America Online 2014 Annual Report Download - page 72

AOL INC.
PART II—ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Off-Balance Sheet Arrangements
As of December 31, 2014, we did not have any relationships with unconsolidated special purpose entities or
financial partnerships for the purpose of facilitating off-balance sheet arrangements.
Indemnification Obligations
In the ordinary course of business, we incur indemnification obligations of varying scope and terms to third
parties, which could include, without limitation, customers, vendors, distributors, licensors, licensees, lessors,
purchasers of assets or operating subsidiaries and other parties related to certain matters, including losses arising
out of our breach of agreements or representations and warranties made by 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 property rights or, with respect to the divestiture of assets or operating subsidiaries,
matters related to our conduct of the business and tax matters prior to the sale. It is not possible to determine the
aggregate maximum potential loss under such indemnification agreements due to the limited history of prior
indemnification claims and the unique facts and circumstances involved in each particular agreement.
Historically, we have not incurred material costs as a result of claims made in connection with indemnifications
provided and, as of December 31, 2014, management concluded that the likelihood of any material amounts
being paid by us under such indemnifications is remote. As of December 31, 2014, amounts accrued in our
financial statements related to indemnification obligations are not material.
Principal Debt Obligations
As of December 31, 2014, we had outstanding principal borrowings of $379.5 million under the Notes, due
September 1, 2019, which is reflected net of the remaining discount of $73.0 million as a non-current liability on
the consolidated balance sheets. At December 31, 2014, and to date, we have no borrowings outstanding under
the Credit Facility Agreement. See “Note 5” in our accompanying consolidated financial statements for
additional information on the Notes and the Credit Facility Agreement.
Concentration of Risk
Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet
its agreed-upon contractual payment obligations. Credit risk originates from sales of advertising and subscription
services and is dispersed among many different counterparties.
We had gross accounts receivable of approximately $564.3 million and maintained an allowance for
doubtful accounts of $9.5 million at December 31, 2014. No single customer had a receivable balance at
December 31, 2014 greater than 10% of total net receivables.
Customer credit risk is monitored on a company-wide basis. We maintain a comprehensive approval process
prior to issuing credit to third-party customers. On an ongoing basis, we track customer exposure based on news
reports, rating agency information and direct dialogue with customers. Counterparties that are determined to be
of a higher risk are evaluated to assess whether the payment terms previously granted to them should be
modified. We also continuously monitor payment levels from customers, and a provision for estimated
uncollectible amounts is maintained based on historical experience and any specific customer collection issues
that have been identified. While such uncollectible amounts have historically been within our expectations and
related reserve balances, if there is a significant change in uncollectible amounts in the future or the financial
condition of our counterparties across various industries or geographies deteriorates further, additional reserves
may be required.
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