America Online 2011 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2011 America Online annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 129

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129

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 the option to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity
would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than
not that its fair value is less than its carrying amount. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step
impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying
amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount
of the impairment loss, if any.
The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early
adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial
statements for the most recent annual or interim period have not yet been issued. This new guidance became effective for AOL in January 2012. Given the
proximity of our book value and fair value (as discussed in Note 3), we currently do not expect this new guidance to change the way we perform our analysis
for goodwill.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential gain or loss arising from changes in market rates and prices, which historically for us, has been associated primarily with
changes in foreign currency exchange rates. We transact business in various foreign currencies which exposes us to the risk of fluctuations in foreign currency
exchange rates. At December 31, 2011, while the majority of our cash balance was denominated in U.S. dollars, cash denominated in foreign currencies made
up approximately 23% of total cash, including 13% in Euros, 3% in British pounds, 3% in Canadian dollars and 2% in Indian rupees.
We used derivative instruments (principally foreign exchange forward contracts), which historically were entered into by Time Warner on our behalf, to
manage the risk associated with exchange rate volatility. Prior to the spin-off, all outstanding derivative instruments were settled. Subsequent to the spin-off
and through December 31, 2011, we have not entered into any derivative instruments or hedges. While we may enter into derivative instruments or hedges in
the future, we do not currently believe our exposure to foreign exchange risk is significant.
59