 265-1000
<PAGE>
Item 5. Other Events
On April 21, 1999, America Online, Inc. released an "FYI Investor Relations
Newsletter" that contains historical unaudited supplemental financial
information combining the America Online and Netscape operations and certain
one-time items. A copy of the Newsletter is included as Exhibit 99 to this
report and is incorporated by reference into this Item 5 and the foregoing
description of the Newsletter is qualified in its entirety by reference to such
Exhibit.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit Number Description
99 FYI - Investor Relations Newsletter dated April 21, 1999
<PAGE>
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 hereunto duly authorized.
AMERICA ONLINE, INC.
By: /s/J. Michael Kelly
Name: J. Michael Kelly
Title: Senior Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Dated: April 21, 1999
<PAGE>
Exhibit Index
Exhibit No. Description
99 FYI - Investor Relations Newsletter dated April 21, 1999
Exhibit 99
Contact: [email protected]
[email protected]
Following is the latest installment in our series of updates designed to put
America Online's business developments into perspective. In this FYI, we provide
a range of financial data that will help you understand and model AOL's
business. First, we present details on the previously disclosed one-time items
that will be included in our upcoming report on Q3 results. And second, we
provide supplemental historical financial statements combining the AOL and
Netscape operations. We hope you find this information helpful in updating your
AOL models.
There is one file attached to this email, containing supplemental financial
statements. If you have any difficulty accessing the file, please call Donna
Vaughan of AOL Investor Relations at 703-265-3573.
Before getting to the financial details, we want to alert you to two events --
our third quarter results conference call and an upcoming Investor Day.
AOL to Report Third Quarter Results on April 27, 1999
We will release our fiscal third quarter results on April 27, 1999, after the
market close, and will host a conference call at 5:00 PM Eastern Time.
SAVE THE DATE! AOL to Host Investor Day May 19, 1999, in Washington, D.C.
AOL will host a full-day presentation to investors and analysts on May 19, 1999,
at the International Trade Center in Washington, D.C. There will be an informal
reception on the evening of May 18, for those arriving the night before the
event. You will receive an invitation shortly containing additional information,
including an RSVP form.
Q3 One-Time Items: The Details
As we've previously communicated, our results for the March quarter will
include two one-time events. First, we will recognize a pretax gain of $567
million, combining both AOL's and Netscape's sale of shares in Excite, Inc. With
the proceeds from this transaction, we now have more than $2.6 billion in cash.
Second, we'll take pre-tax charges of $103 million as a result of expenses
associated with the Netscape merger and re-organization. These will include a
charge of approximately $78 million of costs directly related to the merger and
the subsequent re-organization to integrate Netscape's operations and build on
the strengths of the Netscape brand and capabilities. Additionally, we will take
approximately $25 million in transition and retention costs, and these will be
charged to operations as incurred. The $78 million is comprised of approximately
$36 million in banking, legal, regulatory, and accounting fees, $24 million in
personnel costs, $8 million in facilities costs, $10 million in miscellaneous
expenses. We completed the acquisition on March 17, and on March 24, announced
our plans to integrate Netscape's operations and build on the strengths of the
Netscape brand. We remain comfortable with consensus estimates for AOL stand
alone performance, excluding the one-time items, in the March quarter.
Supplemental Unaudited Consolidated Financial Statements
The Netscape transaction was accounted for as a pooling-of-interests. As such,
AOL and Netscape results will be combined when we report third quarter results.
To give everyone a head start in preparing for this, we're providing you with
tables that depict the two companies' historical consolidated financial
statements. As you review these materials, please note the following:
1. Netscape's results have been adjusted to AOL's fiscal year.
2. Netscape's advertising and commerce revenue recognition policy now
conforms with that of AOL. This will generally result in a straight
line recognition of revenue over the life of a contract.
3. Intercompany items have been eliminated, with no impact to profits
in these periods. 4. AOL has reclassified bad debt out of revenue
into the G&A expense line.
<PAGE>
Included in the attached file, AOL0421.XLS (as provided below), are Income
Statements for the fiscal year ending June 1998, the six months ending December
1998, as well as quarterly Income Statements for the six quarters ending
December 1998. These are shown both on a GAAP basis and on an As Presented
basis, which excludes one-time charges and are fully taxed. In addition, we
provide segment level breakout of revenue and operating profit for each of these
periods. Also included are Consolidated Balance Sheets for the periods ending
June 1998 and December 1998, as well as Consolidated Statements of Cash Flow for
the 12 months ending June 1998 and the six months ending December 1998. The
Company is also providing historical information on the breakout of Advertising,
commerce and other revenues for the six quarters ending December 1998.
List of Tables included in the attached file:
1. Consolidated Income Statements
2. EPS Calculation on a Fully Taxed Basis
3. Revenue and Operating Profits at the Internet Business Groups Level
4. Consolidated Balance Sheets
5. Consolidated Statements of Cash Flow
6. Restatement of Advertising, Merchandise, Commerce, and Other Revenues
NOTE: AOL also filed with the SEC today a Form 8-K/A, amending the Company's
10-K for the year ended June 1998 to reflect the merger with Netscape.
Unaudited Supplemental Consolidated Financial Information
The following unaudited supplemental consolidated financial information for
America Online has been restated to reflect the merger with Netscape, which has
been accounted for under the pooling-of-interests method of accounting. Netscape
results have been recast to conform to America Online's reporting periods. In
addition, adjustments have been made to conform the accounting policies of
America Online and Netscape. For a complete understanding of the Company's
annual results presented herein, refer to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1998, the Company's restated financial
statements on Form 8-K dated November 9, 1998 and Netscape's Form 10-K/A for the
period ended October 31, 1998. For a complete understanding of the Company's
quarterly results presented herein, refer to the Company's Forms 10-Q for each
of the periods presented and to Netscape's Forms 10-Q for its fiscal 1997 and
1998 periods.
The unaudited supplemental consolidated financial information also includes
additional schedules detailing the earnings per share calculation on a fully
taxed basis, excluding special charges, and earnings before interest, taxes,
depreciation and amortization ("EBITDA") before special charges for certain
periods. Also included in the following tables is certain operating information
related to the Company's Interactive Online Services and Enterprise Solutions
businesses.
The unaudited supplemental consolidated financial information is presented
for illustrative purposes only and does not purport to be indicative of the
operating results or financial position that would have actually occurred if the
merger had been in effect on the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the merged
companies.
<PAGE>
<TABLE>
<CAPTION>
America Online, Inc.
Supplemental Consolidated Statements of Operations
(Amounts in millions, except per share data)
(Unaudited)
Six months Three months Three months Twelve months Three months
ended ended ended ended ended
Dec 31, 1998 Dec 31, 1998 Sep 30, 1998 June 30, 1998 June 30,1998
----------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C>
Subscription service $ 1,509 $ 786 $ 723 $ 2,183 $ 676
Advertising, commerce and other 418 243 175 541 162
Enterprise solutions 219 118 101 365 103
-----------------------------------------------------------------------------------
Total revenues 2,146 1,147 999 3,089 941
Costs and expenses:
Cost of revenues 1,222 639 583 1,810 542
Marketing 375 201 174 623 156
Product development 136 69 67 239 64
General and administrative 172 93 79 323 89
Amortization of goodwill and other
intangible assets 32 16 16 24 9
Acquired research and development (1) - - - 94 70
Merger, restructuring and contract
termination charges (2) 2 2 - 75 -
Settlement charges (3) - - - 17 18
-------------------------------------------------------------------------------------
Total costs and expenses 1,939 1,020 919 3,205 948
Income (loss) from operations 207 127 80 (116) (7)
Other income, net 21 16 5 29 16
-------------------------------------------------------------------------------------
Income (loss) before provision for
income taxes 228 143 85 (87) 9
Benefit (provision) for income taxes (30) (24) (6) 16 -
-------------------------------------------------------------------------------------
Net income (loss) $ 198 $ 119 $ 79 $ (71) $ 9
=====================================================================================
Earnings (loss) per share-diluted $ 0.16 $ 0.10 $ 0.07 $ (0.08) $ 0.01
Earnings (loss) per share-basic $ 0.20 $ 0.12 $ 0.08 $ (0.08) $ 0.01
Weighted average shares outstanding-diluted 1,206 1,219 1,195 923 1,159
Weighted average shares outstanding-basic 1,001 1,010 992 923 957
Three months Three months Three months
ended ended ended
Mar 31, 1998 Dec 31, 1997 Sep 30, 1997
-----------------------------------------------
Revenues:
<S> <C> <C> <C>
Subscription service $ 580 $ 488 $ 439
Advertising, commerce and other 142 131 106
Enterprise solutions 35 104 123
-----------------------------------------------
Total revenues 757 723 668
Costs and expenses:
Cost of revenues 488 421 359
Marketing 138 168 161
Product development 65 61 49
General and administrative 83 79 72
Amortization of goodwill and other
intangible assets 7 4 4
Acquired research and development 10 14 -
Merger, restructuring and contract
termination charges 48 29 (2)
Settlement charges - (1) -
-----------------------------------------------
Total costs and expenses 839 775 643
Income (loss) from operations (82) (52) 25
Other income, net 4 1 8
-----------------------------------------------
Income (loss) before provision for
income taxes (78) (51) 33
Benefit (provision) for income taxes - 17 (1)
-----------------------------------------------
Net income (loss) $ (78) $ (34) $ 32
===============================================
Earnings (loss) per share-diluted $ (0.08) $ (0.04) $ 0.03
Earnings (loss) per share-basic $ (0.08) $ (0.04) $ 0.04
Weighted average shares outstanding-diluted 932 908 1,099
Weighted average shares outstanding-basic 932 908 889
Summary of One-Time Charges
Notes to Table 1
(Amounts in millions)
Acquired research and development (1)
Associated with the AOL acquisition of ICQ, Inc. in the quarter ended June 1998 $ 60
Associated with the AOL acquisition of NetChannel, Inc. in the quarter ended June 1998 $ 10
Associated with the AOL acquisition of Personal Library Software, Inc. in quarter ended March 1998 $ 10
Associated with the Netscape acquisition of Actra Business Systems, LLC in the quarter ended December 1997 $ 14
Merger, restructuring and contract termination charges (2)
Netscape merger costs related to the acquisition of AtWeb, Inc. in the quarter ended December 1998 $ 2
Netscape merger costs related to the acquisitions of Kiva Software Corporation and Actra in the quarter
ended December 1997 $ 6
AOL restructuring of its Studios brand group in the quarter ended March 1998 $ 36
Netscape restructuring to reduce cost structure, improve competitiveness and restore sustainable profitability
recorded in the quarter ended:
December 1997 $ 23
and March 1998 $ 12
Settlement charges (3)
AOL Securities class action settlement in the quarter ended June 1998 $ 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
America Online, Inc.
Supplemental Information - Earnings per Share Calculation Excluding
Special Charges and on a Fully-Taxed Basis
(Amounts in millions, except per share data)
(Unaudited)
Six months Three months Three months Twelve months Three months
ended ended ended ended ended
Dec 31, 1998 Dec 31, 1998 Sep 30, 1998 June 30, 1998 June 30,1998
-----------------------------------------------------------------------------------
Reported income (loss) before provision
<S> <C> <C> <C> <C> <C>
for income taxes $ 228 $ 143 $ 85 $ (87) $ 9
Add back special charges:
Acquired research and development - - - 94 70
Merger, restructuring and contract
termination charges 2 2 - 75 -
Settlement charges - - - 17 18
-----------------------------------------------------------------------------------
Adjusted net income (loss) before
provision for income taxes $ 230 $ 145 $ 85 $ 99 $ 97
Assumed tax benefit (provision) at 39% (90) (57) (33) (38) (38)
-----------------------------------------------------------------------------------
Income (loss) net of assumed tax provision $ 140 $ 88 $ 52 $ 61 $ 59
===================================================================================
Income (loss) per share (1) $ 0.12 $ 0.08 $ 0.05 $ 0.06 $ 0.05
(1) Weighted average shares outstanding based
on a fully-taxed diluted share calculation 1,143 1,154 1,132 1,068 1,097
Earnings before interest, taxes
depreciation and amortization (EBITDA) $ 380 $ 301
Three months Three months Three months
ended ended ended
Mar 31, 1998 Dec 31, 1997 Sep 30, 1997
------------------------------------------------
Reported income (loss) before provision
<S> <C> <C> <C>
for income taxes $ (78) $ (51) $ 33
Add back special charges:
Acquired research and development 10 14 -
Merger, restructuring and contract
termination charges 48 29 (2)
Settlement charges - (1) -
------------------------------------------------
Adjusted net income (loss) before
provision for income taxes $ (20) $ (9) $ 31
Assumed tax benefit (provision) at 39% 8 4 (12)
------------------------------------------------
Income (loss) net of assumed tax provision $ (12) $ (5) $ 19
================================================
Income (loss) per share (1) $ (0.01) $ (0.01) $ 0.02
(1) Weighted average shares outstanding based
on a fully-taxed diluted share calculation 933 909 1,038
Earnings before interest, taxes
depreciation and amortization (EBITDA)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
America Online, Inc.
Supplemental Consolidated Statements of Internet Business Groups
(Amounts in millions)
(Unaudited)
Six months Three months Three months Twelve months Three months
ended ended ended ended ended
Dec 31, 1998 Dec 31, 1998 Sep 30, 1998 June 30, 1998 June 30,1998
---------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C>
Interactive Online Services $ 1,927 $ 1,029 $ 898 $ 2,724 $ 838
Enterprise Solutions 219 118 101 365 103
---------------------------------------------------------------------------------------
Total revenues 2,146 1,147 999 3,089 941
Income (loss) from operations
Interactive Online Services 382 216 166 411 167
Enterprise Solutions (1) 6 (7) (18) 3
General & administrative (172) (93) (79) (323) (89)
Other (1) (2) (2) - (186) (88)
---------------------------------------------------------------------------------------
Total Income (loss) from operations $ 207 $ 127 $ 80 $ (116) $ (7)
(1) Other consists of special items detailed in the notes to table 1
Three months Three months Three months
ended ended ended
Mar 31, 1998 Dec 31, 1997 Sep 30, 1997
--------------------------------------------------
Revenues:
<S> <C> <C> <C>
Interactive Online Services $ 722 $ 619 $ 545
Enterprise Solutions 35 104 123
--------------------------------------------------
Total revenues 757 723 668
Income (loss) from operations
Interactive Online Services 115 85 44
Enterprise Solutions (56) (16) 51
General & administrative (83) (79) (72)
Other (1) (58) (42) 2
--------------------------------------------------
Total Income (loss) from operations $ (82) $ (52) $ 25
(1) Other consists of special items detailed in the notes to table 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
America Online, Inc.
Supplemental Consolidated Balance Sheets
(Amounts in millions)
(Unaudited)
December 31, June 30,
1998 1998
----------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,529 $ 672
Short-term investments 90 146
Trade accounts receivable, net 237 192
Other receivables 112 92
Deferred tax assets 43 43
Prepaid expenses and other current assets 129 113
----------------------------
Total current assets 2,140 1,258
Property and equipment, net 568 502
Other assets:
Investments including available-for-sale securities 559 531
Product development costs, net 91 88
Other assets 17 17
Goodwill and other intangible assets, net 441 471
----------------------------
Total assets $ 3,816 $ 2,867
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 124 $ 119
Other accrued expenses and liabilities 488 461
Deferred revenue 486 419
Accrued personnel costs 88 79
Deferred network services credit 76 76
----------------------------
Total current liabilities 1,262 1,154
Long-term liabilities:
Notes payable 400 372
Deferred revenue 53 71
Other liabilities 14 6
Deferred network services credit 235 273
----------------------------
Total liabilities 1,964 1,876
Stockholders' equity
Common stock 10 10
Unrealized gain on available-for-sale securities 128 144
Additional paid-in capital 2,104 1,424
Accumulated deficit (1) (390) (587)
----------------------------
Total stockholders' equity 1,852 991
----------------------------
Total liabilities and stockholders' equity $ 3,816 $ 2,867
============================
(1) Accumulated deficit for December 1998 includes the effect of an immaterial
pooling
</TABLE>
<PAGE>
<TABLE>
America Online, Inc.
Supplemental Consolidated Statements of Cash Flows
(Amounts in millions)
(Unaudited)
Six months ended Twelve months ended
December 31, 1998 June 30, 1998
--------------------- ---------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 198 $ (71)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Non-cash restructuring and settlement charges - 32
Depreciation and amortization 141 188
Amortization of deferred network services credit (38) (32)
Charge for acquired research and development - 94
Compensatory stock options 8 32
Deferred income taxes 27 (18)
Gain on sale of investments (2) (27)
Changes in assets and liabilities:
Trade accounts receivable (45) 78
Other receivables (19) (67)
Prepaid expenses and other current assets (41) 28
Other assets 2 (5)
Investments including available-for-sale securities (19) (40)
Accrued expenses and other current liabilities 42 141
Deferred revenue and other liabilities 56 104
--------------------- ---------------------
Total adjustments 112 508
--------------------- ---------------------
Net cash provided by operating activities 310 437
Cash flows from investing activities:
Purchase of property and equipment (141) (383)
Product development costs (21) (51)
Proceeds from sale of investments 21 87
Purchase of investments including available-for-sale securities (117) (166)
Maturities of investments 115 103
* Net (payments) proceeds for acquisitions/dispositions of subsidiaries 25 (96)
Other investing activities (14) (21)
--------------------- ---------------------
Net cash used in investing activities (132) (527)
Cash flows from financing activities:
Proceeds from issuance of common and preferred stock, net 654 131
Proceeds from sale and leaseback of property and equipment 8 70
Principal and accrued interest payments on LOC and debt (11) (1)
Proceeds from LOC and issuance of debt 28 371
--------------------- ---------------------
Net cash provided by financing activities 679 571
--------------------- ---------------------
Net increase in cash and cash equivalents 857 481
Cash and cash equivalents at beginning of period 672 191
--------------------- ---------------------
Cash and cash equivalents at end of period $ 1,529 $ 672
--------------------- ---------------------
* For the six months ended December 31, 1998, this amount includes proceeds
of $25 million from the sale of Sprynet. For the 12 months ended June 30,
1998 this amount includes net payments of $303 million for the
acquisitions of Mirabilis/NetChannel and net proceeds of $207 million from
the acquisition of CompuServe/disposition of ANS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
America Online, Inc.
Supplemental Advertising, Commerce and Other Revenues Breakdown
(Amounts in millions)
(Unaudited)
Six months Three months Three months Twelve months Three months
ended ended ended ended ended
Dec 31, 1998 Dec 31, 1998 Sep 30, 1998 June 30, 1998 June 30,1998
-------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Advertising, merchandise and commerce $ 373 $ 220 $ 153 $ 460 $ 143
Other 45 23 22 81 19
Total Advertising, commerce
-------------- --------------- --------------- ---------------- ---------------
and other revenues $ 418 $ 243 $ 175 $ 541 $ 162
============== =============== =============== ================ ===============
Sequential quarterly % change
Advertising, merchandise and commerce NA 43.8% 7.0% NA 17.2%
Other NA 4.5% 15.8% NA -5.0%
Total Advertising, commerce
-------------- --------------- --------------- ---------------- ---------------
and other revenues NA 38.9% 8.0% NA 14.1%
============== =============== =============== ================ ===============
Year over year % Change
Advertising, merchandise and commerce 91.3% 101.8% 77.9%
Other 7.1% 4.5% 10.0%
Total Advertising, commerce
-------------- --------------- ---------------
and other revenues 76.4% 85.5% 65.1%
============== =============== ===============
Three months Three months Three months
ended ended ended
Mar 31, 1998 Dec 31, 1997 Sep 30, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Advertising, merchandise and commerce $ 122 $ 109 $ 86
Other 20 22 20
Total Advertising, commerce
--------------- --------------- ---------------
and other revenues $ 142 $ 131 $ 106
=============== =============== ===============
Sequential quarterly % change
Advertising, merchandise and commerce 11.9% 26.7% NA
Other -9.1% 10.0% NA
Total Advertising, commerce
--------------- --------------- ---------------
and other revenues 8.4% 23.6% NA
=============== =============== ===============
Year over year % Change
Advertising, merchandise and commerce
Other
Total Advertising, commerce
and other revenues
</TABLE>
