SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2002
COMMISSION FILE NUMBER: 000-31181
AMERICA ONLINE LATIN AMERICA,
INC.
(Exact name of registrant
as specified in its charter)
| Delaware | 65-0963212 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) |
6600 N. Andrews Avenue
Suite 400
Fort Lauderdale, FL 33309
(Address of principal executive
offices and zip code)
Registrant’s telephone number, including area code: (954) 689-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
DESCRIPTION OF CLASS
|
SHARES OUTSTANDING AS OF NOVEMBER 11, 2002 | |
| Class A common stock - $0.01 par value, | 67,070,065 | |
| Class B common stock - $0.01 par value, | None | |
| Class C common stock - $0.01 par value, | None |
AMERICA ONLINE LATIN AMERICA, INC.
FORM 10-Q
INDEX
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
3 | |||
Quantitative and Qualitative Disclosures
About Market Risk
|
20 | |||
Controls and Procedures
|
21 | |||
Consolidated Financial Statements
|
||||
Consolidated Balance Sheets – September 30,
2002 (unaudited) and December 31, 2001
|
22 | |||
Consolidated Statements of Operations
(unaudited) – Three and Nine months Ended September 30, 2002 and 2001
|
23 | |||
Consolidated Statements of Changes in
Stockholders’ Equity (unaudited) – Nine months Ended September 30, 2002
and 2001
|
24 | |||
Consolidated Statements of Cash Flows
(unaudited) – Nine months Ended September 30, 2002 and 2001
|
25 | |||
Notes to Consolidated
Financial Statements (unaudited)
|
26 | |||
PART II. OTHER INFORMATION
|
||||
Item 2. Changes in Securities and Use of Proceeds
|
34 | |||
Item 4. Submission of Matters to a Vote of Security Holders
|
35 | |||
Item 5. Other Matters
|
40 | |||
Item 6. Exhibits and Reports on Form 8-K
|
41 | |||
Signatures
|
43 | |||
Certifications
|
44 | |||
Exhibit Index
|
46 | |||
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PART I. FINANCIAL INFORMATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of the financial condition, changes in financial condition and results of operations of America Online Latin America, Inc. (“AOLA” or the “Company”). The MD&A is organized as follows:
| t | Overview. This section provides a general description of AOLA’s businesses, as well as recent developments that we believe are important in understanding the results of operations and anticipates future trends in our operations. | |
| t | Results of operations. This section provides an analysis of AOLA’s results of operations for the three and nine months ended September 30, 2002 relative to the comparable periods in 2001. This analysis is presented on a consolidated basis, but also discusses some relevant segment basis figures and results. | |
| t | Financial condition and liquidity. This section provides an analysis of AOLA’s financial condition as of September 30, 2002 and cash flows for the nine months ended September 30, 2002. | |
| t | Critical accounting policies. This section provides a review of our accounting policies and estimates considered most important to our reported financial condition and results. | |
| t | Forward-looking statements. This section discusses how certain forward-looking statements made by AOLA throughout MD&A and in the consolidated financial statements are based on management’s current expectations about future events and are inherently susceptible to uncertainty and changes in circumstances. | |
This MD&A may not be indicative of the results for the full year and should be read in conjunction with the sections of our audited financial statements and notes thereto as well as our MD&A that are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
OVERVIEW
AOLA is one of the leading interactive service providers in Latin America. Our goal is to become Latin America’s leader in the development of the global interactive medium that is changing the way people communicate, stay informed, are entertained, learn, shop and conduct business. We derive our revenues principally from member subscriptions to our AOLA country services and we generate additional revenues from advertising and other revenue sources. Our comprehensive online services, which are available to subscribing members, and our interactive services are developed on a country-by-country and regional basis and are tailored to local interests.
The AOLA country services provide our members with easy and reliable access to local, regional and global online communities, content and localized versions of certain of America Online, Inc.’s (“America Online”) interactive products. Our AOLA country services seamlessly integrate the Internet, enabling members to access and explore the Internet. We believe the AOLA country services encourage members to participate in interactive communities through tools such as Spanish and Portuguese versions of AOL Instant Messenger, Buddy Lists, e-mail, public bulletin boards, online meeting rooms, conversations, chat and auditorium events.
Our markets in Latin America are Brazil, Mexico, Argentina and Puerto Rico. In November 1999, we launched our first AOLA country service, America Online Brazil. As of October 2002, we offered our America Online Brazil service in 237 cities in Brazil. In July 2000, we launched our country service in Mexico, America Online Mexico. As of October 2002, we offered our America Online Mexico service in 58 cities in Mexico. In August 2000, we launched our country service in Argentina, America Online Argentina. As of October 2002, we offered our America Online Argentina service in 22 cities in Argentina. As part of the ongoing development of our service territory, in December 2000 we expanded into Puerto Rico under an agreement with America Online under which America Online transferred its economic interest in its existing subscriber base to us. We receive the economic benefit associated with subscribers to the AOL-branded service in Puerto Rico and include these subscribers in our member totals. Subscribers in Puerto Rico are provided with both English and Spanish-language content through the AOL-branded service. As of October 2002, service in Puerto Rico was offered island-wide.
In June 2000, we entered into a ten-year strategic alliance with Banco Itaú, one of the largest banks in Latin America, which was providing limited online financial services to approximately 1.4 million of its approximately seven million customers at the time. We launched a co-branded, customized version of our America Online Brazil service that Banco Itaú began marketing to its customers in December 2000 and Banco Itaú is obligated to promote the co-branded service as the principal means of accessing Banco Itaú’s interactive financial services. As of September 2002, Banco Itaú reported that it had approximately 9.1 million active customers, of which 2.4 million were registered to use online banking services, primarily through Banco Itaú’s proprietary service, as well as the
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AOL co-branded service. We believe that this relationship will enable us to expand our Internet presence in Brazil by allowing us to gain access to Banco Itaú’s online as well as offline customer base.
The co-branded service is substantially the same as our AOLA country service in terms of technology and content, except that we offer a co-branded welcome screen for Banco Itaú customers, a Banco Itaú toolbar icon, a special version of our finance channel and links that directly connect Banco Itaú’s customers to its online financial services. Subscribers to the co-branded service have access to our full line of features as provided to our general customers, including e-mail with multiple AOL screen names, instant messaging, Internet access, interaction with our worldwide online community and our 24-hour customer service. Banco Itaú’s customers who register for the co-branded service are currently entitled to a three-month free trial period, a period that may be changed in the future. Until December 2005, Banco Itaú is required to offer at least one hour of subsidized usage per month to subscribers following the expiration of a subscriber’s trial period, although Banco Itaú is responsible to us only for actual usage by the subscriber.
Banco Itaú may also choose to provide its customers additional subsidized time beyond the one hour obligation. In addition, Banco Itaú is required to pay us a nominal amount for subscribers who have not used the service during the previous month and who are no longer in their free trial period. As of September 2002, approximately two-thirds of the subscribers to the Banco Itaú co-branded service had not used the service during the previous month. Furthermore, substantially all of the remaining Banco Itaú subscribers who were not in their free trial periods as of that date did not exceed the time subsidized by Banco Itaú.
Under the terms of our agreement with Banco Itaú, Banco Itaú and we established subscriber targets for the co-branded service of 250,000 verified subscribers at December 10, 2001 and 500,000 at December 10, 2002 (subsequently moved to April 30, 2003) and a secondary target of a total of 1,000,000 verified subscribers at December 10, 2002 (subsequently moved to April 30, 2003). In addition, Banco Itaú and we had established the following additional targets: (i) for the 12-month period ending December 10, 2003, revenues generated from subscribers to the co-branded service would account for at least 39% of our aggregate revenues in Brazil, (ii) on December 10, 2004, there would be at least 2,000,000 verified subscribers, and for the twelve months ended on that date revenues generated from subscribers to the co-branded service would account for at least 46% of our aggregate revenues in Brazil, and (iii) for the 12-month period ending December 10, 2005, revenues generated from subscribers to the co-branded service would account for at least 56% of our aggregate revenues in Brazil. Verified subscribers are those subscribers who have used the co-branded service in any two of the three months preceding the applicable measurement date or who have first accessed the co-branded service in the month prior to the applicable measurement date. Under the agreement, if the verified subscriber level and revenue targets are not met, Banco Itaú is required to make a reference payment to us. Banco Itaú met the subscriber target for the co-branded service of 250,000 verified subscribers at the December 10, 2001 measurement date. We are currently in discussions with Banco Itaú to modify our strategic marketing agreement.
In addition to attracting subscribers by offering broad geographical coverage of our country services, we make our country services accessible to a broader audience of potential subscribers by offering multiple mechanisms through which our members can pay us. All country services and Puerto Rico were initially launched with credit cards as the primary subscriber payment method, although Brazil concurrently offered a cash payment method known as the “boleto.” The boleto is a customary form of payment in Brazil under which Brazilian banks that we designate act as conduits for collecting the related payments. In addition, customers of certain banks in Brazil, including customers of our Banco Itaú co-branded service, have the option of permitting direct debits from their accounts for purposes of paying subscriber fees. In May 2001, we began to offer cash payment options in Mexico and Argentina. Under cash payment alternatives, members can subscribe to our AOLA country services without using a credit card, thus allowing us to reach a greater number of potential members. Members in Puerto Rico may pay their subscription fees either through credit cards or direct debit to their bank accounts. The majority of Puerto Rican members select credit cards as their payment vehicle.
Since its introduction, the “cash payment” alternative has accounted for a substantial majority of all new member registrations in Brazil, Mexico and Argentina and as of September 30, 2002 represented the payment mechanism selected by approximately 32% of our subscribers in Brazil (other than those to the Banco Itaú co-branded service), 47% of our members in Mexico and 52% of our members in Argentina. Although we have not experienced any significant difficulties collecting subscription fees from members using credit cards and direct debit mechanisms, collection rates from members opting for the cash payment mechanisms have been lower and less timely. In Brazil, Mexico and Argentina, we are taking steps to improve the validation of registration data provided by cash payment subscribers by requiring these subscribers to call our customer service centers to finalize their registration. In Mexico, we are also emphasizing prepaid subscription plans whereby subscribers pay in advance for service periods ranging up to one year. Initial results indicate these efforts have resulted in a reduction of the overall percentage of members who have selected the cash method as their payment option. In Mexico, prepaid plans are growing in importance and currently account for about 14% of current AOL Mexico members; however, they are not currently actively marketed in Brazil, Argentina and Puerto Rico.
As of October 31, 2002, approximately 43% of our total subscriber base (excluding subscribers to the Banco Itaú co-branded service) has selected payment options other than credit card or direct debit. We are taking steps to encourage conversion of these subscribers to credit and direct debit payment options. For instance, we offer discounts to subscribers to our AOLA country services who choose the credit card payment option.
We consider countries in which we have launched our AOLA country services as operational segments and internally report our operations on a country-by-country basis. Each of our operating segments derives its revenues through the provision of interactive services from subscription revenues and advertising and other revenues.
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RESULTS OF OPERATIONS
Consolidated Results
Table 1 below shows the consolidated results from operations for the three and nine-month periods ended September 30, 2002 and 2001.
| THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||||||||
| TABLE 1 - SELECTED OPERATING DATA | September 30, | September 30, | % | September 30, | September 30, | % | ||||||||||||||||
| 2002 | 2001 | Change | 2002 | 2001 | Change | |||||||||||||||||
| (In thousands, except share and per share amounts and percentages) | ||||||||||||||||||||||
|
Condensed Consolidated Operations
|
||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||
|
Subscriptions
|
$ | 15,775 | $ | 13,681 | 15.3 | % | $ | 47,693 | $ | 34,655 | 37.6 | % | ||||||||||
|
Advertising and other
|
1,782 | 5,016 | (64.5 | ) | 6,568 | 13,108 | (49.9 | ) | ||||||||||||||
| 17,557 | 18,697 | (6.1 | ) | 54,261 | 47,763 | 13.6 | ||||||||||||||||
|
Costs and expenses
|
50,869 | 88,540 | (42.5 | ) | 179,497 | 276,692 | (35.1 | ) | ||||||||||||||
|
Loss from operations
|
$ | (33,312 | ) | $ | (69,843 | ) | (52.3 | )% | $ | (125,236 | ) | $ | (228,929 | ) | (45.3 | )% | ||||||
|
Net loss applicable to common
stockholders
|
$ | (39,891 | ) | $ | (73,710 | ) | (45.9 | )% | $ | (142,009 | ) | $ | (236,835 | ) | (40.0 | )% | ||||||
|
Loss per common share, basic and
diluted
|
$ | (0.59 | ) | $ | (1.10 | ) | (46.4 | )% | $ | (2.12 | ) | $ | (3.61 | ) | (41.3 | )% | ||||||
|
Weighted average number of
common shares outstanding
|
67,070,065 | 67,054,714 | 0.0 | % | 67,066,773 | 65,652,403 | 2.2 | % | ||||||||||||||
Income/(Loss) from operations by operating segment:
|
||||||||||||||||||||||
|
- Brazil
|
$ | (20,369 | ) | $ | (34,669 | ) | (41.2 | )% | $ | (76,311 | ) | $ | (112,943 | ) | (32.4 | )% | ||||||
|
- Mexico
|
(6,801 | ) | (16,803 | ) | (59.5 | ) | (31,130 | ) | (53,659 | ) | (42.0 | ) | ||||||||||
|
- Argentina
|
(438 | ) | (8,915 | ) | (95.1 | ) | (2,594 | ) | (34,641 | ) | (92.5 | ) | ||||||||||
|
- Puerto Rico
|
247 | (2,155 | ) | (111.5 | ) | 374 | (6,721 | ) | (105.6 | ) | ||||||||||||
|
- Corporate and other
|
(5,951 | ) | (7,301 | ) | (18.5 | ) | (15,575 | ) | (20,965 | ) | (25.7 | ) | ||||||||||
| $ | (33,312 | ) | $ | (69,843 | ) | (52.3 | )% | $ | (125,236 | ) | $ | (228,929 | ) | (45.3 | )% | |||||||
As a percentage of total loss from operations:
|
||||||||||||||||||||||
|
- Brazil
|
61.1 | % | 49.6 | % | 60.9 | % | 49.3 | % | ||||||||||||||
|
- Mexico
|
20.4 | % | 24.1 | % | 24.9 | % | 23.4 | % | ||||||||||||||
|
- Argentina
|
1.3 | % | 12.8 | % | 2.1 | % | 15.1 | % | ||||||||||||||
|
- Puerto Rico
|
(0.7 | )% | 3.1 | % | (0.3 | )% | 2.9 | % | ||||||||||||||
|
- Corporate and other
|
17.9 | % | 10.4 | % | 12.4 | % | 9.3 | % | ||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Revenues. Our total revenues for the quarter ended September 30, 2002 were approximately $17.6 million, a decrease of approximately $1.1 million as compared to the third quarter of 2001. This decline was driven by a 64.5% decline in advertising and other revenue, which was partly offset by an increase of 15.3% in subscription revenues. For the nine months ended September 30, 2002, total revenues were approximately $54.3 million, an increase of $6.5 million, or 13.6%, versus the same prior-year period. For the nine-month period ended September 30, 2002, subscription revenues increased 37.6%, while advertising and other revenue fell by 49.9%, as compared with the nine-month period ended September 30, 2001.
Cost and expenses. Total costs and expenses for the quarter ended September 30, 2002 were approximately $50.9 million, a decrease of $37.7 million, or 42.5%, from the $88.5 million recorded in the same prior-year period. For the nine months ended September 30, 2002, total costs and expenses were $179.5 million, a decrease of $97.2 million, or 35.1%, as compared with the nine months ended September 30, 2001.
Loss from operations. For the quarter ended September 30, 2002, our loss from operations was approximately $33.3 million, an improvement of $36.5 million, or 52.3%, from the $69.8 million recorded in the comparable prior year period. For the first nine months of 2002, our loss from operations was $125.2 million, which represented an improvement of 45.3%, or $103.7 million, as compared with the loss of $228.9 million reported in the nine months ended September 30, 2001.
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Net loss applicable to common stockholders and loss per common share. Our net loss applicable to common stockholders, after dividends to preferred stockholders, was $39.9 million during the third quarter of 2002, an improvement of $33.8 million, or 45.9% versus the $73.7 million loss recorded in the same period of 2001. For the first nine months of 2002, our net loss applicable to common stockholders was $142.0 million, which represented an improvement of $94.8 million, or 40%, versus the comparable prior-year period. Our loss per share, both basic and diluted, was $0.59 and $2.12 per share, respectively, for the three-month period and the nine-month period ended September 30, 2002, as compared with losses per share of $1.10 and $3.61 in the comparable prior-year periods.
Recent Developments and Outlook. In the first quarter of 2002, we began to implement measures designed to better target higher-value members and to increase the efficiency of our member acquisition efforts by focusing on targeted groups that have a greater likelihood of becoming members who pay on a timely basis and remain subscribers to our services for an extended period of time. We hope to achieve this by focusing acquisition efforts on marketing channels that historically have resulted in higher subscription rates and lower acquisition costs. The success of these measures will depend in part on our ability to identify members that are most likely to pay their subscription fees on a timely basis and our ability to develop software tools and support systems designed to verify billing data for new subscribers to our country services and block access to subscribers who do not pay their subscription fees on a timely basis.
As a result of these efforts to target higher-value members during the first and second quarters of 2002, we experienced reductions in our sales and marketing costs through more targeted marketing activities. Additionally, we experienced improvements in our operating cost structure as the scope of our network and call center support operations was made proportional to the resulting reduced membership base. Our rate of member acquisition growth was also affected as our more targeted marketing efforts resulted in lower rates of new member additions.
Telecommunications and network expense were reduced by resizing our network to meet lower peak demand, which was achieved by restricting access for members who do not make timely membership fee payments and through the termination of members who were delinquent in their payments. The reduction in direct marketing was achieved by the implementation of recent initiatives designed to target members who have higher probabilities of becoming and remaining paying members. Specifically, this has resulted in a significant reduction in the mass mailing of non-solicited CD’s containing our software in favor of an increased focus on acquiring members through original equipment manufacturers (OEMs) and direct customer interaction channels.
While we continued to experience improvements in telecommunications, network and marketing and sales expense during the quarter ended September 30, 2002, the improvement in our cost structure was smaller than during the six months ended June 30, 2002. Most of the benefits from these initiatives represented one-time adjustments to our cost structure and have been largely implemented. Although we expect some additional benefits going forward, we believe these benefits will be significantly less in absolute terms and indeed, will begin to increase in absolute terms if our overall membership base begins to increase again.
A crucial element of our effort to target higher-value members is our increased focus on improved validation of registration data from subscribers who have chosen the cash payment option with the objective of better identifying members who are more likely to pay us, as well as the continued termination of members that are delinquent in paying us. For the quarter ended September 30, 2002, the reduction of 8.1% in our ending membership base to 1.20 million members, as compared with 1.31 million ending members at June 30, 2002, was largely a result of this focus. During the quarter, our paying membership base improved slightly, in line with our strategy to focus on distribution channels that are more likely to result in members who pay on a timely basis while terminating subscribers that are delinquent in their payments of subscriber fees to us. As a consequence, the reduction in ending members resulted in a negligible impact on our subscriber revenues for the quarter ended September 30, 2002.
We expect our membership base (excluding subscribers to the Banco Itaú co-branded service) to decrease slightly in the fourth quarter of 2002, as we continue to terminate members that are delinquent in the payment of subscription fees to us. As of September 30, 2002, approximately 539,000 members, or 45% of our total ending membership base, was comprised of members of the Banco Itaú co-branded service. We also expect that over the near term a substantial percentage of our total subscribers will continue to be in free trial periods, member retention programs or not making timely payment. Timing of the growth in our membership base is significantly influenced by the extent of the success of the marketing of the Banco Itaú co-branded service. We are currently in discussions with Banco Itaú to modify our strategic marketing agreement.
Revenues
Total revenues. As illustrated on Table 2, our total revenues consist principally of subscription revenues as well as revenues generated from advertising and other revenue sources.
Our total reported revenues for the three months ended September 30, 2002 were approximately $17.6 million, a decrease of 6.1%, or $1.1 million, as compared with revenues of $18.7 million in the third quarter of 2001. The decrease was driven primarily by a decline of $3.2 million, or 64.5%, in advertising and other revenues, which entirely offset an increase of $2.1 million, or 15.3%, in
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subscription revenues for the period. Revenues from subscriptions to the AOLA country services and the AOL-branded service in Puerto Rico increased to $15.8 million during the quarter ended September 30, 2002, up from $13.7 million in the comparable prior-year quarter, and accounted for 89.9% of total revenues. In local currency terms, total revenues rose 10.2% before the negative translation impact of the stronger U.S. dollar, driven by an increase of 35.5% in subscription revenues versus the quarter ended September 30, 2001. Advertising and other revenue fell 59.2% in local currency terms during the third quarter of 2002. Information on a local currency basis excludes the effect of foreign currency translation on reported results. Local currency results are calculated by translating the current year results at prior year monthly average exchange rates.
During the third quarter of 2002, Brazil accounted for $7.5 million in revenue, and 42.7% of total company revenue, up 14.0% from $6.6 million in the prior-year period. Revenues from Mexico were $6.4 million, representing a decrease of $1.4 million, or 17.6% from the 2001 third quarter, and accounted for 36.7% of total company revenue. Puerto Rico accounted for $3.1 million of revenue, an increase of $1.3 million from the prior-year period, and represented 17.5% of total company revenue. Revenues from Argentina, totaling $0.4 million, accounted for 2.3% of total company revenue and were down from $2.4 million in the third quarter of 2001. Revenues from corporate and other were $0.1 million, accounting for 0.8% of total revenues, and were down slightly from $0.2 million in the comparable prior-year period. As compared to the 2001 third quarter, revenue from Puerto Rico increased by 77.3%, while revenues from Mexico and Argentina declined by 17.6% and 83.4%, respectively.
Our total revenues for the nine months ended September 30, 2002 were $54.3 million, up 13.6% from $47.8 million for the comparable period of 2001. For the first nine months of 2002, subscription revenues grew 37.6% to $47.7 million and represented 87.9% of total company revenues, up from $34.7 million and 72.6% of total company revenues in 2001. The growth in subscription revenues was partially offset by a decline of $6.5 million, or 49.9%, in advertising and other revenue to $6.6 million and 12.1% of total company revenues in the nine months ended September 30, 2002. Excluding the effect of the stronger U.S. dollar relative to foreign currencies, revenues in local currency terms increased 27.6% during the first nine months of 2002 as compared to the prior-year period.
During the first nine months of 2002, revenues from Brazil increased to $23.8 million, up 20.7% or $4.1 million from the comparable period in 2001, while revenues from Mexico rose 14.4%, or $2.6 million to $20.4 million. Revenue from Puerto Rico grew 175.1%, or $5.1 million, to $8.1 million while revenues from Argentina decreased $5.1 million, or 74.3% to $1.8 million. Revenues from corporate and other decreased 42.2% to $0.2 million versus the comparable prior-year period. Brazil represented 43.9% of total revenue during the first nine months of 2002, while Mexico, Puerto Rico and Argentina represented 37.6%, 14.9% and 3.3%, respectively, during this period.
Subscription revenues. Table 2 presents our subscription revenues on a segment basis for the three and nine-months ended September 30, 2002 and 2001. We derive our subscription revenues from members paying fees to subscribe to our AOLA country services and from revenues received from America Online related to subscribers to the AOL-branded service in Puerto Rico. Subscription revenues do not include amounts paid to us by Banco Itaú on behalf of its customers for subsidies that it chooses or is required to make. Such receipts are netted against and recorded as a reduction of marketing expenses and thus are not accounted for as subscriber revenues. Amounts paid directly to us by subscribers that exceed the time subsidized by Banco Itaú are included in subscription revenues. For subscribers that have elected to pay their subscription fees with credit cards, we begin to recognize subscription revenues when the fees become due and are confirmed as collectible. For subscribers that pay through means other than credit cards, we recognize subscription revenues when we receive payment.
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| THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
| TABLE 2 - REVENUES | September 30, | September 30, | % | September 30, | September 30, | % | ||||||||||||||||||
| 2002 | 2001 | Change | 2002 | 2001 | Change | |||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
Subscriptions
|
$ | 15,775 | $ | 13,681 | 15.3 | % | $ | 47,693 | $ | 34,655 | 37.6 | % | ||||||||||||
|
Advertising and other
|
1,782 | 5,016 | (64.5 | ) | 6,568 | 13,108 | (49.9 | ) | ||||||||||||||||
| $ | 17,557 | $ | 18,697 | (6.1 | )% | $ | 54,261 | $ | 47,763 | 13.6 | % | |||||||||||||