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AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported
in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include asset
impairments, reserves established for doubtful accounts, equity-based compensation, depreciation and
amortization, business combinations, income taxes, litigation matters and contingencies.
Summary of Significant Accounting Policies
Revenues
The Company generates revenue primarily from advertising and from its subscription services. Revenue is
recognized when persuasive evidence of an arrangement exists, performance under the contract has begun, the
contract price is fixed or determinable and collectability of the related fee is reasonably assured.
Advertising Revenues
Advertising revenues are generated on AOL Properties through display advertising (which includes video
advertising) and search advertising. Display advertising revenue is generated by the display of graphical
advertisements and other performance-based advertising. Agreements for advertising on AOL Properties
typically take the forms of impression-based contracts, time-based contracts or performance-based contracts.
Search advertising revenue is generated when a consumer clicks on a text-based advertisement on their screen.
These text-based advertisements are either generated from a consumer-initiated search query or generated based
on the content of the web page the consumer is viewing. In addition to advertising revenues generated on AOL
Properties, the Company also generates revenue from its advertising offerings on its Third Party Properties,
which consist primarily of the sale of display advertising and also include search advertising. Advertising
arrangements for the sale of Third Party Properties inventory typically take the form of impression-based
contracts or performance-based contracts.
Advertising revenues derived from impression-based contracts, in which AOL provides impressions in
exchange for a fixed fee (generally stated as cost-per-thousand impressions), are generally recognized as the
impressions are delivered. An “impression” is delivered when an advertisement appears in web pages viewed by
users. Revenues derived from time-based contracts, in which AOL provides promotion over a specified time
period for a fixed fee, are recognized on a straight-line basis over the term of the contract, provided that AOL is
meeting and will continue to meet its obligations under the contract (e.g., delivery of impressions over the term
of the contract). Advertising revenues derived from contracts where AOL is compensated based on certain
performance criteria are recognized as AOL completes the contractually specified performance. Performance is
measured 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.
Gross versus Net Revenue Recognition
In the normal course of business, the Company sometimes acts as or uses an intermediary or agent in
executing transactions with third parties. The determination of whether revenue should be reported gross or net is
based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the
Company is acting as the principal in a transaction, the Company reports revenue on a gross basis. If the
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