America Online 2009 Annual Report Download - page 74

Table of Contents
Contemporaneous Purchases and Sales
In the normal course of business, AOL enters into transactions in which it purchases a product or service and contemporaneously negotiates a contract
for the sale of advertising to the customer. Contemporaneous transactions may also involve circumstances where the Company is purchasing or selling
products and services and settling a dispute. Such arrangements, although negotiated contemporaneously, may be documented in one or more contracts.
The Company's accounting policy for each transaction negotiated contemporaneously is to record each element of the transaction based on the
respective estimated fair values of the products or services purchased and the fair values of the products or services sold. If the Company is unable to
determine the fair value of one or more of the elements being purchased, revenue is recognized for the contemporaneous transactions on a net basis.
Subscription Revenues
The Company earns revenue from its subscription access service in the form of monthly fees paid by subscribers to its dial-up Internet access service,
and such revenues are recognized as the service is provided.
Traffic Acquisition Costs
AOL incurs costs through arrangements in which it acquires online advertising inventory from publishers for resale to advertisers and arrangements
whereby partners distribute AOL's free products or services or otherwise direct traffic to AOL Properties. AOL considers these costs to be traffic acquisition
costs or "TAC." TAC arrangements have a number of different economic structures, the most common of which are: (i) payments based on a cost-per-
thousand impressions or based on a percentage of the ultimate advertising revenues generated from the advertising inventory acquired for resale, (ii) payments
for direct traffic delivered to AOL Properties priced on a per-click basis (e.g., search engine marketing fees) and (iii) payments to partners in exchange for
distributing AOL products to their users (e.g., agreements with computer manufacturers to distribute the AOL toolbar or a co-branded web portal on
computers shipped to end users). These arrangements can be on a fixed-fee basis (which often carry reciprocal performance guarantees by the counterparty),
on a variable basis or, in some cases, a combination of the two. TAC agreements with fixed payments are typically expensed ratably over the term of the
agreement. TAC agreements with variable payments are typically expensed based on the volume of the underlying activity at the specified contractual rates.
TAC agreements with a combination of a fixed fee for a minimum amount of traffic delivered or other underlying activity and variable payments for delivery
or performance in excess of the minimum are typically recognized into expense at the higher of straight-line or actual performance, taking into account
counterparty performance to date and the projected counterparty performance over the term of the agreement.
Restructuring Costs
Restructuring costs consist primarily of employee termination benefits and contract termination costs, including lease exit costs. One-time involuntary
termination benefits are recognized as a liability at estimated fair value when the plan of termination has been communicated to employees and certain other
criteria are met. Special termination benefits offered to employees in connection with voluntary termination arrangements offered for a short period of time
for a special purpose are recognized as a liability at estimated fair value when the employees accept the offer and the amount of benefits can be reasonably
estimated. With respect to certain contractual termination benefits or employee terminations in certain foreign countries operating under ongoing benefit
arrangements, a liability for termination benefits is recognized at estimated fair value when it is probable that amounts will be paid to employees and such
amounts are reasonably estimable. Contract termination costs are recognized as a liability at fair value when a contract is terminated in accordance with its
terms, or when AOL has otherwise executed a written termination of the contract. When AOL ceases using a facility but does
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