America Online 2014 Annual Report Download - page 89

AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
minimum amount of traffic delivered or other underlying activity and variable payments for delivery or
performance in excess of the minimum are typically recognized into expense at the greater of straight-line or
actual performance, taking into account counterparty performance to date and the projected counterparty
performance over the term of the agreement.
Restructuring Costs
Restructuring costs consist primarily of employee termination benefits and contract termination costs,
including lease exit costs. The Company’s restructuring actions include one-time involuntary termination
benefits as well as certain contractual termination benefits or employee terminations under ongoing benefit
arrangements. One-time involuntary termination benefits are recognized as a liability at estimated fair value
when the plan of termination has been communicated to employees and certain other criteria are met. Ongoing
termination benefit arrangements are recognized as a liability at estimated fair value when it is probable that
amounts will be paid to employees and such amounts are reasonably estimable. Contract termination costs are
recognized as a liability at fair value when a contract is terminated in accordance with its terms, or when AOL
has otherwise executed a written termination of the contract. When AOL ceases using a facility but does not
intend to or is unable to terminate the operating lease, AOL records a liability for the present value of the
remaining lease payments, net of estimated sublease income, if any, that could be reasonably obtained for the
property (even if the Company does not intend to sublease the facility for the remaining term of the lease). Costs
associated with exit or disposal activities, including the related one-time and ongoing involuntary termination
benefits, are reflected as restructuring costs on the consolidated statements of comprehensive income. See “Note
9” for additional information about the Company’s restructuring activities.
Equity-Based Compensation
AOL records compensation expense under AOL’s equity-based compensation incentive plans based on the
equity awards granted to employees.
In accounting for equity-based compensation awards, the Company follows the accounting guidance for
equity-based compensation, which 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
granted to employees is recognized in the consolidated statements of comprehensive income on a straight-line
basis (net of estimated forfeitures) over the period during which an employee is required to provide service in
exchange for the award. The Company begins recording equity-based compensation expense related to employee
awards with performance conditions when it is considered probable that the performance conditions will be met.
See “Note 8” for additional information on equity-based compensation.
Asset Impairments
Goodwill
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of
certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired.
These indicators include a sustained, significant decline in the Company’s stock price; a decline in its expected
future cash flows; significant disposition activity; a significant adverse change in the economic or business
environment; and the testing for recoverability of a significant asset group, among others. The occurrence of
these indicators could have a significant impact on the recoverability of goodwill and could have a material
impact on the Company’s consolidated financial statements.
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