AOL news from the wall street journal:
{by the way - this company never ceases to amaze me (negatively)}
AOL Tops Analysts' Estimates,
But Restates Its Recent Results
An INTERACTIVE EDITION News Roundup
America Online Inc. reported a profit from operations for
the fiscal fourth quarter, matching analysts' forecasts.
But it restated its results for the third period, reversing the
slim profit that it originally reported and leaving analysts
with another muddied picture of its finances.
In reporting earnings on Tuesday, AOL touted growth in
its subscriber base and in advertising, commerce and
transaction revenues as evidence that it's succeeding in
its efforts to move away from a business model based on
subscriber fees.
But a reshuffling of charges taken in the fiscal year
denied analysts and investors the clear look at the
company's bottom line that they had hoped for.
The Dulles, Va., on-line service reported a loss for its
fourth quarter ended June 30 of $11.8 million, or 12 cents
a share, compared to net income of $16.1 million, or 14
cents a share, in the same period a year ago.
The latest period included a nonrecurring charge of $24.5
million. Without it, the company's net was $10.9 million,
or seven cents a share, matching the forecasts of
analysts surveyed by First Call Inc.
Revenue, meanwhile, climbed 42% to $475.7 million from
$334.4 million in the year-ago fourth quarter.
Shares of AOL climbed 87.5 cents to $71.50 on the New
York Stock Exchange Thursday. The results were
released after the close of trading.
AOL said it made the third-quarter restatement to
address concerns of the U.S. Securities and Exchange
Commission about the timing of nonrecurring charges, as
well as income related to an agreement struck in the third
quarter for a marketing effort with Tel-Save Holdings
Inc.
AOL restated its third-quarter results to show a loss of
five cents a share. It originally reported third-quarter net
income of two cents a share, surprising Wall Street.
AOL said the timing adjustments included moving a $25.7
million charge for information-provider termination
expenses out of the second quarter, and recording a
$24.5 million charge for that same item in the fourth
quarter.
Analysts and investors had hoped to get a better read on
the company's prospects by viewing results unfettered by
restructuring charges or curtailed marketing costs. But
the reshuffling of charges announced Thursday made that
more difficult -- an issue Chairman and Chief Executive
Officer Steve Case attempted to address.
"It is important to note that the accounting changes we
are making reflect timing issues, which do not impact
AOL's strong operating momentum," he said, adding that
"we believed that our previously reported results were in
accordance with generally accepted accounting
principles, but we have agreed to comply with the advice
of the staff of the SEC."
In the third quarter, AOL recognized $12 million in
revenue from an agreement with Tel-Save. AOL said it
will now reclassify as deferred revenues approximately
$7 million of that $12 million, recognizing that amount
over the length of the 40-month contract and making
certain other adjustments. The company added that the
third-quarter timing adjustment resulted in a
fourth-quarter benefit of $1.8 million in net income, or
two cents a share.
Last year, AOL abandoned controversial accounting
practices that had raised eyebrows for years on Wall
Street. As AOL spent huge sums on advertising and free
trials to lure newcomers, it spread each quarter's
expenses over up to two years rather than deduct the
costs immediately. Backed by its outside accountants, the
company had argued that spreading the costs over two
years was a justifiable way to match expenses against
revenue flows that would emerge later. Abandoning that
approach resulted in a first-quarter write-off of $385.2
million in deferred marketing costs.
AOL has increasingly adopted a strategy to develop
revenue beyond its monthly subscription fees, which have
been subject to cutthroat price wars. Ever since AOL
went to flat-rate pricing in December, the company has
searched for ways to use its well-known brand name to
bolster revenue.
The first such deal came in March, when Tel-Save, a
long-distance telephone company, agreed to pay AOL
$100 million to market its service exclusively to AOL's
customers. The $100 million represents an advance
payment on commissions that Tel-Save will pay AOL
when it lands new customers. Then in June, AOL struck
a similar deal with discount shopping giant CUC
International Inc. under which CUC will pay AOL $50
million to become its exclusive discount shopping service
and the on-line service will receive a fee for each new
customer it brings to CUC. AOL more recently inked
deals with bookseller Amazon.com Inc. and
1-800-FLOWERS.
"This year was a turning point for AOL," said Mr. Case,
in a statement. "We successfully transitioned to a new
business model that has enabled us to build on our
position as the world's leading interactive services
company."
Mr. Case said that the on-line commerce agreements
negotiated by AOL during the fourth quarter had
"substantially built AOL's base of deferred revenues,
which will contribute to future profits."
The on-line service -- which had held membership steady
during its third quarter, partially to comply with the wishes
of state attorneys general concerned about members'
ability to connect to AOL -- also said it added some
600,000 subscribers during the quarter. It now has 8.6
million members.
Accounting Practices Confuse
A Look at AOL's Bottom Line
An INTERACTIVE EDITION News Roundup
Analysts awaited America Online's fiscal fourth-quarter
earnings Thursday hoping the results would shed light on
how the on-line service is managing a difficult change in
business models.
But an old problem for the Dulles, Va., on-line service
left the situation somewhat confused, as AOL bowed to
pressure from the U.S. Securities and Exchange
Commission and reshuffled a number of items on its
balance sheet for the fiscal year.
AOL had surprised analysts by reporting third-quarter net
income of two cents a share -- its first profitable quarter
since changing its accounting. But the timing adjustments
the SEC requested forced the company to restate its
third-quarter results to show a loss.
Tricky accounting practices
from AOL were something
investors thought they'd
seen the last of; the
company took a whopping charge of $385.2 million in the
first quarter when it bowed to Wall Street and abandoned
its longtime practice of spreading each quarter's
marketing expenses out over a number of periods instead
of deducting them immediately.
The company's third quarter saw a variation on that
theme, as AOL recognized $12 million in revenue from
an agreement with long-distance company Tel-Save
Holdings, only to have the SEC tell it that $7 million of
that amount should be spread out over the length of the
40-month contract instead of taken all at once.
Despite the accounting confusion, AOL offered
indications that bullish analysts are correct in thinking that
the company was succeeding in weaning itself from
subscriber fees and shifting to a business model based on
revenue from advertising and commerce.
While AOL only met analysts' estimates -- and missed
whisper numbers circulating on Wall Street -- the service
said revenue increased some 42% in the quarter, and
pointed to a spate of recent advertising and commerce
deals signed with Tel-Save and companies such as
on-line bookseller Amazon.com, direct marketer CUC
International and 1-800-FLOWERS.
Overall, said Alan Braverman, Internet analyst at Credit
Suisse First Boston Corp. in New York, the company
appears headed in the right direction. Mr. Braverman
pointed to the company's stronger-than-expected
operating earnings, the increase in new memberships, the
comparatively low rate of users dropping the service and
a jump in revenues from sources other than subscriber
fees as positive elements.
And Jamie Kiggen, an Internet analyst at Cowen & Co.
in Boston, said that "when you get through all of the
accounting changes, the reasons to own the stock are still
intact."
Certainly investors have appeared to agree that the worst
of AOL's technological and financial woes are behind it
-- the company's shares rose 7/8 to 71 1/2 Thursday,
capping a six-day run that saw them jump nearly $11.
AOL reported its results after trading ended. |
