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Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Contractual Obligations and Commitments
We have obligations under certain contractual arrangements to make future payments for goods and services. These contractual 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 rules, the future rights and
obligations pertaining to firm commitments, such as operating lease obligations and certain purchase obligations under contracts, are not reflected as assets or
liabilities in the accompanying consolidated balance sheets.
The following table presents certain payments due under contractual obligations with minimum firm commitments as of December 31, 2011 (in
millions):
Total 2012 2013-2014 2015-2016 Thereafter
Capital lease obligations $ 119.5 $ 49.6 $ 65.9 $ 4.0 $ —
Net operating lease obligations 310.6 45.9 80.4 63.3 121.0
Purchase obligations 100.7 62.3 36.3 1.4 0.7
Other liabilities 27.0 15.7 11.3 — —
Total contractual obligations $ 557.8 $ 173.5 $ 193.9 $ 68.7 $ 121.7
The following is a description of our material contractual obligations at December 31, 2011:
• Capital lease obligations represent the minimum lease payments under non-cancelable capital leases, primarily for network equipment financed
under capital leases. See "Note 5" in our accompanying consolidated financial statements for more information.
• Net operating lease obligations represent the minimum lease payments under non-cancelable operating leases, net of contractually committed
sublease income, primarily for our real estate and operating equipment in various locations around the world. Included in the above table are
approximately $196.8 million of payments associated with the lease of our corporate headquarters in New York. We have leased our corporate
headquarters for a non-cancelable initial lease term that ends February 2023, and we have the option to extend the lease for an additional five
years. Monthly rental payments to the landlord under this lease escalate by approximately 7% after the end of the fifth year and tenth year of the
lease term. In 2010 AOL entered into a new lease of a building in California, and included in the above table are approximately $54.8 million of
payments associated with this property. AOL has leased this space for a non-cancelable initial lease term that ends in June 2017 with no renewal
options. Rent was abated for the first nine months of the lease term with partial rent abatement for an additional three months. Only operating
expenses were paid during the rent abatement period. Also included in the above table are payments for ongoing leases associated with AOL's
restructuring activities. AOL has recorded a liability on the balance sheet of $7.1 million related to these payments. See "Note 10" in our
accompanying consolidated financial statements for more information.
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