EX-99.1 2 ex99-1.htm PRELIMINARY INFORMATION STATEMENT ex99-1.htm
 
 
 
EXHIBIT 99.1
 

Information contained herein is subject to completion or amendment.  A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
 
SUBJECT TO COMPLETION, DATED JULY 27, 2009
 
INFORMATION STATEMENT
 
AOL Inc.
 
770 Broadway
New York, New York 10003
 
Common Stock
(par value $0.01)
 
This Information Statement is being sent to you in connection with Time Warner Inc.’s spin-off of its wholly-owned subsidiary, AOL Inc.  To effect the spin-off, Time Warner will distribute all of the shares of AOL common stock on a pro rata basis to the holders of Time Warner common stock.  It is expected that the spin-off will be tax-free to Time Warner shareholders for U.S. Federal income tax purposes.
 
Every       shares of Time Warner common stock outstanding as of 5:00 p.m., New York City time, on       , 2009, the record date for the spin-off, will entitle the holder thereof to receive       shares of AOL common stock.  The distribution of shares will be made in book-entry form.  Time Warner will not distribute any fractional shares of AOL common stock.  Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the spin-off.
 
The spin-off will be effective as of       , 2009.  Immediately after the spin-off becomes effective, we will be an independent, publicly-traded company.
 
No vote or further action of Time Warner shareholders is required in connection with the spin-off.  We are not asking you for a proxy and request that you do not send us a proxy.  Time Warner shareholders will not be required to pay any consideration for the shares of AOL common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their Time Warner common stock or take any other action in connection with the spin-off.
 
All of the outstanding shares of AOL common stock are currently owned by Time Warner.  Accordingly, there is no current trading market for AOL common stock.  We expect, however, that a limited trading market for AOL common stock, commonly known as a “when-issued” trading market, will develop as early as two trading days prior to the record date for the spin-off, and we expect “regular way” trading of AOL common stock will begin the first trading day after the distribution date.  We intend to list AOL common stock on the New York Stock Exchange under the symbol “AOL.”
 
 

 
 

 
 

 
In reviewing this Information Statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 14 of this Information Statement.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete.  Any representation to the contrary is a criminal offense.
 
This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.
 
The date of this Information Statement is       , 2009.
 
 

 
 
 

 

 
 
Page

 
 
 
 
 
     
 
SUMMARY
 
This summary highlights selected information from this Information Statement and provides an overview of our company, our separation from Time Warner and the distribution of our common stock by Time Warner to its shareholders.  For a more complete understanding of our business and the separation and distribution, you should read the entire Information Statement carefully, particularly the discussion set forth under Risk Factors beginning on page 14 of this Information Statement, and our audited and unaudited historical consolidated financial statements and notes to those statements appearing elsewhere in this Information Statement.
 
Unless the context otherwise requires, references in this Information Statement to (i) AOL, the Company, we, our and us refer to AOL Inc. and its consolidated subsidiaries, after giving effect to the reorganization, separation and distribution, and (ii) Time Warner refer to Time Warner Inc. and its consolidated subsidiaries, other than AOL.  The transaction in which Time Warner will distribute to its shareholders all of the shares of our common stock is referred to in this Information Statement as the “distribution.”  The transaction in which we will be separated from Time Warner is sometimes referred to in this Information Statement as the separation or the spin-off.
 
Our Company
 
We are a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience.  Our business spans online content, products and services that we offer to consumers, publishers and advertisers.  We are focused on attracting and engaging consumers and providing valuable online advertising services on both our owned and operated properties and third-party websites.  We have the largest display advertising network in terms of online consumer reach in the United States as of June 2009.
 
Our Strategic Initiatives
 
We have begun executing a multi-year strategic plan to reinvigorate growth in our revenues and profits by taking advantage of the migration of commerce, information and advertising to the Internet.  Our strategy is to focus our resources on AOL’s core competitive strengths in web content production, local and mapping, communications and advertising networks while expanding the presence of our content, product and service offerings globally and on multiple platforms and digital devices.  We also aim to reorient AOL’s culture and reinvigorate the AOL brand by prioritizing the consumer experience, making greater use of data-driven insights and encouraging innovation.  Particular areas of strategic emphasis include:
 
 
 
Expanding Our Owned Content Offerings.  We will expand our offerings of relevant and engaging online consumer content by focusing on the creation and publication of our own original content.  In addition, we will seek to provide premium global advertisers with effective and efficient means of reaching our consumers
 
       
 
Pursuing Local and Mapping Opportunities.  We believe that there are significant opportunities for growth in the area of local content, platforms and services, by providing comprehensive content covering all geographic areas from local neighborhoods to major metropolitan areas.  By enhancing these local offerings, including through our flagship MapQuest brand, we seek to provide consumers with a comprehensive local experience.
 
       
 
Enhancing Our Established Communications Offerings.  Our goal is to increase the global reach of and engagement on our established communications offerings (including our email products and instant messaging applications) on multiple platforms and digital devices.
 
       
 
Growing the Third Party Network.  We seek to significantly increase the number of publishers and advertisers utilizing our third-party advertising network by providing an open, transparent and easy-to-use advertising system that offers unique and valuable insights to our publishers and advertisers.
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
Encouraging Global Innovation through AOL Ventures.  We believe that we can attract and develop innovative initiatives through AOL Ventures by creating an environment that encourages entrepreneurialism.  We currently expect to invest significantly less capital in AOL Ventures than in our other strategic initiatives and we may seek outside capital where appropriate.
 
     
 
Business Overview
 
   
Our business operations are focused on the following:
 
       
 
AOL Media.  We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services.  We refer to our owned and operated content, products and services as “AOL Media.”
 
       
   
We generate advertising revenues on AOL Media through the sale of display and search advertising.  We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers.  Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.
 
       
   
We also generate revenues through our subscription access service.  We view our subscription access service as a valuable distribution channel for AOL Media.  Our access service subscribers are important users of AOL Media and engaging both present and former access service subscribers is an important component of our strategy.  In addition, our subscription access service will remain an important source of revenue and cash flow for us in the near term.
 
       
   
Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones).  As a result, we seek to ensure that our content, products and services are compatible with such devices so that our consumers are able to access and use our content, products and services via these devices.
 
       
 
Third Party Network.  We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we refer to as the “Third Party Network,” and we market these advertising services to advertisers and publishers under the brand “Advertising.com.”  In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory.  Our mission is to provide an open and transparent advertising system that is easy-to-use and offers our publishers and advertisers unique and valuable insights.  We seek to significantly increase the number of publishers and advertisers utilizing the network.
 
       
 
    We market our advertising offerings on both AOL Media and the Third Party Network under the brand “AOL Advertising.”
 
   
Other Information
 
   
 
    In connection with the spin-off, we intend to enter into a new revolving credit facility.  We intend to use the proceeds of this facility, as necessary, to support our working capital needs and the growth of our business and for other general corporate purposes.  We describe this facility in greater detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Debt Obligations” on page 69 of this Information Statement.
 
   
 
    In connection with the reorganization that will occur prior to the spin-off, we will be converted into a Delaware corporation.  Our principal executive offices are located at 770 Broadway, New York, New York 10003.  Our telephone number is 1-877-AOL-1010.  Our website address is www.corp.aol.com.  Information contained on, or connected to, our website or Time Warner’s website does not and will not constitute part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is part.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Spin-Off
 
     
 
Overview
 
     
 
On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner, following which AOL will be an independent, publicly-traded company.
 
     
 
Before our separation from Time Warner, we will enter into a Separation and Distribution Agreement and several other agreements with Time Warner related to the spin-off.  These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities).  See “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement for more detail.
 
     
 
The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions.  In addition, Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.  See “The Spin-Off—Conditions to the Spin-Off” on page 33 of this Information Statement for more detail.
 
       
 
Questions and Answers about the Spin-Off
 
     
 
The following provides only a summary of the terms of the spin-off.  You should read the section entitled “The Spin-Off” beginning on page 28 of this Information Statement for a more detailed description of the matters described below.
 
       
 
Q:
What is the spin-off?
 
       
 
A:
The spin-off is the method by which we will separate from Time Warner.  In the spin-off, Time Warner will distribute to its shareholders all of the shares of our common stock that it owns.  Following the spin-off, we will be a separate company from Time Warner, and Time Warner will not retain any ownership interest in us.  The number of shares of Time Warner common stock you own will not change as a result of the spin-off.
 
       
 
Q:
Why is the separation of AOL structured as a spin-off?
 
       
 
A:
Time Warner believes that a tax-free distribution of our shares is the most efficient way to separate our business from Time Warner in a manner that will improve flexibility and benefit both Time Warner and us, and create long-term value for Time Warner shareholders.
 
       
 
Q:
What will I receive in the spin-off?
 
       
 
A:
As a holder of Time Warner common stock, you will receive a dividend of       shares of our common stock for every       shares of Time Warner common stock held by you on the record date.  Your proportionate interest in Time Warner will not change as a result of the spin-off.  For a more detailed description, see “The Spin-Off” beginning on page 28 of this Information Statement.
 
       
 
Q:
What is being distributed in the spin-off?
 
       
 
A:
Approximately       shares of our common stock will be distributed in the spin-off, based on the number of shares of Time Warner common stock outstanding as of       , 2009.  The actual number of shares of our common stock to be distributed will be calculated on       , 2009, the record date.  The shares of our common stock to be distributed by Time Warner will constitute all of the issued and outstanding shares of our common stock immediately prior to the distribution.  For more information on the shares being distributed in the spin-off, see “Description of Our Capital Stock—Common Stock” beginning on page 119 of this Information Statement.
 
   
 
 
 
 
 
 
 
 
 
 
 

 
 
 
       
 
Q:
What is the record date for the distribution?
 
       
 
A:
Record ownership will be determined as of 5:00 p.m., New York City time, on       , 2009, which we refer to as the record date.
 
       
 
Q:
When will the distribution occur?
 
       
 
A:
The distribution date of the spin-off is       , 2009.  We expect that it will take the distribution agent, acting on behalf of Time Warner, up to two weeks after the distribution date to fully distribute the shares of our common stock to Time Warner shareholders.
 
       
 
Q:
What do I have to do to participate in the spin-off?
 
       
 
A:
No action is required on your part.  Shareholders of Time Warner entitled to receive our common stock are not required to pay any cash or deliver any other consideration, including any shares of Time Warner common stock, to receive the shares of our common stock distributable to them in the spin-off.
 
       
 
Q:
If I sell, on or before the distribution date, shares of Time Warner common stock that I held on the record date, am I still entitled to receive shares of AOL common stock distributable with respect to the shares of Time Warner common stock I sold?
 
       
 
A:
If you decide to sell any of your shares of Time Warner common stock on or before the distribution date, you should consult with your stockbroker, bank or other nominee and discuss whether you want to sell your Time Warner common stock or the AOL common stock you will receive in the spin-off, or both.  See “The Spin-Off—Trading Prior to the Distribution Date” on page 33 of this Information Statement for more information.
 
       
 
Q:
How will Time Warner distribute shares of our common stock?
 
       
 
A:
Holders of shares of Time Warner common stock on the record date will receive shares of our common stock in book-entry form.  See “The Spin-Off—Manner of Effecting the Spin-Off” on page 29 of this Information Statement for a more detailed explanation.
 
       
 
Q:
How will fractional shares be treated in the spin-off?
 
       
 
A:
No fractional shares will be distributed in connection with the spin-off.  Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices.  The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Time Warner shareholder who would otherwise have been entitled to receive a fractional share in the distribution.  See “The Spin-Off—Treatment of Fractional Shares on page 29 of this Information Statement for a more detailed explanation.
 
       
 
Q:
What is the reason for the spin-off?
 
       
 
A:
The board of directors of Time Warner considered the following potential benefits in making its determination to pursue the spin-off:
 
       
 
 
 
Business Focus.  As a result of the spin-off, each of Time Warner and AOL will be better able to focus financial and operating resources on its own business and on pursuing appropriate growth opportunities and executing its own strategic plan.  The spin-off will also allow each of Time Warner and AOL to more effectively respond to industry dynamics and therefore have an increased focus on its own strategic initiatives and priorities.
 
       
 
 
Focused Management.  The spin-off will allow management of both companies to design and implement corporate strategies and policies that are based primarily on the specific business characteristics and strategic decisions of the respective companies.
 
   
 
 
 
 
 
 
 
 
 
 
 
 

 

 
       
 
 
Management Incentives.  The spin-off will enable AOL to create incentives for its management and employees that are more closely tied to its business performance and shareholder expectations.  Separate equity-based compensation arrangements should more closely align the interests of AOL’s management and employees with the interests of its shareholders and increase AOL’s ability to attract and retain personnel.
 
       
 
 
Investor Choice.  The spin-off will allow investors to make independent investment decisions with respect to Time Warner and AOL.  Investment in one or the other company may appeal to investors with different goals, interests and concerns.
 
       
 
Q:
What are the U.S. Federal income tax consequences to me of the spin-off?
 
       
 
A:
The spin-off is conditioned on the receipt by Time Warner, on or before the distribution date, of an opinion of Cravath, Swaine & Moore LLP confirming that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares.  The opinion will be based on the assumption that, among other things, the representations made, and information submitted, in connection with it are accurate.  Time Warner may waive receipt of the tax opinion as a condition to the spin-off.
 
       
   
The aggregate tax basis of the Time Warner common stock and our common stock, received in a tax-free spin-off, in the hands of Time Warner’s shareholders immediately after the spin-off will be the same as the aggregate tax basis of the Time Warner common stock held by the holder immediately before the spin-off, allocated between the common stock of Time Warner and us in proportion to their relative fair market values on the date of the spin-off.
 
       
   
See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 30 of this Information Statement and “Risk Factors—Risks Relating to the Spin-Off—The spin-off could result in significant tax liability to Time Warner shareholders” on page 23 of this Information Statement for more information regarding the potential tax consequences to you of the spin-off.
 
       
 
Q:
Does AOL intend to pay cash dividends?
 
       
 
A:
We have not yet determined our dividend policy, but we intend to do so prior to the distribution.  See “Dividend Policy” on page 35 of this Information Statement for more information.
 
       
 
Q:
How will AOL common stock trade
 
       
 
A:
Currently, there is no public market for our common stock.  We intend to list our common stock on the New York Stock Exchange under the symbol “AOL.”
 
       
   
We anticipate that trading will commence on a “when-issued” basis as early as two trading days prior to the record date.  When-issued trading in the context of a spin-off refers to a transaction effected on or before the distribution date and made conditionally because the securities of the spun-off entity have not yet been distributed.  When-issued trades generally settle within three trading days after the distribution date.  On the first trading day following the distribution date, any when-issued trading in respect of our common stock will end and regular-way trading will begin.  Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the sale transaction.  See The Spin-Off—Trading Prior to the Distribution Date” on page 33 of this Information Statement for more information.  We cannot predict the trading prices for our common stock before or after the distribution date.
 
       
 
Q:
Will the spin-off affect the trading price of my Time Warner common stock?
 
       
 
A:
Yes.  We expect the trading price of shares of Time Warner common stock immediately following the distribution to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the AOL business.  Furthermore, until the market has fully analyzed the value of Time Warner without the AOL business, the price of shares of Time Warner common stock may fluctuate.
 
   
 
 
 
 
 
 
 
 
 
 
 
 

 

 
       
 
Q:
Do I have appraisal rights?
 
       
 
A:
No.  Holders of Time Warner common stock are not entitled to appraisal rights in connection with the spin-off.
 
       
 
Q:
Who is the transfer agent for AOL common stock?
 
       
 
A:
We have not yet determined who the transfer agent for our common stock will be, but we expect to do so prior to the spin-off and we will provide further information in an amendment to this Information Statement.
 
       
 
Q:
Are there risks associated with owning shares of AOL common stock?
 
       
 
A:
Our business is subject to both general and specific risks and uncertainties relating to our business.  Our business is also subject to risks relating to the spin-off.  Following the spin-off, we will also be subject to risks relating to being an independent, publicly-traded company.  Accordingly, you should read carefully the information set forth in the section entitled “Risk Factors” beginning on page 14 of this Information Statement.
 
       
 
Q:
Where can I get more information?
 
       
 
A:
If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent at:
 
       
   
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
Phone:
 
       
   
Before the spin-off, if you have any questions relating to the separation, you should contact Time Warner at:
 
       
   
Investor Relations
Time Warner Inc.
One Time Warner Center
New York, NY 10019-8016
Phone:  1-866-INFO-TWX
 
       
   
After the spin-off, if you have any questions relating to AOL, you should contact us at:
 
       
                        Investor Relations
AOL Inc.
770 Broadway
New York, NY 10003-9522
Phone:  1-877-AOL-1010
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summary of the Spin-Off
 
       
 
Distributing Company
Time Warner Inc., a Delaware corporation.  After the distribution, Time Warner will not own any shares of our common stock.
 
       
 
Distributed Company
AOL Inc., a Delaware corporation and a wholly-owned subsidiary of Time Warner.  After the spin-off, we will be an independent, publicly-traded company.
 
       
 
Distributed Securities
All of the shares of our common stock owned by Time Warner, which will be 100% of our common stock issued and outstanding immediately prior to the distribution.
 
       
 
Record Date
The record date is       , 2009.
 
       
 
Distribution Date
The distribution date is       , 2009.
 
       
 
Reorganization
On July 8, 2009, Time Warner completed the purchase of Google’s 5% interest in us.  Following this purchase, we became a 100%-owned subsidiary of Time Warner.  Prior to the spin-off, Time Warner will convert AOL Holdings LLC into a Delaware corporation to be named AOL Inc.  Time Warner will then cause substantially all of the assets and liabilities of AOL LLC (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner), our wholly-owned subsidiary that currently holds, directly or indirectly, all of the AOL business, to be transferred to and assumed by us.  Following this transfer and assumption of AOL LLC’s assets and liabilities, ownership of AOL LLC will be transferred to, and retained by, Time Warner.  For more information, see the description of the Internal Transactions in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement.
 
       
 
Distribution Ratio
Every       shares of Time Warner common stock outstanding as of 5:00 p.m., New York City time, on the record date, will entitle the holder thereof to receive       shares of our common stock.  Please note that if you sell your shares of Time Warner common stock on or before the distribution date, the buyer of those shares may in certain circumstances be entitled to receive the shares of our common stock issuable in respect of the shares sold.  See “The Spin-Off—Trading Prior to the Distribution Date” on page 33 of this Information Statement for more detail.
 
       
 
The Distribution
On the distribution date, Time Warner will release the shares of our common stock to the distribution agent to distribute to Time Warner shareholders.  The distribution of shares will be made in book-entry form.  It is expected that it will take the distribution agent up to two weeks to electronically issue shares of our common stock to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form.  You will not be required to make any payment, surrender or exchange your shares of Time Warner common stock or take any other action to receive your shares of our common stock.
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
 
Fractional Shares
The distribution agent will not distribute any fractional shares of our common stock to Time Warner shareholders.  Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution.  Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares.  The receipt of cash in lieu of fractional shares generally will be taxable to the recipient shareholders as described in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 30 of this Information Statement.
 
       
 
Conditions to the Spin-Off
The spin-off is subject to the satisfaction or waiver by Time Warner of the following conditions:
 
       
   
the board of directors of Time Warner shall have authorized and approved the separation and distribution and not withdrawn such authorization and approval, and shall have declared the dividend of AOL common stock to Time Warner shareholders;
 
       
   
 
each ancillary agreement contemplated by the Separation and Distribution Agreement shall have been executed by each party thereto;
 
       
   
 
the Securities and Exchange Commission shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Securities Exchange Act of 1934, as amended (which we refer to in this Information Statement as the Exchange Act), and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;
 
       
   
 
our common stock shall have been accepted for listing on the New York Stock Exchange or another national securities exchange approved by Time Warner, subject to official notice of issuance;
 
     
 
   
 
the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner—Separation and Distribution Agreement” beginning on page 116 of this Information Statement) shall have been completed;
 
       
   
 
Time Warner shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares;
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
   
 
we shall have obtained written releases of Time Warner and its affiliates, in each case effective upon the consummation of the distribution, with respect to all credit support instruments, including all guarantees, covenants, indemnities, surety bonds, letters of credit and similar assurances or credit support provided by Time Warner for our benefit, or we shall provide Time Warner with letters of credit or guarantees, in each case issued by a bank reasonably acceptable to Time Warner, against losses arising from all such credit support instruments;
 
       
   
 
no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution shall be in effect, and no other event outside the control of Time Warner shall have occurred or failed to occur that prevents the consummation of the distribution;
 
       
   
 
no other events or developments shall have occurred prior to the distribution date that, in the judgment of the board of directors of Time Warner, would result in the spin-off having a material adverse effect on Time Warner or its shareholders;
 
       
   
 
prior to the distribution date, this Information Statement shall have been mailed to the holders of Time Warner common stock as of the record date;
 
       
   
 
Time Warner shall have duly elected the individuals to be listed as members of our board of directors in this Information Statement, and such individuals shall continue to be members of our board of directors as of the distribution date; and
 
       
   
 
immediately prior to the distribution date, our certificate of incorporation and by-laws, each in substantially the form filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, shall be in effect.
 
       
   
The fulfillment of the foregoing conditions will not create any obligation on the part of Time Warner to effect the spin-off.  Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
 
Trading Market and Symbol
We intend to file an application to list shares of our common stock on the New York Stock Exchange under the symbol “AOL.”  We anticipate that, as early as two trading days prior to the record date, trading of shares of AOL common stock will begin on a “when-issued” basis and will continue up to and including the distribution date, and we expect “regular-way” trading of our common stock will begin the first trading day after the distribution date.  We also anticipate that, as early as two trading days prior to the record date, there will be two markets in Time Warner common stock:  a “regular-way” market on which shares of Time Warner common stock will trade with an entitlement to shares of AOL common stock to be distributed pursuant to the distribution, and an “ex-distribution” market on which shares of Time Warner common stock will trade without an entitlement to shares of AOL common stock.  See “The Spin-Off—Trading Prior to the Distribution Date” on page 33 of this Information Statement for more information.
 
       
 
Tax Consequences to Time Warner Shareholders
 
Time Warner shareholders are not expected to recognize any gain or loss for U.S. Federal income tax purposes as a result of the spin-off, except with respect to any cash received in lieu of fractional shares.  See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 30 of this Information Statement for a more detailed description of the U.S. Federal income tax consequences of the spin-off.
 
       
   
Each shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to that shareholder, including the effect of any U.S. Federal, state, local or foreign tax laws and of changes in applicable tax laws.
 
       
 
Relationship with Time Warner
after the Spin-Off
 
We will enter into a Separation and Distribution Agreement and other agreements with Time Warner related to the reorganization, separation and distribution.  These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities).  The Separation and Distribution Agreement, in particular, will provide for the settlement or extinguishment of certain obligations between AOL and Time Warner.  We will enter into a Transition Services Agreement with Time Warner pursuant to which certain services will be provided on an interim basis following the distribution.  We will also enter into an Employee Matters Agreement that will set forth the agreements of Time Warner and AOL concerning certain employee compensation and benefit matters.  Further, we will enter into an agreement with Time Warner regarding the sharing of taxes incurred before and after the spin-off, certain indemnification rights with respect to tax matters and certain restrictions to preserve the tax-free status of the spin-off.  In addition, to facilitate the ongoing use of various intellectual property by each of AOL and Time Warner, we intend to enter into an Intellectual Property Cross-License Agreement with Time Warner that will provide for reciprocal licensing arrangements.  We also intend to enter into various other commercial agreements with Time Warner.  We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement, and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off” beginning on page 23 of this Information Statement.
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
 
Dividend Policy
We have not yet determined our dividend policy, but we intend to do so prior to the spin-off.  See “Dividend Policy” on page 35 of this Information Statement.
 
       
 
Transfer Agent
We have not yet determined who the transfer agent for our common stock will be, but we expect to do so prior to the spin-off and we will provide further information in an amendment to this Information Statement.
 
       
 
Risk Factors
Our business is subject to both general and specific risks and uncertainties relating to our business.  Our business is also subject to risks relating to the spin-off.  Following the spin-off, we will also be subject to risks relating to being an independent, publicly-traded company.  Accordingly, you should read carefully the information set forth under “Risk Factors” beginning on page 14 of this Information Statement.
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summary Historical Consolidated Financial Data
   
       
 
The following tables present certain summary historical financial information as of and for each of the years in the five-year period ended December 31, 2008, and as of March 31, 2009 and for the three months ended March 31, 2009 and 2008.  The summary historical consolidated financial data as of December 31, 2008 and 2007 and for each of the fiscal years in the three-year period ended December 31, 2008, and as of March 31, 2009 and for the three months ended March 31, 2009 and 2008, are derived from our historical consolidated financial statements included elsewhere in this Information Statement.  The summary historical consolidated financial data as of December 31, 2006 and as of and for the years ended December 31, 2005 and 2004 are derived from our unaudited consolidated financial statements that are not included in this Information Statement.  The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of our management include all adjustments, consisting of only ordinary recurring adjustments, necessary for a fair presentation of the information set forth in this Information Statement.
 
The summary historical financial data presented below should be read in conjunction with our consolidated financial statements and accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Information Statement.  The financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, standalone entity during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation from Time Warner.
   
       
     
Years Ended December 31,
   
Three Months Ended March 31,
 
        2008     2007     2006     2005     2004     2009     2008  
 
($ in millions)
                                                         
                             
(unaudited)
   
(unaudited)
   
(unaudited)
 
 
Statement of Operations Data:
                                                         
 
Revenues:
                                                         
 
Advertising
  $ 2,096.4     $ 2,230.6     $ 1,886.1     $ 1,337.8     $ 1,005.0     $ 443.0     $ 551.9    
 
Subscription
    1,929.3       2,787.9       5,783.6       6,754.9       7,476.9       393.5       538.8    
 
Other
    140.1       162.2       117.0       109.4       139.7       30.7       37.6    
 
Total revenues
  $ 4,165.8     $ 5,180.7     $ 7,786.7     $ 8,202.1     $ 8,621.6     $ 867.2     $ 1,128.3    
 
Operating income (loss)(a) 
    (1,167.7 )     1,853.8       1,167.8       (1,817.8 )     230.5       141.6       280.1    
 
Income (loss) from continuing operations(b) 
    (1,526.6 )     1,213.3       716.5       (363.6 )     477.0       82.5       159.6    
 
Net income (loss) attributable to AOL Inc.(c) 
  $ (1,525.8 )   $ 1,396.1     $ 749.7     $ (334.1 )   $ 564.4     $ 82.7     $ 159.7    
 
____________
(a)       2008 includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill and $20.8 million in amounts incurred related to securities litigation and government investigations.  2007 includes a net pre-tax gain of $668.2 million on the sale of the German access service business and $171.4 million in amounts incurred related to securities litigation and government investigations.  2006 includes a $767.4 million gain on the sales of the French and United Kingdom access service businesses and $705.2 million in amounts incurred related to securities litigation and government investigations.  2005 includes $2,864.8 million in amounts incurred related to securities litigation and government investigations. 2004 includes $536.0 million in amounts incurred related to securities litigation and government investigations.  The three months ended March 31, 2009 include $7.4 million in amounts incurred related to securities litigation and government investigations.  The three months ended March 31, 2008 include $3.9 million in amounts incurred related to securities litigation and government investigations.
(b)       Includes net gains of $944.4 million in 2005 and $293.6 million in 2004 related to the sale of primarily available-for-sale equity securities.
(c)       Includes net income of $182.1 million in 2007, $18.9 million in 2006, $29.5 million in 2005 and $87.3 million in 2004 related to discontinued operations.  2006 also includes a non-cash benefit of $14.3 million as the cumulative effect of an accounting change upon the adoption of FAS 123R to recognize the effect of estimating the number of equity awards granted prior to January 1, 2006 that are ultimately not expected to vest.
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
   
 
 
 
 
                 
     
As of December 31,
     
        2008     2007     2006     2005     2004   As of March 31, 2009  
 
($ in millions)
                                                 
                     
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
 
Balance Sheet Data:
                                                 
 
Cash
  $ 134.7     $ 151.9     $ 401.5     $ 119.9     $ 256.9     $ 118.8    
 
Total assets
  $ 4,861.3     $ 6,863.1     $ 6,786.4     $ 6,064.6     $ 7,803.0     $ 4,663.9    
 
Long-term notes payable and obligations under capital leases
  $ 33.7     $ 24.7     $ 105.1     $ 110.4     $ 153.7     $ 36.2    
 
Total equity
  $ 3,737.7     $ 5,269.5     $ 4,505.8     $ 3,530.8     $ 4,346.0     $ 3,493.7    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
 
 
 

 
The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties that we are unaware of or that we currently believe to be immaterial also may become important factors that affect us.  In addition, this Information Statement contains forward-looking statements that involve risks and uncertainties.  You should carefully read the section Cautionary Statement Concerning Forward-Looking Statements on page 27 of this Information Statement.
 
If any of the following events occur, our business, financial condition or results of operations could be materially and adversely affected and the trading price of our common stock could materially decline.
 
Risks Relating to Our Business
 
Our strategic shift to an online advertising-supported business model involves significant risks.
 
Following our strategic shift in 2006 from focusing primarily on generating subscription revenues to focusing primarily on attracting and engaging Internet consumers and generating advertising revenues, we have become increasingly dependent on advertising revenues as our subscription access service revenues continue to decline.  We have not been able to generate sufficient growth in our advertising revenues to offset the loss of subscription access service revenues we have experienced in recent years.  In order for us to increase advertising revenues in the future, we believe it will be important to increase our overall volume of advertising sold, including through our higher-priced channels, and to maintain or increase pricing for advertising.  Our ability to generate positive cash flows will be adversely affected over the next several years by the continued decline of access subscribers unless we can successfully implement our strategic plan and grow our online advertising business.  Adding to this risk is that advertising revenues are more unpredictable and variable than our subscription access service revenues, and are more likely to be adversely affected during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions.  In addition, because subscription revenues have relatively low direct costs, the expected decline in subscription revenues will likely result in declines in operating income and cash flows for the foreseeable future, even if we achieve growth in advertising revenues that offsets the expected decline in subscription revenues.  If we are unable to successfully implement our strategic plan and grow the earnings generated by our online advertising services, we may not be able to support our business in the future.
 
Accordingly, we have recently implemented several restructuring plans to better align our organizational structure and costs with our strategy.  We anticipate additional restructuring plans and expect to continue to actively manage our costs.  Identifying and implementing additional cost reductions, however, is becoming increasingly difficult to do in an operationally effective manner.  If we do not recognize the anticipated benefits of our restructuring plans and cost reduction initiatives, or if we fail to better align our cost structure in a timely manner, our business could be adversely affected.
 
If we do not continue to develop and offer compelling content, products and services, our ability to attract new consumers or maintain the engagement of our existing consumers could be adversely affected.
 
In order to attract consumers and generate increased engagement on AOL Media, we believe we must offer compelling content, products and services.  However, acquiring, developing and offering new content, products and services, as well as new functionality, features and enhanced performance of our existing content, products and services, may require significant costs and time to develop.  In addition, consumer tastes are difficult to predict and subject to rapid change.  If we are unable to provide content, products and services that are sufficiently attractive and relevant to consumers (including subscribers to our subscription access service), we may not be able to attract new consumers or maintain or increase our existing consumers’ engagement.  Even if we successfully develop and offer compelling content, products and services, we may not be able to attract new consumers and maintain or increase our existing consumers’ engagement.
 
In general, subscribers to our subscription access service are among the most engaged consumers on AOL Media.  As our subscriber base declines, we need to maintain the engagement of former subscribers similar to historical levels and increase the number and engagement of other consumers on AOL Media.  There can be no assurance that we will be able to maintain the engagement of former subscribers or attract and engage sufficient other consumers to sustain or increase historical engagement levels on AOL Media.  If we cannot do so, our business could be adversely affected.
 

 
 
Even if we are able to attract new consumers to, and generate increased engagement on, AOL Media, we may not be able to maintain or increase our advertising revenues associated with AOL Media.
 
Different AOL Media properties generate varying volumes of advertising that are sold at a range of prices.  To the extent our consumers are active on AOL Media properties where we do not deliver a high volume of advertisements or high-priced advertisements, we are limited in our ability to generate advertising revenues from such activity.  Accordingly, if we are not able to attract and engage consumers to those AOL Media properties that typically generate higher-priced and higher-volume advertising, our advertising revenues may not increase even if the aggregate number of consumers on AOL Media properties increases and their aggregate engagement increases.
 
We face intense competition in all aspects of our business.
 
The Internet industry, with its low barriers to entry and rapidly shifting consumer tastes, is dynamic and rapidly evolving.  New and popular competitors, such as social networking sites, online advertising businesses and providers of communication tools, quickly emerge.  Competition among companies offering advertising products, technology and services, and aggregators of third-party products and services, is intense.  Internationally, we face intense competition from both global and local competitors.  In addition, competition may generally cause us to incur unanticipated costs associated with research and product development.  The competition faced by our subscription access service, especially from broadband Internet access providers, could cause the number of our subscribers to decline at a faster rate than experienced in the past.  There can be no assurance that we will be able to compete successfully in the future with existing or potential competitors or that competition will not adversely affect our business.
 
Weak economic conditions could adversely affect our revenues.
 
The global economy is in a sustained and deep recession, and the future economic environment may continue to be less favorable than that of recent years.  This recession could lead to further reduced advertising spending in the foreseeable future.  Because we derive a substantial portion of our revenues from the sale of advertising, declines and delays in advertising spending could continue to reduce our revenues.  Advertising spending by companies in certain sectors that have been significantly impacted by the downturn in the economy represents a significant portion of our advertising revenues, and any economic or other changes resulting in a significant reduction in the advertising spending of these or other sectors could further adversely affect our advertising revenues.
 
Additionally, declines in consumer spending due to weak economic conditions may cause advertisers to reduce their spending if consumers are purchasing fewer of their products or services, ultimately resulting in downward pricing pressure on our advertising inventory.  As a result, declines in consumer spending could indirectly adversely affect our advertising revenues.
 
While we do not believe that our subscription access service has been adversely affected by the current recession, there is a risk that existing subscribers may elect to cancel their subscriptions as a result of the weaker economic climate.  Should this occur, we may experience an accelerated decline in our subscription revenues.
 
Demand and pricing for, and volume sold of, online advertising may face downward pressure which would adversely affect our advertising revenues.
 
During 2008 and the first quarter of 2009, we experienced lower demand from advertisers across a number of advertiser categories that have been significantly impacted by the downturn in the economy, a higher volume of inventory monetized through lower-priced sales channels and pricing declines.  In order for us to maintain or increase advertising revenues in the future, we believe it will be important to increase our overall volume of advertising sold, including sales of advertising through our higher-priced channels, and to maintain or increase pricing for advertising.  If overall demand continues to decline, if sales continue to trend towards lower-priced sales channels or if overall pricing declines occur, our advertising revenues could be adversely affected.
 


 
We are dependent on a third-party search provider.
 
We do not own or control a general text-based web search service.  Instead, Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.  In 2008, search advertising revenues comprised approximately one-third of our total advertising revenues and was the only category of our advertising revenues that grew year-over-year.  Changes that Google has made and may unilaterally make in the future to its search service or advertising network, including changes in pricing, algorithms or advertising relationships, could adversely affect our advertising revenues.  Furthermore, except in certain limited circumstances, we have agreed to use Google’s algorithmic search and sponsored links on an exclusive basis in the United States through December 19, 2010.  Upon expiration of this agreement, there can be no assurance that the agreement will be renewed, or, if the agreement is renewed, that we would receive the same or a higher revenue share as we do under the current agreement.  In addition, there can be no assurance that if we enter into an arrangement with an alternative search provider the terms would be as favorable as those under the current Google agreement.  Even if we were to enter into an arrangement with an alternative search provider with terms as or more favorable than those under the current Google agreement, such an arrangement might generate significantly lower search advertising revenues for us if the alternative search provider is not able to generate search advertising revenues as successfully as Google currently does.
 
Because we do not own or control such a search service, we are not able to package and sell search advertising along with display advertising services outside of AOL Media.  As search advertising represents a significant portion of online advertising spending, we believe that our lack of a proprietary search service could adversely affect our ability to maintain and increase advertising revenues.
 
We may need to raise additional capital, and we cannot be sure that additional financing will be available.
 
While subsequent to the separation we expect to fund our ongoing working capital, capital expenditure and financing requirements through cash flows from operations and a new revolving credit facility to be entered into in connection with the separation, we may require additional financing in the future.  Our ability to obtain future financing will depend, among other things, on our financial condition and results of operations as well as on the condition of the capital markets or other credit markets at the time we seek financing.  Additional financing may not be available in a timely manner on terms reasonably acceptable to us, or at all.  If we are unable to enter into the necessary financing arrangements or sufficient funds are not available on acceptable terms when required, our business may be adversely affected.
 
If we cannot make our content, products and services available and attractive to consumers via devices other than personal computers, our ability to attract consumers and maintain or increase their engagement could be adversely affected.
 
Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones).  In order for consumers to access and use our content, products and services via these devices, we must ensure that our content, products and services are compatible with such devices.  We also need to secure arrangements with device manufacturers and wireless carriers in order to have placement on these devices.  We must also ensure that our licensing arrangements with third-party content providers allow us to make this content available on these devices.  If we cannot effectively make our content, products and services available on these devices, fewer consumers may access and use our content, products and services.  In addition, we must develop and offer effective advertising solutions on these devices in order to generate advertising revenues from the use of such devices by our consumers.  If we are not able to attract and engage consumers via these devices or develop effective advertising solutions for such devices, our business could be adversely affected.
 
We rely on legacy technology infrastructure and a failure to update or replace this technology infrastructure could adversely affect our business.
 
Significant portions of our content, services and products are dependent on technology infrastructure that was developed a number of years ago.  We expect to incur substantial ongoing costs to update and replace our legacy technology.  In addition, we incur significant costs operating our business with multiple and often contradictory technology platforms and infrastructure.  Updating and replacing our technology infrastructure may be challenging to implement and manage, may take time to test and deploy, may cause us to incur substantial costs and may cause us to suffer data loss or delays or interruptions in service.  These delays or interruptions in service may cause our consumers, advertisers and publishers to become dissatisfied with our offerings and could adversely affect our business.
 

 
 
 
 
Our dependence on legacy technology infrastructure may also put us in a weaker position relative to a number of our key web services competitors.  Competitors with newer technology infrastructure may have greater flexibility and be in a position to respond more quickly than us to new opportunities, which may impact our competitive position in certain markets and adversely affect our business.
 
In addition, many of our employees with the necessary skills to maintain and repair our legacy technology infrastructure have either been reassigned within the Company or are no longer with the Company, creating a potential gap in our ability to service and support this legacy infrastructure.
 
If we are unable to hire, engage and retain key personnel, our business could be adversely affected.
 
We are dependent on our ability to hire, engage and retain talented, highly-skilled employees, including employees with specific areas of expertise.  Accomplishing this may be difficult due to many factors, including the impact of our restructuring plans on employee morale, the geographic location of our main corporate and business offices, fluctuations in global economic and industry conditions, frequent changes in our management and leadership and the attractiveness of our compensation programs relative to those of our competitors.  If we do not succeed in retaining and engaging our key employees and in attracting new key personnel, including personnel with specific areas of expertise, we may be unable to meet our strategic objectives and, as a result, our business could be adversely affected.
 
Further, due to past changes in our strategic direction, we may not have employees whose skills fully align with those required to achieve our strategic objectives.  In some cases, we may need to hire suitably skilled employees to address strategic challenges we may encounter in the future.
 
A failure to scale and adapt our existing technology architecture to manage the expansion of our offerings could adversely affect our business.
 
We expect to continue to expand our offerings to consumers, advertisers and publishers.  Expanding the amount and type of our offerings will require substantial expenditures to scale or adapt our technology infrastructure.  The technology architectures utilized for our consumer offerings and advertising services are highly complex and may not provide satisfactory support as usage increases and products and services expand, change and become more complex in the future.  We may make additional changes to our architectures and systems to deliver our consumer offerings and services to advertisers and publishers, including moving to completely new technology architectures and systems.  Such changes may be challenging to implement and manage, may take time to test and deploy, may cause us to incur substantial costs and may cause us to suffer data loss or delays or interruptions in service.  These delays or interruptions in service may cause consumers, advertisers and publishers to become dissatisfied with our offerings and could adversely affect our business.
 
If we cannot effectively distribute our content, products and services, our ability to attract new consumers could be adversely affected.
 
As the Internet audience continues to fragment, distribution of our content, products and services via traditional methods (e.g., toolbars) may become less effective, and new distribution strategies may need to be developed.  Even if we are able to distribute our content, products and services effectively, this does not assure that we will be able to attract new consumers.
 
Currently, an important distribution channel for AOL Media is through our subscription access service.  However, our access service subscriber base has declined and is expected to continue to decline.  This continued decline is likely to reduce the effectiveness of our subscription access service as a distribution channel.  If we are unable to grow organically by attracting new consumers to our content, products and services, we may need to rely on distribution channels that require us to pay significant fees to third parties.  Furthermore, these fees have been increasing as Internet companies compete for a limited number of premium distribution channels.  Any increased reliance on these third-party distribution channels could adversely affect our business.
 

 

 
If we cannot continue to develop and offer effective advertising products and services, our advertising revenues could be adversely affected.
 
Growth in our advertising revenues depends on our ability to continue offering effective products and services for advertisers and publishers.  Continuing to develop and improve these products and services may require significant time and costs.  If we cannot continue to develop and improve our advertising products and services, our advertising revenues could be adversely affected.  Furthermore, if we cannot enhance our existing advertising offerings or develop new advertising offerings or technologies to keep pace with market trends, including new technologies that more effectively or efficiently plan, price or target advertising, our advertising revenues could be adversely affected.
 
We are dependent on third parties for our business in Europe.
 
In 2006 and 2007, we sold to third parties our subscription access service businesses, including our subscriber relationships, in the United Kingdom, France and Germany.  We now depend on the current owners of these businesses to continue our relationships with our former subscribers and to generate advertising revenues in these countries.  We provide the owners of our former subscription access service businesses varying levels of programming and advertising services and receive a portion of advertising revenues generated from certain activities.  If one or more of these agreements is terminated by these third parties, or these parties take actions that affect the relationships with our former subscribers, our advertising revenues and business in Europe could be adversely affected.
 
Our access service subscriber base could decline faster than we currently anticipate.
 
Our access service subscriber base has declined and is expected to continue to decline.  This decline is the result of several factors, including the increased availability of high-speed Internet broadband connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services.  Also, a substantial number of the subscribers to our subscription access service do not use the service to access the Internet on a regular basis and may terminate their subscription at any time.  In addition, we must maintain the current payment method information of our subscribers and, if we fail to do so, we may lose paid relationships with some of our access subscribers.  If any of these factors result in our access subscriber base declining faster than we currently anticipate, our subscription revenues and business could be adversely affected.
 
If we do not present a clear message about our strategic focus to our commercial partners, our ability to attract and retain partners could be adversely affected.
 
We have had multiple changes in executive leadership and leadership direction and, accordingly, we have presented our commercial partners with numerous mixed messages about our goals and our strategy for achieving these goals.  As a result, some of our commercial partners may become reluctant to continue to partner with us.  If our advertising and publishing partners become reluctant to partner with us, our business could be adversely affected.
 
A disruption or failure of our networks and information systems, the Internet or other technology may disrupt our business.
 
Our business is heavily dependent on the availability of network and information systems, the Internet and other technologies.  Shutdowns or service disruptions caused by events such as criminal activity, computer viruses, denial of service attacks, power outages, natural disasters, accidents, terrorism or other events within or outside our control could adversely affect us and our consumers, including through service disruption, damage to equipment and data and excessive call volume to call centers.  Such an event could result in large expenditures necessary to repair or replace such networks or information systems or to protect them from similar events in the future.  Significant incidents could result in a disruption of our business, consumer dissatisfaction and a loss of consumers or revenues.
 
 

 

 
We are dependent on third-party providers of telecommunications services.
 
Although we currently have agreements with several different third-party telecommunications service providers, there are only a limited number of such providers that are capable of providing our network services.  To the extent that we cannot renew or extend our contracts with these providers on similar terms or to the extent that we cannot acquire similar network capacity from other providers on similar terms, the cost of obtaining network services may increase and our financial results could be adversely affected.  In addition, because of the limited number of telecommunications services providers, in the event that a provider decides to exit the business of providing telecommunications services, our ability to maintain the geographic scope of these network services could be adversely affected.  In such an event, certain consumers in the affected geographic areas would be unable to continue to use our subscription access service and our business could be adversely affected.
 
If we cannot continue to enforce and protect our intellectual property rights, our business could be adversely affected.
 
We rely on patent, copyright, trademark, domain name and trade secret laws in the United States and similar laws in other countries, as well as licenses and other agreements with our employees, consumers, suppliers and other parties, to establish and maintain our intellectual property rights in the technology, content, products and services used in our operations.  These laws and agreements may not guarantee that our intellectual property rights will be protected and our intellectual property rights could be challenged or invalidated.  In addition, such intellectual property rights may not be sufficient to permit us to take advantage of current industry trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of offerings or otherwise adversely affect our business.
 
We have been, and may in the future be, subject to claims of intellectual property infringement that could adversely affect our business.
 
Periodically, third parties claim that we infringe their intellectual property rights.  We expect to continue to be subject to claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of others.  These claims, whether meritorious or not, are time-consuming and costly to resolve, and may require expensive changes in our methods of doing business and/or our content, products and services.  These intellectual property infringement claims may require us to enter into royalty or licensing agreements on unfavorable terms or to incur substantial monetary liability.  Additionally, these claims may result in our being enjoined preliminarily or permanently from further use of certain intellectual property and/or our content, products and services, or may require us to cease or significantly alter certain of our operations.  The occurrence of any of these events as a result of these claims could result in substantially increased costs, or could limit or reduce the number of our offerings to consumers, advertisers and publishers and otherwise adversely affect our business.
 
Some of our commercial agreements may require us to indemnify parties against intellectual property infringement claims, which may require us to use substantial resources to defend against or settle such claims or, potentially, to pay damages.  Additionally, we may be exposed to liability or substantially increased costs if a commercial partner does not honor its contractual obligation to indemnify us for intellectual property infringement claims made by third parties.  The occurrence of any of these events could adversely affect our business.
 
The misappropriation, release, loss or misuse of AOL data or consumer or other data could adversely affect our business.
 
Our business utilizes significant amounts of data about our business, consumers and our advertising and publishing partners in order to deliver our content, products and services and our advertising solutions.  The misappropriation, release, loss or misuse of this data, whether by accident, omission or as the result of criminal activity, computer hacking, natural disasters, terrorism or other events, could lead to negative publicity, harm to our reputation, customer dissatisfaction, regulatory enforcement actions or individual or class-action lawsuits or significant expenditures to recover the data or protect data from similar releases in the future, and may otherwise adversely affect our business.
 
 

 

 
Changes to federal, state or international laws or regulations applicable to our business could adversely affect our business.
 
Our business is subject to a variety of federal, state and international laws and regulations, including those with respect to advertising generally, consumer protection, content regulation, privacy, defamation, child protection, advertising to and collecting information from children, taxation and billing.  These laws and regulations and the interpretation or application of these laws and regulations could change.  In addition, new laws or regulations affecting our business could be enacted.  These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention.  If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.
 
There are several federal laws that specifically affect our business, including the following:
 
 
The Children’s Online Privacy Protection Act of 1998 and the Federal Trade Commission’s related implementing regulations, which prohibit the collection of personal information from users under the age of 13 without parental consent.  In addition, there has been an international movement to provide additional protections to minors who are online which, if enacted, could result in substantial compliance costs.
 
 
The Digital Millennium Copyright Act of 1998, parts of which limit the liability of certain eligible online service providers for listing or linking to third-party websites that include materials which infringe copyrights or other intellectual property rights of others.
 
 
The Communications Decency Act of 1996, sections of which provide certain statutory protections to online service providers who distribute third-party content.
 
 
The Protect Our Children Act of 2008, which requires online services to report and preserve evidence of violations of federal child pornography laws under certain circumstances.
 
 
The Electronic Communications Privacy Act of 1986, which sets forth the provisions for access, use, disclosure and interception and privacy protections of electronic communications.
 
In addition, many states have enacted legislation governing the breach of data security in which sensitive consumer information is released or accessed.  If we fail to comply with these applicable laws or regulations we could be subject to significant liabilities which could adversely affect our business.
 
Many of our advertising partners are subject to industry specific laws and regulations or licensing requirements, including advertisers in the following industries:  pharmaceuticals, online gaming, alcohol, adult content, tobacco, firearms, insurance, securities brokerage, real estate, sweepstakes, free trial offers, automatic renewal services and legal services.  If any of our advertising partners fail to comply with any of these licensing requirements or other applicable laws or regulations, or if such laws and regulations or licensing requirements become more stringent or are otherwise expanded, our business could be adversely affected.
 
Failure to comply with federal, state or international privacy laws or regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.
 
A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data.  The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations.  In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters.  We have posted privacy policies and practices concerning the collection, use and disclosure of user data on our websites.  Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business.  In addition, a failure or perceived failure to comply with industry standards or with our own privacy policies and procedures could result in a loss of consumers or advertisers and adversely affect our business.
 
 

 
 

 
Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web “cookies” for behavioral advertising.  We use cookies, which are small text files placed in a consumer’s browser, to facilitate authentication, preference management, research and measurement, personalization and advertisement and content delivery.  In the Third Party Network, cookies or similar technologies help present, target and measure the effectiveness of advertisements.  The regulation of these “cookies” and other current online advertising practices could adversely affect our business.
 
Changes to products, technology and services made by third parties and consumers could adversely affect our business.
 
We are dependent on many products, technologies and services provided by third parties, including browsers, data and search indexes, in order for consumers to use our content, products and services, as well as to deliver, measure, render and report advertising.  Any changes made by these third parties or consumers to functionality, features or settings of these products, technologies and services could adversely affect our business.  For example, third parties may develop, and consumers may install, software that is used to block advertisements or delete cookies, or consumers may elect to manually delete cookies more frequently.  Likewise, search services providers may adjust their algorithms and indexes, which may hinder the ability of consumers to reach and use our content, products and services.  This risk is increased because there are a small number of search services providers and any change made by one or more of these providers could significantly affect our business.  The widespread adoption of these products and technologies or changes to current products, technologies and services could adversely affect our business.
 
Acquisitions of other businesses could adversely affect our operations and result in unanticipated liabilities.
 
Since January 1, 2008, we have acquired 11 businesses and we are likely to make additional acquisitions and strategic investments in the future.  The completion of acquisitions and strategic investments and the integration of acquired companies or assets involve a substantial commitment of resources.  In addition, past or future transactions may be accompanied by a number of risks, including:
 
 
the uncertainty of our returns on investment due to the new and developing industries in which some of the acquired companies operate;
 
 
the adverse effect of known potential liabilities or unknown liabilities, such as claims of patent or other intellectual property infringement, associated with the companies acquired or in which we invest;
 
 
the difficulty of integrating technology, administrative systems, personnel and operations of acquired companies into our services, systems and operations and unanticipated expenses related to such integration;
 
 
the potential loss or disengagement of key talent at acquired companies;
 
 
the potential disruption of our ongoing business and distraction of our management;
 
 
additional operating losses and expenses of the businesses we acquire or in which we invest and the failure of such businesses to perform as expected;
 
 
the failure to successfully further develop acquired technology, resulting in the impairment of amounts currently capitalized as intangible assets;
 
 
the difficulty of reconciling potentially conflicting or overlapping contractual rights and duties; and
 
 
the potential impairment of relationships with consumers, partners and employees as a result of the combination of acquired operations and new management personnel.
 
The failure to successfully address these risks or other problems encountered in connection with past or future acquisitions and strategic investments could cause us to fail to realize the anticipated benefits of such transactions and incur unanticipated liabilities that could harm our business.
 
 

 
 

 
We face risks relating to doing business internationally that could adversely affect our business.
 
Our business operates and serves consumers worldwide.  There are certain risks inherent in doing business internationally, including:
 
 
economic volatility and the current global economic recession;
 
 
currency exchange rate fluctuations;
 
 
the requirements of local laws and customs relating to the publication and distribution of content and the display and sale of advertising;
 
 
uncertain protection and enforcement of our intellectual property rights;
 
 
import or export restrictions and changes in trade regulations;
 
 
difficulties in developing, staffing and simultaneously managing a large number of foreign operations as a result of distance as well as language and cultural differences;
 
 
issues related to occupational safety and adherence to local labor laws and regulations;
 
 
potentially adverse tax developments;
 
 
longer payment cycles;
 
 
political or social unrest;
 
 
seasonal volatility in business activity;
 
 
risks related to government regulation;
 
 
the existence in some countries of statutory shareholder minority rights and restrictions on foreign direct ownership;
 
 
the presence of corruption in certain countries; and
 
 
higher than anticipated costs of entry.
 
One or more of these factors could adversely affect our business.
 
Also, we could be at a competitive disadvantage in the long term if we are not able to capitalize on international opportunities in growth economies.  International expansion involves significant investment as well as risks associated with doing business abroad, as described above.  Furthermore, investments in some regions can take a long period to generate an adequate return and in some cases there may not be a developed or an efficient legal system to protect foreign investment or intellectual property rights.  In addition, if we expand into new international regions, we may have limited experience in operating and marketing our products and services in such regions and could be at a disadvantage compared to competitors with more experience.
 
We could be subject to additional tax liabilities which could adversely affect our business.
 
International, federal, state and local tax laws and regulations affecting our business, or interpretations or application of these tax laws and regulations, could change.  In addition, new international, federal, state and local tax laws and regulations affecting our business could be enacted or taxing authorities may disagree with our interpretation of tax laws and regulations.  Our subscription access service is protected from taxation through the Federal Internet Tax Non-Discrimination Act, which is in effect until November 2014.  However, faced with decreasing revenues, several states have sought to increase revenue by taxing advertising generally, Internet advertising specifically, or by increasing general business taxes.  Imposing new taxes on advertising or Internet advertising would adversely affect us.  An increase in general business taxes would adversely affect us if it occurred in a jurisdiction in which we operate.  Other states have sought to expand the definition of “nexus” for the purpose of taxing goods and services sold over the Internet.  If enacted, these new taxes would adversely affect our consumers and, as a result, could adversely affect our business.
 
 


 
 
We could be required to record significant impairment charges in the future.
 
We are required under generally accepted accounting principles to test goodwill for impairment at least annually, and to review our identifiable intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable.  Factors that could lead to impairment of goodwill and identifiable intangible assets include significant adverse changes in the business climate and declines in the value of our business.  We recorded a significant goodwill impairment charge in 2008 and may be required to record additional impairment charges (which would reduce our net income) in the future.
 
Risks Relating to the Spin-Off
 
The spin-off could result in significant tax liability to Time Warner shareholders.
 
The spin-off is conditioned on the receipt by Time Warner, on or before the distribution date, of an opinion of counsel confirming that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares.  Time Warner can waive receipt of the tax opinion as a condition to the spin-off.  See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 30 of this Information Statement for more detail.
 
The opinion will be based on, among other things, certain assumptions and representations made by Time Warner and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by counsel in its opinion.  The opinion will not be binding on the Internal Revenue Service or the courts.  Notwithstanding receipt by Time Warner of the opinion of counsel, the IRS could determine that the spin-off should be treated as a taxable transaction if it disagrees with the conclusions in the opinion.
 
If the IRS were to determine that the spin-off should be treated as a taxable transaction, then a U.S. holder receiving our shares in the spin-off will be treated as having received a distribution to the extent of the fair market value of the shares received on the distribution date.  That distribution will be treated as taxable dividend income to the extent of such holder’s ratable share of the current and accumulated earnings and profits of Time Warner, if any.  Any amount that exceeds such share of earnings and profits of Time Warner will be treated first as a tax-free return of capital to the extent of the U.S. holder’s adjusted tax basis in its shares of common stock of Time Warner (thus reducing such adjusted tax basis), with any remaining amounts being treated as capital gain.  For a more detailed discussion, see “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 30 of this Information Statement.
 
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Time Warner.
 
As an independent, publicly-traded company, we believe that our business will benefit from, among other things, allowing us to better focus our financial and operational resources on our specific business, allowing our management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of our business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for our management and employees that are more closely tied to our business performance.  However, by separating from Time Warner, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of Time Warner.  In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all.  For example, it is possible that investors and securities analysts will not place a greater value on our business as an independent company than on our business as a part of Time Warner.
 
 

 
 

 
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the spin-off.
 
We have historically operated as part of Time Warner’s corporate organization, and Time Warner has assisted us by providing certain corporate functions.  Following the spin-off, Time Warner will have no obligation to provide assistance to us other than the interim services to be provided as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement.  Because our business has previously operated as part of the wider Time Warner organization, we cannot assure you that we will be able to successfully implement the changes necessary to operate independently or that we will not incur additional costs that could adversely affect our business.
 
Our historical financial information is not necessarily representative of the results we would have achieved as an independent, publicly-traded company and may not be a reliable indicator of our future results.
 
The historical financial information we have included in this Information Statement may not reflect what our results of operations, financial position and cash flows would have been had we been an independent, publicly-traded company during the periods presented, or what our results of operations, financial position and cash flows will be in the future when we are an independent company.  This is primarily because:
 
 
we will enter into transactions with Time Warner that either have not existed historically or that are on different terms than the terms of arrangements or agreements that existed prior to the spin-off;
 
 
our historical financial information reflects allocations for certain services historically provided to us by Time Warner that may not reflect the costs we will incur for similar services in the future as an independent company; and
 
 
our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the cost structure, personnel needs, financing and operations of our business.
 
Following the spin-off, we also will be responsible for the additional costs associated with being an independent, publicly-traded company, including costs related to corporate governance and public reporting.  Therefore, our financial statements may not be indicative of our future performance as an independent company.  For additional information about our past financial performance and the basis of presentation of our financial statements, see “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included elsewhere in this Information Statement.
 
Certain of the contracts to be transferred or assigned to us contain provisions requiring the consent of a third party in connection with the transactions contemplated by the reorganization and distribution.  If such consent is not given, we may not be entitled to the benefit of such contracts in the future.
 
Certain of the contracts to be transferred or assigned to us in connection with the reorganization contain provisions which require the consent of a third party to the reorganization, the distribution or both.  If we are unable to obtain such consents on commercially reasonable and satisfactory terms, our ability to obtain the benefit of such contracts in the future may be impaired.
 
We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with Time Warner.
 
The agreements related to our separation from Time Warner, including the Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Cross-License Agreement and any other agreements, will be negotiated in the context of our separation from Time Warner while we are still part of Time Warner.  Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties.  The terms of the agreements being negotiated in the context of our separation are related to, among other things, allocations of assets, liabilities, rights, indemnifications and other obligations among Time Warner and us.  We may have received better terms from third parties because third parties may have competed with each other to win our business.  See “Certain Relationships and Related Party Transactions” beginning on page 116 of this Information Statement for more detail.
 
 

 
 
 
 
Risks Relating to our Common Stock and the Securities Market
 
There is no existing market for our common stock and we cannot be certain that an active trading market will develop or be sustained after the spin-off, and following the spin-off our stock price may fluctuate significantly.
 
There is currently no public market for our common stock.  It is anticipated that before the distribution date for the spin-off, trading of shares of our common stock will begin on a “when-issued” basis and such trading will continue up to and including the distribution date.  However, there can be no assurance that an active trading market for our common stock will develop as a result of the spin-off or be sustained in the future.  The lack of an active market may make it more difficult for you to sell our shares and could lead to our share price being depressed or more volatile.
 
We cannot predict the prices at which our common stock may trade after the spin-off.  The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:
 
 
our business profile and market capitalization may not fit the investment objectives of some Time Warner shareholders and, as a result, these Time Warner shareholders may sell our shares after the distribution;
 
 
actual or anticipated fluctuations in our operating results due to factors related to our business;
 
 
success or failure of our business strategy;
 
 
our quarterly or annual earnings, or those of other companies in our industry;
 
 
our ability to obtain financing as needed;
 
 
announcements by us or our competitors of significant acquisitions or dispositions;
 
 
changes in accounting standards, policies, guidance, interpretations or principles;
 
 
the failure of securities analysts to cover our common stock after the spin-off;
 
 
changes in earnings estimates by securities analysts or our ability to meet those estimates;
 
 
the operating and stock price performance of other comparable companies;
 
 
overall market fluctuations;
 
 
changes in laws and regulations affecting our business; and
 
 
general economic conditions and other external factors.
 
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company.  This has been particularly true in recent years for Internet services companies.  These broad market fluctuations could adversely affect the trading price of our common stock.
 
Substantial sales of common stock may occur in connection with the spin-off, which could cause our stock price to decline.
 
The shares of our common stock that Time Warner distributes to its shareholders generally may be sold immediately in the public market.  Although we have no actual knowledge of any plan or intention on the part of any significant shareholder to sell our common stock following the separation, it is possible that some Time Warner shareholders, possibly including some of our larger shareholders, will sell our common stock received in the distribution if, for reasons such as our business profile or market capitalization as an independent company, we do not fit their investment objectives.  The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.
 
 


 
 
Your percentage ownership in AOL will be diluted in the future.
 
Your percentage ownership in AOL will be diluted in the future because of equity awards that have been granted to our Chairman and Chief Executive Officer that will be converted into AOL common stock-based equity awards, as well as any additional equity awards that are granted to our directors, officers and employees.  We intend to establish equity incentive plans that will provide for the grant of common stock-based equity awards to our directors, officers and other employees.  In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments we may make in the future.
 
Provisions in our certificate of incorporation and by-laws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.
 
Our certificate of incorporation and by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover.  These provisions include rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings and the right of our board to issue preferred stock without shareholder approval.
 
Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15% or more of our outstanding common stock and us.  For more information, see “Description of Our Capital Stock—Certain Provisions of Delaware Law, Our Certificate of Incorporation and By-laws” beginning on page 120 of this Information Statement.
 
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board and by providing our board with more time to assess any acquisition proposal.  These provisions are not intended to make our company immune from takeovers.  However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board determines is not in the best interests of our company and our shareholders.
 



 

 
 
This Information Statement contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial performance and other matters.  Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements.  These forward-looking statements are based on management’s current expectations and beliefs about future events.  As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances.  Except for our ongoing obligations to disclose material information under the federal securities laws, neither we nor Time Warner are under any obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.
 
Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in “Risk Factors” beginning on page 14 of this Information Statement.  In addition, we operate in a highly competitive, consumer and technology-driven and rapidly changing interactive services business.  This business is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights.  Our actual results could differ materially from management’s expectations because of changes in such factors.
 
Further, lower than expected valuations associated with our cash flows and revenues may result in our inability to realize the value of recorded intangibles and goodwill.  In addition, achieving our business and financial objectives, including growth in operations and maintenance of a strong balance sheet, could be adversely affected by the factors discussed or referenced under the section “Risk Factors” beginning on page 14 of this Information Statement as well as, among other things:
 
 
a longer than anticipated continuation of the current economic slowdown or further deterioration in the economy;
 
 
decreased liquidity in the capital markets, including any reduction in the ability to access the capital markets for debt securities or bank financings;
 
 
our borrowing capacity under the new revolving credit facility;
 
 
the impact of terrorist acts and hostilities;
 
 
changes in our plans, strategies and intentions;
 
 
the impact of significant acquisitions, dispositions and other similar transactions; and
 
 
the failure to meet earnings expectations.
 
 

 
 

 
 
Background
 
On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner.  Prior to the spin-off, Time Warner will convert AOL Holdings LLC into a Delaware corporation to be named AOL Inc.  Time Warner will then cause substantially all of the assets and liabilities of AOL LLC (other than AOL LLC’s guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner), our wholly-owned subsidiary that currently holds, directly or indirectly, all of the AOL business, to be transferred to and assumed by us.  Following this transfer and assumption of AOL LLC’s assets and liabilities, ownership of AOL LLC will be transferred to, and retained by, Time Warner.  We refer to these steps in this Information Statement as the reorganization.  For more information, see the description of the Internal Transactions in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement.
 
As part of a broad strategic alliance with Google Inc., on April 13, 2006, Time Warner issued a 5% equity interest in us to Google for $1,000 million in cash.  On July 8, 2009, Time Warner repurchased Google’s 5% interest in us.  Following this purchase, we became a 100%-owned subsidiary of Time Warner.  For a more detailed discussion of the strategic alliance, see Note 3 to the accompanying audited consolidated financial statements.
 
To accomplish the spin-off, Time Warner will, following the reorganization, distribute all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to Time Warner shareholders on a pro rata basis.  Following the spin-off, Time Warner will not own any equity interest in us, and we will operate independently from Time Warner.  No vote of Time Warner’s shareholders is required or is being sought in connection with the spin-off, and Time Warner’s shareholders will not have any appraisal rights in connection with the spin-off.
 
The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions.  In addition, Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.  For a more detailed description, see “—Conditions to the Spin-Off” on page 33 of this Information Statement.
 
Reasons for the Spin-Off
 
The Time Warner board of directors regularly reviews the businesses that comprise Time Warner to ensure that Time Warner’s resources are being put to use in a manner that is in the best interests of Time Warner and its shareholders.  The board of directors of Time Warner considered the following potential benefits in making its determination to pursue the spin-off:
 
 
Business Focus.  As a result of the spin-off, each of Time Warner and AOL will be better able to focus financial and operating resources on its own business and on pursuing appropriate growth opportunities and executing its own strategic plan.  The spin-off will also allow each of Time Warner and AOL to more effectively respond to industry dynamics and therefore have an increased focus on its own strategic initiatives and priorities.
 
 
Focused Management.  The spin-off will allow management of both companies to design and implement corporate strategies and policies that are based primarily on the specific business characteristics and strategic decisions of the respective companies.
 
 
Management Incentives.  The spin-off will enable AOL to create incentives for its management and employees that are more closely tied to its business performance and shareholder expectations.  Separate equity-based compensation arrangements should more closely align the interests of AOL’s management and employees with the interests of its shareholders and increase AOL’s ability to attract and retain personnel.
 
 
Investor Choice.  The spin-off will allow investors to make independent investment decisions with respect to Time Warner and AOL.  Investment in one or the other company may appeal to investors with different goals, interests and concerns.
 
 

 
 

 
In determining whether to effect the spin-off, the board of directors of Time Warner also considered the costs and risks associated with the transaction.  Notwithstanding these costs and risks, however, the board determined that, for the reasons stated above, the spin-off provides the separated companies with certain opportunities and benefits that could enhance shareholder value.
 
Manner of Effecting the Spin-Off
 
Time Warner will effect the spin-off by distributing to its shareholders, as a pro rata dividend,       shares of our common stock for every       shares of Time Warner common stock outstanding as of       , 2009, the record date of the distribution.
 
Prior to the spin-off, Time Warner will deliver all of the issued and outstanding shares of our common stock to the distribution agent.  Following the distribution date, which is       , 2009, the distribution agent will electronically deliver the shares of our common stock issuable in the spin-off to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form.  Registration in book-entry form refers to a method of recording share ownership where no physical share certificates are issued to shareholders, as is the case in this distribution.
 
Commencing on or shortly after the distribution date, if you are a registered holder of Time Warner shares entitled to shares of our common stock, the distribution agent will mail to you an account statement that indicates the number of shares of our common stock that have been registered in book-entry form in your name.  We expect it will take the distribution agent up to two weeks after the distribution date to complete the distribution of the shares of our common stock and mail statements of holding to all Time Warner shareholders.
 
Please note that if you sell any of your shares of Time Warner common stock on or before the distribution date, the buyer of those shares, and not you, may in certain circumstances be entitled to receive the shares of our common stock issuable in respect of the shares sold.  See “—Trading Prior to the Distribution Date” on page 33 of this Information Statement for more information.
 
A number of Time Warner shareholders hold their Time Warner common stock through a bank or brokerage firm.  In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books.  If you hold your Time Warner common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the common stock of our company that you are entitled to receive in the spin-off.  If you have any questions concerning the mechanics of having shares held in street name, we encourage you to contact your bank or brokerage firm.
 
Shareholders of Time Warner are not being asked to take any action in connection with the spin-off.  No shareholder approval of the spin-off is required or is being sought.  We are not asking you for a proxy, and request that you not send us a proxy.  You are also not being asked to surrender any of your shares of Time Warner common stock for shares of our common stock.  The number of outstanding shares of Time Warner common stock will not change as a result of the spin-off.
 
Treatment of Fractional Shares
 
The distribution agent will not distribute any fractional shares in connection with the spin-off.  Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices.  The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Time Warner shareholder who would otherwise have been entitled to receive a fractional share in the distribution.  The distribution agent will, in its sole discretion, without any influence by Time Warner or us, determine when, how, through which broker-dealer and at what price to sell the whole shares.  The distribution agent and any broker-dealer used by the distribution agent will not be an affiliate of either Time Warner or us.
 
The distribution agent will send a check to each registered holder of Time Warner common stock who is entitled to a fractional share representing the cash amount deliverable in lieu of the shareholder’s fractional share interest as soon as practicable following the distribution date.  If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds from the sales.  No interest will be paid on any cash distributed in lieu of fractional shares.  The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders.  See “—Material U.S. Federal Income Tax Consequences of the Spin-Off” below for more information.
 
 


 
 
Material U.S. Federal Income Tax Consequences of the Spin-Off
 
The following is a summary of certain U.S. Federal income tax consequences to the holders of Time Warner common stock in connection with the spin-off.  This summary is based on the Internal Revenue Code, the Treasury Regulations promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect and available as of the date of this Information Statement and all of which are subject to change at any time, possibly with retroactive effect.  Any such change could affect the tax consequences described below.
 
This summary is limited to holders of Time Warner common stock that are U.S. Holders, as defined immediately below.  A U.S. Holder is a beneficial owner of Time Warner common stock that is, for U.S. Federal income tax purposes:
 
 
an individual who is a citizen or a resident of the United States;
 
 
a corporation, or other entity taxable as a corporation for U.S. Federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;
 
 
an estate, the income of which is subject to U.S. Federal income taxation regardless of its source; or
 
 
a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.
 
This summary also does not discuss all tax considerations that may be relevant to shareholders in light of their particular circumstances, nor does it address the consequences to shareholders subject to special treatment under the U.S. Federal income tax laws, such as:
 
 
dealers or traders in securities or currencies;
 
 
tax-exempt entities;
 
 
banks, financial institutions or insurance companies;
 
 
real estate investment trusts, regulated investment companies or grantor trusts;
 
 
persons who acquired Time Warner common stock pursuant to the exercise of employee stock options or otherwise as compensation;
 
 
shareholders who own, or are deemed to own, at least 10% or more, by voting power or value, of Time Warner equity;
 
 
holders owning Time Warner common stock as part of a position in a straddle or as part of a hedging, conversion or other risk reduction transaction for U.S. Federal income tax purposes;
 
 
certain former citizens or long-term residents of the United States;
 
 
holders who are subject to the alternative minimum tax; or
 
 
persons that own Time Warner common stock through partnerships or other pass-through entities.
 
 

 
 

 
This summary does not address the U.S. Federal income tax consequences to Time Warner shareholders who do not hold Time Warner common stock as a capital asset.  Moreover, this summary does not address any state, local or foreign tax consequences or any estate, gift or other non-income tax consequences.
 
If a partnership (or any other entity treated as a partnership for U.S. Federal income tax purposes) holds Time Warner common stock, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership.  Such a partner or partnership should consult its own tax advisor as to its tax consequences.
 
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE DISTRIBUTION.
 
The spin-off is conditioned on Time Warner’s receipt of a favorable opinion of Cravath, Swaine & Moore LLP confirming that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares.  The opinion will be based on the assumption that, among other things, the representations made, and information submitted, in connection with it are accurate.  Assuming the spin-off qualifies as tax-free:
 
 
the spin-off will not result in any taxable income, gain or loss to Time Warner;
 
 
no gain or loss will be recognized by, or be includible in the income of, a shareholder of Time Warner common stock, except with respect to any cash received in lieu of fractional shares;
 
 
the aggregate tax basis of the Time Warner common stock and our common stock in the hands of Time Warner’s shareholders immediately after the spin-off will be the same as the aggregate tax basis of the Time Warner common stock held by the holder immediately before the spin-off, allocated between the common stock of Time Warner and us in proportion to their relative fair market values on the date of the spin-off; and
 
 
the holding period of our common stock received by Time Warner’s shareholders will include the holding period of their Time Warner common stock, provided that such Time Warner common stock is held as a capital asset on the date of the spin-off.
 
Time Warner’s shareholders that have acquired different blocks of Time Warner common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted basis among, and their holding period of, shares of our common stock distributed with respect to such blocks of Time Warner common stock.
 
The Spin-Off and Tax-Free Transaction Status
 
Time Warner has not requested, and does not intend to request, a private letter ruling from the IRS confirming that the spin-off will be tax-free to shareholders of Time Warner for U.S. Federal income tax purposes.  Time Warner has made it a condition to the spin-off that Time Warner obtain an opinion of Cravath, Swaine & Moore LLP confirming that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares.  The opinion will be based on various factual representations and assumptions, as well as certain undertakings made by Time Warner and us.  If any of those factual representations or assumptions were untrue or incomplete in any material respect, any undertaking was not complied with, or the facts upon which the opinion is based were materially different from the facts at the time of the spin-off, the spin-off may not qualify for tax-free treatment.  Opinions of counsel are not binding on the IRS.  As a result, the conclusions expressed in the opinion of counsel could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable.
 
If the spin-off were not to qualify as a tax-free transaction, each shareholder who receives our common stock in the spin-off would generally be treated as receiving a distribution in an amount equal to the fair market value of our common stock received, which would generally result in:
 
 

 
 

 
 
a taxable dividend to the extent of the shareholder’s pro rata share of Time Warner’s current and accumulated earnings and profits;
 
 
a reduction in the shareholder’s basis (but not below zero) in Time Warner common stock to the extent the amount received exceeds the shareholder’s share of Time Warner’s earnings and profits; and
 
 
a taxable gain from the exchange of Time Warner common stock to the extent the amount received exceeds both the shareholder’s share of Time Warner’s earnings and profits and the basis in the shareholder’s Time Warner common stock.
 
Information Statement
 
U.S. Treasury Regulations require each Time Warner shareholder that immediately before the spin-off owned 5% or more (by vote or value) of the total outstanding stock of Time Warner to attach to such shareholder’s U.S. Federal income tax return for the year in which such stock is received a statement setting forth certain information related to the spin-off.
 
Results of the Spin-Off
 
After the spin-off, we will be an independent, publicly-traded company.  Immediately following the spin-off, we estimate we will have approximately       million shares of our common stock issued and outstanding (based on the number of shares of Time Warner common stock outstanding as of       , 2009).  The actual number of shares of our common stock to be distributed in the spin-off will depend on the actual number of shares of Time Warner common stock outstanding on the record date, and will reflect any issuance of new shares pursuant to Time Warner’s equity plans, including from exercises of stock options and vestings of restricted stock units or performance stock units, and any shares repurchased by Time Warner under its common stock repurchase program, in each case on or prior to the record date.  The spin-off will not affect the number of outstanding shares of Time Warner common stock or any rights of Time Warner shareholders, although we expect the trading price of shares of Time Warner common stock immediately following the distribution to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the AOL business.  Furthermore, until the market has fully analyzed the value of Time Warner without the AOL business, the price of shares of Time Warner common stock may fluctuate.
 
Immediately following the spin-off, we expect to have approximately       holders of record of shares of our common stock (based on the number of holders of record of Time Warner common stock on       , 2009).
 
Before our separation from Time Warner, we will enter into a Separation and Distribution Agreement and several other agreements with Time Warner related to the spin-off.  These agreements will govern the relationship between AOL and Time Warner up to and subsequent to the completion of the separation and provide for the allocation between AOL and Time Warner of various assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities).  We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement.
 
Listing and Trading of our Common Stock
 
As of the date of this Information Statement, we are a wholly-owned subsidiary of Time Warner.  Accordingly, there is currently no public market for our common stock, although a “when-issued” market in our common stock may develop prior to the distribution.  See “—Trading Prior to the Distribution Date” below for an explanation of a “when-issued” market.  We intend to list our shares of common stock on the New York Stock Exchange under the symbol “AOL.”  Following the spin-off, Time Warner common stock will continue to trade on the New York Stock Exchange under the symbol “TWX.”
 
Neither we nor Time Warner can assure you as to the trading price of Time Warner common stock or our common stock after the spin-off, or as to whether the combined trading prices of our common stock and the Time Warner common stock after the spin-off will be less than, equal to or greater than the trading prices of Time Warner common stock prior to the spin-off.  The trading price of our common stock may fluctuate significantly following the spin-off.  See “Risk Factors—Risks Relating to our Common Stock and the Securities Market” beginning on page 25 of this Information Statement for more detail.
 
 

 
 
 
The shares of our common stock distributed to Time Warner shareholders will be freely transferable, except for shares received by individuals who are our affiliates.  Individuals who may be considered our affiliates after the spin-off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes.  These individuals may include some or all of our directors and executive officers.  Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 1933, as amended (which we refer to in this Information Statement as the Securities Act), or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.
 
Trading Prior to the Distribution Date
 
It is anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be a “when-issued” market in our common stock.  When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued.  The when-issued trading market will be a market for shares of our common stock that will be distributed to Time Warner shareholders on the distribution date.  If you own shares of Time Warner common stock at the close of business on the record date, you will be entitled to shares of our common stock distributed pursuant to the spin-off.  You may trade this entitlement to shares of our common stock, without the shares of Time Warner common stock you own, on the when-issued market.  On the first trading day following the distribution date, we expect when-issued trading with respect to our common stock will end and regular-way trading will begin.
 
Following the distribution date, we expect shares of our common stock to be listed on the New York Stock Exchange under the trading symbol “AOL.”  We will announce our when-issued trading symbol when and if it becomes available.
 
It is also anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Time Warner common stock:  a “regular-way” market and an “ex-distribution” market.  Shares of Time Warner common stock that trade on the regular way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution.  Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution.  Therefore, if you sell shares of Time Warner common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of our common stock in the distribution.  However, if you own shares of Time Warner common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of our common stock that you would otherwise be entitled to receive pursuant to the distribution.
 
Conditions to the Spin-Off
 
We expect that the separation will be effective on the distribution date, provided that the following conditions shall have been satisfied or waived by Time Warner:
 
 
the board of directors of Time Warner shall have authorized and approved the separation and distribution and not withdrawn such authorization and approval, and shall have declared the dividend of AOL common stock to Time Warner shareholders;
 
 
each ancillary agreement contemplated by the Separation and Distribution Agreement shall have been executed by each party thereto;
 
 
the SEC shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Exchange Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;
 
 

 
 

 
 
our common stock shall have been accepted for listing on the New York Stock Exchange or another national securities exchange approved by Time Warner, subject to official notice of issuance;
 
 
the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner—Separation and Distribution Agreement” beginning on page 116 of this Information Statement) shall have been completed;
 
 
Time Warner shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that the spin-off should not result in the recognition, for U.S. Federal income tax purposes, of gain or loss to Time Warner or its shareholders, except to the extent of cash received in lieu of fractional shares;
 
 
we shall have obtained written releases of Time Warner and its affiliates, in each case effective upon the consummation of the distribution, with respect to all credit support instruments, including all guarantees, covenants, indemnities, surety bonds, letters of credit and similar assurances or credit support provided by Time Warner for our benefit, or we shall provide Time Warner with letters of credit or guarantees, in each case issued by a bank reasonably acceptable to Time Warner, against losses arising from all such credit support instruments;
 
 
no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution shall be in effect, and no other event outside the control of Time Warner shall have occurred or failed to occur that prevents the consummation of the distribution;
 
 
no other events or developments shall have occurred prior to the distribution date that, in the judgment of the board of directors of Time Warner, would result in the spin-off having a material adverse effect on Time Warner or its shareholders;
 
 
prior to the distribution date, this Information Statement shall have been mailed to the holders of Time Warner common stock as of the record date;
 
 
Time Warner shall have duly elected the individuals to be listed as members of our board of directors in this Information Statement, and such individuals shall continue to be members of our board of directors as of the distribution date; and
 
 
immediately prior to the distribution date, our certificate of incorporation and by-laws, each in substantially the form filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, shall be in effect.
 
The fulfillment of the foregoing conditions will not create any obligation on the part of Time Warner to effect the spin-off.  Time Warner has the right not to complete the spin-off if, at any time, the board of directors of Time Warner determines, in its sole discretion, that the spin-off is not in the best interests of Time Warner or its shareholders, or that market conditions are such that it is not advisable to separate AOL from Time Warner.
 
Reasons for Furnishing this Information Statement
 
This Information Statement is being furnished solely to provide information to Time Warner shareholders who will receive shares of our common stock in the distribution.  It is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Time Warner.  We believe that the information contained in this Information Statement is accurate as of the date set forth on the cover.  Changes to the information contained in this Information Statement may occur after that date, and neither we nor Time Warner undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.
 
 

 

 
 
We have not yet determined our dividend policy, but we intend to do so prior to the spin-off.  The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our board of directors deems relevant.  There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends.
 
 

 
 

 
 
The following table sets forth the unaudited cash and capitalization of AOL as of March 31, 2009, on an historical basis and as adjusted for the spin-off.  You should review the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this Information Statement.

   
March 31, 2009
 
($ in millions)
   
Historical
   
As adjusted
             
Cash
  $ 118.8     $    
                 
Capitalization:                
                 
Indebtedness:
               
    Current portion of notes payable and obligations under capital lease
  $ 26.2        
    Long-term notes payable and obligations under capital lease   $  60.2        
                 
Equity:
               
    Common stock, $.01 par value
               
    Additional paid-in capital
               
    Retained earnings
               
    Divisional equity
  $ 3,803.4     $    
    Accumulated other comprehensive loss, net
  $ (311.0 )   $    
    Noncontrolling interest    $ 1.3        
                 
                 
Total capitalization
  $ 3,580.1     $    


We have not yet finalized our post-separation capitalization.  We intend to update this Information Statement to reflect our post-separation capitalization.



 

 
 
The following tables present certain selected historical financial information as of and for each of the years in the five-year period ended December 31, 2008, and as of March 31, 2009 and for the three months ended March 31, 2009 and 2008.  The selected historical consolidated financial data as of December 31, 2008 and 2007 and for each of the fiscal years in the three-year period ended December 31, 2008, and as of March 31, 2009 and for the three months ended March 31, 2009 and 2008, are derived from our historical consolidated financial statements included elsewhere in this Information Statement.  The selected historical consolidated financial data as of December 31, 2006 and as of and for the years ended December 31, 2005 and 2004 are derived from our unaudited consolidated financial statements that are not included in this Information Statement.  The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of our management include all adjustments, consisting of only ordinary recurring adjustments, necessary for a fair presentation of the information set forth in this Information Statement.
 
The selected historical financial data presented below should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Information Statement.  The financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, standalone entity during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation from Time Warner.
 
   
Years Ended December 31,
 
Three Months Ended
March 31,
   
2008
 
2007
 
2006
 
2005
 
2004
 
2009
 
2008
($ in millions)
           
                     
(unaudited)
   
(unaudited)
   
(unaudited)
 
Statement of Operations Data:
                                         
Revenues:
                                         
Advertising
  $ 2,096.4     $ 2,230.6     $ 1,886.1     $ 1,337.8     $ 1,005.0     $ 443.0     $ 551.9  
Subscription
    1,929.3       2,787.9       5,783.6       6,754.9       7,476.9       393.5       538.8  
Other
    140.1       162.2       117.0       109.4       139.7       30.7       37.6  
Total revenues
  $ 4,165.8     $ 5,180.7     $ 7,786.7     $ 8,202.1     $ 8,621.6     $ 867.2     $ 1,128.3  
Operating income (loss)(a)
  $ (1,167.7 )   $ 1,853.8     $ 1,167.8     $ (1,817.8 )   $ 230.5     $ 141.6     $ 280.1  
Income (loss) from continuing operations(b)
  $ (1,526.6 )   $ 1,213.3     $ 716.5     $ (363.6 )   $ 477.0     $ 82.5     $ 159.6  
Net income (loss) attributable to AOL Inc.(c)
  $ (1,525.8 )   $ 1,396.1     $ 749.7     $ (334.1 )   $ 564.4     $ 82.7     $ 159.7  
____________
 
(a)
2008 includes a $2,207.0 million non-cash impairment to reduce the carrying value of goodwill and $20.8 million in amounts incurred related to securities litigation and government investigations.  2007 includes a net pre-tax gain of $668.2 million on the sale of the German access service business and $171.4 million in amounts incurred related to securities litigation and government investigations.  2006 includes a $767.4 million gain on the sales of the French and United Kingdom access service businesses and $705.2 million in amounts incurred related to securities litigation and government investigations.  2005 includes $2,864.8 million in amounts incurred related to securities litigation and government investigations.  2004 includes $536.0 million in amounts incurred related to securities litigation and government investigations.  The three months ended March 31, 2009 include $7.4 million in amounts incurred related to securities litigation and government investigations.  The three months ended March 31, 2008 include $3.9 million in amounts incurred related to securities litigation and government investigations.
 
(b)
Includes net gains of $944.4 million in 2005 and $293.6 million in 2004 related to the sale of primarily available-for-sale equity securities.
 
(c)
Includes net income of $182.1 million in 2007, $18.9 million in 2006, $29.5 million in 2005 and $87.3 million in 2004 related to discontinued operations.  2006 also includes a non-cash benefit of $14.3 million as the cumulative effect of an accounting change upon the adoption of FAS 123R to recognize the effect of estimating the number of equity awards granted prior to January 1, 2006 that are ultimately not expected to vest.
 
 

 

 
 
    As of December 31,     As of  
          March 31,  
    2008   2007   2006   2005   2004   2009
($ in millions)                                                
                      (unaudited)        (unaudited)        (unaudited)        (unaudited)  
Balance Sheet Data:                                                
    Cash
  $ 134.7     $ 151.9     $ 401.5     $ 119.9     $ 256.9     $ 118.8  
Total assets
  $ 4,861.3     $ 6,863.1     $ 6,786.4     $ 6,064.6     $ 7,803.0     $ 4,663.9  
Long-term notes payable and obligations under capital leases
  $ 33.7     $ 24.7     $ 105.1     $ 110.4     $ 153.7     $ 36.2  
    Total equity
  $ 3,737.7     $ 5,269.5     $ 4,505.8     $ 3,530.8     $ 4,346.0     $ 3,493.7  
 
 

 
 

 
Introduction
 
We are a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience.  Our business spans online content, products and services that we offer to consumers, publishers and advertisers.  We are focused on attracting and engaging consumers and providing valuable online advertising services on both our owned and operated properties and third-party websites.  We have the largest display advertising network in terms of online consumer reach in the United States as of June 2009.
 
Historically, our primary strategic focus was our dial-up Internet access services business which operated one of the largest Internet subscription access services in the United States.  As broadband penetration in the United States increased, we experienced a decline, which we continue to experience, in subscribers to our access service.  At the same time, online advertising experienced significant growth.  In August 2006, we fundamentally shifted the primary strategic focus of our business from generating subscription revenues to attracting and engaging Internet consumers and generating advertising revenues.  In connection with this shift, we began offering the vast majority of our content, products and services to consumers for free in an effort to attract and engage a broader group of consumers.  While this strategic shift was announced in 2006, we are still in the process of completing this transition.  Consequently, our subscription access service remains an important source of our total revenues and cash flows.
 
Time Warner has been evaluating potential transactions involving, and structural alternatives for, AOL for some time, including the possibility of separating the global web services and subscription access services businesses, which share infrastructure such as data centers and network operations centers.  Historically, the global web services business had three units:  the first focused on content published on a variety of websites with related applications and services; the second focused on social networking, community and instant communications products and services; and the third focused on providing advertising services on both our owned and operated properties and third-party websites.  The subscription access services business included the AOL-branded Internet access service as well as CompuServe and Netscape Internet access services.
 
In April 2009, Tim Armstrong was appointed our Chairman and Chief Executive Officer, and he commenced a review of AOL’s strategy and operations while Time Warner continued its evaluation of structural alternatives.  Time Warner’s evaluation resulted in the announcement on May 28, 2009 that it would move forward with plans for the complete legal and structural separation of AOL from Time Warner.
 
In connection with the strategic review conducted by Mr. Armstrong, which factored in Time Warner’s decision to spin off AOL, we have updated our organizational structure and developed the next phase in the strategic shift begun in 2006.  Our strategy remains focused primarily on attracting and engaging Internet consumers and generating advertising revenues, with the subscription access service managed as a valuable distribution channel for our content, product and service offerings.  As a result, we intend to continue to operate as a single integrated business rather than as two separate businesses.
 
Our Strategic Initiatives
 
Consistent with our strategic shift to a business focused primarily on generating advertising revenues, we have begun executing a multi-year strategic plan to reinvigorate growth in our revenues and profits by taking advantage of the migration of commerce, information and advertising to the Internet.  Our strategy is to focus our resources on AOL’s core competitive strengths in web content production, local and mapping, communications and advertising networks while expanding the presence of our content, product and service offerings globally and on multiple platforms and digital devices.  We also aim to reorient AOL’s culture and reinvigorate the AOL brand by prioritizing the consumer experience, making greater use of data-driven insights and encouraging innovation.  Particular areas of strategic emphasis include:
 
 
Expanding Our Owned Content Offerings.  We will expand our offerings of relevant and engaging online consumer content by focusing on the creation and publication of our own original content.  In addition, we will seek to provide premium global advertisers with effective and efficient means of reaching our consumers.
 
 
 


 
 
 
 
Pursuing Local and Mapping Opportunities.  We believe that there are significant opportunities for growth in the area of local content, platforms and services, by providing comprehensive content covering all geographic areas from local neighborhoods to major metropolitan areas.  By enhancing these local offerings, including through our flagship MapQuest brand, we seek to provide consumers with a comprehensive local experience.
 
 
Enhancing Our Established Communications Offerings.  Our goal is to increase the global reach of and engagement on our established communications offerings (including our email products and instant messaging applications) on multiple platforms and digital devices.
 
 
Growing the Third Party Network.  We seek to significantly increase the number of publishers and advertisers utilizing our third-party advertising network by providing an open, transparent and easy-to-use advertising system that offers unique and valuable insights to our publishers and advertisers.
 
 
Encouraging Global Innovation through AOL Ventures.  We believe that we can attract and develop innovative initiatives through AOL Ventures by creating an environment that encourages entrepreneurialism.  We currently expect to invest significantly less capital in AOL Ventures than in our other strategic initiatives and we may seek outside capital where appropriate.
 
Business Overview
 
Our business operations are focused on the following:
 
 
AOL Media.  We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services.
 
We generate advertising revenues from our owned and operated content, products and services, which we refer to as “AOL Media,” through the sale of display and search advertising.  We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers.
 
We also generate revenues through our subscription access service.  We view our subscription access service as a valuable distribution channel for AOL Media.  Our access service subscribers are important users of AOL Media and engaging both present and former access service subscribers is an important component of our strategy.  In addition, our subscription access service will remain an important source of revenue and cash flow for us in the near term.
 
Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones).  As a result, we seek to ensure that our content, products and services are compatible with such devices so that our consumers are able to access and use our content, products and services via these devices.
 
 
Third Party Network.  We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we refer to as the “Third Party Network,” and we market these advertising services to advertisers and publishers under the brand “Advertising.com.”  Our mission is to provide an open and transparent advertising system that is easy-to-use and offers our publishers and advertisers unique and valuable insights.  We seek to significantly increase the number of publishers and advertisers utilizing the network.
 
We market our advertising offerings on both AOL Media and the Third Party Network under the brand “AOL Advertising.”
 


AOL Media
 
Content Offerings
 
AOL Media content offerings include content we license from third parties, original content produced through our large network of content creators, which includes established journalists and other freelance writers, and aggregations of user-generated content.  Our content offerings are made available to broad audiences through sites such as the AOL.com homepage, as well as to niche audiences on highly-targeted, branded properties, such as Asylum, Engadget and WalletPop.  Over time, to increase the flexibility and revenue generation potential of our content, we intend to create more of our own original content and rely less on licensed third-party content.  To facilitate the intake, management and publication of original content, we are moving toward utilizing publishing platforms and content management systems that are designed to scale in a cost-effective manner in order to produce a large variety of relevant content for consumers.
 
AOL Media content offerings include the following:
 
 
News & Information (including Engadget, DailyFinance, WalletPop, AOL Autos, FanHouse and PoliticsDaily);
 
 
Women & Lifestyle (including StyleList, Lemondrop and ParentDish);
 
 
Entertainment (including Moviefone, AOL Music, AOL TV, PopEater and Games.com); and
 
 
Targeted Audiences (including Black Voices and AOL Latino).
 
Local and Mapping
 
We seek to be a leading provider of local content, platforms and services covering geographic levels ranging from neighborhoods to major metropolitan areas.  We have developed and acquired a number of platforms that are designed to facilitate the aggregation, distribution and consumption of local content.  This local content includes professional editorial content, user-generated content and business listings.  Through our flagship MapQuest brand, we provide trusted maps and directions directly to consumers as well as through business-to-business licensing.  By linking our local and mapping platforms, we anticipate providing one of the most compelling, accessible and comprehensive local experiences on the Internet.
 
Historically, local “city guide” and “directory-style” sites have focused on providing information and services to larger-scale metropolitan areas, while smaller communities and towns have been largely ignored.  We believe that these smaller communities represent a significant opportunity.  For small communities, local newspapers associated with nearby metropolitan regions have been a central resource for news and events.  These local print publications are currently facing significant economic challenges.  We intend to take advantage of these dynamics by establishing online destinations that provide comprehensive news, events and directories at the community level.
 
Our local and mapping offerings include the following:
 
 
MapQuest, which is a leading online mapping and directions service;
 
 
Local Entertainment Guides (including AOL City Guide, City’s Best and Digital City);
 
 
Local Directories (including AOL Yellow Pages, AOL White Pages and AOL Classifieds);
 
 
Local Events (including Going.com and When.com); and
 
 
Local Sites, which aggregate news, events and directories for small communities and towns.
 


Communications
 
We offer a powerful global suite of communications products and services.  Our email and instant messaging products and services provide us with the ability to reach millions of consumers and we seek to continue to develop and enhance the functionality of these communications offerings.  Our goal is to increase the global reach and engagement of our communications offerings on multiple platforms and digital devices.
 
Our communications offerings include the following:
 
 
AOL Mail, which is one of the most popular e-mail services in the United States;
 
 
AIM, which is a leading instant messaging service in the United States;
 
 
ICQ, which is an instant messaging service that has a strong international presence; and
 
 
Communications solutions for third parties (including co-branded, white-labeled and AOL-branded solutions).
 
We believe there are long-term opportunities to distribute content, products and advertising through our communications offerings, enabling us to generate increased advertising revenue.
 
Search
 
We offer AOL Search on AOL Media.  We provide our consumers with a general, Internet-based search experience that utilizes Google’s organic web search results and additional links on the search results page that showcase contextually relevant AOL and third-party content and information (adjacent to the search results), as well as provide a variety of search-related features (such as suggesting related searches to help users further refine their search queries).  We also provide our consumers with relevant paid text-based search advertising through our relationship with Google, in which we provide consumers search-based, sponsored link ads in response to their search queries.
 
We also offer our own proprietary video (Truveo) and news (Relegence) search services.  Truveo is one of the most comprehensive video search engines in the world.  Truveo’s functionality enables consumers to enter search terms to discover publicly available online videos and receive search results that include links to each video’s host site and thumbnails to help consumers refine their search queries for relevant videos.  The Relegence news search service acquires information on a real-time basis from public and private information sources, including news wires, websites, regulatory feeds and corporate sources, and indexes this information on a proprietary platform to enable use of relevant, targeted news feeds throughout AOL Media.  In addition, we offer vertical search services (i.e., search within a specific content category) and mobile search services on AOL Media.
 
Distribution of AOL Media
 
AOL Media content, products and services are generally available to online consumers and we are focused on attracting greater numbers of consumers to our offerings.  In addition, we utilize various distribution channels which allow us to more directly reach online consumers.
 
Subscription Access Service
 
Our AOL-brand subscription access service, which we offer consumers in the United States for a monthly fee, is a valuable distribution channel for AOL Media.  As of March 31, 2009, we had 6.3 million AOL-brand access subscribers in the United States.
 
In addition to our content, products and services that are available to all online consumers, an AOL access subscription provides members with dial-up access to the Internet and, depending on the applicable price plan, various degrees of enhanced safety and security features, technical support and other benefits.  In addition, we continue to offer Internet access services under the CompuServe and Netscape brands.
 


Our access service subscriber base has declined and is expected to continue to decline as a result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services.  See “Risk Factors—Risks Relating to Our Business—Our strategic shift to an online advertising-supported business model involves significant risks” on page 14 of this Information Statement.
 
Other Distribution Channels
 
We also distribute AOL Media through a variety of other channels, including agreements with original equipment manufacturers of computers, digital devices and other consumer electronics, broadband access providers and mobile carriers.  Additional distribution channels include toolbars, widgets, co-branded portals and websites, and third-party websites and social networks that link to AOL Media.  We also utilize search engine marketing and search engine optimization as distribution methods.  In addition, we make available open standards and protocols for use by third-party developers to enhance, promote and distribute AOL Media.

AOL Media Revenue Generation
 
Advertising Revenues
 
We generate advertising revenues from AOL Media through the sale of display and search advertising.  We offer advertisers a wide range of capabilities and solutions to effectively deliver advertising and reach targeted audiences across AOL Media through our dedicated sales force.  The substantial number of unique visitors on AOL Media allows us to offer advertisers the capability of reaching a broad and diverse demographic and geographic audience without having to partner with multiple content providers.  We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers. We offer advertisers marketing and promotional opportunities to purchase specific placements of advertising directly on AOL Media (i.e., in particular locations and on specific dates).  In addition, we offer advertisers the opportunity to bid on unsold advertising inventory on AOL Media utilizing our proprietary scheduling, optimization and delivery technology.  Finally, advertising inventory on AOL Media not sold directly to advertisers, as described above, may be included for sale to advertisers with inventory purchased from third-party publishers in the Third Party Network.
 
We offer numerous types of advertising, including text and banner advertising, mobile, search-sponsored links, video and rich media advertising, sponsorship of content offerings, local and classified advertising, contextual and audience targeting opportunities, lead generation and affiliate marketing solutions.  Advertising revenues are generated through the display of graphical advertisements, the display of sponsored links to an advertiser’s website that are associated with search results, the display of contextual links to an advertiser’s website as well as other performance-based advertising.  Agreements for advertising on AOL Media typically take the following forms:
 
 
impression-based contracts in which we provide “impressions” (an “impression” is delivered when an advertisement appears in web pages viewed by users) in exchange for a fixed fee (generally stated as cost-per-thousand impressions);
 
 
time-based contracts in which we provide a minimum number of impressions over a specified time period for a fixed fee; or
 
 
performance-based contracts in which 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 or product purchases.
 
We utilize our own proprietary “ad serving technology” (i.e., technology that places advertisements on websites and digital devices) as the primary vehicle for placements of advertisements on AOL Media through our subsidiary, ADTECH AG.  We also license this ad serving technology to third parties.
 
 

 

 
 
Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.  In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search advertising on AOL Media.  For the year ended December 31, 2008, advertising revenues associated with the Google relationship (substantially all of which were generated on AOL Media) were $678 million.  In addition, we sell search-based keyword advertising directly to advertisers on AOL Media through the use of a white-labeled, modified version of Google’s advertising platform, for which we provide a share of the revenue generated through such sales to Google.   Domestically, we have agreed, except in certain limited circumstances, to use Google’s search services on an exclusive basis through December 19, 2010.  Upon expiration of this agreement, we expect to continue to generate advertising revenues by providing paid-search advertising on AOL Media, either through the continuation of our relationship with Google or an agreement with another search provider.  See “Risk Factors—Risks Relating to Our Business—We are dependent on a third-party search provider” on page 16 of this Information Statement.
 
Subscription Revenues
 
We generate subscription revenues through our subscription access service.  As of May 2009, our primary price plans were $25.90 and $11.99 per month.  We also offer consumers, among other things, enhanced online safety and security features and technical support for a monthly subscription fee.  As noted above, our access service subscriber base has declined and is expected to continue to decline, and this has resulted in year-over-year declines in our subscription revenues.  The number of domestic AOL-brand access subscribers was 6.9 million, 9.3 million and 13.2 million at December 31, 2008, 2007 and 2006, respectively.  For the years ended December 31, 2008, 2007 and 2006, our subscription revenues were $1,929 million, $2,788 million and $5,784 million, respectively.

Although our subscription revenues have declined and are expected to continue to decline, we believe that our subscription access service will continue to provide us with an important source of revenue and cash flow in the near term.  The revenue and cash flow generated from our subscription access service will help us to pursue our strategic initiatives and continue the transition of our business toward attracting and engaging Internet consumers and generating advertising revenues in accordance with the 2006 strategy shift.

Third Party Network
 
We also generate advertising revenues through the sale of advertising on the Third Party Network.  In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory.
 
 


 
 
The Third Party Network includes a display advertising interface that gives advertisers the ability to target and control the delivery of their advertisements and provides advertisers and agencies with relevant display analytics and measurement tools.  For our publishers, inclusion in the Third Party Network offers a comprehensive set of tools and technologies to manage and maximize their return.
 
We utilize a proprietary scheduling, optimization and delivery technology, called AdLearn, which employs a set of complex mathematical algorithms that seek to optimize advertisement placements across the Third Party Network and the available inventory on AOL Media.  This optimization is based on expected user response, which is derived from previous user response plus factors such as user segmentation, creative performance and site performance.  AdLearn allows performance to be analyzed quickly and advertisement placement to be frequently optimized based on specific objectives, including click-through rate, conversion rate, sales volume and other metrics.
 
Advertising arrangements for the sale of Third Party Network inventory typically take the form of impression-based contracts or performance-based contracts.
 
Other Revenues
 
In addition to advertising and subscription revenues, we also generate fee, license and other revenues.  From our communications offerings, we generate fees associated with mobile email and instant messaging functionality from mobile carriers.  Through MapQuest’s business-to-business services, we generate licensing revenue from third-party customers.  We also generate revenues by licensing our proprietary ad serving technology to third parties, primarily through our subsidiary, ADTECH AG.
 
AOL Ventures
 
Some of the initiatives described above may be classified as part of AOL Ventures.  We formed AOL Ventures with the goal of creating an entrepreneurial environment to attract and develop innovative initiatives across the globe.  AOL Ventures will focus on acquisitions that we have previously made which have start-up characteristics or which do not currently fit within our other areas of strategic focus, investments we intend to make in early-stage, externally-developed opportunities and employee-originated innovations that we believe would benefit from incubation and development within the AOL Ventures environment.
 
For initiatives included within AOL Ventures, our goal is to create an improved environment for fostering sustained long-term growth.  For future initiatives and investments whether externally-developed or employee-originated—AOL Ventures will focus on early-stage opportunities that are aligned with our long-term strategy.  The size of our investment and corresponding ownership interest will vary depending on the opportunity, as will our level of involvement and control.  We intend to attract top talent and source attractive opportunities by partnering with leading angel investors, venture capitalists and universities.  We currently expect to invest significantly less capital in AOL Ventures than in our other operations.  In addition to capitalizing the initiatives and investments included within AOL Ventures ourselves, we may seek outside capital where appropriate.
 
Product Development
 
We seek to develop new and enhanced versions of our products and services for our consumers, publishers and advertisers.  While in the past we have relied primarily on our own proprietary technology to support our products and services, we have been steadily increasing our use of open source technologies and platforms with a view to diversifying our sources of technology, as well as for cost management.  Research and development costs related to our software development efforts for 2008, 2007 and 2006 totaled $68.8 million, $74.2 million and $114.4 million, respectively.  These costs consist primarily of personnel and related costs that are incurred related to the development of software and user-facing Internet offerings that do not qualify for capitalization.
 
Intellectual Property
 
Our intellectual property assets include copyrights, trademarks and trademark applications, patents and patent applications, domain names, trade secrets and licenses of intellectual property rights of various kinds.  These intellectual property assets, both in the United States and in other countries around the world, are among our most valuable assets.  We rely on a combination of copyright, trademark, patent, trade secret and unfair competition laws as well as contractual provisions to protect these assets.  The duration and scope of the protection afforded to our intellectual property depend on the type of property in question and the laws and regulations of the relevant jurisdiction.  In the case of licenses, they also depend on contractual provisions.
 
Google Alliance
 
In April 2006, AOL, Google and Time Warner completed the issuance to Google of a 5% equity interest in us and entered into agreements in March 2006 which expanded their existing strategic alliance.  Under the expanded alliance, Google provides our consumers with a general, Internet-based search experience that utilizes Google’s organic web search results and additional links on the search results page that showcase contextually relevant AOL and third-party content and information (adjacent to the search results), as well as a variety of search-related features (such as suggesting related searches to help users further refine their search queries).  We also provide our consumers with relevant paid text-based search advertising through our relationship with Google, in which we provide consumers search-based sponsored link ads in response to their search queries.  In addition, Google provides us with the use of a white-labeled, modified version of its advertising platform to enable us to sell search-based keyword advertising directly to advertisers on AOL Media, provides us with advertising credits for promotion of AOL Media on Google’s network, provides other promotional opportunities for our content and collaborates with us on a number of other areas.
 

 

 

On July 8, 2009, Time Warner completed the purchase of Google’s 5% interest in us.  See Note 3 to the accompanying audited consolidated financial statements for additional information on this purchase.
 
Competition
 
We compete for the time and attention of consumers with a wide range of Internet companies, including Yahoo! Inc., Google, Microsoft Corporation’s MSN, IAC/Interactive Corp. and social networking sites such as Facebook, Inc. and Fox Interactive Media Inc.’s MySpace, as well as traditional media companies which are increasingly offering their own Internet products and services.
 
We compete for advertisers and publishers with a wide range of companies offering competing advertising products, technology and services, aggregators of such advertising products, technology and services and aggregators of third-party advertising inventory.  In addition to those companies listed above, competitors include WPP Group plc (24/7 Real Media) and ValueClick, Inc.  Competition among these companies has been intensifying and may lead to continuing decreases in prices for certain advertising inventory, particularly in light of current economic conditions where advertisers in certain categories are lowering their marketing expenditures.
 
Our subscription access service competes with other Internet access providers, especially broadband providers.
 
Internationally, our primary competitors are global enterprises such as Yahoo!, Google, MSN, IAC, Facebook, MySpace and other social networking sites, as well as a large number of local enterprises.
 
The Internet industry is dynamic and rapidly evolving, and new and popular competitors, such as social networking sites, providers of communications tools and providers of advertising services, frequently emerge.
 
Government Regulation and Other Regulatory Matters
 
Our business is subject to various federal and state laws and regulations, particularly in the areas of privacy, data security and consumer protection.
 
Laws and regulations applicable to our business include the following:
 
 
The Children’s Online Privacy Protection Act of 1998 and the Federal Trade Commission’s related implementing regulations, which prohibit the collection of personal information from users under the age of 13 without parental consent.  In addition, there has been an international movement to provide additional protections to minors who are online which, if enacted, could result in substantial compliance costs.
 
 
The Digital Millennium Copyright Act of 1998, parts of which limit the liability of certain eligible online service providers for listing or linking to third-party websites that include materials which infringe copyrights or other intellectual property rights of others.
 
 
The Communications Decency Act of 1996, sections of which provide certain statutory protections to online service providers who distribute third-party content.
 
 
The Protect Our Children Act of 2008, which requires online services to report and preserve evidence of violations of federal child pornography laws under certain circumstances.
 
 
The Electronic Communications Privacy Act of 1986, which sets forth the provisions for access, use, disclosure and interception and privacy protections of electronic communications.
 
 
The Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003, which establishes requirements for those who send commercial email, sets forth penalties for email “spammers” and companies whose products are advertised in spam if they violate the law and gives consumers the right to ask emailers to stop spamming them.
 

 
 
 
 
Our marketing and billing activities are subject to regulation by the Federal Trade Commission and each of the states and the District of Columbia under both general consumer protection laws and regulations prohibiting unfair or deceptive acts or practices as well as various laws and regulations mandating disclosures, authorizations, opt-out procedures and record-keeping for particular sorts of marketing and billing transactions.  These laws and regulations include, for example, the Telemarketing Sales Rule, federal and state “Do Not Call” statutes, the Electronic Funds Transfer Act, Regulation E, anti-cramming regulations promulgated by state Public Utilities Commissions and other regulatory bodies.  Moreover, our ability to bill under certain payment methods is subject to commercial agreements including, for example, the Credit Card Association Rules and agreements between our payment aggregator and telephone carriers.
 
We regularly receive and resolve inquiries relating to marketing and billing issues from state Attorneys General, the Federal Trade Commission and the Federal Communications Commission and, over the course of more than 20 years of operations, we have entered into several Consent Orders, Assurances of Voluntary Compliance/Discontinuance and settlements pursuant to which we have implemented a series of consumer protection safeguards.  Examples include the prohibition of consumer retention-related compensation to call center personnel based either on non-third-party verified retention transactions or minimum retention thresholds; implementing tools that mandate adherence to various consumer protection procedural safeguards around marketing, sales, registration, cancellation, retention and reactivation transactions; recordation and retention of particular call types; enabling and requiring full customer support for disabled consumers; and implementing regular training programs and monitoring mechanisms to ensure compliance with these obligations.
 
In the United States, Internet access services are generally classified as “information services” which are not subject to regulation by the Federal Communications Commission.
 
Various international laws and regulations also affect our growth and operations.  In addition, various legislative and regulatory proposals under consideration from time to time by the United States Congress and various federal, state and international authorities have in the past, and may in the future, materially affect us.  In particular, federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web “cookies” for behavioral advertising.  We use cookies, which are small text files placed in a consumer’s browser, to facilitate authentication, preference management, research and measurement, personalization and advertisement and content delivery.  In the Third Party Network, cookies or similar technologies help present, target and measure the effectiveness of advertisements.  More sophisticated targeting and measurement facilitate enhanced revenue opportunities.  The regulation of these “cookies” and other current online advertising practices could adversely affect our business.
 
Employees
 
We employ approximately 7,000 people, based in 18 countries around the world, including the United States, India, the United Kingdom, Germany, Ireland, Israel, Canada and France.  The countries outside of the United States where we have the largest employee populations are India, with over 1,000, and the United Kingdom, with approximately 500.  A significant number of our international employees support our domestic operations.  In general, we consider our relationship with employees to be good.
 
Global Presence
 
We have AOL-branded and co-branded portals and websites in North and South America, Europe and the Asia Pacific region.  In addition, we continue to offer Internet access service under the AOL-brand in the United States and Canada.  We sold our AOL-brand access service businesses in the United Kingdom and France in the fourth quarter of 2006 and sold our German access service business in the first quarter of 2007.  We have advertising operations in the United States, Canada and nine countries across Europe, as well as in Japan through a joint venture with Mitsui & Co., Ltd.  For geographic area data for the years ended December 31, 2008, 2007 and 2006, see Note 12 to the accompanying audited consolidated financial statements.
 


Seasonality
 
In the fourth quarter, we have historically seen a sequential increase in advertising revenues associated with holiday advertising; however, this fluctuation can be offset by adverse economic conditions.
 
Property and Equipment
 
The following table sets forth certain information concerning our principal properties:


Description/Use/Location
 
Approximate
Square Footage
 
Leased or
Owned
 
Expiration
Date, if
Leased
 
Corporate Headquarters, 770 Broadway, New York, New York
      228,000    
Leased
    2023  
Corporate Campus, 22000 AOL Way, Dulles, Virginia
      1,573,000 (a)  
Owned
    N/A  
Corporate Offices, 75 Rockefeller Plaza, New York, New York
      582,400 (b)  
Leased
    2014  
Dulles Technology Center, 22080 Pacific Boulevard, Dulles, Virginia
      180,000    
Owned
    N/A  
Manassas Technology Center, 777 Infantry Ridge Road, Manassas, Virginia
      228,000    
Owned
    N/A  
Netscape Technology Center, Executive, Administrative and Business Offices,
  475 Ellis, Mountain View, California
      406,000 (c)  
Leased
    2009-2014  
Development Center, RMZ EcoSpace Campus 1A and 3B, Outer Ring Road,
  Bellandur, Bangalore, India
      303,000    
Leased
    2012  
____________
(a)
Approximately 632,000 square feet are leased to third-party tenants.
 
(b)
This space is currently sublet from Time Warner, with all but 2,435 square feet being sub-sublet to a third party through the end of the AOL sublease.
 
(c)
Approximately 246,300 square feet are subleased to third-party tenants.
 
In addition to the properties above, we own and lease over 100 facilities for use as corporate offices, sales offices, development centers, technology centers and other operations in other locations in California, Colorado, the District of Columbia, Florida, Georgia, Illinois, Massachusetts, Michigan, New York, Ohio, Pennsylvania, Texas, Virginia and Washington and in the countries of Australia, Canada, China, Denmark, Finland, France, Germany, Japan, Luxembourg, Mexico, The Netherlands, Norway, Spain, Sweden and the United Kingdom.
 
We believe that our facilities are well maintained and are sufficient to meet our current and projected needs.  We also have an ongoing process to continually review and update our real estate portfolio to meet changing business needs.
 
Legal Proceedings
 
On May 24, 1999, two former AOL Community Leader volunteers brought a putative class action, Hallissey et al. v. America Online, Inc., in the U.S. District Court for the Southern District of New York alleging violations of the Fair Labor Standards Act (“FLSA”) and New York State law.  The plaintiffs allege that, in serving as AOL Community Leader volunteers, they were acting as employees rather than volunteers for purposes of the FLSA and New York State law and are entitled to minimum wages.  The court denied the Company’s motion to dismiss in 2006 and ordered the issuance of notice to the putative class in 2008.  In February 2009, plaintiffs filed a motion to file an amended complaint, the briefing for which was completed in May 2009, and which the court denied on July 17, 2009.  In 2001, four of the named plaintiffs in the Hallissey case filed a related lawsuit alleging retaliation as a result of filing the FLSA suit in Williams, et al. v. America Online, Inc., et al.  A related case was filed by several of the Hallissey plaintiffs in the U.S. District Court for the Southern District of New York alleging violations of the retaliation provisions of the FLSA.  This case was stayed pending the outcome of the Company’s motion to dismiss in the Hallissey matter discussed above, but has not yet been activated.  Also in 2001, two related class actions were filed in state courts in New Jersey (Superior Court of New Jersey, Bergen County Law Division) and Ohio (Court of Common Pleas, Montgomery County, Ohio), alleging violations of the FLSA and/or the respective state laws.  These cases were removed to federal court and subsequently transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.
 
 


 
 
On January 17, 2002, AOL Community Leader volunteers filed a class action lawsuit in the U.S. District Court for the Southern District of New York, Hallissey et al. v. AOL Time Warner, Inc., et al., against AOL LLC alleging ERISA violations.  Plaintiffs allege that they are entitled to pension and/or welfare benefits and/or other employee benefits subject to ERISA.  In March 2003, plaintiffs filed and served a second amended complaint, adding as defendants the AOL Time Warner Administrative Committee and the AOL Administrative Committee.  On May 19, 2003, AOL filed a motion to dismiss and the Administrative Committees filed a motion for judgment on the pleadings.  Both of these motions are pending.  The Company intends to defend against all these lawsuits vigorously.
 
On August 1, 2005, Thomas Dreiling, a shareholder of Infospace Inc., filed a derivative suit in the U.S. District Court for the Western District of Washington against AOL LLC and Infospace Inc. as nominal defendant.  The complaint, brought in the name of Infospace, asserts violations of Section 16(b) of the Exchange Act.  The plaintiff alleges that certain AOL LLC executives and the founder of Infospace, Naveen Jain, entered into an agreement to manipulate Infospace’s stock price through the exercise of warrants that AOL LLC received in connection with a commercial agreement with Infospace.  The complaint seeks disgorgement of profits, interest and attorneys’ fees.  On January 3, 2008, the court granted AOL LLC’s motion and dismissed the complaint with prejudice.  Plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit, and the oral argument occurred on May 7, 2009.  The court’s decision is pending.  The Company intends to defend against this lawsuit vigorously.
 
On September 22, 2006, Salvadore Ramkissoon and two unnamed plaintiffs filed a putative class action against AOL LLC in the U.S. District Court for the Northern District of California based on AOL LLC’s public posting of AOL LLC member search queries in late July 2006.  Among other things, the complaint alleges violations of the Electronic Communications Privacy Act and California statutes relating to privacy, data protection and false advertising.  The complaint seeks class certification and damages, as well as injunctive relief that would oblige AOL LLC to alter its search query retention practices.  In February 2007, the District Court dismissed the action without prejudice.  The plaintiffs then appealed this decision to the Ninth Circuit.  On January 16, 2009, the Ninth Circuit held that AOL LLC’s Terms of Service violated California public policy as to any California plaintiffs in the putative class, as it did not allow for them to fully exercise their rights.  The Ninth Circuit reversed and remanded to the District Court for further proceedings.  On April 24, 2009, AOL LLC filed a motion to stay discovery as well as a motion to implement the Ninth Circuit’s mandate; the former motion was denied on June 22, 2009.  AOL LLC filed its answer on June 29, 2009.  On July 6, 2009, the District Court found that the plaintiffs’ claims for unjust enrichment and public disclosure of private facts were subject to the forum selection clause in the Terms of Service and thus could not be pursued in that court.  Further, the District Court ordered additional briefing on whether the District Court may compel plaintiffs to litigate their claims for alleged violations of the Electronic Communications Privacy Act in a state court.  The Company intends to defend against this lawsuit vigorously.
 
Between December 27, 2006 and July 6, 2009, AOL Europe Services SARL (“AOL Luxembourg”), a wholly-owned subsidiary of AOL organized under the laws of Luxembourg, received four assessments from the French tax authorities for French value added tax (“VAT”) related to AOL Luxembourg’s subscription revenues from French subscribers earned during the period from July 1, 2003 through October 31, 2006.  The French tax authorities allege that the French subscriber revenues are subject to French VAT, instead of Luxembourg VAT, as originally reported and paid by AOL Luxembourg.  The assessments, including interest accrued through the respective assessment dates, total €187.1 million (approximately $262.8 million based on the euro to dollar exchange rate as of June 30, 2009).  On May 12, 2009, the French tax authority issued a collection notice for €94 million, the amount of the 2003 and 2004 assessments.  The Company is currently appealing the assessments at the French VAT audit level and intends to continue to defend against the assessments vigorously.
 
 
 
 
In addition to the matters listed above, we are a party to a variety of legal proceedings that arise in the normal course of our business.  While the results of such normal course legal proceedings cannot be predicted with certainty, management believes that, based on current knowledge, the final outcome of the current pending matters will not have a material adverse effect on our financial position, results of operations or cash flows.  Regardless of the outcome, legal proceedings can have an adverse effect on us because of defense costs, diversion of management resources and other factors.  See “Risk Factors—Risks Relating to Our Business—If we cannot continue to enforce and protect our intellectual property rights, our business could be adversely affected” and “Risk Factors—Risks Relating to Our Business—We have been, and may in the future be, subject to claims of intellectual property infringement that could adversely affect our business” included elsewhere in this Information Statement.
 
 

 

 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion of our results of operations and financial condition together with our audited and unaudited historical consolidated financial statements and the notes thereto included elsewhere in this Information Statement as well as the discussion in the section of this Information Statement entitled Businessbeginning on page 39 of this Information Statement.  This discussion contains forward-looking statements that involve risks and uncertainties.  The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results.  Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this Information Statement entitled Risk Factors beginning on page 14 of this Information Statement and Cautionary Statement Concerning Forward-Looking Statements on page 27 of this Information Statement.
 
Introduction
 
Management’s discussion and analysis of financial condition and results of operations is a supplement to the accompanying consolidated financial statements and provides additional information on AOL’s business, recent developments, financial condition, liquidity and capital resources, cash flows and results of operations.  MD&A is organized as follows:
 
 
Overview.  This section provides a general description of our business, as well as recent developments we believe are important in understanding the results of operations and financial condition or in understanding anticipated future trends.
 
 
Results of operations.  This section provides an analysis of our results of operations for the three years ended December 31, 2008 and the quarters ended March 31, 2009 and March 31, 2008.
 
 
Liquidity and capital resources.  This section provides a discussion of our current financial condition and an analysis of our cash flows for the three years ended December 31, 2008 and the three months ended March 31, 2009 and March 31, 2008.  This section also provides a discussion of our contractual obligations and commitments, off-balance sheet arrangements and customer credit risk that existed at December 31, 2008.  Included in this section is a discussion of the amount of financial capacity available to fund our future commitments and ongoing operating activities.
 
 
Market risk management.  This section discusses how we monitor and manage exposure to potential gains and losses arising from changes in market rates and prices, which, for us, is primarily associated with changes in foreign currency exchange rates.
 
 
Critical accounting policies.  This section identifies and summarizes those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and require estimates on the part of management in application.
 



 

 
Overview
 
The Spin-Off
 
           On May 28, 2009, Time Warner announced plans for the complete legal and structural separation of AOL from Time Warner.  The spin-off will be completed by way of a pro rata dividend of AOL shares held by Time Warner to its shareholders as of the record date.  Immediately following completion of the spin-off, Time Warner shareholders will own 100% of the outstanding shares of common stock of AOL.  After the spin-off, we will operate as an independent, publicly-traded company.
 
           Prior to the spin-off, Time Warner will complete the Internal Transactions as described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement. Additionally, AOL and Time Warner expect to enter into a series of agreements, including the Separation and Distribution Agreement, Transition Services Agreement, Employee Matters Agreement, Tax Matters Agreement, Intellectual Property Cross-License Agreement and various other commercial arrangements which are also described in “Certain Relationships and Related Party Transactions—Agreements with Time Warner.”  Consummation of the separation is subject to certain conditions, as described in “The Spin-Off—Conditions to the Spin-Off” on page 33 of this Information Statement.
 
Our Business
 
           As described further in the section entitled “Business” beginning on page 39 of this Information Statement, our business operations are focused on AOL Media and the Third Party Network.  We market our advertising offerings on both AOL Media and the Third Party Network under the brand “AOL Advertising.”
 
AOL Media
 
           We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services.  In addition, we plan to extend the reach of our offerings to a global online consumer audience on multiple platforms and digital devices.
 
           We generate advertising revenues from AOL Media through the sale of display and search advertising.  We offer advertisers a wide range of capabilities and solutions to effectively deliver advertising and reach targeted audiences across AOL Media through our dedicated sales force.  We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers. We offer advertisers marketing and promotional opportunities to purchase specific placements of advertising directly on AOL Media (i.e., in particular locations and on specific dates).  In addition, we offer advertisers the opportunity to bid on unsold advertising inventory on AOL Media utilizing our proprietary scheduling, optimization and delivery technology.  Finally, advertising inventory on AOL Media not sold directly to advertisers, as described above, may be included for sale to advertisers with inventory purchased from third-party publishers in the Third Party Network.
 
           Growth of our advertising revenues depends on our ability to attract consumers and increase engagement on AOL Media by offering compelling content, products and services, as well as on our ability to monetize such engagement by offering effective advertising solutions.  In order to attract consumers and generate increased engagement, we have developed and acquired, and in the future will continue to develop and acquire, content, products and services designed to attract and engage consumers in various ways.
 
We are currently exploring making changes to our content, products and services designed to enhance the consumer experience (e.g., fewer advertisements on certain AOL Media properties).  These potential changes may involve the elimination or modification of advertising practices that historically have been a source of revenues.  These enhancements to the consumer experience are intended to ultimately increase our revenues by increasing the attractiveness of our content, product and service offerings to consumers and therefore their value to advertisers, but these enhancements may have a negative impact on revenues in the near term.
 
Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.  In connection with these search services, Google provides us with a share of the revenue generated through paid text-based search advertising on AOL Media.  For the year ended December 31, 2008, advertising revenues associated with the Google relationship (substantially all of which were generated on AOL Media) were $678 million.  Domestically, we have agreed, except in certain limited circumstances, to use Google’s search services on an exclusive basis through December 19, 2010.  Upon expiration of this agreement, we expect to continue to generate advertising revenues by providing paid-search advertising on AOL Media, either through the continuation of our relationship with Google or an agreement with another search provider.
 
 


 
 
We view our subscription access service, which we offer consumers in the United States for a monthly fee, as a valuable distribution channel for AOL Media.  In general, subscribers to our subscription access service are among the most engaged consumers on AOL Media.  However, our access service subscriber base has declined and is expected to continue to decline.  This decline is the result of several factors, including the increased availability of high-speed broadband Internet connections, the fact that a significant amount of online content, products and services has been optimized for use with broadband Internet connections and the effects of our strategic shift announced in 2006, which resulted in significantly reduced marketing efforts for our subscription access service and the free availability of the vast majority of our content, products and services.  See “Risk Factors—Risks Relating to Our Business—Our strategic shift to an online advertising-supported business model involves significant risks” on page 14 of this Information Statement.  As our subscriber base declines, we need to maintain the engagement of former subscribers similar to historical levels and increase the number and engagement of other consumers on AOL Media.  We seek to do this by developing and offering engaging content, products and services.  Further, we will continue to seek to transition those access subscribers who are terminating their paid access subscriptions to free AOL Media offerings.
 
For the years ended December 31, 2008, 2007 and 2006, our subscription revenues were $1,929.3 million, $2,787.9 million and $5,783.6 million, respectively.  Although our subscription revenues have declined and are expected to continue to decline, we believe that our subscription access service will continue to provide us with an important source of revenue and cash flow in the near term.  The revenue and cash flow generated from our subscription access service will help us to pursue our strategic initiatives and continue the transition of our business toward attracting and engaging Internet consumers and generating advertising revenues in accordance with the 2006 strategy shift.  Even if our strategy is successful and we are able to grow our advertising revenues, we may be challenged to grow our operating income in the near term because of the continuing decline in our subscriber base.  In particular, because subscription revenues have relatively low direct costs, the expected decline in subscription revenues will likely result in declines in operating income and cash flows for the foreseeable future, even if we achieve growth in advertising revenues that offsets the expected decline in subscription revenues.
 
Some of the initiatives described above may be classified as part of AOL Ventures.
 
Third Party Network
 
We also generate advertising revenues through the sale of advertising on the Third Party Network.  Our advertising offerings on the Third Party Network consist primarily of the sale of display advertising.  In order to generate advertising revenues on the Third Party Network, we have historically had to incur higher traffic acquisition costs as compared to advertising on AOL Media.
 
           We plan to expand the Third Party Network in order to allow us to serve many more publishers and advertisers than at present.  We currently generate a significant portion of our revenues on the Third Party Network from the advertising inventory acquired from a limited number of publishers.  Accordingly, we intend to make strategic investments in order to expand the Third Party Network and related advertising solutions.
 
Audience Metrics
 
           We utilize unique visitor numbers to evaluate the performance of AOL Media.  In addition, we utilize unique visitor numbers to evaluate the reach of our total advertising network, which includes both AOL Media and the Third Party Network.  Unique visitor numbers provide an indication of our consumer reach.  Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers.
 
 

 

 
           The source for our unique visitor information is a third party (comScore Media Metrix, or Media Metrix).  Media Metrix estimates unique visitors based on a sample of Internet users in various countries.  While we are familiar with the general methodologies and processes that Media Metrix uses in estimating unique visitors, we have not performed independent testing or validation of Media Metrix’s data collection systems or proprietary statistical models, and therefore we can provide no assurance as to the accuracy of the information that Media Metrix provides.
 
           Our average monthly domestic unique visitors to AOL Media, as reported by Media Metrix, for the three months ended March 31, 2009 and the years ended December 31, 2008, 2007 and 2006 were 106 million, 110 million, 112 million and 111 million, respectively.  Our average monthly global unique visitors to AOL Media, as reported by Media Metrix, for the three months ended March 31, 2009 and the years ended December 31, 2008, 2007 and 2006 were 278 million, 260 million, 235 million and 193 million, respectively.  Our average monthly domestic unique visitors to our total advertising network, which includes both AOL Media and the Third Party Network, as reported by Media Metrix, for the three months ended March 31, 2009 and the years ended December 31, 2008, 2007 and 2006 were 174 million, 171 million, 156 million and 143 million, respectively.  AOL’s unique visitor numbers also include unique visitors attributable to co-branded websites owned by third parties for which certain criteria have been met, including that the Internet traffic has been assigned to us.
 
Recent Developments
 
Impact of the Current Economic Environment
 
The current global economic recession adversely impacted our advertising revenues in 2008 and the first quarter of 2009.  During the first quarter of 2009, our advertising revenues declined 20% as compared to the corresponding period in 2008.  While our ability to forecast future advertising revenues is limited, we expect that the global economic recession will continue to adversely impact our advertising revenues at least through the remainder of 2009.  We do not believe that the current global economic recession has had a material impact on our subscription revenues.
 
In response to the economic recession and the decline in revenues, we have implemented and continue to implement plans to reduce our cost structure in certain areas through the remainder of 2009.
 
AOL-Google Alliance
 
On July 8, 2009, Time Warner repurchased Google’s 5% interest in us for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in us.  Following this purchase, we became a 100%-owned subsidiary of Time Warner.
 
Goodwill Impairment Charge
 
In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2008, we determined that the carrying value of our goodwill was impaired and, accordingly, recorded a goodwill impairment charge of $2,207.0 million to write goodwill down to its implied fair value.  This impairment was partially attributable to lower cash flow expectations associated with the significant economic downturn in 2008.  See Notes 1 and 2 to the accompanying audited consolidated financial statements for more information on this goodwill impairment charge.
 
2009 Restructuring Actions
 
We initiated a restructuring in the first quarter of 2009 in an effort to better align our cost structure with our revenues.  As a result, for the three months ended March 31, 2009, we incurred restructuring charges of $58.3 million related primarily to involuntary employee terminations and facility closures, and we currently expect to incur up to approximately $90 million of additional restructuring charges during the remaining nine months of 2009.
 
 

 
 

 
Results of Operations
 
Basis of Presentation
 
The consolidated financial statements included elsewhere in this Information Statement, which are discussed below, include 100% of our assets, liabilities, revenues, expenses and cash flows as well as those of our subsidiaries.  While the consolidated financial statements have been derived from the historical results of AOL Holdings LLC, we have presented the consolidated financial statements as those of AOL Inc., which AOL Holdings LLC will be converted into prior to the spin-off and the stock of which will be distributed in the distribution.  Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.  For each of the periods presented, we were a subsidiary of Time Warner.  The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company during the periods presented.  We expect to incur additional costs to be able to function as an independent, publicly-traded company, including additional costs related to corporate finance, governance and public reporting.
 
In connection with the spin-off, we will enter into transactions with Time Warner that either have not existed historically or that are on terms different from the terms of arrangements or agreements that existed prior to the spin-off.  See “Certain Relationships and Related Party Transactions—Agreements with Time Warner” beginning on page 116 of this Information Statement for more detail.  In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of our business.  Further, the historical financial statements include allocations of certain Time Warner corporate expenses.  We believe the assumptions and methodologies underlying the allocation of general corporate expenses are reasonable.  However, such expenses may not be indicative of the actual level of expense that would have been incurred by us if we had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future.  These allocated expenses relate to various services that have historically been provided to us by Time Warner, including cash management and other treasury services, administrative services (such as government relations, tax, employee benefit administration, internal audit, accounting and human resources), equity-based compensation plan administration, aviation services, insurance coverage and the licensing of certain third-party patents.  During the years ended December 31, 2008, 2007 and 2006, we incurred $23.3 million, $28.4 million and $35.8 million, respectively, of expenses related to charges for services performed by Time Warner, and $5.3 million of such expenses for the three months ended March 31, 2009.
 

 
 

 
Consolidated Results
 
The following presents our historical operating results as a percentage of revenues for the periods presented, and should be read in conjunction with the accompanying consolidated statements of operations:


   
Years Ended December 31,
   
Three Months Ended
March 31,
 
   
2008
 
2007
 
2006
 
2009
 
2008
                               
Revenues
    100 %     100 %     100 %     100 %     100 %
                                         
Costs and expenses:
                                       
Costs of revenues
    55       51       53       56       55  
Selling, general and administrative
    16       19       28       16       16  
Amortization of intangible assets
    4       2       2       4       3  
Amounts related to securities litigation and
     government investigations, net of recoveries
          3       9       1        
Restructuring costs
          2       3       7       1  
Goodwill impairment charge
    53                          
Gain on disposal of assets and consolidated
     businesses, net
          (13 )     (10 )            
Total costs and expenses
    128       64       85       84       75  
Operating income (loss)
    (28 )     36       15       16       25  
Income (loss) from continuing operations
     before income taxes
    (28 )%     36 %     15 %     16 %     25 %

2008, 2007 and 2006
 
The following table presents our revenues, by revenue type, for the periods presented ($ in millions):
 
   
Years Ended December 31,
 
   
2008
 
2007
 
% Change from 2007 to 2008
 
2006
 
% Change from 2006 to 2007
Revenues:
                             
Advertising
  $ 2,096.4     $ 2,230.6       (6 )%   $ 1,886.1       18 %
Subscription
    1,929.3       2,787.9       (31 )%     5,783.6