America Online 2009 Annual Report Download - page 83

Table of Contents
outstanding for 2009 since dilutive shares were only outstanding from December 10, 2009 through December 31, 2009. Accordingly, for the year ended
December 31, 2009, AOL's weighted average number of common shares outstanding for diluted income (loss) per common share was 105.8 million. Grants of
restricted stock units to employees will have a dilutive effect on future income per share and grants of stock options to employees may have a dilutive effect
on future income per share, if the exercise price of the options is less than the market price during a future reporting period.
NOTE 3—GOODWILL AND INTANGIBLE ASSETS
Goodwill
A summary of changes in the Company's goodwill during the years ended December 31, 2009 and 2008 is as follows (in millions):
Gross Goodwill Impairments Net Goodwill
December 31, 2007 $ 35,531.1 $ (32,003.7) $ 3,527.4
Acquisitions, dispositions and adjustments 889.9 — 889.9
Impairments — (2,207.0) (2,207.0)
Translation and other adjustments (48.8) — (48.8)
December 31, 2008 36,372.2 (34,210.7) 2,161.5
Acquisitions, dispositions and adjustments 8.3 — 8.3
Translation and other adjustments 14.4 — 14.4
December 31, 2009 $ 36,394.9 $ (34,210.7) $ 2,184.2
In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2009, AOL determined that the fair value of AOL's
sole reporting unit exceeded its book value, and therefore no goodwill impairment charge was recorded in 2009.
In performing the first step ("Step 1") of the goodwill impairment test, AOL compared the carrying amount of its reporting unit to its estimated fair
value. In determining the estimated fair value of its reporting unit, the Company used a combination of an income approach by preparing a discounted cash
flow analysis and a market-based approach based on AOL's market capitalization. Given that AOL's common stock started trading on December 10, 2009,
there was insufficient trading activity to solely consider the market-based approach. This approach was considered as one data point in determining fair value,
but was not the sole indicator of fair value. The cash flows employed in the income approach are based on AOL's most recent budgets, forecasts and business
plans as well as various growth rate assumptions for years beyond the current business plan period. Discount rate assumptions are based on an assessment of
the risk inherent in the future revenue streams and cash flows of the reporting unit. In addition, when a discounted cash flow analysis is used in determining
fair value, reasonableness of the determined fair value is assessed by reference to other fair value indicators such as comparable company public trading
values, research analyst estimates and, where available, values observed in private market transactions. In the 2009 goodwill impairment analysis, the discount
rates utilized in the discounted cash flow analysis were in a range of 10.5% to 14% in 2009, as compared to 13% to 15% in 2008, while the terminal growth
rates for the Company's advertising revenues were 4% in 2009 as compared to a range of 2.5% to 3% in 2008. The premium used to arrive at a controlling
interest equity value for the market-based approach was determined based on values observed in recent market transactions.
The results of the Step 1 process indicated that the fair value of AOL exceeded its book value by approximately 3%. As a result, the second step ("Step
2") of the goodwill impairment test did not need to be performed, and therefore no impairment charge was recorded for 2009.
As the market-based approach is based on AOL's market capitalization, volatility in the Company's stock price could have a significant impact on the
estimated fair value of the Company's sole reporting unit. If the estimated fair value of AOL had been hypothetically lower by 5% as of December 31, 2009,
the book value
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