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Author: TMFNico Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 31  
Subject: Q1 Results Date: 8/21/1997 11:48 AM
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Note the inclusion of subscriber and usage statistics at the end of the financials.

TMF Nico

===============================
Wednesday August 20 5:04 PM EDT
Company Press Release
Source: CompuServe Incorporated

CompuServe Reduces Loss to 4 Cents in First Quarter, Announces Flat-Rate Pricing Option for U.S. and Canada

COLUMBUS, Ohio, Aug. 20 /PRNewswire/ -- CompuServe Corporation (Nasdaq:CSRV) today reported a sharply reduced loss for the first quarter ended July 31, 1997, of $4.1 million, or $.04 per share, on revenues of $206 million. This compares with a fourth-quarter loss, before one-time charges, of $12.2 million, or $.13 per share, on revenues of $208 million. In the prior-year first quarter, the company lost $17.1 million before one-time charges, or $.19 per share, on revenues of $209 million.

Earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $27.7 million, versus $12.8 million in the fourth quarter and $9.4 million in the third quarter of the prior fiscal year. This marked the third successive quarter of improved, positive operational cash flows. The first-quarter improvement was driven by a three percentage-point increase in gross margin, from 40 percent in the fourth quarter to 43 percent in the most recent quarter. Gross margin in the year-ago first quarter stood at 33 percent.

Cash, cash equivalents and investments increased to $168 million in the first quarter from $161 million in the fourth quarter, the first such increase since the company's initial public offering in April 1996. In addition, the company said that in September 1997 it will receive just over $70 million from majority owner H&R Block, Inc., reflecting the tax benefit to H&R Block resulting from CompuServe's loss in the 1996 calendar year.

New Flat-Rate Pricing Option

CompuServe also announced plans to introduce a $24.95 per month flat-rate pricing option in the U.S. and Canada. "For a single, flat-rate price, we will provide unlimited access to the Internet plus our award-winning CompuServe Interactive service. In addition, subscribers will be able to use our network, rated number one in the industry for reliable access and speed," said Salizzoni. Certain value-added surcharged services will continue to carry additional fees, he said.

"We will initially make this pricing option available only to U.S. and Canadian subscribers as of October 1, 1997. We want to take care of current subscribers and those who join by October 1 before making this option available to a broader customer base," he said.

Recent pricing tests confirmed demand for the flat-rate option. "Users wanting the flat-rate option said CompuServe's added value is worth $24.95 per month, compared with the typical $19.95 monthly flat-rate fee charged by mass consumer online services," he said.

According to Salizzoni, the pricing tests also showed continuing demand for current pricing plans. "There will be no involuntary upgrades from current plans to the flat-rate plan," Salizzoni said. "We will let subscribers choose."

He said the $24.95 flat-rate option is consistent with the company's previously stated view that flat-rate pricing below $20 per month is unprofitable for online services and does not reflect the value of the CompuServe Interactive service.

"We believe the new flat-rate option is an appropriate step as we work to reverse the decline in our U.S. subscriber base during the past year," Salizzoni said. "However, because we cannot predict its impact with any certainty, this new pricing plan may affect our ability to achieve our stated goal to reach or exceed the break-even point in earnings sometime in the second half of the current 1998 fiscal year."

Network Services

CompuServe Network Services added a net 57 corporate customers during the quarter to bring the division's customer total to 1,257 for complete, fully integrated Internet, Intranet, and Extranet connectivity solutions. Revenues from Network Services grew 27 percent over the same quarter last year to $75.4 million, representing 37 percent of the company's total.

Examples of first-quarter 1998 competitive wins for multi-year contracts include: new customers Honeywell Inc., Imation, and Times Mirror Companies; and renewing customers FedEx, Met Life, and ProSource. CompuServe Network Services maintained a contract renewal rate in excess of 90 percent.

Other CompuServe Network Services highlights during or after the close of the quarter included:

An alliance with OpenConnect Systems (Dallas, Tex.) to provide the first integrated services solution to permit secure remote access to mainframe data through web browser software. Continued network expansion into Vietnam, Singapore and Argentina; and expanded network peering (reciprocal traffic) agreements in Europe and Asia.

Interactive Services

Revenues were $124.2 million, compared with the fourth-quarter figure of $132.6 million and the year-ago first-quarter figure of $141.4 million. As of July 31, 1997, CompuServe had 5,341,000 direct and licensed subscribers, compared with 5,373,000 as of April 30, 1997. Worldwide subscribers to the company's CompuServe Interactive online service declined to 2,637,000 at the end of the quarter from 2,767,000 at the fourth-quarter close.

The first-quarter revenue decline was due primarily to continued CompuServe Interactive subscriber losses in the United States. CompuServe Interactive subscribers in the U.S. declined 94,000 to 1,433,000, compared with a fourth-quarter decline of 127,000 to 1,527,000 subscribers.

Without the full impact of increased direct marketing in the U.S., CompuServe Interactive monthly revenue per member declined to $14.58 from $14.82 in the fourth quarter, as a higher percentage of new members continued to subscribe through OEM channels. Members joining CompuServe Interactive from OEM channels typically spend less time online than those brought in by the company's direct marketing programs.

European CompuServe Interactive subscribers stood at 872,000 at the end of the first quarter, compared with 892,000 at the fourth-quarter close. CompuServe Interactive subscribers in other international geographies totaled 332,000, compared with 348,000 at the end of the fourth quarter.

SPRYNET, CompuServe's Internet-only access service, continued to grow with 287,000 subscribers at the end of this quarter, versus 280,000 for the previous quarter.

CompuServe's Japanese licensee, NIFTY, continued growth with 2,417,000 subscribers at the end of the quarter, up from 2,326,000 at the end of the fourth quarter.

Founded in 1969, CompuServe Incorporated provides the world's most comprehensive online/Internet access through its two brands, CompuServe Interactive and SPRYNET. Through CompuServe, its Japanese licensee NIFTY-Serve and its affiliates around the world, more than 5 million home and business users in more than 185 countries are connected online and to the Internet. CompuServe Network Services, a leading network integrator, provides more than 1,200 companies around the world with complete, fully integrated, Internet, Intranet, and Extranet connectivity solutions. With world headquarters in Columbus, Ohio, the CompuServe organization includes offices in the United Kingdom, Germany, France, Switzerland and the Netherlands.

Except for historical information contained herein, the matters set forth in this press release are forward-looking statements that are subject to risks and uncertainty which could cause actual results to differ materially. CompuServe cannot assure, for example, that its strategy and related marketing programs will produce the anticipated results, or that earnings will continue to improve and reach or exceed the breakeven point during the 1998 fiscal year.

COMPUSERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

3 Months Ended July 31
1997 1996
REVENUES
Interactive Services revenues $124,234 $141,414
Network Services revenues 75,375 59,278
Other revenues 6,130 7,950
TOTAL REVENUES 205,739 208,642

COSTS AND EXPENSES
Costs of revenues 117,119 139,696
Marketing 44,958 59,031
General and administrative 12,522 9,494
Depreciation and amortization 29,692 26,853
Equipment leasing 3,895 0
Product development 5,873 7,056
Nonrecurring items 0 17,713
TOTAL COSTS AND EXPENSES 214,059 259,843

OPERATING EARNINGS/(LOSS) (8,320) (51,201)

INTEREST INCOME 2,377 3,131

EARNINGS/(LOSS) BEFORE TAXES (5,943) (48,070)

INCOME TAX EXPENSE/(BENEFIT) (1,857) (18,455)

NET EARNINGS/(LOSS) ($4,086) ($29,615)

EARNINGS/(LOSS) PER SHARE ($0.04) ($0.32)

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 92,600,000 92,600,000


COMPUSERVE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, AMOUNTS IN THOUSANDS)

July 31 April 30
1997 1997
CURRENT ASSETS
Cash and cash equivalents $133,765 $138,777
Investments 34,250 22,642
Receivables 110,516 118,336
Other current assets 110,061 103,061
TOTAL CURRENT ASSETS 388,592 382,816

INTANGIBLE ASSETS 7,080 8,153
PROPERTY AND EQUIPMENT, net 340,031 355,212

OTHER ASSETS
Deferred subscriber acquisition
costs, net 37,629 43,959
Other Assets 13,846 12,396
TOTAL OTHER ASSETS 51,475 56,355
TOTAL ASSETS $787,178 $802,536

CURRENT LIABILITIES $109,036 $114,989

DEFERRED INCOME TAXES 31,708 36,111

STOCKHOLDERS' EQUITY 646,434 651,436

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $787,178 $802,536


COMPUSERVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)

3 Months Ended July 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($4,086) ($29,615)
Noncash, nonrecurring items --- $7,939
Depreciation and amortization 29,692 26,853
Deferred subscriber acquisition costs (11,056) (26,815)
Amortization of deferred subscriber
acquisition costs 17,386 19,013
Provision for deferred taxes (4,302) 5,556
Changes in net working capital (5,233) (45,407)
Net cash flow from operating activities 22,401 (42,476)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (11,649) (63,544)
Purchase of short-term investments (19,141) (123,848)
Maturities of short-term investments 7,533 3,124
Other, net (4,156) (2,537)
Net cash flow from investing activities (27,413) (186,805)

CASH FLOWS FROM FINANCING ACTIVITIES
Advances from parent --- ---
Net cash flow from financing activities --- ---

NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS ($5,012) ($229,281)

INVESTMENTS $34,250 $150,069


CompuServe Corporation
Other Quarterly Data

7/31/96 10/31/96 1/31/97 4/30/97 7/31/97

Network Data
Network Customers 1,009 1,061 1,151 1,200 1,257
Network Customer
Hours 13,011,000 14,446,000 14,160,000 15,522,000 16,731,000
SpryNet
Subscriber
Hours 3,430,000 5,776,000 7,834,000 9,084,000 9,001,000
CSi Subscriber
Hours 33,523,000 32,512,000 29,974,000 28,964,000 26,852,000
Total Ports 70,404 77,639 83,885 85,892 85,435
Total Points of
Presence 485 501 502 509 510

Online/Internet

Services

Subscribers

CSi

U. S. 1,919,000 1,794,000 1,654,000 1,527,000 1,433,000
Europe 752,000 819,000 873,000 892,000 872,000
Other
International 388,000 379,000 365,000 348,000 332,000
Total
CSi 3,059,000 2,992,000 2,892,000 2,767,000 2,637,000
SpryNet 163,000 218,000 270,000 280,000 287,000
WOW! 92,000 102,000 --- --- ---
Total
Compuserve
Hosted 3,314,000 3,312,000 3,162,000 3,047,000 2,924,000
Licensee 1,864,000 2,029,000 2,179,000 2,326,000 2,417,000
Total 5,178,000 5,341,000 5,341,000 5,373,000 5,341,000

CSi Quarterly
Subscriber
Retention Rates

At the End

of Month 3 57% 55% 54% 54% 57%
At the End
of Month 6 47% 44% 43% 42% 41%
At the End
of Month 9 45% 36% 37% 35% 34%
At the End
of Month 12 N/A 36% 31% 31% 30%


FY 1997 FY 1998
Fees/Usage Total * Fees/Usage Total *
Average Revenue Per Customer
First Quarter $14.20 $14.48 $14.40 $14.58
Second Quarter $14.77 $15.06 --- ---
Third Quarter $15.04 $15.22 --- ---
Fourth Quarter $14.64 $14.82 --- ---

* Includes revenues from merchandising, advertising and transaction fees.

SOURCE: CompuServe Incorporated

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