America Online 2014 Annual Report Download - page 120

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AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a) The purchase obligation amounts included in the table above do not represent the entire anticipated
purchases in the future, but represent only those items for which AOL is contractually obligated. Examples
of the types of obligations included within purchase obligations include software licensing agreements and
guaranteed royalty payments. Additionally, the Company also purchases products and services as needed
with no firm commitment. For this reason, the amounts presented in the table above do not provide a
reliable indicator of its expected future cash outflows. For purposes of identifying and accumulating
purchase obligations, the Company has included all material contracts with an initial contractual term in
excess of one year meeting the definition of a purchase obligation (i.e., legally binding for a fixed or
minimum amount or quantity). For those contracts involving a fixed or minimum quantity but with variable
pricing terms, the Company has estimated the contractual obligation based on its best estimate of the pricing
that will be in effect at the time the obligation is incurred. Additionally, the Company has included only the
obligations represented by those contracts as they existed at December 31, 2014, and did not assume
renewal or replacement of the contracts at the end of their respective terms.
The Company also has certain contractual arrangements that would require it to make payments or provide
funding if certain circumstances occur (“contingent commitments”). At December 31, 2014, these arrangements
related primarily to letters of credit and totaled $8.2 million. The Company does not expect that these contingent
commitments will result in any material amounts being paid by the Company in the foreseeable future.
Contingencies
AOL is a party to a variety of claims, suits and proceedings that arise in the normal course of business,
including actions with respect to intellectual property claims, tax matters, labor and unemployment claims,
commercial claims, claims related to the Company’s business model for content creation and other matters.
While the results of such normal course claims, suits and proceedings cannot be predicted with certainty,
management does not believe that, based on current knowledge and the likely timing of resolution of various
matters, any additional reasonably possible potential losses above the amount accrued for such matters would be
material to the Company’s financial statements nor does management believe there is a reasonable likelihood of
any material loss from any pending legal proceedings. Regardless of the outcome, legal proceedings can have an
adverse effect on AOL because of defense costs, diversion of management resources and other factors.
Security Incident
On April 28, 2014, the Company announced a security incident that involved unauthorized access to its
network and systems (the “security incident”).
As a result of its investigation of the security incident, the Company has determined that there was
unauthorized access to information regarding 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 the Company asks when a user resets his or her password, as well as
certain employee information. The Company believes that the individuals or entities have used this contact
information to send “spoofed” emails that appeared to come from roughly 2% of its email accounts. There is no
indication that the encryption on the passwords or on the answers to security questions was broken or that the
incident resulted in disclosure of users’ financial information, including debit and credit cards, which is also fully
encrypted.
The Company’s investigation of the security incident is complete, and there is no indication that the
Company has incurred or will incur a material loss associated with the security incident.
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