America Online 2010 Annual Report Download - page 99

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company accrues interest and penalties where there is an underpayment of taxes, based on management's best estimate of the amount ultimately to
be paid, in the same period that 1) the interest would begin accruing or 2) the penalties would first be assessed. Our policy on the classification of interest and
penalties is to record both as part of income tax expense. Interest expense recorded through the income tax provision (benefit) related to uncertain tax
positions was $0.4 million, $14.3 million, and $18.2 million for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010
and 2009, the amount of accrued interest in the consolidated balance sheet associated with uncertain tax positions was $0.7 million and $3.2 million,
respectively. As of December 31, 2010 and 2009, no penalties were accrued.
The statute of limitations of certain foreign jurisdictions in which AOL filed separately from Time Warner (including the United Kingdom) have not
expired and therefore, the periods from 2003 through the current period remain open to examination by the taxing authorities. For the periods following the
spin-off, the examination periods in all significant jurisdictions, including the United States, Virginia, New York and the United Kingdom, remain open and
subject to examination by the taxing authorities.
As of December 31, 2010, the amount of unrecognized tax benefits which, if recognized, would affect our effective tax rate is $150.6 million. A number
of years may elapse before an uncertain tax position is finally resolved. It is difficult to predict the final outcome or the timing of resolution of any particular
uncertain tax position. We reevaluate and adjust our reserves for income taxes, as well as the related interest, in light of changing facts and circumstances.
Settlement of any particular position would usually require the use of cash and result in the reduction of the related liability. The resolution of a matter would
be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution.
NOTE 7—STOCKHOLDERS' EQUITY
AOL is authorized to issue up to 660.0 million shares of all classes of stock, consisting of 60.0 million shares of preferred stock, par value $0.01 per
share ("Preferred Stock"), and 600.0 million shares of common stock, par value $0.01 per share. Rights and privileges associated with shares of Preferred
Stock are subject to authorization by the Company's Board of Directors and may differ from those of any and all other series at any time outstanding. All
shares of common stock will be identical and will entitle the holders thereof to the same rights and privileges.
As of December 31, 2010, 106,744,387 shares of common stock were issued and outstanding. No dividends were declared or paid for the year ended
December 31, 2010.
On January 22, 2010, the Company issued 594,749 shares of AOL common stock as partial consideration for the acquisition of StudioNow, Inc. During
2010, the Company also issued 194,857 shares of AOL common stock to Polar Capital Group, LLC, in satisfaction of its contractual obligation to return its
CEO's initial investment of approximately $4.5 million in Patch Media Corporation ("Patch"), which arose from the acquisition of Patch on June 10, 2009.
See "Note 13" for additional information on this transaction.
Under the terms of the Company's tax matters agreement with Time Warner, amounts payable or receivable to Time Warner prior to the spin-off were
reflected as adjustments to divisional equity. During the year ended December 31, 2010, the Company adjusted its deferred tax assets and estimated amount
payable to Time Warner for income taxes prior to the spin-off and these adjustments resulted in a $27.0 million reduction to additional paid-in capital.
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