FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

America Online
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>
22000 AOL Way
Dulles, VA 20166-9323
(703) 448-8700
http://www.aol.com

ALEXANDRIA, VA (September 8, 1997)/FOOLWIRE/ --- America Online held an analyst conference call this morning to discuss the Compuserve deal with WorldCom and Bertelsmann AG. In the agreement with WorldCom in which they will exchange their ANS Communications subsidiary to WorldCom in exchange for Compuserve's online services and $175 million in cash.

In addition, they have entered into a long-term relationship with WorldCom to provide AOL with significantly more network capacity at favorable prices as well as a strategic alliance in generating and deploying new high-speed broadband services.

Internationally, America Online will be deepening their strategic relationship with Bertelsmann as well as receiving an additional cash investment from them. Compuserve is a pioneer of the online service industry and AOL is very excited about bringing its worldwide online services into AOL. They are equally thrilled by their new strategic alliance with WorldCom and the strengthening of their successful international partnership with Bertelsmann.

AOL has made significant strides forward over the last year and believes these agreements will accelerate that momentum. They believe the agreements have enormous strategic value and will have a positive financial impact as well.

The Strategic Benefits to AOL

By acquiring Compuserve's online services, America Online dramatically improves their competitive position internationally, especially in the critical European marketplace. Compuserve has approximately 2.6 million subscribers worldwide, 850,000 of which are in Europe, and the value they place on Compuserve's online service business is approximately $250 million, or roughly $100 per subscriber. America Online strengthens their position in the small business and professional markets. They will have an expanded customer base on which to build additional advertising and electronic commerce revenue streams.

Their agreement with WorldCom gives them significant new network capacity at a cost that locks in both the network price savings and the anticipated growth in profits from ANS's commercial sales. This transaction realizes immediately the enhanced value of ANS while ensuring their members reliable network services through WorldCom.

Taken together, this transaction will improve AOL's cash position and operating flexibility, allowing them to focus even more resources on growing and realizing more value from their foreign, interactive services, and content businesses.

Impact on Global Expansion

All along AOL has emphasized the importance of expanding their global presence and they have devoted substantial resources to that task. Over the past year, AOL has expanded rapidly in international markets reaching nearly 700,000 members in Europe. They have also just launched their service in Japan. The acquisition of Compuserve's well-positioned international online service, which they view as the crown jewel of Compserve's online service, is a crucial leap forward in these markets and a major key to this transaction. Compuserve's online service has over 850,000 members in Europe and has customers in more than 185 countries. AOL will be expanding their relationship with Bertelsmann and will operate Compuserve Europe as a separate online service, side-by-side with AOL. Their partnership will be the leading Pan-European Internet online services provider with a combined total of 1.5 million members. The merger will extend AOL's existing reach through the Compuserve brand in Germany, the UK, France, Austria, Switzerland, and Sweden and will extend the reach into a number of other markets now served by Compuserve but not direclty served by AOL. They think they are poised in Europe for the same sort of explosion into a mass-market phenomenon they are now seeing in the US. Finally, by strengthening their alliance with Bertelsmann which is Europe's largest media company, they are further positioning themselves to capitalize on the industry's global growth.

US Strategy

In the United States, where AOL is the clear leader in mass-market Internet online services, they will continue to position the Compuserve brand as a service for business and professional users. Current Compuserve customers will continue to access the existing service with the existing software through the existing network. They will work to improve the Compuserve customer experience by supporting next-generation technological innovations now under development by Compuserve, including a move to a more web-centric architecture, and exploring possibilities for extending to those customers some of AOL's easy-to-use features and products.

They will look at ways to get more from AOL as well. For example, they think there is an opportunity to provide some of Compuserve's business and professional content to AOL members. They plan to manage Compuserve as a largely separate business. The European operations will be managed by a 50/50 joint venture between AOL and Bertelsmann. Compuserve's operation in the US and the rest of the world will report to Bob Pittman who runs AOL Networks. Bob will look at ways to take advantage of the respective organizations so they can help and support each other.

ANS Benefit Details

AOL has made great progress this year in growing their non-subscription revenues, advancing their business model even further. They believe that this transaction, once completed, will give them a larger customer base, particularly in Europe, to further accelerate their progress in building advertising and electronic commerce revenues.

Their 5-year agreement with WorldCom will provide them with significantly expanded network capacity into the future at favorable prices. AOL Networks will continue to manage AOLnet, which is now the world's largest dial-up network, through a portfolio strategy that includes Sprint, GTE, and BBN units, along with WorldCom's UUNet and ANS units. From this team of providers, they expect to have access to approximately 650,000 modems by year's end -- more than triple their modem capacity in January of this year. They will also be collaborating with WorldCom on the deployment of next-generation technology such as ADSL. This transaction gives them the opportunity to realize the significantly enhanced value of ANS and still benefit from its network capacity through their agreement with WorldCom.

They will recognize significant value immediately for ANS. The value they put on ANS in this transaction is $425 million, a number that represents nearly 14 times the unit's standalone corporate revenues for fiscal 1997 and 12 times the $35 million they paid for it just a couple years ago. The steps they took to build the unit were well worth it.

The agreement will be accounted for as a sale and lease-back arrangement with WorldCom. The agreement allows AOL to lock in a network services cost structure they had hoped and planned to achieve with ANS, so this arrangement gives them greater confidence in their ability to achieve the operating results they have been projecting. There is no issue here about giving up control of their access network. They are not getting out of the access business, they are just relying on others now to build it for them. They will continue to control AOLnet which gives them the advantage of controlling their own destiny and providing an integrated solution to their consumers. As part of WorldCom with its larger scale and worldwide reach, ANS will be an even stronger vendor of network services to AOL.

Focus on Core Businesses

They believe this transaction will allow them to grow and build the value of the businesses where they are revolutionizing the industry -- AOL Networks and AOL Studios. They will accomplish this by having more operational flexibility and resources for investment in these businesses, particularly at AOL Studios. Before they thought they had to seek 3rd party capital for AOL Studios. Now they have the flexibility to fund these businesses themselves. They still will welcome investors if they add real value, but it is nice to now have the flexibility to fund the businesses themselves.

Balance Sheet Impact

They received $225 million in cash. They eliminate over $150 million in Visa obligations which will have the effect of increasing the company's borrowing capacity. Cash flow from Compuserve's US online service business is expected to be neutral to positive. They gain Compuserve's US online business balance sheet which is expected to have positive working capital and a large cash balance when the transaction closes. At the same time they eliminate ANS's balance sheet which had negative working capital of $36 million at June 30, 1997. Finally, they get a net reinvestment in a European joint venture with Bertelsmann which will operate Compuserve's European online services business which will be capitalized with $50 million in cash.

Income Statement Impact

With respect to the income statement, they will realize the gain on the sale of ANS of approximately $360 million on a straight-line basis over 5 years as a reduction of cost of revenues, or almost $20 million per quarter. The gain will be spread as this transaction is analagous to sale-leaseback for accounting purposes. It allows them to effectively lock in now the profits they were working to generate through ANS's commercial network business and eliminate the execution risks at the same time. They also get to lock in now the low cost and increasing operating cost efficiencies they were working to realize as an owner/operator of ANS and also eliminate those execution risks. The favorable network pricing is to be used to offset the cost of increased consumer usage. Compuserve's 2.6 million installed base generated approximately $125 million in revenues in the July 1997 quarter. Finally, they will earn interest income from the greater cash balance.

Financial Modeling Guidance

During the first couple of years they expect some goodwill amortization related to the purchase of Compuserve's US online business. In terms of financial modeling it is important to understand how they are viewing these benefits. A portion of the cost of revenue reduction resulting from the recognition of the gain on the sale of ANS will be offset by the planned profit contributions from ANS which were already in their business model. They do intend to take advantage of this transaction to make additional investments which strengthen their core AOL Networks and AOL Studios businesses. During the first couple of years, the benefits will be somewhat offset by the amortization of goodwill related to the acquisition of Compuserve's US online services business. So, they are cautioning against raising earnings estimates at this time. As they get near closing this transaction and their plans firm up, they will provide additional guidance with respect to these benefits. Their confidence that they can continue to meet their financial targets improves as a result of these transactions. In addition, the cash they gained from this transaction and increased focus gives them the operating flexibility and resources to invest and expand their core businesses.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.