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Table of contents

  • Page 1
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  • Page 3
    MISSION TO SIMPLIFY THE INTERNET FOR CONSUMERS AND CREATORS BY UNLEASHING THE WORLD'S BEST BUILDERS OF CULTURE AND CODE 1

  • Page 4
    ...we added to AOL this year was to increase our ability to be DGLYHUVLW\FHQWHUHGFRPSDQ\:HVHWDÈ´UVWVWDJHJRDORILQFUHDVLQJWKHGLYHUVLW\LQWKHWDOHQWSRRO from which we recruit by 30% in 2015 and we expect to accomplish that goal. As a fellow shareholder and member of the AOL community, the...

  • Page 5
    ...stands for "Open, 2QOLQH2ÉžLQH...truly global content platform and its marriage with AOL has created one of the most unique media assets ...AOL.com also went mobile and social during the year with the launch of the new AOL mobile...market leading features on both the demand and supply side of our business...

  • Page 6
    ...content and DGYHUWLVLQJKDYHEHJXQWRHPHUJH:HEHOLHYHWKDW$2/ȇVDVVHWVZLOODOORZXVWREHDYDOXDEOH principal and partner in these coming changes and also allow us to lead some of the changes...ZRUOGRQHFRPPXQLW\DQGRQHGD\ at a time. $2/LVDXQLTXHFRPSDQ\ZLWKXQLTXHFDSDELOLWLHVDWDYHU...

  • Page 7
    ... global media technology company behind the web's most engaging consumer experiences and smartest advertising solutions. We create compelling stories, eye-opening videos and essential products, services and solutions that build our own brands as well as those of our partner publishers and marketers...

  • Page 8
    ... of people to their favorites stories, brands and products across all of their devices. The Pulitzer Prize-winning breaking news and views site is the source for the #1 shared content on Facebook.1 Covering the best tech industry companies and products as well as staging Silicon Valley's most...

  • Page 9
    ...'s top names in entertainment, tech, fashion and business to our NYC HQ to share their stories and inspirations. Held before an audience of AOLers, media and partners, BUILD is streamed live on AOL.com and third-party publisher sites. 3 Dec14 comScore VMX, U.S. Content Only 4 All data is internal...

  • Page 10
    ... CROSS-SCREEN 250% PROGRAMMATIC REVENUE GROWTH IN 2014 AOL'S PROGRAMMATIC SUITE ADVERTISER SERVICES Video DSP Display DSP TV DSP DMP Multi-Touch Attribution Branded Entertainment Native/Personalization Premium Video Network Premium Display Network Rich Media Ad Server PUBLISHER SERVICES Video SSP...

  • Page 11
    ...DOORIRXUR΍HULQJVZLWK top-notch customer service. AOL communication products, including AOL Mail, AIM, AOL Desktop and the AOL apps for iOS and Android, connect our 20 million monthly users with friends and the latest news, weather and video content.1 1 Dec14 comScore, Worldwide Desktop Only

  • Page 12
    7KLV$QQXDO5HSRUWFRQWDLQVIRUZDUGORRNLQJVWDWHPHQWVWKDWDUHVXEMHFWWRULVNV and uncertainties as discussed on, and may change as a result of the factors OLVWHGRQSDJHRIWKHHQFORVHG$QQXDO5HSRUWRQ)RUP.

  • Page 13
    ...New York Stock Exchange on June 30, 2014) was approximately $3.1 billion. As of February 24, 2015, the number of shares of the Registrant's common stock, par value $0.01 per share, outstanding was 78,413,472. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this report...

  • Page 14

  • Page 15
    ... About Market Risk ...Item 8. Financial Statements and Supplementary Data ...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...Directors, Executive Officers and Corporate Governance...

  • Page 16
    ... of Cash Flows for the years ended December 31, 2014, 2013 and 2012 ...Consolidated Statements of Equity for the years ended December 31, 2014, 2013 and 2012 ...Note 1: Description of Business, Basis of Presentation and Summary of Significant Accounting Policies ...Note 2: Income Per Common Share...

  • Page 17
    ... 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 18
    ... AOL's culture and brand by prioritizing the consumer experience, making greater use of data-driven insights, encouraging innovation and optimizing our advertising technology to create an end-to-end open data platform. AOL was founded in 1985 and later merged with Time Warner Inc. ("Time Warner...

  • Page 19
    ... social formats. AOL Platforms also provides additional technology solutions that enhance our programmatic platforms and enable advertisers and publishers to have an end-to-end open programmatic media buying experience by providing access to Third Party Properties, AOL Properties ad serving, content...

  • Page 20
    ...and provides easy access to important services such as AOL Search and AOL Mail. We seek to continuously develop and refine our home page by offering enhanced features and functionality, including original video content and user interface improvements. The Huffington Post-an influential news, opinion...

  • Page 21
    ... content from important brands, communication tools, including AOL Mail, and valuable services, such as AOL Search. In addition, we continue to offer new products and services that are either third party or AOL-developed products that are made available to our subscribers as value-added benefits...

  • Page 22
    ... plans provide a suite of products and services ranging from online storage, privacy and security solutions to technical support, back-up and unlimited dial-up internet access options, computer protection and partner discounts. Similar to the Brand Group, through different services operated by AOL...

  • Page 23
    ...publishers to have an end-to-end open programmatic media buying experience by providing access to Third Party Properties and AOL Properties, ad serving, content personalization and attribution and analytics. Advertising.com (Ad.com) Ad.com is our legacy global third-party advertising network. Ad.com...

  • Page 24
    ... advertisers to develop a media plan that maximizes return on ad spend across various media channels. We believe this technology provides solutions to brands and agencies seeking to have an expansive and holistic view of their target customers across their entire purchasing path in real-time. Video...

  • Page 25
    ...key platform that our advertisers and publishers use to buy and sell video advertising inventory programmatically across all internet-enabled devices. We believe Vidible, our programmatic video exchange platform, will also enhance our growing platform by providing partners access to additional video...

  • Page 26
    ... December 31, 2015. In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search and contextual advertising on AOL Properties. For the year ended December 31, 2014, advertising revenues associated with the Google relationship were...

  • Page 27
    ... have been steadily increasing our use of open source technologies, thirdparty providers 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 2014, 2013 and 2012 totaled $37...

  • Page 28
    ... social networking sites, providers of communications tools and providers of advertising products and services. We also compete with the companies listed above for talent in technology skills and content creation, among other areas. Government Regulation and Other Regulatory Matters Our business...

  • Page 29
    ...our business." For geographic area data for the years ended December 31, 2014, 2013 and 2012, see "Note 12" in our accompanying consolidated financial statements. Seasonality In the fourth quarter, we have historically seen a sequential increase in advertising revenues across our segments associated...

  • Page 30
    ... New York Stock Exchange ("NYSE") under the symbol "AOL." You can inspect and copy reports, proxy statements and other information about us at the NYSE's offices at 20 Broad Street, New York, New York 10005. We also maintain an internet web site at www.corp.aol.com . We use our website as a channel...

  • Page 31
    ...Razorfish LCC, a digital agency which provides services such as web development and emerging media, technology and social influence marketing, from February 2009 to August 2013. Mr. Lord also worked for Publicis Group S.A., a multinational advertising and public relations company, as CEO of Publicis...

  • Page 32
    ... our advertising revenues also depends on our ability to continue offering effective products and services for advertisers and publishers. As the advertising market generates and develops new concepts and technology, we may incur additional costs to implement more effective products and services. As...

  • Page 33
    ...our advertising revenues could be adversely affected. In order to attract consumers and maintain or increase engagement on AOL Properties, we believe we must offer compelling content, products and services across all devices, including mobile. Acquiring, developing and offering new content, products...

  • Page 34
    ... factors, including the increased availability of high-speed internet broadband connections and attractive bundled offerings by such broadband providers, the fact that a significant amount of online content, products and services has been optimized for use with broadband internet connections and the...

  • Page 35
    ...increasingly using social networking sites to communicate and to acquire and disseminate information rather than through instant messaging, electronic mail and portals. As consumers migrate towards social networks, we continue to build social elements into our content, products and services in order...

  • Page 36
    ... to grow advertising revenue will become increasingly dependent on our ability to generate revenue from ads on mobile and other internet enabled devices such as settop boxes (e.g., Roku, Amazon Fire TV). In order for consumers to access and use our content, products and services via these devices...

  • Page 37
    ...a significant number of user accounts. This information included AOL users' email addresses, postal addresses, address book contact information, encrypted passwords and encrypted answers to security questions that we ask when a user resets his or her password, as well as certain employee information...

  • Page 38
    ... of AOL, consumer or other data could adversely affect our business. Our operations utilize significant amounts of data about our business, consumers, AOL subscribers and our advertising and publishing partners in order to deliver our content, products and services and our advertising solutions...

  • Page 39
    ..., 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 business planning decisions about data use, notice, storage, access, retention or choice. The existing privacy-related laws and...

  • Page 40
    ... of our strategic objectives and the results of our operations. If we do not fully realize or maintain the anticipated benefits of this or any restructuring plans and cost reduction initiatives, our business could be adversely affected. The terms of our revolving credit facility contain restrictive...

  • Page 41
    ... Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Our outstanding Notes may be settled in cash, and the accounting method for such convertible debt securities could have a material effect on our reported financial results. In...

  • Page 42
    ... to the increase in our common stock market price and in volatility of our common stock. In addition, upon a default by the option counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurance as to the financial stability or...

  • Page 43
    ... depress the market price of our common stock. We may need to raise additional capital, and we cannot be sure that additional financing will be available. We have funded our ongoing working capital, capital expenditure and financing requirements through cash flows from operations, asset dispositions...

  • Page 44
    ... distribution of content and the display and sale of advertising; uncertain protection and enforcement of our investment or intellectual property rights; import or export restrictions and changes in trade regulations; difficulties in developing, staffing and simultaneously managing a large number of...

  • Page 45
    ... capital gains that may be generated from a potential asset sale. Our ability to use the tax assets could be limited and the timing of the usage of the tax assets could be substantially delayed if we experience an "ownership change," as defined in Section 382 of the Internal Revenue Code. A company...

  • Page 46
    ...Virginia comprised of office buildings, child care and support facilities of approximately 650 thousand square feet. In addition to these properties, we lease approximately 1,100 thousand square feet in over 50 facilities for use as corporate offices, sales offices, development centers, data centers...

  • Page 47
    ... EQUITY SECURITIES AOL's common stock is listed on the New York Stock Exchange ("NYSE"), under the symbol "AOL." The following table presents the quarterly high and low sales prices for the common stock on the NYSE as reported for each period indicated: High Low 2013 Quarters Ended: March 31, 2013...

  • Page 48
    ...* $100 invested on 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2014 S&P, a division of The McGraw - Hill Companies Inc. All rights reserved. 12/09 AOL Inc...S&P Midcap 400 ...Morgan Stanley High-Technology Index ...100.00 100.00 100.00...

  • Page 49
    ...elsewhere in this Annual Report. 2014 ($ in millions, except per share amounts) Years Ended December 31, 2013 2012 2011 2010 Statement of Comprehensive Income (Loss) Data: Revenues: Advertising and other ...Subscription ...Total revenues ...Costs of revenues ...Operating income (loss) (a) ...Income...

  • Page 50
    ...income related to discontinued operations of $8.2 million in 2010. 2014 (in millions) 2013 December 31, 2012 2011 2010 Balance Sheet Data: Cash and equivalents ...Goodwill ... Total assets ...Convertible senior notes ...Long-term portion of obligations under capital leases ...Total equity ... $ 488...

  • Page 51
    ... Revenues from the sale of our programmatic offerings are primarily reflected in AOL Platforms' results. In 2015 we are launching ONE by AOL, our end-to-end open programmatic marketing suite for brands and agencies that provides a single, unified, enterprise-level platform for driving powerful brand...

  • Page 52
    ...offer advertisers, publishers and agencies a means of planning, buying and measuring video advertising programmatically across the internet, television and mobile video. 2014 Developments Acquisition of Gravity On January 23, 2014, we acquired Gravity, a company that provides content personalization...

  • Page 53
    ...our 2014 Stock Repurchase Program at a weighted-average price of $42.46 per share. Sale of Dulles Technology Center On July 30, 2014, we completed the sale of a data center property located in Virginia for cash of approximately $33.1 million, net of costs to sell the property. The proceeds were used...

  • Page 54
    ... distribution platform that offers self-service functionalities through a set of video tools and exchange capabilities, for a total purchase price of $55.9 million, net of cash acquired. The integration of Vidible technology will further extend AOL's leadership position in video content management...

  • Page 55
    ... years ended December 31, 2014, 2013 and 2012, respectively. We include in our subscriber numbers individuals, households and entities that have provided billing information and completed the registration process sufficiently to allow for an initial log-on to the AOL access service. Our subscriber...

  • Page 56
    ...in terms of either "click-throughs," when a user clicks on a company's advertisement, or other user actions such as product/customer registrations, survey participation, sales leads, product purchases or other revenue sharing relationships. Search advertising revenues are generated on AOL Properties...

  • Page 57
    ... four months in 2013 (Third Party Properties revenue grew approximately 20% for the year ended December 31, 2014 excluding Adap.tv). The growth in AOL Properties search revenue was driven by an increase in queries from search marketing-related efforts. Revenue growth associated with search marketing...

  • Page 58
    ... in this Annual Report, we have had a contractual relationship with Google whereby Google provides us with a share of the revenue generated through paid text-based search and contextual advertising on AOL Properties. For the years ended December 31, 2014, 2013 and 2012, the revenues associated with...

  • Page 59
    ... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Costs and Expenses The following table presents our operating costs and expenses for the periods presented (in millions): Years Ended December 31, Change % Change from 2013 from 2013 to 2014 to 2014 2012...

  • Page 60
    ... a year-end employee bonus and an acquisition-related bonus. The decrease in network-related costs was primarily due to fewer depreciable network assets. Other costs of revenues also includes a decline in sales tax expense of $9.6 million related to expense incurred in 2012 from a Virginia sales tax...

  • Page 61
    ...assets including acquired technology, customer relationships and trade names. Amortization of intangible assets increased for the year ended December 31, 2014 compared to the prior year period primarily due to increased intangible assets resulting from our 2013 and 2014 acquisitions. Amortization of...

  • Page 62
    ... upon the sale of our legacy access businesses in the United Kingdom and Germany in 2006 and 2007, respectively. Operating Income (Loss) Operating income increased for the year ended December 31, 2014 as compared to the same period in 2013 primarily due to the increase in revenues, declines in...

  • Page 63
    ... a tax benefit, offset by the benefit of research and development tax credits. The effective tax rate for the year ended December 31, 2013 increased compared to the effective tax rate for the period ended December 31, 2012 primarily due to the tax impact of the 2012 patent transaction with Microsoft...

  • Page 64
    ... contest costs of $8.9 million, $7.6 million of tax settlement expenses and acquisition-related costs of $5.1 million. Segment Results of Operations We have three reportable segments which are determined based on the properties, products and services we provide and how our chief operating decision...

  • Page 65
    ... initiatives, including cost savings associated with the shutdown or disposed brands, including Patch, partially offset by increased TAC associated with our search marketing-related efforts. 2013 vs. 2012 Brand Group revenue increased, reflecting an increase in AOL Properties display revenue of $41...

  • Page 66
    ...MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Membership Group 2014 vs. 2013 Membership Group revenue decreased due to the 11% decline in our domestic AOL subscribers, which resulted in a decline in subscription revenue of $58.7 million and a decline in search...

  • Page 67
    ...formats. Corporate and Other 2014 vs. 2013 Corporate and other Adjusted OIBDA increased due to lower personnel costs, partially offset by increased expenses associated with data centers as we shift from owned sites to increased utilization of cloud technology and a prior year benefit of $6.3 million...

  • Page 68
    ... large partner in 2014 and lower employee bonus and deferred compensation payments in 2014, partially offset by timing of other working capital. Cash provided by operating activities decreased $46.7 million for the year ended December 31, 2013, as compared to the year ended December 31, 2012, driven...

  • Page 69
    ... cash (used) provided by investing activities for the periods presented (in millions): Years Ended December 31, 2014 2013 2012 Investments and acquisitions, net of cash acquired ...Proceeds from disposal of assets, net ...Capital expenditures and product development costs ...Cash (used) provided...

  • Page 70
    ... by increases in capital expenditures and product development costs and increases in principal payments on capital leases. Free Cash Flow decreased for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This decrease is due to the decline in cash provided by operating...

  • Page 71
    ...; and the approximate timing of the transaction. We expect to receive consideration (i.e., products or services) for these purchase obligations. See "Note 10" in our accompanying consolidated financial statements. • • • Our liabilities for unrecognized tax benefits of $59.8 million...

  • Page 72
    ... us, services, software, data or content to be provided by us, taxes, tariffs, our use of services, software, data or content provided by third parties, the export or import of our software or data, compliance with applicable laws and regulations, infringement of third party intellectual property or...

  • Page 73
    ... management to make estimates, judgments and assumptions that affect the amounts reported in the accompanying consolidated financial statements and the accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations...

  • Page 74
    ...our December 1, 2014 annual impairment testing date we have three reporting units for purposes of the goodwill impairment test; the Brand Group, the Membership Group and AOL Platforms. There are no components below these three reporting units for which discrete financial information is available and...

  • Page 75
    ...'s financial projections and based on our historical results of operations. We currently expect positive growth in our projected taxable income over our long-term planning horizon as we focus our resources on our core competitive strengths in web content production, advertising and paid services...

  • Page 76
    ... operations. Revenues from Contracts with Customers In May 2014, new guidance was issued related to the recognition of revenue. The new guidance will create a consistent accounting framework for revenue recognition under both U.S. GAAP and International Financial Reporting Standards. The new...

  • Page 77
    ... timing of our revenue recognition and our financial statements. Share-based Payments In June 2014, new guidance was issued related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. Existing...

  • Page 78
    ... currency exchange rates. Foreign currency exchange gains and losses are not material to our financial statements in 2014, 2013 and 2012. At December 31, 2014, while the majority of our cash and accounts receivable balances were denominated in U.S. dollars, cash and accounts receivable denominated...

  • Page 79
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 63

  • Page 80
    ...the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AOL Inc.'s internal control over financial reporting as of...

  • Page 81
    AOL INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except per share amounts) Years Ended December 31, 2014 2013 2012 Revenues: Advertising and other ...Subscription ...Total revenues ...Costs of revenues ...General and administrative ...Amortization of intangible assets ......

  • Page 82
    ..., except per share amounts) December 31, 2014 2013 Assets Current assets: Cash and equivalents ...Accounts receivable, net of allowances of $9.5 and $8.3, respectively ...Prepaid expenses and other current assets ...Deferred income taxes, net ...Total current assets ...Property and equipment...

  • Page 83
    ... ...Deferred revenue ...Other balance sheet changes ...Cash provided by operating activities ...Investing Activities Investments and acquisitions, net of cash acquired ...Proceeds from disposal of assets, net ...Capital expenditures and product development costs ...Cash (used) provided by investing...

  • Page 84
    AOL INC. CONSOLIDATED STATEMENTS OF EQUITY (In millions) Accumulated Treasury Other Retained Stock, Additional Comprehensive Earnings NonCommon Stock Paid-In at Cost Income (Accumulated Controlling Shares Amount Capital (Loss), Net Deficit) Shares Amount Interest Balance at December 31, 2011 ...94.3...

  • Page 85
    ... a number of owned and operated sites, such as AOL.com, The Huffington Post, TechCrunch, and MapQuest and include its multi-screen content optimization and personalization technology. Membership Group The Membership Group consists of offerings that serve AOL registered account holders, both free and...

  • Page 86
    ...comprehensive income reflects 100% of the results of Ad.com Japan for the years ended December 31, 2014, 2013 and 2012 as the Company has a controlling financial interest in the entity. Net income is subsequently adjusted to exclude AOL's noncontrolling interests to arrive at net income attributable...

  • Page 87
    ... on a company's advertisement or other user actions such as product/customer registrations, survey participation, sales leads, product purchases or other revenue sharing relationships. Gross versus Net Revenue Recognition In the normal course of business, the Company sometimes acts as or uses an...

  • Page 88
    ... term. Subscription Revenues The Company earns revenue from its subscription services in the form of monthly or annual fees paid by subscribers to its service offerings, and such revenues are recognized on a straight-line basis as the service is provided. Traffic Acquisition Costs AOL incurs costs...

  • Page 89
    ... requires that a company measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost associated with stock options is estimated using the Black-Scholes option-pricing model. The cost of equity instruments...

  • Page 90
    ... FINANCIAL STATEMENTS The testing of goodwill for impairment is required to be performed at the level referred to as the reporting unit. During 2014, the Company had three reporting units for purposes of the goodwill impairment test; the Brand Group, the Membership Group and AOL Platforms...

  • Page 91
    ... with Google Inc. ("Google") whereby Google provides paid text-based search advertising on AOL Properties. For the years ended December 31, 2014, 2013 and 2012, the revenues associated with the Google relationship (substantially all of which were search revenues generated on AOL Properties), were...

  • Page 92
    .... NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash and Equivalents Cash equivalents primarily consist of highly liquid short-term investments with an original maturity of three months or less, which include money market accounts, U.S. treasury bills and time deposits that are readily convertible...

  • Page 93
    ... user-facing internet offerings, are included in property and equipment, net on the consolidated balance sheets. For the years ended December 31, 2014, 2013 and 2012, AOL capitalized $53.9 million, $43.7 million and $40.5 million, respectively, related to the purchase and development of internal-use...

  • Page 94
    ... Exists In July 2013, new guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The objective of the new guidance is to eliminate the diversity in financial statement reporting...

  • Page 95
    ... of the Notes in cash upon conversion. As a result, only the amounts payable in excess of the principal amounts of the Notes are considered in diluted earnings per share under the treasury stock method. For the years ended December 31, 2014, 2013 and 2012 the Company had 6.1 million, 1.0 million and...

  • Page 96
    ... FINANCIAL STATEMENTS NOTE 3-GOODWILL AND INTANGIBLE ASSETS A summary of changes in the Company's goodwill during the years ended December 31, 2014 and 2013 is as follows (in millions): December 31, 2013 Acquisitions Dispositions Translation and Other Adjustments December 31, 2014 Brand Group...

  • Page 97
    ... well as various growth rate assumptions for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future revenue streams and cash flows of the reporting unit. The discount rates utilized in the 2014 analysis ranged from 9% to...

  • Page 98
    .... NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company performed its annual goodwill impairment test for the Brand Group, Membership Group and AOL Platforms reporting units as of December 1, 2013. The estimated fair value exceeded the carrying value for each reporting unit, and therefore, the...

  • Page 99
    ...company that provides content personalization technology and publisher solutions to create relevant consumer and advertiser experiences, for a purchase price of $83.2 million, net of cash acquired. An additional $7.6 million of cash consideration was deferred and will be paid over a two year service...

  • Page 100
    ... platform that offers self-service through a set of video tools and exchange capabilities, for a purchase price of $55.9 million, net of $1.3 million cash acquired. Additionally, the Company issued replacement restricted stock awards related to unvested in-the-money options held by Vidible employees...

  • Page 101
    ... FINANCIAL STATEMENTS common stock with a fair value of $80.8 million based on AOL's closing stock price on the closing date. Adap.tv is an online video advertising company whose advertising technology platform provides advertisers and publishers the ability to buy and sell video advertising...

  • Page 102
    ...sharing of web content and Buysight, Inc. ("Buysight"), a company that operates a targeted advertising platform which uses machine learning technology to allow for real time optimization of advertising campaigns. • The aggregate purchase price of these acquisitions was $27.8 million, net of cash...

  • Page 103
    ... as a discontinued operation in the Company's financial statements. Sale of Dulles Technology Center On July 30, 2014, the Company completed the sale of a data center property located in Virginia for cash of approximately $33.1 million, net of costs to sell the property. The Company recorded an...

  • Page 104
    ... during the year ended December 31, 2012. NOTE 5-LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS Capital Leases Capital lease obligations consist of ($ in millions): Weighted Average Interest Rate at December 31, 2014 Outstanding Amount December 31, December 31, 2014 2013 Maturities Capital lease...

  • Page 105
    .... The weighted-average rate on capital lease obligations due within one year was 4.74% at December 31, 2014. Revolving Credit Facility On July 1, 2013, AOL entered into a $250 million Credit Facility Agreement. Under the terms of the Credit Facility Agreement, AOL may request an increase in the...

  • Page 106
    ... to use the remaining net proceeds from the offering of the Notes for general corporate purposes including, but not limited to, additional share repurchases, acquisitions or other strategic transactions and working capital. Under the Indenture, the Notes bear interest at a rate of 0.75% per year...

  • Page 107
    ... of the Company's stock. The Company's stock volatility was estimated at 40% based on historical AOL stock price volatilities, as well as implied volatilities from option contracts traded immediately prior to the issuance date of the Notes. The Company estimated the straight debt borrowing rates at...

  • Page 108
    ...to be classified as additional paid-in capital within stockholders' equity. NOTE 6-INCOME TAXES The components of income (loss) from continuing operations before income taxes were as follows (in millions): Years Ended December 31, 2014 2013 2012 Domestic ...Foreign ...Total ...92 $201.2 (5.2) $196...

  • Page 109
    AOL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The components of the provision for income tax expense provided on income from continuing operations were as follows (in millions): Years Ended December 31, 2014 2013 2012 U.S. federal Current ...Deferred ...Foreign Current ...Deferred ......

  • Page 110
    ...Revenue Service ("IRS") to change AOL's method of accounting for its advertising revenues. If approved, approximately $121.3 million of gross revenues will be deferred from 2014 to future tax years for U.S. federal and state tax purposes, thereby increasing AOL's U.S. federal and state net operating...

  • Page 111
    ...Accounting for Uncertainty in Income Taxes Changes in unrecognized tax benefits, excluding the related accrual for interest and penalties, from January 1 to December 31 are set forth below (in millions): Years Ended December 31, 2014 2013 2012 Beginning balance ...$ 154.1 Increases for current year...

  • Page 112
    ... tax benefits to significantly change in the next twelve months. In conjunction with the complete legal and structural separation of the Company from Time Warner Inc. (the "spin-off"), AOL entered into a Second Tax Matters Agreement with Time Warner Inc. ("Time Warner"), effective December 9, 2009...

  • Page 113
    ... securities laws in the open market, in block trades, pursuant to pre-arranged trading plans or otherwise and may include derivative transactions. The 2014 Stock Repurchase Program may be suspended or discontinued at any time. During the year ended December 31, 2014, the Company repurchased...

  • Page 114
    ... the Company's financial statements as of and for the year ended December 31, 2014. Accelerated Stock Repurchase Agreement On August 26, 2012, the Company entered into a fixed dollar collared accelerated stock repurchase agreement with Barclay's Capital Inc. ("Barclays"), as agent for Barclays Bank...

  • Page 115
    ....5 million for the years ended December 31, 2014, 2013 and 2012, respectively. Equity-Based Compensation AOL Equity Plan Pursuant to the Company's 2010 SIP stock options are granted to employees, advisors and non-employee directors of AOL with exercise prices equal to the quoted market value of the...

  • Page 116
    ... expense recognized by AOL related to its equity-based compensation plans is as follows (in millions): Years Ended December 31, 2014 2013 2012 Stock options ...Restricted stock, RSUs and PSUs ...Employee Stock Purchase Program ...Total equity-based compensation expense ...Tax benefit recognized...

  • Page 117
    ...value of the applicable assumption used to value AOL stock options at their grant date for stock options granted during the periods presented: 2014 Years Ended December 31, 2013 2012 Expected volatility ...Expected term to exercise from grant date ...Risk-free rate ...Expected dividend yield ... 38...

  • Page 118
    ... the restructuring of its Patch operations. A summary of AOL's restructuring activity for the years ended December 31, 2014, 2013 and 2012 is as follows (in millions): Employee Terminations Other Exit Costs Total Liability at December 31, 2011 ...2012 restructuring expense ...Foreign currency...

  • Page 119
    ... costs of revenues and general and administrative expense on the consolidated statements of comprehensive income. The Company has long-term lease commitments for office space and network-related facilities in various locations around the world, a number of which have renewal options at market rates...

  • Page 120
    ... number of user accounts. This information included AOL users' email addresses, postal addresses, address book contact information, encrypted passwords and encrypted answers to security questions that the Company asks when a user resets his or her password, as well as certain employee information...

  • Page 121
    ... video and social formats. AOL Platforms also provides additional technology solutions that enhance AOL's programmatic platforms and enable advertisers and publishers to have an end-to-end open programmatic media buying experience by providing access to Third Party Properties, AOL Properties ad...

  • Page 122
    ... 2014, each of the Company's operating segments represents a reportable segment for external reporting purposes. No aggregation is necessary. AOL Platforms sells advertising on third party websites and from advertising inventory managed within the Membership and Brand Groups. The revenues associated...

  • Page 123
    ... FINANCIAL STATEMENTS Segment information for the years ended December 31, 2014, 2013 and 2012 is as follows (in millions): Brand Group Membership Group AOL Platforms Corporate and Other Consolidated Total 2014 Revenues from external customers Advertising and other ...Subscription ...Revenues...

  • Page 124
    ... of the Company's segments. Accordingly, the Company has not disclosed asset information by segment. Information about Geographical Areas The following table presents revenues in different geographical locations (in millions): Years Ended December 31, 2014 2013 2012 United States ...United...

  • Page 125
    ... CONSOLIDATED FINANCIAL STATEMENTS NOTE 13-SELECTED QUARTERLY FINANCIAL DATA (Unaudited; in millions except per share amounts) March 31, Quarter Ended June 30, September 30, December 31, 2014 Revenues: Advertising and other ...Subscription ...Total revenues ...Costs of revenues ...Operating income...

  • Page 126
    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 110

  • Page 127
    ... Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2014. Ernst & Young LLP, an independent registered public accounting firm, has audited the...

  • Page 128
    ... internal control over financial reporting as of December 31, 2014, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AOL Inc. as of December 31, 2014 and 2013, and...

  • Page 129
    ITEM 9B. OTHER INFORMATION None. 113

  • Page 130
    ... Officers of the Registrant" for information about our executive officers, as required by Item 401(b). We have adopted a Code of Ethics for Our Senior Executive and Senior Financial Officers. Our Code of Ethics is publicly available on our corporate governance website located at http://ir.aol.com...

  • Page 131
    ... 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 Schedules All financial statement schedules are omitted as the required information is not...

  • Page 132
    ... the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 27, 2015. AOL INC. By: /s/ Karen Dykstra Name: Karen Dykstra Title: Chief Financial and Administrative Officer (Principal Financial...

  • Page 133
    AOL INC. SIGNATURES Signature Title Date /s/ Hugh F. Johnston Hugh F. Johnston Director February 27, 2015 /s/ Dawn G. Lepore Dawn G. Lepore Director February 27, 2015 /s/ Patricia E. Mitchell Patricia E. Mitchell Director February 27, 2015 /s/ Fredric G. Reynolds Fredric G. Reynolds ...

  • Page 134
    ... on August 27, 2012. Specimen Common Stock Certificate of Registrant. Indenture, dated August 19, 2014, between AOL Inc. and The Bank of New York Mellon. Global Note. Tax Asset Protection Plan, dated as of August 27, 2012 between AOL Inc. and Computershare Trust Company, N.A., as Rights Agent...

  • Page 135
    ...., AOL LLC and Time Warner Inc., dated December 3, 2009. Confirmation of Base Call Option Transaction, dated August 13, 2014, between AOL Inc. and Goldman, Sachs & Co. Confirmation of Base Call Option Transaction, dated August 13, 2014, between AOL Inc. and JPMorgan Chase Bank, National Association...

  • Page 136
    ... period January 1, 2012 through December 31, 2014 (Revenue). 10.30** Form of Notice of Grant of Performance Share Award (Revenue). 10.31** Form of Notice of Grant of Performance Share Award (Relative TSR). 10.32** AOL Inc. Segment Performance Share Units ("SPSU") Terms and Conditions. 120 8-K 10...

  • Page 137
    ... Executive Officers. 10.44** AOL Inc. 2012 Employee Stock Purchase Plan, as amended and restated February 26, 2013. 10.45** AOL Inc. Long-Term Incentive Plan for the Employees of The Huffingtonpost Media Group, as amended and restated, effective March 7, 2011. 10.46** AOL Inc. 2014 Annual Bonus Plan...

  • Page 138
    ...April 3, 2014. 10.60* Stock and Asset Purchase Agreement, by and between AOL Inc. and Microsoft Corporation, dated as of April 5, 2012. Intellectual Property Matters Agreement, between AOL Inc. and Microsoft Corporation, dated as of June 15, 2012. Amended and Restated Interactive Marketing Agreement...

  • Page 139
    AOL INC. EXHIBIT INDEX Exhibit Number Exhibit Description Filed Herewith Form Exhibit Filing Date 10.66* 10.67* 10.68* 10.69* 10.70* 10.71* 10.72* 10.73* 10....

  • Page 140
    ... Consent of Independent 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, 2014. 124 X X X Amend. 3 to Form...

  • Page 141
    ... with respect to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.†Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012, (ii) Consolidated Balance Sheets...

  • Page 142
    ..., summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Date: February 27, 2015 By: /S/ TIMOTHY M. ARMSTRONG Name: Timothy...

  • Page 143
    ...report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /S/ KAREN DYKSTRA b. Date: February 27, 2015 By: Name: Karen Dykstra Title: Chief Financial...

  • Page 144
    ...OF 2002 In connection with the Annual Report on Form 10-K for the year ended December 31, 2014 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 U.S.C. Section...

  • Page 145

  • Page 146
    ...AOL VALUES We are in the business of helping people. Period. We say what we mean and do what we say. We act with integrity. We embrace change... fun seriously. WORKING MOTHERS BEST COMPANIES LIST, 6TH YEAR CRAIN'S 100 BEST PLACES TO WORK IN NYC AOL UK NAMED MEDIA OWNER OF THE YEAR BY IPA AOL WINS...

  • Page 147
    ...WKRVHLQQHHG Accessibility: AOL is about extending the power of the internet to all users, in addition to addressing product compatibility. Diversity & Inclusion: AOL is committed to making diversity and inclusion a vital part of our culture. 14K+ HOURS VOLUNTEERED 15B PRO BONO MEDIA IMPRESSIONS...

  • Page 148
    OUR MANAGEMENT TEAM TIM ARMSTRONG* &KDLUPDQDQG&KLHI([HFXWLYH2ɝFHU 7LP$UPVWURQJLV&KDLUPDQ...ROOHJHDQG/DZUHQFH$FDGHP\+HKDVVHUYHGDVDWUXVWHHIRUERWK LUKE BEATTY President of Media Brands $V3UHVLGHQWRI0HGLD%UDQGVDW$2//XNHRYHUVHHVWKHRSHUDWLRQRIDQXPEHURIEUDQGV LQFOXGLQJ...

  • Page 149
    ARIANNA HUFFINGTON 3UHVLGHQWDQG(GLWRULQ&KLHIRI7KH+XɝQJWRQ3RVW0HGLD*URXS $...RQWKHLQWHUQHWÎ-QWKHVLWH ZRQD3XOLW]HU3UL]HIRUQDWLRQDOUHSRUWLQJ 6KHKDVEHHQQDPHGWRTime0DJD]LQHȇVOLVWRIWKHZRUOGȇVPRVWLQȵXHQWLDOSHRSOHDQGWKHForbes0RVW3RZHUIXO :RPHQOLVW...

  • Page 150
    ..., Bob Lord heads AOL's industry-leading advertising sales and technology business, which reaches marketers and publishers in over 30 countries. Bob applies principles from his most recent book, Converge: Transforming Businesses at the Intersection of Marketing and Technology, to innovate AOL at the...

  • Page 151
    BUD ROSENTHAL* 6HQLRU9LFH3UHVLGHQWDQG&KLHI([HFXWLYH2ɝFHURI$2/0HPEHUVKLS*URXS $V&(2RIWKH$2/0HPEHUVKLS*URXS%XG5RVHQWKDORYHUVHHV$2/ȇVYDULHW\RIVXEVFULSWLRQ EXVLQHVVHVHQFRPSDVVLQJPLOOLRQVRISDLGFXVWRPHUUHODWLRQVKLSVDVZHOODVWHQVRIPLOOLRQVRI PRQWKO\XVHUVRI$2/...

  • Page 152
    OUR BOARD OF DIRECTORS TIM ARMSTRONG &KDLUPDQDQG&KLHI([HFXWLYH2ɝFHU Director since 2009 7LP$UPVWURQJLV&KDLUPDQDQG&(2RI$2/Î-QF...IRUERWK 6HQLRU9LFH3UHVLGHQWDQG*HQHUDO&RXQVHO7KH+HDUVW&RUSRUDWLRQ Director since 2013 0V(YH%XUWRQKDVVHUYHGDV6HQLRU9LFH3UHVLGHQWDQG*HQHUDO&...

  • Page 153
    ...WRDQG drugstore.com, inc. from 2004 to 2011. Ms. Lepore brings to the Board extensive experience, expertise and background in internet commerce and information technology gained from her roles at Schwab and background in building and operating online businesses gained from KHUVHUYLFH...

  • Page 154
    ...DOVREULQJVSXEOLFFRPSDQ\ERDUGH[SHULHQFH and leadership development experience gained from his service as a board member and as the Chairman of the Compensation and Leadership Committee of Motorola Mobility, Inc. prior to its sale to Google Inc. in 2012, and of 0RWRURODÎ-QFSULRUWRWKHVSLQ...

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