America Online 2009 Annual Report Download - page 82

Table of Contents
Variable Interest Entities
In June 2009, new guidance was issued which requires an enterprise to perform an analysis to determine whether the enterprise's variable interest or
interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the
enterprise that has (i) the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance, and
(ii) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity
that could potentially be significant to the variable interest entity. In addition, this guidance amends the accounting for variable interest entities to (i) require
ongoing assessments of whether an entity is the primary beneficiary of a variable interest entity, (ii) eliminate the quantitative approach for determining the
primary beneficiary of a variable interest entity, (iii) amend certain guidance for determining whether an entity is a variable interest entity and (iv) require
enhanced disclosures. This guidance became effective for AOL on January 1, 2010 and is not expected to have a material impact on the Company's
consolidated financial statements.
Amendments to Revenue Arrangements with Multiple Deliverables
In October 2009, new guidance was issued related to the accounting for multiple-deliverable revenue arrangements. This new guidance amends the
existing guidance for separating consideration in multiple deliverable arrangements and establishes a selling price hierarchy for determining the selling price
of a deliverable. This new guidance will become effective for AOL on January 1, 2011 with earlier application permitted, provided that the revised guidance
is retroactively applied to the beginning of the year of adoption. The Company is currently evaluating the timing of adopting this new guidance and the impact
that the adoption of this new guidance will have on the Company's revenue recognition policies and results of operations.
NOTE 2—INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is calculated by dividing net income attributable to AOL common stockholders by the weighted average number
of shares of common stock issued and outstanding during the reporting period. Diluted income (loss) per common share is calculated to give effect to all
potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is
reflected in diluted income (loss) per common share by application of the treasury stock method.
On November 2, 2009, the Company converted from AOL Holdings LLC, a limited liability company wholly owned by Time Warner, to AOL Inc., a
corporation wholly owned by Time Warner. On the distribution date of December 9, 2009, 105.8 million shares of $0.01 par value AOL common stock were
distributed to Time Warner shareholders of record as of 5 p.m. on November 27, 2009. This share amount is being utilized for the calculation of basic income
(loss) per common share for periods presented prior to 2009 as no common stock of the Company existed prior to November 2, 2009. For periods prior to
2009, the same number of shares is being used for diluted income (loss) per common share as for basic income (loss) per common share as no common stock
of the Company existed prior to November 2, 2009 and no dilutive securities of the Company were outstanding for any prior period.
For the year ended December 31, 2009, in determining the weighted average number of common shares outstanding for basic income (loss) per
common share, the Company assumed 105.8 million shares were outstanding for the period from January 1, 2009 through December 9, 2009. Diluted income
(loss) per common share subsequent to the distribution date of December 9, 2009 reflects the potential dilution of outstanding equity-based compensation
awards by application of the treasury stock method.
Certain stock options and restricted stock units granted to employees in 2009 have a dilutive effect on income (loss) per share; however, the dilutive
effect is not significant to the total weighted-average shares
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