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AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company accrues interest and penalties where there is an underpayment of taxes, based on
management’s best estimate of the amount ultimately to be paid, in the same period that the interest would begin
accruing or the penalties would first be assessed. The Company recognizes interest and penalties related to
unrecognized tax benefits as a component of income tax expense. The amounts of interest and penalties expense
recorded through the income tax provision and the amounts of accrued interest and penalties on the consolidated
balance sheets associated with unrecognized tax benefits are insignificant for the years ended December 31,
2014, 2013 and 2012.
The Company’s liabilities for unrecognized tax benefits, which include interest and penalties, were $59.8
million and $55.6 million as of December 31, 2014 and 2013, respectively. The remainder of unrecognized tax
benefits have reduced deferred tax balances. The amount of unrecognized tax benefits which, if recognized,
would affect the Company’s effective tax rate is $156.7 million and $146.1 million as of December 31, 2014 and
2013, respectively. This amount includes the federal tax benefit of state tax deductions. The Company does not
expect its unrecognized 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, that governs the respective post spin-off rights, responsibilities and obligations of
Time Warner and AOL with respect to tax matters for the pre spin-off tax periods. Under the Second Tax Matters
Agreement, Time Warner agreed to assume liabilities for U.S. federal, state or local income taxes that are
determined on a consolidated, combined, unitary or similar basis for each taxable period in which AOL was
included in such group with Time Warner. AOL remains responsible for any foreign income taxes and any other
income taxes (primarily state taxes) that are not determined on a consolidated, combined, unitary or similar basis
with Time Warner.
The Company files income tax returns in U.S. federal, state and foreign jurisdictions. For periods dating
back to 2003, the statute of limitations has not yet closed in U.S. and foreign jurisdictions in which AOL filed
separately from Time Warner. Tax periods remain open and subject to examination in many significant
jurisdictions, including certain U.S. states (e.g., New York and Virginia) and foreign jurisdictions (e.g., Canada,
India, Ireland, Luxembourg and United Kingdom). The Company is currently under examination by the Internal
Revenue Service, New York State Department of Taxation and other foreign and state taxing authorities.
NOTE 7—STOCKHOLDERS’ EQUITY
AOL is authorized to issue up to 660 million shares of all classes of stock, consisting of 60 million shares of
preferred stock, par value $0.01 per share (“Preferred Stock”), and 600 million shares of common stock, par
value $0.01 per share. In August 2012, in connection with the Tax Asset Protection Plan, AOL filed a Certificate
of Designation to its Amended and Restated Certificate of Incorporation creating a series of approximately
0.1 million shares of Preferred Stock designated as Series A Junior Participating Preferred Stock, par value $0.01
per share (the “Series A Preferred Stock”). The Series A Preferred Stock has the voting and such other rights as
provided for in the Certificate of Designation. Rights and privileges associated with shares of Preferred Stock are
subject to authorization by the Company’s Board of Directors (the “Board”) and may differ from those of any
and all other series at any time outstanding. All shares of common stock will be identical and will entitle the
holders thereof to the same rights and privileges.
During the year ended December 31, 2014, the Company recorded a $48.2 million increase to additional
paid-in capital as a result of equity-based compensation transactions. Included in this amount was $70.7 million
related to expense incurred under AOL’s equity-based compensation plan and $1.5 million related to a portion of
the fair value of converted awards that was included in the purchase price of recent acquisitions, partially offset
by a reduction of $24.8 million related to tax withholdings on the vesting of restricted stock units (“RSUs”).
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