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AOL Inc. (AOL)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/24/2012
Filed Period 12/31/2011

Table of contents

  • Page 1
    AOL Inc. (AOL) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/24/2012 Filed Period 12/31/2011

  • Page 2
    ... 17, 2012, the number of shares of the Registrant's common stock, par value $0.01 per share, outstanding was 94,779,540. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this report is incorporated by reference from the Registrant's proxy statement to be filed pursuant...

  • Page 3
    ... Director Independence Principal Accounting Fees and Services 104 104 104 104 104 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 4
    ... of Contents AOL INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Number Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 Consolidated Balance Sheets as of December 31, 2011...

  • Page 5
    ... operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological...

  • Page 6
    ... and providing valuable online advertising services on both our owned and operated properties and third-party websites. We also operate one of the largest internet subscription access services in the United States, with 3.3 million domestic AOL-brand access subscribers as of December 31, 2011. While...

  • Page 7
    ... to develop mobile applications for our existing products and services. We plan to continue investing in this area, prioritizing launches of key brands and expanding our mobile advertising platform. • Business Overview Our business operations are focused on the following: • AOL Properties. We...

  • Page 8
    ... Huffington Post internationally and we aim to continue to expand The Huffington Post in order to provide relevant content and offerings to a wide array of consumers in new markets. Search and Contextual We offer AOL Search on AOL Properties. We provide our consumers with a general, internet-based...

  • Page 9
    ... and AOL receives a revenue share. AOL Services AOL Services encompasses our paid services, search, the AOL.com homepage and mail operations, including mobile development and other offerings. AOL Services includes our subscription access service, which provides a number of online services including...

  • Page 10
    ...content, products and services that are available to all online consumers, an AOL-brand access subscription provides members with dial-up access to the internet and, depending on the applicable price plan, various degrees of enhanced safety and security features, technical support and other benefits...

  • Page 11
    ...AOL Properties, based on our agreement that runs through December 31, 2015. In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search advertising and contextual advertising on AOL Properties. For the year ended December 31, 2011...

  • Page 12
    ... content. We aim to increase the use of video on our sites, including the use of video on our branded properties and digital devices. In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary optimization...

  • Page 13
    ... to support our products and services, we have been steadily increasing our use of open source technologies and platforms with a view to diversifying our sources of technology, as well as for cost management. Research and development costs related to our software development efforts for 2011, 2010...

  • Page 14
    ... advertising inventory as well as lower demand. Our subscription access service competes with other internet access providers, especially broadband providers. Internationally, our primary competitors are global enterprises such as Yahoo!, Google, MSN, IAC, Facebook and other social networking sites...

  • Page 15
    ... for access, use, disclosure and interception and privacy protections of electronic communications. The Children's Online Privacy Protection Act of 1998 and the Federal Trade Commission's related implementing regulations, which prohibit the collection of personal information from users under...

  • Page 16
    ... expansion of The Huffington Post and the acquisition of goviral, a company that distributes branded online video for media agencies, creative agencies and content producers. As part of our recent restructuring initiatives to improve our ability to execute our strategy, we reduced our cost base in...

  • Page 17
    ... and accessible at www.corp.aol.com. In addition, you may automatically receive e-mail alerts and other information about AOL by visiting the "e-mail alerts" section at www.corp.aol.com and enrolling your e-mail address. We make available on our internet website free of charge our annual reports on...

  • Page 18
    ... Chief Financial Officer at Time Warner Cable Inc. Prior to joining Time Warner Cable in February 2006, Mr. Minson was Senior Vice President, Corporate Finance and Development at AOL from December 2004 to February 2006. Prior to that, Mr. Minson was Senior Vice President, Finance for AOL's Broadband...

  • Page 19
    ... in order to produce and offer new content, products and services, and the costs related to such acquisitions may be more expensive than developing new content, products and services internally. In general, subscribers to our subscription access service are among the most engaged consumers on AOL...

  • Page 20
    ... products and services to address the patterns of how consumers access information and communicate on the Internet through media such as social networking, our business could be adversely impacted. As the internet continues to grow and evolve, consumers are also changing the way they access and use...

  • Page 21
    ... do not own or control a general text-based web search service. Instead, Google is, except in certain limited circumstances, the exclusive web search provider for AOL Properties. For the year ended December 31, 2011, search and contextual advertising revenues comprised approximately 27% of our total...

  • Page 22
    ... subscription or advertising revenues. Currently we offer applications directly to consumers for download from AOL Properties, the Apple App Store, or through other distribution channels. We also offer certain applications, and access to their content, products and services by means of agreements...

  • Page 23
    ... strategies may need to be developed. Even if we are able to distribute our content, products and services effectively, this does not assure that we will be able to attract new consumers. Currently, an important distribution channel for AOL Properties is through our subscription access service...

  • Page 24
    ...our content, products and services. Also, a substantial number of the subscribers to our subscription access service do not use the service to access the internet on a regular basis and may terminate their subscription at any time. In addition, we must maintain the current payment method information...

  • Page 25
    ...with our employees, consumers, suppliers and other parties, to establish and maintain our intellectual property rights in the technology, content, products and services used in our operations. These laws and agreements may not guarantee that our intellectual property rights will be protected and our...

  • Page 26
    ... use, retention, sharing and security of consumer data. In addition to the potentially differing interpretations of existing law, the present landscape of public policy and privacy creates uncertainty for business planning. In such an uncertain environment, it is difficult to make informed long-term...

  • Page 27
    ...We derive revenue from fees paid in connection with display advertisements and search advertisements on websites. The widespread adoption of products and technologies or changes to current products, technologies and services could adversely affect our business. Acquisitions of other businesses could...

  • Page 28
    ... our international operations through the acquisition of goviral, a company that distributes branded online video for media agencies, creative agencies and content producers. We have also supplemented our international operations through the expansion of The Huffington Post. International expansion...

  • Page 29
    ... from Time Warner, including changes in the cost structure, personnel needs, financing and operations of our business. We are responsible for the additional costs associated with being an independent, publicly-traded company, including costs related to corporate governance and public reporting...

  • Page 30
    ... Data," "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" and our accompanying consolidated financial statements and the notes thereto included elsewhere in this Annual Report. Risks Relating to our Common Stock and the Securities Market Our stock price...

  • Page 31
    ... are sufficient to meet our current and projected needs. We also have an ongoing process to review and update our real estate portfolio to meet changing business needs. ITEM 3. LEGAL PROCEEDINGS On April 30, 2008, Bascom Global Internet Services, Inc. filed claims against AOL Inc. in the Eastern...

  • Page 32
    ...by the Company under its stock repurchase program: Total Number of Shares Purchased as Part of Publicly announced Plans or (a) Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or (a) Programs Period Total Number of Shares Purchased Average Price Paid per Share...

  • Page 33
    ... Stanley High-Technology index. This graph covers the period from November 24, 2009 (the first day our common stock began "when-issued" trading on the NYSE) through December 31, 2011. * $100 invested on 11/24/09 in stock or index, including reinvestment of dividends. Fiscal year ending December...

  • Page 34
    Table of Contents ITEM 6. SELECTED FINANCIAL DATA The following financial information for the five years ended December 31, 2011 has been derived from the Company's consolidated financial statements. The selected consolidated financial data as of December 31, 2011 and 2010 and for the years ended...

  • Page 35
    ... converted from AOL Holdings LLC, a limited liability company wholly owned by Time Warner, to AOL Inc., a corporation wholly owned by Time Warner. On December 9, 2009, the date of our spin-off, 105.8 million shares of $0.01 par value AOL common stock were distributed to Time Warner shareholders of...

  • Page 36
    ....com Group, we provide third party publishers with premium products and services intended to make their websites attractive to brand advertisers, such as video and custom content production, in addition to offering ad serving and sales of third party advertising inventory. Our AOL-brand access...

  • Page 37
    ... growth in global advertising revenue. Key indicators to understanding our operating results include Growth of advertising revenues; Unique visitors to AOL Properties; Monthly average churn and average paid tenure of our AOL-brand access subscribers; Our investment in the local online market, which...

  • Page 38
    ... of internet access continues to shift away from dial-up access. This trend, along with the free availability of the vast majority of our content, products and services, has contributed to, and we expect it will continue to contribute to, the decline in the number of our current subscribers. As...

  • Page 39
    ... of the employees of the acquired companies. For the years ended December 31, 2011 and 2010, we recorded retention compensation expense of $35.2 million and $6.2 million, respectively, related to incentive cash compensation arrangements made in connection with our 2010 and 2011 acquisitions. We...

  • Page 40
    ...visitors to AOL Properties Domestic average monthly unique visitors to AOL Advertising Network (a) (a) 2011 2010 2009 110 184 111 184 NA 179 Media Metrix announced the availability of an alternate methodology to estimate unique visitors, in order to provide a more accurate count of a website...

  • Page 41
    ...- Our Business" herein. Agreements for advertising on AOL Properties typically take the form of impression-based contracts in which we provide impressions in exchange for a fixed fee (generally stated as cost-per-thousand impressions), time-based contracts in which we provide a minimum number of...

  • Page 42
    ...-based fees related to marketing of third party products and services. The Third Party Network revenue increase of $70.1 million relates primarily to an increase in advertisers and publishers on the network and the acquisitions of goviral and 5Min. Domestic search and contextual revenue declined...

  • Page 43
    ... we generate revenues through paid textbased search and contextual advertising on AOL Properties provided by Google, which represent a significant percentage of the advertising revenues generated by AOL Properties. For the years ended December 31, 2011, 2010 and 2009, the revenues associated with...

  • Page 44
    ...AOL-brand access subscribers at December 31, 2011 include approximately 200,000 subscribers related to this migration. Late in the third quarter of 2011, AOL began a process to simplify the number of price plans and service packages available to AOL-brand access subscribers. As a result, we provided...

  • Page 45
    ...Years Ended December 31, 2011 2010 2009 Operating costs and expenses: Costs of revenues General and administrative Amortization of intangible assets Amounts related to securities litigation and government investigations, net of recoveries Restructuring costs Subtotal of operating costs and expenses...

  • Page 46
    ... costs of revenues. TAC consists of costs incurred through arrangements in which we acquire third-party online advertising inventory for resale and arrangements whereby partners distribute our free products or services or otherwise direct traffic to AOL Properties. TAC arrangements have a number...

  • Page 47
    ... agreements and the decline in domestic AOL-brand access subscribers. Costs of revenues also included a decrease in non-network depreciation and amortization assets. The decreases discussed above were partially offset by increased content costs of $16.3 million mainly related to Patch. General...

  • Page 48
    ... of $38.3 million for the year ended December 31, 2011 related to organizational changes made in an effort to improve our ability to execute our strategy. These restructuring costs related to the acquisition of The Huffington Post, a reassessment of our operations in India and actions in the United...

  • Page 49
    ...disposal of assets and consolidated businesses, net for the year ended December 31, 2010 of $106.0 million was related to the sale of ICQ in the third quarter of 2010. The year ended December 31, 2011 includes $1.6 million of professional fees incurred related to the regulatory review of the sale of...

  • Page 50
    ... operations was 69.0% for the year ended December 31, 2011 and differed from the statutory U.S. federal income tax rate of 35.0% due to the impact of foreign losses, for which no benefit is received on our U.S. income tax provision, and non-deductible acquisition-related expenses incurred in 2011...

  • Page 51
    ... closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for...

  • Page 52
    ... from our online advertising services more than offsets the decline in domestic AOL-brand access subscribers. In order for us to achieve an increase in earnings from advertising services, we believe it will be important to increase the number and engagement of consumers who visit our properties, to...

  • Page 53
    Table of Contents AOL INC. PART II-ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS expenditures and product development costs are mainly for the purchase of computer hardware, software, network equipment, furniture, fixtures and other office equipment. ...

  • Page 54
    ...in millions): Years Ended December 31, 2011 2010 2009 Repurchase of common stock Principal payments on capital leases Net distribution to Time Warner Tax withholdings related to net share settlements of restricted stock units Increase in cash collateral securing letters of credit Other Cash used by...

  • Page 55
    ... 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...

  • Page 56
    ... obligations secure the future rights to various assets and services to be used in the normal course of operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting...

  • Page 57
    ... purchasers of assets or operating subsidiaries and other parties related to certain matters, including losses arising out of our breach of agreements or representations and warranties made by us, services, software, data or content to be provided by us, taxes, tariffs, our use of services, software...

  • Page 58
    ...had gross accounts receivable of approximately $319.8 million and maintained an allowance for doubtful accounts of $8.3 million at December 31, 2011. Our exposure to customer credit risk relates primarily to our advertising customers and individual subscribers to our subscription access service, and...

  • Page 59
    ... on a gross basis. During 2011, we earned and reported gross advertising revenues of $383.7 million and incurred costs of revenues of $264.7 million related to providing advertising services on the Third Party Network. Impairment of Goodwill Goodwill is tested annually for impairment during the...

  • Page 60
    ...1, 2011. The premium used to arrive at a controlling interest equity value in each of these cases was determined based in part on values observed in recent market transactions, and based in part on the value of other assets that a marketplace participant could benefit from in acquiring a controlling...

  • Page 61
    ... in the consolidated financial statements using the asset and liability method prescribed by the accounting guidance for income taxes. Prior to the spin-off, income taxes as presented in the consolidated financial statements represented current and deferred income taxes of Time Warner attributed to...

  • Page 62
    ... over our long-term planning horizon as we focus our resources on AOL's core competitive strengths in web and local content production, advertising and paid services while expanding the distribution of our content, product and service offerings on multiple platforms and digital devices, including on...

  • Page 63
    Table of Contents AOL INC. PART II-ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Accounting Standards Impacting Future Periods In September 2011, new guidance was issued related to assessing goodwill impairment. The amendment provides an entity...

  • Page 64
    Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 60

  • Page 65
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of AOL Inc. We have audited the accompanying consolidated balance sheets of AOL Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity and ...

  • Page 66
    ... STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31, 2011 2010 2009 Revenues: Advertising Subscription Other Total revenues Costs of revenues General and administrative Amortization of intangible assets Amounts related to securities litigation and government...

  • Page 67
    ... of Contents AOL INC. CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) December 31, 2011 2010 Current assets: Cash and equivalents Accounts receivable, net of allowances of $8.3 and $16.1, respectively Prepaid expenses and other current assets Deferred income taxes Total current...

  • Page 68
    ... and product development costs Investment activities from discontinued operations Cash provided (used) by investing activities Financing Activities Repurchase of common stock Principal payments on capital leases Net distribution to Time Warner Tax withholdings related to net share settlements...

  • Page 69
    ...-in capital based on the number of shares of AOL common stock issued and outstanding. 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...

  • Page 70
    ...eleven shares of Time Warner common stock held. On December 10, 2009, AOL began trading on the New York Stock Exchange as an independent, public company. Basis of Presentation Basis of Consolidation The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and...

  • Page 71
    ... of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS services that were provided to AOL by Time Warner, including cash management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit, accounting and...

  • Page 72
    ... the provision of online advertising which is accounted for based on performance. Subscription Revenues The Company earns revenue from its subscription access service in the form of monthly or annual fees paid by subscribers to its dial-up internet access service, and such revenues are recognized on...

  • Page 73
    ...Properties priced on a per-click basis (e.g., search engine marketing fees) and (iii) payments to partners in exchange for distributing AOL products to their users (e.g., agreements with computer manufacturers to distribute the AOL toolbar or a co-branded web portal on computers shipped to end users...

  • Page 74
    ... of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS the award. Excess tax benefits realized from the exercise of stock options are reported as a financing cash inflow rather than as a reduction of taxes paid in cash flows from operations. See "Note 8" for additional information on...

  • Page 75
    ... Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AOL recorded non-cash asset impairments and write-offs related to long-lived assets held and used and held for sale of $7.6 million, $12.1 million and $23.1 million in 2011, 2010 and 2009, respectively, included in costs of revenues...

  • Page 76
    ... herein, the Company has had a contractual relationship with Google whereby Google provides paid text-based search advertising and contextual advertising on AOL Properties. For the years ended December 31, 2011, 2010 and 2009, the revenues associated with the Google relationship (substantially...

  • Page 77
    ... of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Allowance for Doubtful Accounts AOL's receivables consist primarily of two components, receivables from individual subscribers to AOL's subscription access service and receivables from advertising customers. Management performs...

  • Page 78
    ... FINANCIAL STATEMENTS Research and Development Research and development costs related to the Company's software development efforts, which are expensed as incurred, are included in costs of revenues and totaled $56.9 million, $63.2 million and $63.2 million for the years ended December 31, 2011...

  • Page 79
    ... is providing online advertising as well as non-advertising elements (i.e., production of a "micro-site"). However, the Company currently does not enter into a significant number of these arrangements. The adoption did not have material impact on the Company's financial statements for the year ended...

  • Page 80
    Table of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2011, the Company had 104.2 million weighted-average shares outstanding which were used to calculate basic income (loss) per common share. The Company had 9.0 million of weighted-average ...

  • Page 81
    .... The premium used to arrive at a controlling interest equity value was determined based in part on values observed in recent market transactions, and based in part on other assets that a marketplace participant could benefit from in acquiring a controlling interest in the Company's reporting unit...

  • Page 82
    Table of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Company's stock price declined, actual operating income slightly exceeded its projections, and the Company's long-term projections did not materially change during that period. Given these trends, management determined that ...

  • Page 83
    ...Company's intangible assets and related accumulated amortization at December 31, 2011 and 2010 consisted of the following (in millions): December 31, 2011 Gross Accumulated (a) Amortization Net Gross December 31, 2010 Accumulated (a) Amortization Net Acquired technology Customer relationships Trade...

  • Page 84
    ... 2011, the Company acquired The Huffington Post.com, Inc. ("The Huffington Post") for a purchase price of $295.5 million, net of cash acquired. The Huffington Post is an innovative internet source of online news, analysis, commentary, entertainment and community engagement. In addition to the market...

  • Page 85
    ... to discover and share content. On September 29, 2010, the Company completed the acquisition of TechCrunch, Inc. ("TechCrunch"), a company that owns and operates a network of websites dedicated to technology news, information and analysis. This business was acquired to enhance AOL's offerings of...

  • Page 86
    Table of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • • On December 15, 2010, the Company completed the acquisition of Pictela, Inc. ("Pictela"), a provider of rich media advertising formats used by agencies and publishers. This business was acquired to further the Company...

  • Page 87
    ... buy.at sale. Financial data for discontinued operations for the years ended December 31, 2010 and 2009 is as follows (in millions): Years Ended December 31, 2010 2009 Total revenues Pre-tax loss (before loss on sale of business) Pre-tax loss on sale of business Income tax benefit Net income (loss...

  • Page 88
    ... and $5.2 million for the years ended December 31, 2011, 2010 and 2009, respectively, and is included in "Other income (loss), net" on the consolidated statements of operations. Interest expense for 2010 includes $6.9 million related to credit facility fees paid to Time Warner. The weighted-average...

  • Page 89
    ... and reported under the "separate return method." The separate return method applies the accounting guidance for income taxes to the financial statements as if AOL were a separate taxpayer and a standalone enterprise for the entire period. Prior to the spin-off, AOL was included in Time Warner...

  • Page 90
    ... (in millions): Years Ended December 31, 2011 2010 2009 Beginning balance Additions for current year tax positions Reductions for prior year tax positions Unrecognized tax benefits retained by Time Warner following spin-off Reductions as a result of expiration of statute of limitations Total 86...

  • Page 91
    Table of Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AOL entered into a Second Tax Matters Agreement with Time Warner, effective December 9, 2009, that governs the respective post spin-off rights, responsibilities and obligations of Time Warner and AOL with respect to tax ...

  • Page 92
    ... FINANCIAL STATEMENTS As of December 31, 2011, 107,037,724 shares of common stock were issued and 94,278,437 shares of common stock were outstanding. No dividends were declared or paid for the years ended December 31, 2011, 2010 and 2009. On August 10, 2011, the Company's Board of Directors...

  • Page 93
    ... benefit retirement plans or after reaching a specified age and years of service. Pursuant to these equity plans, Time Warner also granted shares of common stock or RSUs to employees of AOL. These awards generally vested between three to five years from the date of grant. Certain RSU awards provided...

  • Page 94
    ... Contents AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Acquisition of The Huffington Post In connection with the acquisition of The Huffington Post in March 2011, the Company assumed the Huffington Post Plan and, as discussed above, agreed to consideration valued at $12.1 million related...

  • Page 95
    ... peer group of publicly traded companies. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on the historical exercise experience of AOL employees that held similar options to acquire Time Warner common stock. The risk-free...

  • Page 96
    ... related to these awards will be different from the Company's expectations. Total fair value of shares vested during the year ended December 31, 2011 was $27.4 million. Time Warner Stock Options The assumptions presented in the table below represent the weighted-average value of the applicable...

  • Page 97
    ... spin-off, there are no outstanding unvested Time Warner RSUs held by AOL employees. NOTE 9-RESTRUCTURING COSTS 2011 Restructuring Costs In connection with the Company's restructuring initiatives, the Company incurred $38.3 million in restructuring costs for the year ended December 31, 2011 related...

  • Page 98
    ... $49.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. The Company has long-term non-cancelable lease commitments for office space and operating equipment in various locations around the world, a number of which have renewal options at market rates to be determined prior...

  • Page 99
    ... amounts being paid by the Company in the foreseeable future. Included in the commitment amounts discussed above are certain commitments to Time Warner, see "Note 12" for additional information. Contingencies On April 30, 2008, Bascom Global Internet Services, Inc. filed claims against AOL Inc. in...

  • Page 100
    ...was entitled to receive, during 2010, AOL issued to Polar Capital 194,857 shares of AOL common stock. Transactions with Time Warner Through the date of the spin-off, AOL had certain related party relationships with Time Warner and its subsidiaries. In connection with the separation, AOL entered into...

  • Page 101
    ... of expenses related to charges for services performed by Time Warner. These expenses were recorded as operating expenses by AOL as incurred. Tax Matters Agreements In connection with Google's investment in the Company in 2006, AOL entered into a tax matters agreement with Time Warner governing AOL...

  • Page 102
    ... FINANCIAL STATEMENTS NOTE 14-SELECTED QUARTERLY FINANCIAL DATA (Unaudited) Quarter Ended March 31, June 30, September 30, December 31, 2011 Revenues: Advertising Subscription Other Total revenues Costs of revenues (a) Operating income (loss) Net income (loss) attributable to AOL Inc. Basic...

  • Page 103
    Table of Contents AOL Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2009, 2010 and 2011 (In millions) Balance at Beginning of Year Additions Charged to Costs and Expenses Allowance for Doubtful Accounts Deductions Balance at End of Year 2009 2010 2011 $ $ $ 39.8 ...

  • Page 104
    Table of Contents ITEM 9. None. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 100

  • Page 105
    ...the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in...

  • Page 106
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of AOL Inc. We have audited AOL Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control- Integrated Framework issued ...

  • Page 107
    Table of Contents ITEM 9B. None. OTHER INFORMATION 103

  • Page 108
    Table of Contents AOL Inc. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE In addition to the information set forth under the caption "Executive Officers of the Registrant" in Part I, Item 1 of this Annual Report, the information required by this Item is incorporated by ...

  • Page 109
    Table of Contents AOL Inc. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The Financial Statements listed in the Index to Consolidated Financial Statements and Supplementary Data, filed as part of this Annual Report. (a)(2) Financial Statement Schedule The ...

  • Page 110
    ... has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 24, 2012. AOL INC. By Name: Title: /s/ ARTHUR MINSON Arthur Minson Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that...

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    Table of Contents AOL INC. SIGNATURES Signature Title Date /s/ /s/ /s/ PATRICIA E. MITCHELL Patricia E. Mitchell Director Director Director 107 February 24, 2012 February 24, 2012 February 24, 2012 FREDRIC G. REYNOLDS Fredric G. Reynolds JAMES R. STENGEL James R. Stengel

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    ... AOL Inc. and Digital Sky Technologies Limited dated April 28, 2010 (incorporated herein by reference to Exhibit 2.1 to the Registrant's Form 10-Q dated August 4, 2010). Agreement and Plan of Merger By and Among AOL Inc., Headline Acquisition Corporation, TheHuffingtonPost.com, Inc. and Shareholder...

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    ...and Restated Annual Incentive Plan for Executive Officers (incorporated herein by reference to Annex B of the (Registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission on March 16, 2010 (File No. 001-34419)).** TheHuffingtonPost.com, Inc. Long-Term Incentive Plan, as...

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    ... 21, 2010 (incorporated herein by reference to Exhibit 10.28 to the Registrant's Form 10-K dated February 25, 2011).** Amended and Restated Interactive Marketing Agreement between AOL LLC and Google Inc., dated October 1, 2003 (the "IMA") (incorporated herein by reference to Exhibit 10.22 to the...

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    Table of Contents AOL INC. EXHIBIT INDEX Exhibit Number Description 10.40 10.41 10.42 10...herein by reference to Exhibit 10.70 to the Registrant's Form 10-K dated March 2, 2010).* Consent Letter related to the IMA, dated August 19, 2008 (incorporated herein by reference to Exhibit 10.46 to the ...

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    ... Registered Public Accounting Firm. Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Certification of Principal Financial Officer pursuant...

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    ...iv) Consolidated Statements of Equity for the years ended December 31, 2011, 2010 and 2009 and (v) Notes to Consolidated Financial Statements. ††Portions of this agreement have been omitted pursuant to a request for confidential treatment. Management contract or compensatory plan or arrangement...

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    ... as of December 1, 2011, Company shall pay Executive a base salary at the rate of no less than $25,000.00 semi-monthly, less applicable withholdings, which is $600,000.00 on an annual basis ("Base Salary"). Executive's Base Salary will be reviewed annually during the Employment Term and may be...

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    [Signature page to Amendment follows] 2

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    IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first written above. AOL Inc. /s/ Sandy Mott Sandy Mott Vice President, Human Resources /s/ Julie Jacobs Julie Jacobs Executive Vice President and General Counsel 3

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    ... 2011 (the "Amendment 32 Effective Date") and amends the Amended and Restated Interactive Marketing Agreement, dated October 1, 2003, as amended by Amendments 1 through 31 (the "IMA"). AOL and Google may be referred to individually as a "Party" and collectively as the "Parties" and capitalized terms...

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    ... WITNESS WHEREOF, the Parties have executed this Amendment 32 to the IMA. AOL INC. By: Name: Title: Date: GOOGLE INC. /s/ Nikesh Arora By: Nikesh Arora Name: President, Global Sales and Business Development Title: Date: 2011.12.21 16:30:03 -08'00' /s/ Francis Lobo Francis Lobo SVP: AOL Search 12/21...

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    Exhibit 1 of Amendment 32 A Complete Set of Representative Screenshots of each 19 pages] 3

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    ... S.L.U. GOVIRAL LIMITED Goviral S.Ã r.l. Goviral S.r.l. Goviral B.V. AOL Fulfillment Services LLC AOL International Finance Limited AOL Online India Private Limited AOL Ventures I, LLC CompuServe Interactive Services, Inc. Goviral LLC MapQuest, Inc. Netscape Communications Corporation Delaware...

  • Page 125
    ... Limited AOL Online Japan, Ltd. Nullsoft, Inc. Outside.in Inc. Patch Media Corporation Pictela, Inc. Spinner Networks Incorporated StudioNow, Inc. TechCrunch, Inc. TheHuffingtonPost.com, Inc. The Relegence Corporation AOL Relegence Israel Ltd. Thing Labs, Inc. Truveo, Inc. Userplane Technology...

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    ... to the consolidated financial statements and schedule of AOL Inc. and the effectiveness of internal control over financial reporting of AOL Inc. included in this Annual Report (Form 10-K) of AOL Inc. for the year ended December 31, 2011. /s/ Ernst & Young LLP McLean, Virginia February 24, 2012

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    Exhibit 31.1 CERTIFICATIONS I, Timothy M. Armstrong, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of AOL Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material ...

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    Exhibit 31.2 CERTIFICATIONS I, Arthur Minson, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of AOL Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact ...

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    ...-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the year ended December 31, 2011 of AOL Inc. ("the Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18...