America Online 2009 Annual Report Download - page 72

Table of Contents
Prior to the spin-off, the Company completed certain transactions with Time Warner related to AOL's separation from Time Warner, which resulted in a
net reduction to AOL's equity of $36.2 million. These transactions primarily consisted of the reversal of AOL's liability to Time Warner for certain tax
positions and the reversal of AOL's equity-based compensation deferred tax assets which were retained by Time Warner following the spin-off. AOL began
recording retained earnings subsequent to November 2, 2009, when AOL converted from a limited liability company to a corporation.
Basis of Presentation
Basis of Consolidation
The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of AOL, all voting interest entities in
which AOL has a controlling voting interest ("subsidiaries"), and those variable interest entities for which AOL is the primary beneficiary in accordance with
the consolidation accounting guidance. Through the date of the spin-off, these financial statements present the historical consolidated results of operations,
financial position, and cash flows of the AOL business that now comprises the operations of the Company. Intercompany accounts and transactions between
consolidated companies have been eliminated in consolidation. Prior to the spin-off, AOL was a subsidiary of Time Warner. The financial information
included herein may not necessarily reflect AOL's financial position, results of operations and cash flows in the future or what AOL's financial position,
results of operations and cash flows would have been had AOL been an independent, publicly-traded company during all of the periods presented.
Through the date of the spin-off, the consolidated financial statements include allocations of certain Time Warner corporate expenses. Management
believes the assumptions and methodologies underlying the allocation of general corporate overhead expenses are reasonable. However, such expenses may
not be indicative of the actual level of expense that would have been incurred by AOL if it had operated as an independent, publicly-traded company or of the
costs expected to be incurred in the future. These allocated expenses relate to various services that were provided to AOL by Time Warner, including cash
management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit,
accounting and human resources), equity-based compensation plan administration, aviation services, insurance coverage and the licensing of certain third-
party patents. During the years ended December 31, 2009, 2008 and 2007, AOL incurred $20.9 million, $23.3 million and $28.4 million, respectively, of
expenses related to charges for services performed by Time Warner. See "Note 13: Related Party Transactions" for further information regarding the
allocation of Time Warner corporate expenses and the ongoing relationship with Time Warner.
The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency.
Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated
at average rates of exchange during the period. Resulting translation gains or losses are included in the consolidated balance sheet as a component of
accumulated other comprehensive income (loss), net.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make
estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could
differ from those estimates. Significant estimates inherent in the preparation of the consolidated financial statements include accounting for asset impairments,
reserves established for doubtful accounts, equity-based compensation, depreciation and amortization, business combinations, income taxes, litigation matters
and contingencies.
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