America Online 2010 Annual Report Download - page 106

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, AOL hedged a portion of its
foreign currency exposures anticipated over the calendar year. This process generally coincided with AOL's annual strategic planning period. Additionally, as
transactions arose (or were planned) during the year that were exposed to foreign currency risk and were unhedged at the time, AOL entered into derivative
instruments, primarily foreign currency forward contracts, to mitigate the exposure presented by such transactions. Time Warner reimbursed or was
reimbursed by AOL for contract gains and losses related to AOL's foreign currency exposure. To hedge this exposure, AOL used foreign exchange contracts
that generally had maturities of three months to 18 months providing continuing coverage throughout the hedging period with all positions being unwound
prior to the spin-off. In the aggregate, the derivative instruments and hedging activities were not material to AOL. Time Warner managed the foreign currency
transactions directly and entered into foreign currency purchase and sale transactions directly with counterparties and allocated costs to AOL related to these
transactions. For the years ended December 31, 2009 and 2008, AOL recognized net gains (losses) of $10.8 million and ($20.4 million), respectively, within
other income, net related to foreign currency management activity performed by Time Warner on behalf of AOL. These amounts were recognized upon the
de-designation or settlement of foreign exchange contracts used in hedging relationships, including economic hedges. Such amounts were largely offset by
corresponding gains or losses from the respective transaction that was hedged and were generally recognized in income in the same period that the hedged
item or transaction affects income. Gains and losses from the ineffectiveness of hedging relationships, including ineffectiveness as a result of the
discontinuation of cash flow hedges for which it was probable that the originally forecasted transaction would no longer occur, were not material for any
period.
NOTE 11—COMMITMENTS AND CONTINGENCIES
Commitments
AOL's total rent expense from continuing operations amounted to $34.8 million, $49.8 million and $55.3 million for the years ended December 31,
2010, 2009 and 2008, respectively. The Company has long-term non-cancelable lease commitments for office space and operating equipment in various
locations around the world, a number of which have renewal options at market rates to be determined prior to the renewal option being exercised. In addition,
certain leases have rent escalation clauses with either fixed scheduled rent increases or rent increases based on the Consumer Price Index. The minimum rental
commitments under non-cancelable long-term operating leases during the next five years are as follows (in millions):
Gross operating
lease
commitments
Sublease
income
Net operating
lease
commitments
2011 $ 49.8 $ 8.3 $ 41.5
2012 48.2 9.5 38.7
2013 41.0 7.2 33.8
2014 37.9 4.0 33.9
2015 35.4 4.0 31.4
Thereafter 152.5 6.2 146.3
Total (a) $ 364.8 $ 39.2 $ 325.6
(a) Included in the above table are approximately $212.7 million of payments associated with the lease of the Company's corporate headquarters in New
York. AOL has leased its corporate headquarters for a non-cancelable initial lease term that ends in February 2023, with the option to extend the lease
for an additional five years. Monthly rental payments to the landlord under this lease escalate by 7% after the end of the fifth year and tenth year of the
lease term. In 2010 AOL entered into a new lease of a building in
102