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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: Harry Larson who wrote (6802)	1/13/1998 11:35:00 AM
From: Sam	Respond to of 13594

NEW YORK, Jan. 13 /PRNewswire/ -- Standard & Poor's today assigned its single-'B' rating to America OnLine, Inc.'s (AOL) $350 million 4% convertible subordinated notes due 2002. A double-'B'-minus corporate credit rating also was assigned to the company, as was a double-'B'-minus bank loan rating. AOL's ratings reflect its recurring revenue driven by its large membership base, strong brand identity, and the potential to generate higher margin revenues from non-subscription services such as advertising, electronic commerce, merchandising, and content. Offsetting these factors, the company has yet to establish a track record of maintaining consistent levels of performance and profitability, coupled with the challenges of integrating acquired operations, and managing its high growth in an evolving and competitive landscape. With fiscal 1998 revenues (ending June) projected to approach $2.5 billion, AOL has a membership base over 4 times larger than its nearest competitor, and has achieved critical mass that could translate into meaningful operating leverage to help combat declining margins in its subscription services. On a year-over-year basis, marketing costs have been reduced by about 35%, while networking cost per hour has declined by about 50%. The company's established distribution channels should allow it to maintain its leadership position and growth momentum, while its merger with CompuServe will add volume and broaden its geographical presence. The divestiture of ANS Communications, in tandem with partnering with other network service providers, adds diversity and should render better service to its customers. Ongoing higher capital requirements are expected to fund its growth strategy both domestically and internationally, and strategic investments are likely. Although the company reported net losses in two of its past three fiscal years, it has rebounded with $19 million of net income for its first quarter of fiscal 1998. Pro forma for the Worldcom transaction, liquidity is strong, with about $800 million of cash and availability under its $200 million secured credit facility. OUTLOOK: STABLE Upgrade potential is limited until the company demonstrates sustainability of current operating results, given the intense and evolving competitive environment. However, operating trends have been positive. -- CreditWire SOURCE Standard & Poor's CreditWire CO: ST: New York IN: FIN PUB SU: RTG S.