America Online 2010 Annual Report Download - page 58

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Current Financial Condition
Historically, the cash we generate has been sufficient to fund our working capital, capital expenditure and financing requirements. While our ability to
forecast future cash flows is limited, we expect to fund our ongoing working capital, investing and financing requirements through our existing cash balance
and cash flows from operations. While we expect to continue to generate positive cash flows from operations, we expect our cash flows from operations to
decline in the near term principally due to the continued decline in the number of domestic AOL-brand access subscribers as well as a related projected
decline in search and contextual advertising revenues. Growth in cash flows from operations will only be achieved when, and if, the growth in earnings from
our online advertising services more than offsets the continued decline in domestic AOL-brand access subscribers. In order for us to achieve such increase in
earnings from advertising services, we believe it will be important to increase the number and engagement of consumers who visit our properties, so as to
enable us to increase our overall volume of display advertising sold, including through our higher-priced channels, and to maintain or increase pricing for
advertising. Advertising revenues, however, are more unpredictable and variable than our subscription revenues, and are more likely to be adversely affected
during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions.
If we are unable to successfully implement our strategic plan and grow the earnings generated by our online advertising services, we may need to
reassess our cost structure or seek other financing alternatives to fund our business. We may also consider other financing alternatives, as a result of our recent
acquisition activities. If it is necessary to seek other financing alternatives, our ability to obtain future financing will depend on, among other things, our
financial condition and results of operations as well as the condition of the capital markets or other credit markets at the time we seek financing. We currently
do not have any ratings from the credit rating agencies, so our access to the capital markets may be limited. As part of our ongoing assessment of our business
and availability of capital and to enhance our liquidity position, we have divested of certain assets and product lines and may consider divesting of additional
assets or product lines.
On September 30, 2010 (the "Termination Date"), we terminated our secured credit agreement, dated December 9, 2009 (the "Credit Agreement") for
the Revolving Credit Facility. We terminated the Revolving Credit Facility given our cash balance at that date and projected cash flows from operations. From
December 9, 2009 through the Termination Date, we did not borrow under the terms of the Revolving Credit Facility. The Revolving Credit Facility was set
to expire on December 8, 2010 and we did not pay any penalties as a result of the early termination. See "Principal Debt Obligations" for additional
information on the Revolving Credit Facility.
At December 31, 2010, our cash and equivalents totaled $801.8 million, as compared to $146.1 million at December 31, 2009.
Summary Cash Flow Information
Our cash flows from operations are driven by net income adjusted for non-cash items such as depreciation, amortization, goodwill impairment, equity-
based compensation expense and other activities impacting net income such as the gains and losses on the sale of assets or operating subsidiaries. Cash flows
from investing activities consist primarily of the cash used in the acquisitions of various businesses as part of our strategy, proceeds received from the sale of
assets or operating subsidiaries and cash used for capital expenditures. Cash flows from financing activities prior to the spin-off relate primarily to our
distributions of cash to Time Warner as part of our historical cash management and treasury operations and for all periods, principal payments made on capital
lease obligations.
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