America Online 2009 Annual Report Download - page 104

Table of Contents
Time Warner as of December 31, 2008) measured based on the intrinsic value as of each balance sheet date of vested but unexercised Time Warner stock
options and a portion of the intrinsic value of unvested RSUs and PSUs held by AOL employees. As of December 31, 2008, the liability related to vested
unexercised stock options, unvested RSUs and PSUs was $11.6 million. For the years ended December 31, 2009, 2008 and 2007, AOL remitted cash totaling
$2.4 million, $43.8 million and $161.0 million, respectively, to Time Warner for stock options exercised by AOL employees and the vesting of RSUs held by
AOL employees.
In connection with the separation, AOL employees no longer participate in Time Warner's equity-based compensation plans and AOL is no longer
obligated to reimburse Time Warner for the intrinsic value of Time Warner equity-based compensation awards held by AOL employees. Accordingly, at the
date of spin-off, AOL reversed the outstanding liability based on the intrinsic value of the Time Warner equity awards held by AOL employees and recorded a
corresponding increase in equity.
Other
In the normal course of business, AOL historically entered into commercial transactions with other subsidiaries of Time Warner. AOL recognized $3.7
million, $10.5 million and $19.6 million in revenue and $22.0 million, $33.7 million and $29.7 million in operating expenses from transactions with other
Time Warner subsidiaries for the years ended December 31, 2009, 2008 and 2007, respectively.
Prior to AOL's separation from Time Warner, AOL was a party to a Memorandum of Understanding with Telepictures Productions Inc., an indirect
wholly-owned subsidiary of Time Warner, governing the operations of TMZ.com. Under the Memorandum of Understanding, AOL's contribution to TMZ
included the provision of certain technology and the design, development and maintenance of TMZ's website. Subject to certain performance adjustments and
the reimbursement of expenses, revenues were split evenly between the parties. Under this arrangement, Telepictures received payments from AOL of $8.7
million, $12.7 million and $9.6 million in 2009, 2008 and 2007, respectively.
As part of AOL's separation from Time Warner, the TMZ Memorandum of Understanding between AOL and Telepictures was amended such that
Telepictures assumed responsibility for all of TMZ's ongoing operations. Under the terms of the amended Memorandum of Understanding, AOL provides
online distribution to TMZ for a fee. This amended Memorandum of Understanding will terminate on December 9, 2010. In addition, AOL provides hosting
services to TMZ under the Master Services Agreement for ATDN and Hosting Services between Time Warner and AOL. The financial results related to TMZ
are not material to AOL's business.
In December 2006, AOL sold certain real estate in Columbus, Ohio to Time Warner subject to a leaseback by AOL. Due to the related party nature of
the arrangement and AOL's continuing involvement in the building in the form of a lease, such real estate's net book value was historically recorded as an
asset in AOL's financial statements. During 2008, AOL, in conjunction with Time Warner, made the decision to dispose of this facility. Accordingly, AOL
recorded a $13.2 million non-cash impairment associated with this real estate, and classified the remaining net book value of the property of $6.7 million as
held for sale in the consolidated balance sheet. AOL exited this facility in 2009 and therefore has no ongoing operations in the facility as of December 31,
2009. Accordingly, the remaining net book value of this facility of $6.7 million was transferred to Time Warner during 2009 with a corresponding reduction
in equity.
In 2007, Time Warner purchased a perpetual right to use a series of patents from a third party on behalf of AOL and other divisions of Time
Warner. Based on AOL's usage of the technology related to these patents relative to other divisions, approximately $21 million of the consideration paid by
Time Warner for this right has been allocated to AOL and included within intangible assets, net in the consolidated balance sheet. Subsequent to the
separation, AOL maintains the perpetual right to use this series of patents with no additional consideration due to the third party. This intangible asset is being
amortized by AOL on a straight-line basis over a five-year period that began January 1, 2007.
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