America Online 2010 Annual Report Download - page 54

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
compared to the year ended December 31, 2008, due to certain intangible assets becoming fully amortized at the end of 2008, partially offset by an increase in
acquired intangible assets resulting from the acquisition of Bebo in May 2008.
Amounts Related to Securities Litigation and Government Investigations, Net of Recoveries
Amounts related to securities litigation and government investigations, net of recoveries consist of legal settlement costs and legal and other
professional fees incurred by Time Warner prior to the spin-off related to the defense of various securities lawsuits involving us or our or Time Warner's
present or former officers and employees. While these amounts were historically incurred by Time Warner and reflected in Time Warner's financial results,
they have been reflected as an expense and a corresponding additional capital contribution by Time Warner in our consolidated financial statements for the
periods when we were a wholly-owned subsidiary of Time Warner because they involve us. We recognized $27.9 million and $20.8 million of expense
related to these matters, respectively, for the years ended December 31, 2009 and 2008. Following the spin-off, these costs continue to be incurred by Time
Warner to the extent that proceeds from a settlement with insurers are available to pay those costs, and thereafter AOL has an obligation to indemnify Time
Warner for such costs to the extent they are associated with present or former officers and employees of AOL. We do not view our remaining potential
obligation related to this matter to be material.
Restructuring Costs
In connection with our restructuring initiatives, we incurred restructuring expense of $33.8 million, $189.2 million and $16.6 million, respectively, for
the years ended December 31, 2010, 2009 and 2008, respectively, related to voluntary and involuntary employee terminations, facility closures and contract
termination costs. The restructuring activities were completed in an effort to better align our organizational structure and costs with our strategy.
Goodwill Impairment Charge
During the three months ended June 30, 2010, we entered into an agreement to sell our ICQ operations and we completed the sale of substantially all of
our assets of Bebo. We expect to treat the common stock of Bebo as worthless for U.S. income tax reporting purposes in our 2010 consolidated U.S. federal
income tax return. In addition, we experienced a significant decline in our stock price in the second quarter of 2010. Our net assets also increased significantly
during that time due to cash generated from operations and the deferred tax asset associated with the Bebo worthless stock deduction. Based on these events,
we concluded that it was more likely than not that the fair value of our single reporting unit was less than its carrying amount. As such, we performed an
interim goodwill impairment test as of June 30, 2010.
Based on our interim impairment analysis, we recorded a goodwill impairment charge of $1,414.4 million in the second quarter of 2010 to write
goodwill down to its implied fair value. Based on our annual goodwill impairment analysis in December 2010, we have determined that the estimated fair
value of AOL exceeds its carrying value as of December 31, 2010 and therefore no additional goodwill impairment charge was recorded for 2010.
We also incurred a goodwill impairment charge in 2008 after the annual goodwill impairment analysis was performed during the fourth quarter of 2008.
In that analysis, we determined that the carrying value of our goodwill was impaired and, accordingly, recorded a goodwill impairment charge of $2,207.0
million to write goodwill down to its implied fair value.
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