America Online 2010 Annual Report Download - page 61

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
distributed to Time Warner in the year ended December 31, 2009, as we swept the majority of our domestic cash to Time Warner prior to the spin-off.
Cash used by financing activities was $749.6 million for the year ended December 31, 2009, compared to cash provided by financing activities of
$134.9 million for the year ended December 31, 2008. This change was due to the $709.3 million of net cash distributed to Time Warner in 2009, compared to
$210.4 million of net cash contributed by Time Warner in 2008. Cash was contributed by Time Warner in 2008 as a result of our significant acquisitions in
2008, which required cash in excess of the amount generated by operations.
Free Cash Flow
We use Free Cash Flow as a supplemental measure of our performance. We define Free Cash Flow as cash provided by continuing operations, less
capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides
useful information to management and investors about the amount of cash generated by the continuing business that, after capital expenditures, capitalized
product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making
strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management's comparisons of our operating results to
competitors' operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the
period because it excludes the identified non-operating cash flows and the results of discontinued operations.
Free Cash Flow is a non-GAAP financial measure and may be different than similarly-titled non-GAAP financial measures used by other companies.
The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and
presented in accordance with GAAP.
The following table presents our reconciliation of Free Cash Flow to cash provided by continuing operations (in millions):
Years Ended December 31,
2010 2009 2008
Cash provided by continuing operations $ 593.5 $ 906.7 $ 937.1
Less: Capital expenditures and product development costs 95.9 135.3 172.2
Less: Principal payments on capital leases 37.5 31.1 25.1
Free Cash Flow $ 460.1 $ 740.3 $ 739.8
Free Cash Flow decreased for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This decrease is due to the decline
in cash provided by continuing operations, discussed in "Summary Cash Flow Information—Operating Activities" above, partially offset by reduced capital
expenditures and product development costs. Free Cash Flow slightly increased for the year ended December 31, 2009 as compared to the year ended
December 31, 2008 as the decrease in cash provided by continuing operations was essentially offset by the decrease in capital expenditures and product
development costs. We expect to have negative free cash flow for the three months ended March 31, 2011 due to employee bonus payments made in the
quarter.
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