AOL's Operating Income Soars,
But Firm Delays Reporting Net
interactive.wsj.com
Excerpts:
America Online Inc. said its fiscal fourth-quarter operating income climbed more than tenfold, surpassing Wall Street's expectations. But in an unusual move, AOL delayed reporting net income due to problems figuring out the amount of special charges.
AOL said it is in "continuing" discussions with the Securities and Exchange Commission about the charges, which it said are related to its recent acquisitions of Mirabilis Ltd. and NetChannel Inc. AOL also plans to take a charge of $17 million to $18 million related to the settlement of a shareholder suit.
Company Profile: America Online
The charges under discussion are for so-called in-process research and development at Mirabilis and NetChannel, which has become a contentious issue among technology companies. Acquiring companies often immediately write off the value of research and development that was under way at an acquired company, avoiding hits to future earnings from "goodwill" charges. Critics say these immediate write-offs can artificially inflate future earnings.
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Comfortable With Forecasts
The Dulles, Va., on-line service provider said operating income for the quarter ended June 30 was $57.3 million, or 23 cents a diluted share, up from $5.6 million, or three cents a share, a year earlier. Analysts had been forecasting operating income of about 19 cents a share, according to 26 analysts surveyed by First Call. Year-earlier results are pro forma figures adjusted to reflect the company's move to report earnings on a fully taxed basis. Last year, the company originally reported operating income of $10.9 million, reflecting tax benefits.
This was a terrific quarter," Steve Case, AOL's chief executive, said in an interview. "Our member growth was very strong even though we pulled back on our marketing." Mr. Case added that he is comfortable with analysts' fiscal 1999 earnings estimates, which average about 91 cents a share.
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AOL released its report after the close of regular trading. In New York Stock Exchange composite trading, AOL fell $5 to $111. After hours, it was trading at $110, according to Instinet Inc.
Working for Closure
AOL said the SEC wasn't singling it out for review, and that the agency was examining potential charges for in-process research and development involving several acquisitions in other industries. "We're working with the SEC for closure as soon as possible," J. Michael Kelly, AOL's chief financial officer, told analysts on a conference call.
The company sought to reassure analysts and investors that its delay in releasing net income wasn't a cause for alarm. It emphasized that the operating results it released Tuesday were final and wouldn't be affected by the talks about special charges.
Ulric Weil, senior technology analyst at Friedman, Billings, Ramsey, called the delay "unfortunate" but added that he wasn't concerned and expected to raise his fiscal 1999 earnings estimates for the company. "We analysts are focused on operating results," he said.
The delay over the charges is the latest in a series of accounting questions AOL has faced in recent years. At one time, AOL routinely deferred recognition of some of the marketing expenses involved in attracting new customers, a practice that drew criticism from some analysts. Then it wound up taking massive charges to write off those expenses. Last year, upon advice from the SEC, AOL restated third-quarter results to a loss from a profit to spread out the booking of revenue from a marketing agreement.
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Xilinx rose 1 1/2 to 39 1/8 on Nasdaq. Donaldson Lufkin & Jenrette upgraded the stock of the chip maker to "top pick" from "buy."
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The European Commission approved a venture between Bertelsmann, America Online, Cegetel and Canal to provide interactive services in France.
interactive.wsj.com
Excerpts:
The European Commission authorized the creation of a joint venture between Bertelsmann AG, America Online Inc., Cegetel SA and Canal SA, to provide interactive services in France.
The partners will form AOL/CIS France S.A.S., which will market, develop and provide dial-up Internet access to nonenterprise French customers.
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E*Trade Group Is Expected to Announce
Marketing Deals With Yahoo!, Ziff-Davis
interactive.wsj.com
Excerpts:
PALO ALTO, Calif. -- E*Trade Group Inc. is expected to announce multiyear marketing agreements Wednesday with two other major Internet companies, Yahoo! Inc. and Ziff-Davis Inc., which runs the ZDNet Web site.
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But because all three companies share a major investor -- Japanese software distributor Softbank Corp. -- the deals are expected to create even tighter relationships between the firms. It's expected that E*Trade, for instance, will be able to directly market its brokerage and other financial services to people who have registered to use Yahoo's dedicated finance section.
In addition, E*Trade will sponsor Yahoo's financial news and its "insider-trading" information. The broker also will be the only provider of investment tools, such as stock-selection and portfolio-management programs, on ZDNet.
The alliances had been expected ever since Softbank said last month it would take a 27.2% stake in E*Trade. The Japanese company already owns 31% of Yahoo and 71% of Ziff-Davis, which was a Softbank subsidiary before it went public in April.
On the Nasdaq Stock Market Wednesday, E*Trade closed at $24.50, down 62.5 cents.
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