America Online 2009 Annual Report Download - page 46

Table of Contents
reducing our operations in France and Germany and ceasing operations in a number of other countries. In certain of these countries, we are currently
consulting with employees or employee representatives in accordance with applicable legal requirements. In connection with the restructuring activities we
plan to undertake in 2010, we expect to incur additional restructuring charges of up to $50 million, substantially all of which are expected to be incurred
through the first half of 2010. As a result of ceasing operations in various international countries and shutting down legal entities in certain countries where
we operate, we may incur a significant non-cash loss related to the recognition in the income statement of our cumulative foreign currency translation
adjustments accumulated in other comprehensive income, a component of equity. In the fourth quarter of 2009, we reevaluated the useful lives of certain
intangible assets which resulted in the acceleration of amortization expense related to these assets. Approximately $60 million of amortization expense related
to these assets will be incurred in 2010, the majority of which will be incurred in the first quarter of 2010.
AOL-GOOGLE ALLIANCE
On July 8, 2009, Time Warner repurchased Google's 5% interest in us for $283.0 million, which amount included a payment in respect of Google's pro
rata share of cash distributions to Time Warner by AOL attributable to the period of Google's investment in us. Following this repurchase, we became a
wholly-owned subsidiary of Time Warner until the separation (see "The Spin-Off" for further details).
ACQUISITION OF PATCH MEDIA CORPORATION
On June 10, 2009, we purchased Patch Media Corporation ("Patch"), a news, information and community platform business dedicated to providing
comprehensive local information and services for individual towns and communities, for approximately $7.0 million in cash. Approximately $700,000 of the
consideration is being held in an indemnity escrow account until the first anniversary of the closing.
At the time of closing, Tim Armstrong, our Chairman and Chief Executive Officer, held, indirectly, through Polar Capital Group, LLC ("Polar Capital")
(a private investment company which he founded), economic interests in Patch that entitled him to receive approximately 75% of the transaction
consideration. Mr. Armstrong's original investment in Patch, made in December 2007 through Polar Capital, was approximately $4.5 million. In connection
with the transaction, Mr. Armstrong, through Polar Capital, waived his right to receive any transaction consideration in excess of his original $4.5 million
investment, opting to accept only the return of his initial investment in AOL common stock. In addition, Mr. Armstrong elected to return the $4.5 million
(approximately $450,000 of which is being held in the indemnity escrow account for a year) that he was entitled to receive in connection with the transaction
to us, which was held by us until after our separation from Time Warner. In partial exchange for the $4.5 million he was entitled to receive, on January 29,
2010, AOL issued to Polar Capital approximately 173,000 shares of AOL common stock. The issuance of shares of AOL Inc. common stock to Polar Capital
was exempt from registration under Section 4(2) of the Securities Act of 1933, as a transaction by an issuer not involving a public offering.
In evaluating the fair market value of Patch, Time Warner engaged the services of an independent financial advisory firm, which reviewed certain
information, including recent financial performance and financial forecasts relating to Patch's earnings and cash flow and performed valuation analyses
including: a discounted cash flow analysis of Patch's expected earnings, a comparison of the multiple being paid for Patch to the trading multiples of
comparable public companies, and a comparison of the multiple being paid for Patch to the multiples paid in comparable merger and acquisition transactions.
The discounted cash flow analysis was based on terminal multiples of revenue of 2.0 to 4.0x, terminal multiples of EBITDA of 8.0 to 12.0x and discount rates
of 20 to 40%. Comparable public companies were trading at 0.2 to 3.2x 2010 revenue and 0.01 to 0.20x revenue on a growth adjusted basis. In comparable
mergers and acquisitions, acquirers paid a multiple of 0.7 to 29.4x revenue for the last 12 months prior to the transaction, 0.8 to 8.6x forward revenue and 1.6
to 10.6x invested capital. The purchase price of $7.0 million for Patch was within the range implied by the discounted cash flow analysis and the implied
valuation multiples were below or within the range of multiples for the comparable public companies and comparable merger and acquisition transactions.
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