America Online 2010 Annual Report Download - page 109

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
related agreements which govern the ongoing relationship between the two companies. The Company does not consider Time Warner to be a related party
subsequent to the spin-off. The related party relationships and subsequent relationships with Time Warner are discussed further below.
Administrative Services
Through the date of the spin-off, Time Warner performed certain administrative functions on behalf of AOL. Costs of these services that were allocated
or charged to AOL were based on either the actual costs incurred or Time Warner's estimate of expenses relative to the services provided to other subsidiaries
of Time Warner. AOL believes that these allocations were made on a reasonable basis, and that receiving these services from Time Warner created cost
efficiencies. These services and transactions included the following:
• 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 and 2008, AOL incurred $20.9 million and $23.3 million, respectively, of expenses related to charges for
services performed by Time Warner. These expenses were recorded as operating expenses by AOL as incurred.
Subsequent to the separation, Time Warner provided consultation on cash management and other treasury services, as well as tax services. These
services were provided on a fixed monthly fee basis through various dates in 2010, when they were terminated or expired under the original terms of the
respective transition services agreements. The costs associated with these services were not material to AOL's consolidated financial statements, and AOL
does not expect to incur any future costs associated with transition services from Time Warner.
Tax Matters Agreements
In connection with Google's investment in the Company in 2006, AOL entered into a tax matters agreement with Time Warner governing AOL's
inclusion in Time Warner consolidated tax returns. Under the terms of the tax matters agreement, Time Warner prepared a pro forma AOL income tax return,
and AOL agreed to make tax payments to Time Warner generally on the basis of this pro forma consolidated AOL income tax return. Amounts payable or
receivable under the tax matters agreement were generally reported as adjustments to divisional equity.
Effective with the spin-off, the Company entered into a Second Tax Matters Agreement with Time Warner that governs the respective rights,
responsibilities and obligations of Time Warner and AOL after the spin-off with respect to all tax matters. See "Note 6" for additional information on the
Second Tax Matters Agreement.
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