UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 42781 / May 15,2000
Accounting and Auditing Enforcement
Release No. 1257 / May 15, 2000
Administrative Proceeding
File No. 3-10203
______________________________
)
In the Matter of ) ORDER INSTITUTING PUBLIC
) ADMINISTRATIVE PROCEEDINGS
AMERICA ONLINE, INC., ) PURSUANT TO SECTION 21C OF THE
) SECURITIES EXCHANGE ACT OF 1934,
Respondent. ) MAKING FINDINGS AND IMPOSING
) A CEASE-AND-DESIST ORDER
______________________________ )
I.
The Commission deems it appropriate to institute proceedings pursuant
to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act")
to determine whether America Online, Inc. ("AOL") violated Sections
13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 13a-13
thereunder.
AOL has submitted an Offer of Settlement, which the Commission has
determined to accept. Solely for the purpose of this proceeding, and
any other proceeding brought by or on behalf of the Commission, or to
which the Commission is a party, and prior to a hearing pursuant to
the Commission's Rules of Practice, 17 C.F.R. 201.100, ., and without
admitting or denying the findings set forth herein, except as to the
Commission's jurisdiction over it and the subject matter of this
proceeding, which AOL admits, AOL consents to the entry of this Order
making findings and directing AOL to cease and desist (the "Order").
II.
Based on the Order and the Offer of Settlement of AOL, the Commission
finds
A. Respondent
SNIPPETS:
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Administrative Proceeding
The Commission deems it appropriate to institute proceedings pursuant to Section 21C of the
AOL has submitted an Offer of Settlement, which the Commission has determined to accept.
Solely for the purpose of this proceeding, and any other proceeding brought by or on behalf
to cease and desist.
America Online, Inc., is a Delaware corporation with its principal place of business in
During fiscal year 1996, AOL had nearly $1.1 billion in revenues and at June 30, 1996, had
Although AOL was generating positive net revenues (gross revenues from subscribers minus
As a consequence, AOL could not satisfy the requirements of Accounting Standards Executive
During its fiscal years ended June 30, 1995 and June 30, 1996, AOL rapidly expanded its
For fiscal years 1995 and 1996, AOL capitalized most of the costs of acquiring new
For fiscal years 1993, 1994 and 1995, AOL amortized DMAC on a straight-line basis over a 12
SOP 93-7, however, contains a narrow exception for certain direct-response advertising costs,
To capitalize direct response advertising costs, however, SOP 93-7 requires that such costs
AOL attempted to meet these requirements by estimating future membership retention based on a
Moreover, AOL did not assess recoverability of DMAC on a cost-pool-by-cost-pool basis, as
there can be no assurance that AOL's operating margins have stabilized or that AOL's
In addition, new competitors have announced plans to enter the online services market,
Such fundamental changes in AOL's business model meant that AOL could not use its historical
Moreover, AOL's competition continued to increase, including competition from service
Section 13of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of
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