America Online 2010 Annual Report Download - page 43

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• There has been a significant shift in the method of Internet access away from dial-up access. This is due to a number of factors, including the
increased availability of high-speed broadband Internet connections and the fact that a significant amount of online content, products and services
has been optimized for use with broadband Internet connections. This trend has contributed to, and we expect it will continue to contribute to, the
decline in the number of our access subscribers. As a result of these factors, we expect subscription revenues to continue to decline in the future.
• We are actively supplementing our business strategy through targeted acquisitions and dispositions. Since January 1, 2010, we acquired seven
companies and, as mentioned above, have recently agreed to acquire The Huffington Post with the objective of broadening and improving upon
content provided to users. We expect the integration of key talent and products resulting from these acquisitions to help us achieve our objective
of increasing traffic by enhancing the user experience. Also since January 1, 2010, we have disposed of three non-core businesses as well as other
assets and investments.
• Part of our strategy with respect to targeted acquisitions is to ensure that the key employees are incentivized to remain with AOL following the
acquisition. In connection with the seven acquisitions mentioned above, we have entered into certain incentive compensation arrangements with
key employees of the acquired companies. We record amounts associated with these arrangements as compensation expense over the future
service period of the employees of the acquired companies. For the year ended December 31, 2010, we recorded compensation expense of $6.2
million related to incentive compensation arrangements made in connection with our 2010 acquisitions. Based on our current estimated forfeiture
rates, we expect to record compensation expense associated with the incentive arrangements with key employees of these seven acquisitions of
$35.7 million, $15.5 million and $3.0 million in 2011, 2012 and 2013, respectively. We expect the future cash outlay related to these incentive
arrangements to be $11.5 million, $27.6 million and $20.3 million in 2011, 2012 and 2013, respectively. These amounts are subject to change
based on actual forfeitures and the impact of any new acquisitions completed in the future.
Recent Developments
Acquisitions
We completed the following acquisitions during the fourth quarter of 2010:
• On December 15, 2010, we completed the acquisition of Pictela, Inc. ("Pictela"), a company that provides a global technology platform for
serving and distributing high-definition brand content across online advertising and social media. This business was acquired to further our ability
to provide high quality advertising content.
• On December 20, 2010, we completed the acquisition of About.me, Inc. ("About.me"), a company that provides a web service product that
empowers people to create a single personal profile page that presents their online identities together in one place, simplifying the social
experience across the web. This business was acquired to enhance our ability to provide relevant and meaningful content to consumers.
The aggregate purchase price of these acquisitions was $31.4 million, net of cash acquired. In addition, we agreed to pay up to $11.5 million in
aggregate to certain employees of the acquired companies over the next three years contingent on their future service to AOL. The payments of up to $11.5
million will be recognized as compensation expense over the requisite service periods of up to three years. See "Note 4" in our accompanying consolidated
financial statements for additional information on these acquisitions.
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