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 18, 2000
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) 265-1000
--------------------------
Item 5. Other Events.
On April 18, 2000, America Online, Inc. ("AOL") issued a press release
announcing fiscal year 2000 third quarter results. 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 made
forward-looking statements with respect to network costs, numbers and growth of
subscribers, marketing expenses, and financial and operating results. An excerpt
from the transcript of the call is attached hereto as Exhibit 99.2 and
incorporated herein by reference.
The above-referenced statements are forward-looking statements within
the meaning of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995, and are 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 statements: inability to obtain, or meet conditions imposed for,
governmental approvals for the merger; failure of the AOL or Time Warner
stockholders to approve the merger; the risk that the AOL and Time Warner
businesses will not be integrated successfully; costs related to the merger;
inability to further identify, develop and achieve commercial success for new
products and services and access and distribution technologies; increased
competition and its effects on pricing, spending, third-party relationships, the
subscriber base and revenues; inability to establish and maintain relationships
with commerce, advertising, marketing, technology and content providers; risk of
accepting warrants in certain agreements; risks of new and changing regulation
in the U.S. and internationally. 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, 1999 and the Risk Factors section of the
Company's S-3 filing that became effective in November 1999.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
99.1 Press Release Dated April 18, 2000 By America Online,
Inc. Announcing Fiscal 2000 Third Quarter Results
99.2 Excerpt from Transcript of Analysts' Call Held on
April 18, 2000
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: April 21, 2000 By: /s/J. Michael Kelly
J. Michael Kelly
Senior Vice President, Chief Financial
Officer and Assistant Secretary
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release Dated April 18, 2000 By America Online, Inc. Announcing
Fiscal 2000 Third Quarter Results
99.2 Excerpt from Transcript of Analysts' Call on Held April 18, 2000
Exhibit 99.1
America Online Posts Record Earnings
Company's FY2000 Third Quarter Income Fully Taxed & Excluding One-Time Gains,
Rises 161% to $271 Million, or $0.11 Per Share
Consolidated Revenues Increase 47% to $1.8 Billion; Advertising, Commerce &
Other Revenues More Than Double to $557 Million
AOL Service Adds 1.7 Million New Members for Total of 22.2 Million
EBITDA Climbs 120% to $492 Million
DULLES, VA, April 18, 2000 -- America Online, Inc. (NYSE: AOL) today announced
record results for the third quarter of fiscal 2000, ended March 31, 2000 --
reaching new highs for consolidated revenues, advertising and commerce revenues,
operating income, and EBITDA.
The quarter's net income, fully taxed and excluding one-time items, totaled $271
million, or $0.11 per diluted share, up from $104 million, or $0.04 per diluted
share, on the same basis last year. The Company reported net income of $438
million, or $0.17 per diluted share, up from $411 million, or $0.16 per diluted
share, in fiscal 1999's third quarter. Reported net income included one-time
gains from the sale of investments totaling $275 million this quarter and $567
million in last year's third quarter. The year-ago quarter also includes
one-time charges of $103 million. Excluding these items, operating income for
the quarter climbed more than 155% over the year-ago quarter to $383 million.
Third quarter revenues rose to $1.8 billion, or 47% over last year's March
quarter. Advertising, commerce and other revenues climbed 103% over fiscal
1999's third quarter to $557 million - marking a record $120 million increase,
or 27%, over this year's second quarter.
The AOL service added 1.7 million new members worldwide, and finished the
quarter with 22.2 million subscribers. During the quarter, the CompuServe 2000
service added 373,000 members, bringing the combined CompuServe 2000 and
CompuServe Classic membership to 2.7 million. Gateway.net added more than
100,000 subscribers for a worldwide total of more than 850,000. In total, the
Company added 2.0 million new subscribers worldwide and ended with 25.8 million
subscribers of its family of interactive services.
Steve Case, Chairman and Chief Executive Officer, said: "This quarter's results
underscore the tremendous strength of America Online's operations, and
demonstrate that we are on a clear path to continued strong growth and increased
profitability. Since we announced our landmark merger with Time Warner, we
haven't missed a beat."
Mr. Case added: "At the same time, we have taken major strides to expand our
success by leading the Internet's next wave of growth. Specifically, we are fast
turning the great promise of 'AOL Anywhere' into reality, we've launched
breakthrough Netscape browser technology to enrich the Internet experience, and
we are actively building the medium in key markets around the world. In short,
our results highlight just how strong America Online is today, and how
well-positioned it is for the future."
Bob Pittman, President and Chief Operating Officer, said: "This quarter is an
excellent example of how America Online is uniquely positioned in the Internet
industry. We have built an unmatched collection of interactive brands, which
will be further enhanced by the Time Warner merger, and we have an unparalleled
connection to consumers. We're taking online advertising and commerce to new
heights, yet we've barely scratched the surface in terms of the impact our
medium can have."
Mr. Pittman added: "Looking to the future, we are rolling out our 'AOL Anywhere'
strategy on multiple fronts - from wireless to broadband content, Internet
appliances to AOL TV - delivering even more value and convenience to our
members. We have stepped up our international expansion, with AOL Europe growing
at a record pace and several Latin American launches planned over the next year.
With Netscape 6 and the Gecko technology, we are driving the Internet experience
to multiple devices and stimulating a new generation of Web-based applications
for the PC and other devices. All these initiatives will help ensure that we
make the most of Time Warner's assets, and our transition team is already
working to identify the most promising opportunities."
For the nine-month period ending March 31, 2000, fully taxed net income,
excluding one-time items, was $679 million and total revenues were $4.9 billion,
compared to fully taxed net income, on a comparable basis, of $240 million and
total revenues of $3.4 billion in the corresponding period of fiscal 1999.
Key operating metrics from the quarter included: **Subscription Revenues:
Quarterly subscription revenues reached $1.15 billion, up 33%, from $869 million
during fiscal 1999's corresponding quarter. **Advertising, Commerce and Other
Revenues: Revenues from advertising, commerce and other revenues climbed to $557
million - an increase of 103% from $275 million during the year-ago quarter, and
an increase of 27%, or a record $120 million, over this year's second quarter.
**Backlog: The Company brought its consolidated backlog of advertising and
commerce revenue to more than $2.7 billion at the end of the quarter, up from
$2.4 billion on December 31, 1999. **AOL Member Usage: AOL members averaged 64
minutes daily online during the quarter, an increase of 16% over last year's
third quarter. **Sales and Marketing Expenses: Consolidated sales and marketing
expenses declined to 14.5% of revenues, compared with 17.4% in fiscal 1999's
third quarter.
**Operating Income: Operating income grew 155% to $383 million, or 20.9% of
revenue, up from 12.0%, excluding one-time charges, a year ago.
**EBITDA: EBITDA rose to a record $492 million for the quarter, a 120% increase
over a year ago, with EBITDA margins at 27%.
AOL Time Warner Merger Update
Working closely together in anticipation of their merger, America Online and
Time Warner this quarter launched a number of cross-promotional agreements
involving their world-class brands. These joint initiatives include:
Record-setting Warner Music downloads through America Online's Winamp and
Spinner; Time Inc.'s Real Simple magazine signing up a record 27,000 subscribers
in just five weeks through promotion on the AOL service; AOL Keywords appearing
on the covers of Time, Fortune, Money, People, Entertainment Weekly, Real Simple
and Teen People -- reaching 88 million readers; CNN Interactive becoming the
premier news partner for Netcenter and ICQ; and Warner Bros. movies and
Entertainment Weekly being featured on AOL MovieFone.
The companies also announced a Memorandum of Understanding that sets out a
framework for "open access" agreements to offer the AOL service and other ISPs
over Time Warner's broadband cable systems. The Companies expect to close the
merger in the fall.
Interactive Services Group Highlights During the quarter, the Company advanced
its "AOL Anywhere" strategy through a number of key initiatives:
*AOL Wireless: In the US, America Online announced seven major agreements with a
range of wireless carriers and device manufacturers - including Sprint PCS,
Nokia, Motorola, Research in Motion, BellSouth Wireless Data, RTS Wireless and
Arch Communications - to deliver popular AOL features and services to millions
of wireless consumers. The Company also announced the new "AOL Mobile Messenger"
service, which will offer wireless access to AOL's e-mail and AOL Instant
Messenger (AIM) applications over personal, mobile paging devices. To lead this
wireless initiative, America Online named former FCC Chairman and CEO of Time
Warner Telecommunications, Dennis Patrick, President of AOL Wireless.
* AOL/Gateway Internet Appliances: At Spring Internet World 2000 earlier this
month, the Company unveiled the groundbreaking AOL/Gateway family of specialized
Internet appliances - AOL Gateway countertop appliance, wireless Web pad and
desktop appliance - that will extend the "AOL Anywhere" strategy. Using
Netscape's Gecko browser engine technology and the Linux operating system, these
appliances with the "Instant AOL" feature - which automatically launches the
service as soon as the device is switched on - will make AOL's content, features
and services conveniently available to consumers in every room of their homes.
* AOL TV: The AOL TV service is scheduled to begin shipping in June. AOL TV will
provide state-of-the-art navigational services, a new genre of interactive
programming and a new marketing platform -- taking full advantage of Time Warner
properties.
* AOL Plus Broadband Content: This month, AOL Plus launched to deliver rich
multimedia content and features, such as streaming audio and video, to AOL
members using AOL 5.0 over any high-speed connection - TCP/IP, DSL, cable or
satellite - while still enabling them to access regular AOL 5.0 content when
using narrowband connections. Extending its advertising and commerce leadership,
the Company announced a series of significant advertising/commerce alliances
this quarter with such market leaders as General Motors, American Airlines,
Sears, Kinko's, Footlocker.com, Oxygen Media, and PurchasePro.com.
Among the newest AOL member benefits is AOL AAdvantage - the world's largest
online customer loyalty program - scheduled to launch this summer in partnership
with American Airlines through America Online's digital marketing service DMS -
to provide members more ways to earn miles and redeem them. In addition, the
Company launched its AOL Insider Savings Club, an exclusive new program that
enables members to save money on a wide range of popular goods and services. In
addition, the Company's other interactive brands enjoyed substantial growth and
made themselves even more valuable. Since its launch just over a year ago,
CompuServe 2000 has continued its strong momentum in the value segment, adding
373,000 new members in the quarter for a total of nearly 1.4 million members
worldwide. Average member daily usage also achieved an all-time high during the
quarter.
During the quarter, the Netscape Netcenter service surpassed 28 million
registered users worldwide, more than doubling its total over a year ago. And
Time Warner's CNN Interactive became the premier news partner for Netcenter.
This month, Netscape announced the preview release of its next-generation
Netscape 6 Internet browser and communications software suite, powered by the
innovative Netscape Gecko browser engine. The new browser enhances the consumer
experience by integrating popular communication and information services in a
faster, more flexible and easier to use format. As announced in March, IBM,
Intel, Liberate, NetObjects, Nokia, Red Hat and Sun Microsystems will use Gecko
technology to extend the convenience and power of the Web to a wide range of
Internet devices. This quarter, AOL Instant Messenger and AOL's Buddy List
service added 21 million registrants for a worldwide total of 91 million. Last
week, the Company launched its next-generation AOL Instant Messenger, AIM 4.0,
featuring AIM Talk, which enables online voice communication between AIM users,
and Instant Images, which allows users to exchange images and sounds.
Interactive Properties Group Highlights
ICQ, already the world's largest online communications community and the biggest
international service, continued to add an average of more than 100,000
registered users daily - adding a total of 9.3 million during the quarter to
finish with 62.4 million registered users. Over the quarter, peak simultaneous
users of ICQ climbed from 1.2 million to 1.4 million. The average user kept ICQ
on the desktop for nearly three hours, actively using it 75 minutes each day.
Next week, ICQ will launch its newest version, ICQ 2000A, that will offer
enhanced community features, improved navigation and user interface, and the
capability of operating in the workplace.
In addition, DMS partnered with Netcentives, a leading developer of e-marketing
infrastructure software and services, to bring "ICQ ClickRewards" - a rewards
program for ICQ users. During the quarter, Digital City continued to widen its
lead in the fast-growing local online market. Digital City launched its new
version of the service - Digital City 2000 - which sets the gold standard in
consumer convenience and compelling services for both local residents and
visitors. Tomorrow, Digital City will complete its expansion from 60 markets to
more than 200 markets to create the first "local everywhere" coast-to-coast
network. Advancing the "AOL Anywhere" strategy, Digital City also announced the
planned launch of Digital City Wireless to deliver the service's most popular
features to wireless phones, pagers and other handheld devices. Finally, Digital
City posted record growth in local advertising and e-commerce with more than
2,000 partners. With the Internet music market exploding, the Company's Web
music brands, Winamp and Spinner, continued to record strong growth in users.
Winamp remains the #1 favorite music player and ranked #2 - behind #1 ICQ - in
1999 downloads on download.com. Together, Winamp and Spinner reach a total of 10
million unique users each month. During the quarter, Spinner, Winamp and Warner
Music's Elektra Entertainment Group partnered to deliver secure downloads from
The Cure's latest album, "The Last Days of Summer." In just a month, there were
58,000 downloads - the most licenses ever issued for a digital song in a
one-month period. In addition, Spinner and Winamp are promoting such Warner
Music artists as Madonna and Faith Hill with featured downloads of their popular
singles as well as artist-created music channels. In addition, Winamp and
Spinner partnered with Myplay, inc., the first online digital music service to
provide their users with a virtual "locker" that allows them access to their
music collections anytime, anywhere. AOL MovieFone, the nation's largest movie
listing guide and ticketing service, attracts about 20% of all moviegoers
through both its 777-FILM phone service and the MovieFone.com Web site. AOL
MovieFone announced several new services during the quarter - including the
ability to print bar-coded movie tickets at home to avoid lines at the theater,
and the AOL MovieFone/American Express industry-wide frequent moviegoer program.
AOL International Group Highlights During the quarter, AOL International's
membership in its AOL and CompuServe services increased by 434,000 to a total of
4.4 million. Extending its standing as Europe's leading multinational Internet
provider, AOL Europe's AOL and CompuServe services reached nearly 3.5 million
members with record growth in the UK, Germany and France. In addition,
registered users of the subscription-free Netscape Online service in the UK
increased to 519,000. Underscoring the Company's commitment to global expansion,
America Online announced in March an agreement with Bertelsmann AG to
restructure their interests in the AOL Europe and AOL Australia joint ventures.
At the option of either company after January 31, 2002, America Online would
acquire Bertelsmann's interest in AOL Europe. America Online and Bertelsmann
also launched a new $250 million, four-year strategic global alliance to expand
the availability of Bertelsmann's leading media content and e-commerce
properties over America Online interactive brands. Following the Bertelsmann
agreement, America Online formed a 50/50 joint venture with AAPT Limited,
Australia's third largest telecommunications company, to operate AOL Australia's
interactive services and to develop a fully integrated Internet portal to
deliver AOL-branded content services to Australia's emerging consumer wireless
market. AOL Europe extended the Company's "AOL Anywhere" strategy with key
wireless agreements with Nokia, Ericsson and RTS Wireless to ensure its mobile
portals are compatible with current SMS and WAP protocols and handsets, as well
as next-generation General Packet Radio Service.
Netscape Enterprise Highlights Third quarter revenues for Netscape Enterprise -
including software licenses and services - grew 8% sequentially to $126 million.
Of that total, revenues from international licenses more than doubled to $47
million. During the quarter, the Sun-Netscape Alliance - under the "iPlanet
E-Commerce Solutions" brand - launched a global initiative to solidify its
position as the world's largest and broadest supplier of e-commerce software.
The Alliance announced new agreements, valued over one-million dollars each,
with twenty-three companies and governmental agencies worldwide, including
CentreComm, Xerox, Telestra, Eplus and the US Department of Defense. The
Alliance also launched new strategic partnerships with: * Palm, Inc. to provide
global wireless access to enterprise applications and services via Palm OS
handheld computers;
* Red Hat Linux to add iPlanet Messaging Server and iPlanet Web Server to the
portfolio of products available on Linux; and
* GE Global eXchange Services, a division of General Electric, to incorporate
their RMS data transformation technology into iPlanet ECXpert software.
The Company's earnings conference call can be heard live on the Internet via
AOL.COM at 5:00 p.m. EDT on Tuesday, April 18. To listen to the call, visit
http://www.corp.aol.com/investors.shtml? or AOL Keyword: IR.
About America Online Inc.
Founded in 1985, America Online, Inc., based in Dulles, Virginia, is the world's
leader in interactive services, Web brands, Internet technologies, and
e-commerce services. America Online, Inc. operates: two worldwide Internet
services, America Online, with more than 22 million members, and CompuServe,
with more than 2.7 million members; several leading Internet brands including
ICQ, AOL Instant Messenger and Digital City, Inc.; the Netscape Netcenter and
AOL.COM portals; Netscape 6 and the Netscape Navigator and Communicator
browsers; AOL MovieFone, the nation's #1 movie listing guide and ticketing
service; and Spinner.com and NullSoft's Winamp, leaders in Internet music.
Through its strategic alliance with Sun Microsystems, the company develops and
offers easy-to-deploy, end-to-end e-commerce and enterprise solutions for
companies operating in the Net Economy.
This release contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These 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: future financial and operating results; the proposed AOL/Time Warner
merger; subscriber, usage and commerce growth; new markets, products, services,
features and content; timing and benefits of acquisitions and other alliances;
and availability, benefits, and timing of deployment, of new access and
distribution technologies.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: inability to
obtain, or meet conditions imposed for, governmental approvals for the merger;
failure of the AOL or Time Warner stockholders to approve the merger; the risk
that the AOL and Time Warner businesses will not be integrated successfully;
costs related to the merger; inability to further identify, develop and achieve
commercial success for new products and services and access and distribution
technologies; increased competition and its effects on pricing, spending,
third-party relationships, the subscriber base and revenues; inability to
establish and maintain relationships with commerce, advertising, marketing,
technology and content providers; risk of accepting warrants in certain
agreements; risks of new and changing regulation in the U.S. and
internationally.
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,
1999 and the Risk Factors section of the Company's S-3 filing that became
effective in November 1999.
Exhibit 99.2
EXCERPT FROM TRANSCRIPT OF ANALYSTS' CALL
HELD APRIL 18, 2000
[Richard Hanlon, Vice President, Investor Relations:]
Good afternoon, everyone, and thank you for joining us for AOL's Fiscal 2000 3rd
Quarter conference call with Steve Case, Chief Executive Officer, Bob Pittman,
our Chief Operating Officer, and Mike Kelly, our Chief Financial Officer.
Before we begin, it falls to me to advise you that the call we're about to
conduct contains forward-looking statements within the meaning of the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
References made during the call, in particular statements regarding:
* future financial and operating results
* the proposed AOL Time Warner merger
* new markets, products, services, features and content * subscriber usage and
commerce growth * timing and benefits of acquisitions and other alliances * new
platforms and access and distribution technologies
...are all 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. In
particular, careful consideration should be given to cautionary statements made
in the Company's reports filed with the S.E.C., especially the section entitled
Forward-Looking Statements in the MD&A section of the Company's 10-K for the
Fiscal Year ended June 30, 1999 and the Risk Factors section of the Company's
S-3 filing that became effective in November, 1999.
. . . .
[Mike Kelly, Senior Vice President and Chief Financial Officer:]
Thanks, Bob, and good afternoon, everyone. We are clearly pleased with this
quarter's strong performance, not only from a financial perspective, but also
from an operational one. As both Steve and Bob have made very clear, we feel
this is the best quarter in AOL's history. This performance underscores the
strong momentum in our operations as well as the strong economic foundation we
have built at AOL, which we will further energize when we merge with Time
Warner.
As you are aware, Time Warner reported results last week that were quite strong
and the pro forma results for the combined companies are very impressive, even
before taking into consideration the synergies and new business opportunities
that we anticipate. The companies posted combined revenues of $8.4 billion, up
14% from last year, and EBITDA of approximately $2 billion, up 25%. Clearly,
we're building this new company on a very strong foundation.
Some highlights of the AOL results: Subscriber Growth is once again strong, both
domestically and internationally, for both AOL -- in the premium segment --
which added 1.7 million new members, and CompuServe -- as a value brand -- which
added more than 200,000 net new members for the quarter. So far this year, we've
added more new AOL customers than we did during the same time frame last year.
Registration for our Web-based brands now exceeds 161 million, compared to 68
million a year ago.
Advertising, Commerce and Other Revenues totaled $557 million, an increase of
103% over the last year, and grew a record $120 million, or 27% sequentially.
Even with the surge in the usage of the AOL service to more than an hour a day,
gross margins expanded to 49% as we continued to drive down our network costs.
In fact, we've succeeded in lowering network costs per hour 14% from a year ago,
even as our volume of network traffic has soared to nearly 20 million hours of
usage per day, nearly 50% greater than a year ago.
Our current fully-burdened network cost is now in the low $0.30-an-hour range
and can be expected to continue to decline, helped by our new agreements with
GTE and Worldcomm.
Robust top-line growth, also fueled expansion in our Operating Income, which
grew $64 million sequentially to $383 million, and Operating Margins increased
to 21%.
We saw continued strength in EBITDA, increasing 120% to $492 million. These
results clearly underscore the strength of the AOL business model.
Taking a closer look at our consolidated results, Total Revenues for the quarter
were $1.8 billion, a 47% increase over last year. Subscription Revenues
increased 33% year-over-year to $1.15 billion.
We finished the quarter with 22.2 million AOL members worldwide, increasing the
number of new subscribers to nearly 4.6 million in the first three-quarters of
the fiscal year. This compares to just 4.3 million new net adds during the same
time frame last year.
Turning now to the fastest-growing portion of the business, the $557 million in
total Advertising Commerce and Other Revenues is composed of $463 million in
Advertising and Commerce, $58 million in Merchandise, and $36 million in Other
Revenues.
Focusing for a moment on just Ad/Commerce, we saw sequential growth of $111
million, or 32%, and year-over-year growth of $251 million, or 118%. These
results underscore how we are succeeding in monetizing our many brands in a
competitive marketplace.
In total, Advertising, Commerce, and Other Revenues now comprise over 30% of our
total revenues, compared to just 22% a year ago.
Advertising and commerce revenues per AOL member per month have risen 50% to
$6.74 from $4.49 a year ago. Plus we posted $138 million in advertising/commerce
revenues this quarter from our Web-based brands, also a new high.
During the quarter we signed 37 multi-year deals in excess of $1 million to help
bring backlog to a total of $2.7 billion, up over $300 million from last
quarter.
Our Enterprise Solutions business is also performing nicely, with revenues up
16% to $126 million from $109 million a year ago.
Moving down the Income Statement to Cost of Services, we saw a 13% increase in
expenses sequentially to $937 million. This increase in expenses,
quarter-over-quarter, was driven by the continued buildout in the network as
well as a surge in overall usage.
During the quarter we added another 300,000 modems, for a total available to
more than 2 million. As we continue to grow our subscriber base on both AOL and
CompuServe, and the AOL member-per-usage/per-day rose 16%, we hosted a record
1.7 billion hours in the quarter, an increase of 19% over last quarter, and a
49% increase from a year ago.
Cost of Service was also impacted by the expected seasonal increase in member
services' call volume associated with new members brought on during the last two
quarters, although all these increases were partially offset by the drop in
network cost-per-hour that I spoke about earlier.
The impact of all these factors was a gross margin increase to 49% versus 44.7%
from last year.
Marketing Expenses amounted to $266 million, or 14.5% of revenues, which is
consistent with the trailing run rate for the past four quarters. For the near
term we expect marketing expenses as a percentage of revenue will remain in this
range, even as we roll out other initiatives.
At 21%, Operating Margins set a new record, surpassing 20% for the first time.
For perspective, it was only three quarters ago that our operating margins broke
into the teens. And as we look at the Operating Margins on incremental revenues
for this quarter, once again we see that additional revenues produced $0.30 of
operating margin.
EBITDA grew 120% to $492 million and our EBITDA margin rose to 27%, from 18% a
year ago.
Our reported Net Income of $438 million, or $0.17 per diluted share, was up from
$411 million, or $0.16 diluted share we reported last year. These results
included one-time gains from the sale of investments totaling $275 million this
quarter, and $567 million in last year's third quarter. The year ago quarter
also included one-time charges of $103 million.
In closing, as we head into the final quarter of the fiscal year, we continue to
see strong, underlying fundamentals in each of our operations, and we're clearly
on track to make this a very successful year.
. . . .
