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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2011

OR

For the transition period from             to            

Commission File Number 001-34419

AOL INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 212-652-6400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 28, 2011, the number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding was 97,342,890.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) 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,” “will,” “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 as required by law, we are under no 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 “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 (“Annual Report”). In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry 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.

Continual decline in market 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 and liquidity position, could be adversely affected by the factors discussed or referenced in “Item 1A—Risk Factors” in our Annual Report as well as, among other things:

References in this Quarterly Report to “we,” “us,” the “Company,” and “AOL” refer to AOL Inc., a Delaware corporation.

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You should read the following discussion of our results of operations and financial condition together with our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report as well as the discussion in the “Item 1—Business” section of our Annual Report. 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 “Item 1A—Risk Factors” in our Annual Report and “Cautionary Statement Concerning Forward-Looking Statements” herein.

Introduction

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our business, recent developments, results of operations, liquidity and capital resources and critical accounting policies. MD&A is organized as follows:

Overview

Our Business

We are a leading global web services company with a suite of compelling 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. We market our offerings to advertisers on both AOL Properties and the Third Party Network under the brand “AOL Advertising.” Through the Advertising.com Group, we provide third party publishers with premium products and services intended to make their websites attractive to brand advertisers, such as video and custom content production, in addition to offering ad serving and sales of third party advertising inventory. Our AOL-brand access subscription service, which we offer consumers in the United States for a monthly fee, is a valuable distribution channel for AOL Properties.

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AOL Properties include our owned and operated content, products and services in the Content, Local, Paid Services and Applications and Commerce strategy areas, in addition to our AOL Ventures offerings. AOL Properties also include co-branded websites owned by third parties for which certain criteria have been met, including that the internet traffic has been assigned to us. We generate advertising revenues from AOL Properties through the sale of display advertising and search and contextual advertising. Display advertising revenue is generated by the display of graphical advertisements and other performance-based advertising. We offer advertisers marketing and promotional opportunities to purchase specific placements of advertising directly on AOL Properties (i.e., in particular locations and on specific dates). In addition, we offer advertisers the opportunity to bid on unreserved advertising inventory on AOL Properties utilizing our proprietary scheduling, optimization and delivery technology. We collectively refer to revenue associated with these offerings as premium display advertising revenue. Finally, advertising inventory on AOL Properties 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. Search and contextual advertising revenue is generated when a consumer clicks on a text-based advertisement on AOL Properties. These text-based advertisements are either generated from a consumer-initiated search query or placed on sites targeted by advertisers based on the content of the websites.

We also generate advertising revenues through the sale of advertising on third party websites, which we collectively refer to as the Third Party Network. Our advertising offerings on the Third Party Network consist primarily of the sale of display advertising and also include search and contextual advertising. In order to generate advertising revenues on the Third Party Network, we have historically had to incur higher traffic acquisition costs (“TAC”) as compared to advertising on AOL Properties.

Visibility into advertising revenue is limited due to the fact that many advertising agreements are executed during the quarter that the advertising is displayed. During the remainder of 2011, we expect that our search and contextual revenues will continue to decline as compared to the same period in 2010, driven by a decline in domestic search queries, primarily due to the decline in our domestic AOL-brand access subscribers.

Growth of our advertising revenues depends on our ability to attract consumers and increase engagement on AOL Properties by offering compelling content, products and services, as well as on our ability to provide effective advertising solutions and optimize our inventory monetization. In order to attract consumers and generate increased engagement, we have developed and acquired, and intend to continue to develop and acquire, content, products and services designed to meet these goals. These actions include the development and acquisition of a number of platforms that are designed to facilitate the production, aggregation, distribution and consumption of national and local content. Additionally, through our acquisition of TheHuffingtonPost.com, Inc. (“The Huffington Post”) on March 4, 2011 and the creation of the AOL Huffington Post Media Group (“HPMG”), we have accelerated our strategy to deliver a scaled and differentiated array of premium news, analysis, commentary and entertainment.

Our current access service subscriber base, excluding the one-time migration of certain individuals into paid subscription plans during the third quarter, 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 to a Company focused on generating advertising revenues. As part of our strategic shift, we have essentially eliminated our marketing efforts for our subscription access service and we have made available for free the vast majority of our content, products and services. As our access subscriber base declines, we need to maintain the engagement of former subscribers and increase the number and engagement of other consumers on AOL Properties. In addition to developing and offering engaging content,

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products and services, we seek to retain our access subscribers by including additional products and services in their paid subscription plans for no additional charge or at a discounted rate. Further, we have transitioned and will continue to seek to transition a substantial percentage of those access subscribers who are terminating their paid access subscriptions to free AOL Properties offerings.

Historically, our primary subscription service has been our subscription access service. To supplement our subscription access service, we are marketing new products and services that are either third party or AOL-developed products. We earn performance-based fees in relation to marketing third party products and services. To facilitate this, in the first quarter of 2011 we launched the next phase of a single consumer-facing platform that allows us to manage and distribute these additional products to internet consumers. We offer these products to our current and former access subscribers as well as other internet consumers.

Our subscription revenues have relatively low direct costs, and accordingly, our subscription access service has a significant positive impact on our operating income (loss). 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 for the foreseeable future. The revenue and cash flow generated from our subscription access service will help us pursue our strategic initiatives and continue the transition of our business toward attracting and engaging internet consumers and generating advertising revenues. We expect our total revenues and operating income as compared to the same prior year period to decline in the fourth quarter of 2011, primarily due to declines in subscription revenue and search and contextual revenue as a result of the continuing decline in our current access subscriber base.

Key indicators to understanding our operating results include:

Trends, Challenges and Uncertainties Impacting Our Business

The web services industry is highly competitive and rapidly changing. Trends, challenges and uncertainties that may have a significant impact on our business, our opportunities and our ability to execute our strategy include the following:

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Recent Developments

Stock Repurchase Program

On August 10, 2011, our Board of Directors approved a stock repurchase program, which authorizes us to repurchase up to $250 million of our outstanding shares of common stock from time to time through August 2012. Repurchases will depend on market conditions, share price and other factors. Repurchases have been and will be made in accordance with applicable securities laws in the open market or in private transactions and may include derivative transactions. As of November 2, 2011, we repurchased a total of 9.7 million shares at a weighted average price of $13.39 per share under this program.

Key Metrics

Audience Metrics

We utilize unique visitor numbers to evaluate the performance of AOL Properties. Following the acquisition of The Huffington Post on March 4, 2011, AOL aligned all of its content under the newly formed HPMG, which is a subset of AOL Properties and excludes Mail, Instant Messaging and AOL Ventures. As a result of this realignment and to reflect how management views the business, we are disclosing domestic average monthly unique visitors to HPMG for all periods presented and will no longer disclose domestic average monthly unique visitors to AOL Media. The primary differences between HPMG and AOL Media are that HPMG includes The Huffington Post, AOL Search and Local.

In addition, we utilize unique visitor numbers to evaluate the reach of our total advertising network, which includes both AOL Properties 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. 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 through a traffic assignment letter. For the three months ended September 30, 2011, approximately 6% of our unique visitors to AOL Properties were attributable to co-branded websites owned by third parties where the internet traffic was assigned to us.

The source for our unique visitor information is a third party (comScore Media Metrix, or “Media Metrix”). 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.

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The following table presents our unique visitor metrics for the periods presented (in millions):

Subscriber Metrics

The primary metrics we monitor for our subscription access service are monthly average churn and average paid tenure. Monthly average churn represents on average the percentage of AOL-brand access subscribers that terminate or cancel our services each month, factoring in new and reactivated subscribers. The domestic AOL-brand access subscriber monthly average churn was 2.2% and 2.6% for the three months ended September 30, 2011 and 2010, respectively. Average paid tenure represents the average period of time subscribers have paid for domestic AOL-brand internet access. The average paid tenure of the remaining domestic AOL-brand access subscribers has been increasing, and was approximately 10.6 years and 9.4 years for the three months ended September 30, 2011 and 2010, respectively.

Results of Operations

The following table presents our revenues, by revenue type, for the periods presented (in millions):

The following table presents our revenues, by revenue type, as a percentage of total revenues for the periods presented:

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Advertising Revenues

Advertising revenues are generated on AOL Properties through display advertising and search and contextual advertising, as described in “Overview – Our Business” herein. Agreements for advertising on AOL Properties typically take the form of impression-based contracts in which we provide impressions 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. In addition, agreements with advertisers can include other advertising-related elements such as content sponsorships, exclusivities or advertising effectiveness research.

In addition to advertising revenues generated on AOL Properties, we also generate revenues from our advertising offerings on the Third Party Network. To generate revenues on the Third Party Network, we purchase advertising inventory from publishers (both large and small) in the Third Party Network using proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory. Advertising arrangements for the sale of Third Party Network inventory typically take the form of impression-based contracts or performance-based contracts.

Advertising revenues on AOL Properties and the Third Party Network for the three and nine months ended September 30, 2011 and 2010 are as follows (in millions):

Advertising revenues increased $24.2 million for the three months ended September 30, 2011 as compared to the same periods in 2010, reflecting a $26.6 million increase in our core product offerings (including the impact of recent acquisitions), partially offset by a $2.4 million decline related to AOL-implemented initiatives. Advertising revenues decreased $2.1 million for the nine months ended September 30, 2011 as compared to the same periods in 2010. While we also saw growth in our core product offerings (including the impact of recent acquisitions) of $55.0 million, this was more than offset by a $57.1 million decline related to AOL-implemented initiatives.

AOL-implemented initiatives to wind down or shut down certain products and shut down or reduce operations internationally resulted in declines of $2.4 million and $57.1 million for the three and nine months ended September 30, 2011, respectively, as compared to the same periods in 2010. For the nine months ended September 30, 2011, the impact of these initiatives included declines in Third Party Network revenue of $29.6 million associated with European shutdowns and de-emphasis of the typically low margin search engine

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campaign management and lead generation affiliate products. In addition, we experienced declines in search and contextual revenue of $14.4 million for the nine months ended September 30, 2011, primarily due to declines of $12.2 million from our ICQ operations (“ICQ”) which we sold in the third quarter of 2010. Display revenues declined $13.1 million for the nine months ended September 30, 2011 related to declines from ICQ, Digital Marketing Services, Inc. and Bebo, Inc. (“Bebo”) all of which we sold in 2010, as well as declines related to reduced operations in Germany and France.

Apart from the impacts of the AOL-implemented initiatives, advertising revenue reflects increases in Third Party Network revenue and display revenue, partially offset by further declines in search and contextual revenue. The Third Party Network revenue increase of $21.9 million and $51.8 million for the three and nine months ended September 30, 2011, respectively, related primarily to increases in Retail, Auto, Telecom and Personal Finance and the acquisitions of 5Min and goviral. For the three and nine months ended September 30, 2011, display revenue increased $18.5 million and $51.8 million, respectively, primarily due to increased revenue from premium display advertising, a portion of which is attributable to our acquisitions of The Huffington Post and TechCrunch, Inc. The increase in display revenue also includes the impact of improved yield management, an increase in Patch revenues and performance-based fees related to marketing of third party products and services. Domestic search and contextual revenue for the three and nine months ended September 30, 2011, declined $11.8 million and $35.2 million, respectively, as compared to the same periods in 2010, primarily due to lower domestic search queries, the majority of which resulted from the 15% year-over-year decrease in domestic AOL-brand access subscribers. International search and contextual revenue declines of $2.0 million and $13.4 million for the three and nine months ended September 30, 2011, respectively, were due to fewer queries primarily in the United Kingdom. These declines in search and contextual revenue were slightly offset by growth in search revenue on AOL.com.

Revenues Associated with Google and Advertising Revenue Expectations

For all periods presented in this Quarterly Report, we have had a contractual relationship with Google Inc. (“Google”) whereby we generate revenues through paid text-based search and contextual advertising on AOL Properties provided by Google, which represent a significant percentage of the advertising revenues generated by AOL Properties. For the three and nine months ended September 30, 2011, the revenues associated with the Google relationship (substantially all of which were search and contextual revenues generated on AOL Properties) were $80.7 million and $252.0 million, respectively. For the three and nine months ended September 30, 2010, the revenues associated with the Google relationship (substantially all of which were search and contextual revenues generated on AOL Properties) were $92.3 million and $308.9 million, respectively.

Visibility into advertising revenue is limited due to the fact that many advertising agreements are executed during the quarter that the advertising is displayed. During the remainder of 2011, we expect that our search and contextual revenues will continue to decline as compared to the same period in 2010, driven by a decline in domestic search queries, primarily due to the decline in our domestic AOL-brand access subscribers.

Subscription Revenues

During the three months ended September 30, 2011, certain individuals who were not previously customers of an access subscription plan (and therefore not previously included in our count of AOL-brand access subscribers) were migrated to a higher priced plan that includes a number of additional features including access services. As a result, our AOL-brand access subscribers at September 30, 2011 include approximately 200,000 subscribers related to this migration. The monthly fee billed to these subscribers is lower than our average

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monthly fees to other subscribers, and as a result, domestic average monthly revenue per AOL-brand access subscriber (“ARPU”) for the three and nine months ended September 30, 2011 was negatively impacted by this migration.

Subscription revenues declined 22% and 23% for the three and nine months ended September 30, 2011, respectively, as compared to the same periods in 2010. The decline was due to an approximate 15% decrease in the number of domestic AOL-brand access subscribers between September 30, 2010 and September 30, 2011, which is net of the 5% increase discussed above related to customers migrated to an access subscription plan. The decrease in the number of access subscribers is discussed further in “Overview – Our Business” herein. To a lesser extent, the decline in subscription revenues for the three and nine months ended September 30, 2011 was due to a $0.61 and $0.51 decline in ARPU, respectively, including the impact of the migration of customers to an access subscription plan which led to a slightly higher rate of decline in ARPU than in recent periods.

The number of domestic AOL-brand access subscribers was 3.5 million and 4.1 million at September 30, 2011 and 2010, respectively. ARPU was $17.49 and $17.66 for the three and nine months ended September 30, 2011, respectively, compared to $18.10 and $18.17 for the three and nine months ended September 30, 2010, respectively. We include in our subscriber numbers individuals, households and entities that have provided billing information and completed the registration process sufficiently to allow for an initial log-on to the AOL access service. Individuals who have registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL-brand access subscriber numbers presented above. Subscribers to our subscription access service contribute to our ability to generate advertising revenues.

As noted previously, our current access service subscriber base (excluding the one-time migration of certain individuals into paid subscription plans during the third quarter) has declined and is expected to continue to decline. While we expect that our subscription revenues will continue to decline for the foreseeable future, we believe they will continue to provide us with an important source of revenue.

Other Revenues

Other revenues consist primarily of fees associated with our mobile e-mail and instant messaging functionality from mobile carriers, licensing revenues from third-party customers of MapQuest’s business-to-business services and licensing revenues from licensing our proprietary ad serving technology to third parties through our subsidiary, ADTECH AG. In addition, other revenues include amounts associated with hosting certain Time Warner, Inc. (“Time Warner”) websites on our servers as part of the transition services provided in connection with our spin-off from Time Warner, the majority of which occurred in 2010.

Other revenues decreased 15% and 18% for the three and nine months ended September 30, 2011, respectively, as compared to the three and nine months ended September 30, 2010, due primarily to a decrease in revenues from our mobile messaging services.

Geographical Concentration of Revenues

For the periods presented herein, a significant majority of our revenues have been generated in the United States. Substantially all of the non-United States revenues for these periods were generated by our European operations (primarily in the United Kingdom). We expect the significant majority of our revenues to continue to be generated in the United States for the foreseeable future. See “Note 1” in our accompanying consolidated financial statements for further discussion of our geographical concentrations.

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Operating Costs and Expenses

The following table presents our operating costs and expenses for the periods presented (in millions):

The following table represents our operating costs and expenses as a percentage of revenues for the periods presented:

Costs of Revenues

The following categories of costs are generally included in costs of revenues: personnel costs, TAC, network-related costs, non-network depreciation and amortization and other costs of revenues. TAC consists of costs incurred through arrangements in which we acquire third-party online advertising inventory for resale and arrangements whereby partners distribute our free products or services or otherwise direct traffic to AOL Properties. TAC arrangements have a number of different economic structures, the most common of which are: payments based on a cost-per-thousand impressions or based on a percentage of the ultimate advertising revenues generated from the advertising inventory acquired for resale and payments for direct traffic delivered to AOL Properties priced on a per click basis (e.g., search engine marketing fees). These arrangements can be on a fixed-fee basis (which often carry reciprocal performance guarantees by the counterparty), on a variable basis or, in some cases, a combination of the two.

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Costs of revenues increased $55.1 million and $147.7 million for the three and nine months ended September 30, 2011, respectively, as compared to the same periods in 2010. The primary driver of the increase in costs of revenues was an increase in personnel and facilities costs of $49.1 million and $142.3 million for the three and nine months ended September 30, 2011, respectively, as compared to the same periods in 2010, primarily due to increases in areas of strategic focus including the additional headcount as a result of our recent acquisitions and hiring of new employees in Patch and the impact of increased retention compensation expense as a result of recent acquisitions. The additional headcount drove increases of $45.1 million and $125.6 million, respectively, and the impact of retention compensation expense related to our recent acquisitions drove increases of $9.3 million and $26.7 million, respectively.

TAC increased $11.3 million for the three months ended September 30, 2011, as compared to the three months ended September 30, 2010, primarily due to the increase in Third Party Network advertising revenues, which resulted in higher variable revenue share payments to our publishing partners (including a $4.3 million increase in TAC as a result of our acquisitions of 5Min and goviral). TAC increased $3.0 million for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, primarily due to a $28.0 million increase from higher variable revenue share payments to our publishing partners as a result of increased advertising revenues related to our core operations (including a $10.2 million increase in TAC as a result of our acquisitions of 5Min and goviral), partially offset by a $24.6 million decrease related to the decline in advertising revenues resulting from AOL-implemented initiatives, discussed previously.

Other costs of revenues for the three and nine months ended September 30, 2011 as compared to the same periods in 2010 include the impact of an impairment charge of $6.2 million during the three months ended September 30, 2010 related to the sale of Pacific Corporate Park assets, increased promotional events and administrative expenses of travel, telecommunications, and supplies of $5.1 million and $18.7 million, respectively, and increased consulting costs of $0.6 million and $8.9 million, respectively.

Offsetting the variances above, network-related costs declined by $3.4 million and $16.6 million, respectively, for the three and nine months ended September 30, 2011, as compared to the same periods in 2010, due to the decline in domestic AOL-brand access subscribers. Cost of revenues for the three and nine months ended September 30, 2011 also included a decline in non-network depreciation and amortization of $2.2 million and $9.9 million, respectively, due to a decline in depreciable assets. Billing expense decreased $3.2 million and $9.7 million for the three and nine months ended September 30, 2011, respectively, as compared to the same periods in 2010, primarily due to the decrease in access subscribers.

General and Administrative

General and administrative expenses decreased $22.0 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The decrease was due to a decline in personnel and facilities costs of $16.7 million mainly related to reduced corporate headcount, due to 2010 strategic initiatives to align costs with our structure, declines in marketing costs of $4.1 million primarily due to a decline in general marketing initiatives and a decline in depreciation and amortization expense of $1.7 million.

General and administrative expenses decreased $45.1 million for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. The decrease was due to a decline in personnel and facilities costs of $46.6 million mainly related to reduced corporate headcount, due to 2010 strategic initiatives to align costs with our structure, declines in depreciation and amortization expense of $9.4 million and declines in bad debt expense of $7.6 million. The declines in bad debt expense were due to improved collections on aged

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balances and the impact of the decline in subscribers. The decrease in general and administrative expenses for the nine months ended September 30, 2011 was offset by increases in merger and acquisition-related expenses of $9.7 million and increased consulting expenses of $2.7 million.

Amortization of Intangible Assets

Amortization of intangible assets results primarily from acquired intangible assets including acquired technology, customer relationships and trade names. Amortization of intangible assets decreased $47.2 million for the nine months ended September 30, 2011, as compared to the same period in 2010, due primarily to a $56.6 million decline resulting from our reevaluation of the useful lives of certain intangible assets in the fourth quarter of 2009 in connection with our restructuring initiatives, which resulted in incremental amortization expense for the nine months ended September 30, 2010. These assets were fully amortized in 2010. This decline was partially offset by an increase in acquired intangible assets resulting from our recent acquisitions of $18.1 million for the nine months ended September 30, 2011.

Restructuring Costs

For the three and nine months ended September 30, 2011, we incurred $7.1 million and $35.5 million, respectively, in restructuring costs related to organizational changes made in an effort to improve our ability to execute our strategy. These restructuring costs related to the acquisition of The Huffington Post, a reassessment of our operations in India and actions in the United States to align our costs with our strategy, and were primarily related to involuntary terminations of employees ranging from executives to line personnel. We incurred $34.1 million of restructuring costs for the nine months ended September 30, 2010 related to our restructuring activities to better align our organizational structure and costs with our strategy.

Goodwill Impairment Charge

We experienced a significant decline in our stock price leading up to and subsequent to the announcement on August 9, 2011 of our financial results for the three months ended June 30, 2011. We determined that the magnitude of this stock price decline along with the weakness in the overall equity markets constituted a substantive change in circumstances in August that could potentially reduce the fair value of our single reporting unit below its carrying amount. As such, an interim goodwill impairment test was performed during the third quarter of 2011. Based on our interim impairment analysis, we determined that the estimated fair value of our sole reporting unit exceeded its book value and therefore no goodwill impairment charge was recorded for the three months ending September 30, 2011. See “Note 3” for additional information on our goodwill impairment analysis.

We also performed a goodwill impairment analysis as a result of certain triggering events occurring during the second quarter of 2010. As a result, we recorded an impairment charge of $1,414.4 million for the three months ended June 30, 2010. No further impairment charges were recorded during 2010.

(Gain) Loss on Disposal of Consolidated Businesses, Net

The gain on disposal of consolidated businesses, net for the three and nine months ended September 30, 2010 of $119.6 million was related to the gain on the sale of ICQ recorded in the third quarter of 2010. The nine months ended September 30, 2011 include $1.6 million related to professional fees incurred in 2011 related to the regulatory review of the sale of ICQ.

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Operating Income (Loss)

Operating income decreased $192.5 million for the three months ended September 30, 2011, as compared to the three months ended September 30, 2010. This decline was due to the gain on the sale of ICQ recorded in 2010, the decline in revenues and the increase in costs of revenues, partially offset by the decline in general and administrative costs.

Operating loss decreased $1,041.0 million for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010. This decrease was due primarily to the goodwill impairment charge recorded in the second quarter of 2010, the decreases in general and administrative costs and amortization of intangible assets, partially offset by the decline in revenues, the increase in costs of revenues and the gain on the sale of ICQ recorded in 2010.

Other Income Statement Amounts

The following table presents our other income statement amounts for the periods presented (in millions):

Other Income (Loss), Net

Other loss, net was $1.5 million for the three months ended September 30, 2011, as compared to other income, net of $13.5 million for the three months ended September 30, 2010. This decrease was due primarily to the $17.5 million gain from the sale of our investment in Kayak in the third quarter of 2010, partially offset by credit facility fees incurred in 2010.

Other loss, net was $2.6 million for the nine months ended September 30, 2011, as compared to other income, net of $6.4 million for the nine months ended September 30, 2010. This decrease was due primarily to the $17.5 million gain from the sale of our investment in Kayak in the third quarter of 2010, partially offset by favorable foreign currency impacts in 2011 and credit facility fees incurred in 2010.

Income Tax Provision (Benefit)

We recorded income from continuing operations before income taxes of $7.1 million for the three months ended September 30, 2011. Due to the impact of foreign losses and corresponding increase in the valuation allowance for related deferred tax assets, we recorded income tax expense of $9.7 million for the same period, which results in an effective tax rate of 136.6% for the three months ended September 30, 2011. The $9.7 million expense also includes a benefit of $3.2 million related to an adjustment of foreign taxes payable. Due to the size of foreign losses relative to our pre-tax income, our effective tax rate for the three months ended September 30, 2011 differs significantly from the statutory U.S. federal income tax rate of 35.0% and from our effective tax rate of 19.6% for the three months ended September 30, 2010. Additionally the effective tax rate for the three months ended September 30, 2010 differed from the statutory U.S. federal income tax rate of 35.0% due to the effect of the goodwill impairment charge recorded in 2010, the impact of foreign losses and the tax on the sale of ICQ, offset by benefit related to the recognition of tax credits, the release of a valuation allowance and finalization of our 2009 tax return.

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We recorded a loss from continuing operations before income taxes of $11.6 million for the nine months ended September 30, 2011. While foreign losses impacted our effective tax rate for the nine months ended September 30, 2011, this unfavorable impact was substantially offset by two favorable discrete items. These discrete items included a $7.1 million tax benefit associated with a worthless stock deduction related to the sale of a subsidiary in the first quarter of 2011 and a favorable adjustment of $8.0 million related to escrow disbursements from prior acquisitions. As a result, we recorded an income tax benefit of $1.9 million for the nine months ended September 30, 2011, which results in an effective tax rate for the nine months ended September 30, 2011 of 16.4%. Due to the size of these items relative to our pre-tax loss, our effective tax rate for the nine months ended September 30, 2011 differs significantly from the statutory U.S. federal income tax rate of 35.0% and is comparable to our effective tax rate of 18.0% for the nine months ended September 30, 2010. The effective tax rate for the nine months ended September 30, 2010 differed from the statutory U.S. federal income tax rate of 35.0% primarily due to a deferred tax asset associated with the Bebo worthless stock deduction, a benefit related to the recognition of tax credits, release of a valuation allowance and return-to-provision adjustments. These items were partially offset by the effect of the goodwill impairment charge, the impact of foreign losses and tax expense associated with the gain on the sale of ICQ.

We recorded income tax expense of $1.0 million and an income tax benefit of $25.7 million from discontinued operations for the three and nine months ended September 30, 2010, respectively. Included in the income tax expense for the nine months ended September 30, 2010 is a benefit of $25.5 million recorded in connection with the sale of buy.at, primarily related to the $18.8 million utilization of the capital loss deferred tax asset. See “Note 4” in our accompanying consolidated financial statements for additional information on the sale of buy.at and related capital loss deferred tax assets.

Discontinued Operations, Net of Tax

The financial results for the three and nine months ended September 30, 2010 include the impact of reflecting the results of operations, financial condition and cash flows of buy.at as discontinued operations. We completed the sale of buy.at on February 26, 2010 and accordingly, the nine months ended September 30, 2010 included the results of operations of buy.at for the period from January 1, 2010 through February 26, 2010, the pre-tax loss on the sale of buy.at and the income tax benefit associated with the buy.at operations and sale. See “Note 4” in our accompanying consolidated financial statements for more information regarding this divestiture.

Adjusted OIBDA

We use Adjusted OIBDA as a supplemental measure of our performance. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets (including those recorded in costs of revenues) and non-cash asset impairments. During the first quarter of 2011, we modified our definition of Adjusted OIBDA to exclude the impacts of restructuring costs, which we do not believe are indicative of our core operating performance, and equity-based compensation, which will allow us to be more closely aligned with the industry and analyst community. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of non-cash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations and asset impairments, as well as the effect of gains and losses on asset sales, which we do not believe are indicative of our core operating performance. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include

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equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales or impairment charges related to goodwill, intangible assets and fixed assets which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

Adjusted OIBDA is a non-GAAP financial measure and may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (“GAAP”).

The following table presents our reconciliation of Adjusted OIBDA to operating income (in millions):

Adjusted OIBDA declined for the three and nine months ended September 30, 2011 as compared to the three and nine months ended September 30, 2010 due to the declines in revenues and the increase in costs of revenues partially offset by declines in general and administrative costs discussed above.

Liquidity and Capital Resources

Current Financial Condition

Historically, the cash we generate has been sufficient to fund our working capital, capital expenditure and financing requirements. Forecasts of future cash flows are dependent on many factors, including future economic conditions and the execution of our strategy. We expect to fund our ongoing working capital, investing and financing requirements, including future repurchases of common stock, through our existing cash balance and cash flows from operations. Increases in cash flows from operations are achieved when growth in earnings from our online advertising services more than offsets the decline in domestic AOL-brand access subscribers. In order for us to achieve an increase in earnings from advertising services, we believe it will be important to increase the

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number and engagement of consumers who visit our properties, to enable us to increase our overall volume of display advertising sold, including through our higher-priced channels, and to maintain or increase pricing for advertising. Advertising revenues, however, are more unpredictable and variable than our subscription 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.

If we are unable to successfully implement our strategic plan and grow the earnings generated by our online advertising services, we may need to reassess our cost structure and/or seek other financing alternatives to fund our business. We may also consider other financing alternatives, as a result of our recent acquisition activities. If it is necessary to seek other financing alternatives, our ability to obtain future financing will depend on, among other things, our financial condition and results of operations as well as the condition of the capital markets or other credit markets at the time we seek financing. Currently we do not have a credit rating from the credit rating agencies, so our access to the capital markets may be limited. As part of our ongoing assessment of our business and availability of capital and to enhance our liquidity position, we have divested of certain assets and product lines and may consider divesting of additional assets or product lines.

At September 30, 2011, our cash and equivalents totaled $444.1 million, as compared to $801.8 million at December 31, 2010. The overall decline in cash and equivalents was primarily due to the cash paid for our acquisitions of goviral and The Huffington Post and the cash paid for the repurchase of our common stock, partially offset by cash provided by continuing operations in 2011. Approximately 25% of our cash and equivalents as of September 30, 2011 is held internationally and is intended to be utilized to fund our foreign operations.

Summary Cash Flow Information

Our cash flows from operations are driven by net income adjusted for non-cash items such as depreciation, amortization, goodwill impairment, equity-based compensation expense and other activities impacting net income such as the gains and losses on the sale of assets or operating subsidiaries. Cash flows from investing activities consist primarily of the cash used in the acquisitions of various businesses as part of our strategy, proceeds received from the sale of assets or operating subsidiaries and cash used for capital expenditures. Capital expenditures and product development costs are mainly for the purchase of computer hardware, software, network equipment, furniture, fixtures and other office equipment. Cash flows from financing activities relate primarily to principal payments made on capital lease obligations and repurchases of common stock.

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Operating Activities

The following table presents cash provided by continuing operations for the periods presented (in millions):

Cash provided by continuing operations decreased $309.8 million for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010. Our operating loss was $9.0 million for the nine months ended September 30, 2011, a decrease of $1,041.0 million, as compared to the nine months ended September 30, 2010. Excluding the impact of the $1,414.4 million non-cash goodwill impairment charge in the second quarter of 2010, we generated operating income of $364.4 million during the nine months ended September 30, 2010. The shift from operating income (excluding the goodwill impairment charge) to an operating loss was the primary driver of the decline in cash provided by continuing operations. Our changes in working capital also contributed to the decline, most notably the following two factors. First, our employee bonus payments in 2011 represented a full year bonus, whereas the payments in 2010 were for the second half of 2009 only. Second, our emphasis on cash collections, including in the countries where we reduced operations or exited in 2010 resulted in favorable cash flows from operations in 2010 as compared to 2011. These items were partially offset by lower TAC and restructuring costs paid during the nine months ended September 30, 2011 as compared to the same period in 2010.

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Investing Activities

The following table presents cash provided (used) by investing activities for the periods presented (in millions):

Cash used by investing activities was $420.9 million for the nine months ended September 30, 2011, as compared to cash provided by investing activities of $27.2 million for the nine months ended September 30, 2010. The increase in cash used by investing activities was principally due to the acquisitions of The Huffington Post and goviral during the nine months ended September 30, 2011 as well as the proceeds received from the sale of ICQ and buy.at during the nine months ended September 30, 2010.

Financing Activities

The following table presents cash used by financing activities for the periods presented (in millions):

Cash used by financing activities was $117.0 million for the nine months ended September 30, 2011, compared to $31.2 million for the nine months ended September 30, 2010. The cash used by financing activities for the nine months ended September 30, 2011 includes $69.2 million related to the repurchase of our common stock. See “Note 6” in our accompanying consolidated financial statements for further discussion of our stock repurchase program. In addition, cash used by financing activities relates to our principal payments on capital leases, which were slightly higher in 2011 as we are currently leasing more network equipment than in prior years. Our obligations under capital leases increased by $26.7 million from December 31, 2010 to September 30, 2011, net of principal payments. Due to our increased leasing of network equipment in 2011, we expect principal payments on capital leases to be slightly higher during the remainder of 2011 compared to the same period in 2010. In addition, included in the cash used by financing activities for the nine months ended September 30, 2011 was $12.0 million of cash collateral posted to secure letters of credit related to certain of our lease agreements. Previously, our letters of credit were guaranteed by Time Warner. See “Note 1” in our accompanying consolidated financial statements for further discussion of our restricted cash.

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Free Cash Flow

We use Free Cash Flow as a supplemental measure of our performance. We define Free Cash Flow as cash provided by continuing operations, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the continuing business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes the identified non-operating cash flows and the results of discontinued operations.

Free Cash Flow is a non-GAAP financial measure and may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

The following table presents our reconciliation of Free Cash Flow to cash provided by continuing operations (in millions):

Free Cash Flow decreased for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. This decrease is due to the decline in cash provided by continuing operations, discussed in “Summary Cash Flow Information—Operating Activities” above and due to the increase in principal payments on capital leases, discussed in “Summary Cash Flow Information—Financing Activities” above, partially offset by reduced capital expenditures and product development costs.

Customer Credit Risk

Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet its agreed-upon contractual payment obligations. Credit risk originates from sales of advertising and subscription access service and is dispersed among many different counterparties. No single customer had a receivable balance at September 30, 2011 greater than 10% of total net receivables.

Customer credit risk is monitored on a company-wide basis. We maintain a comprehensive approval process prior to issuing credit to third-party customers. On an ongoing basis, we track customer exposure based on news reports, rating agency information and direct dialogue with customers. Counterparties that are determined to be of a higher risk are evaluated to assess whether the payment terms previously granted to them should be modified. We also continuously monitor payment levels from customers, and a provision for estimated uncollectible amounts is maintained based on historical experience and any specific customer collection issues that have been identified. While such uncollectible amounts have historically been within our expectations and related reserve balances, if there is a significant change in uncollectible amounts in the future or the financial condition of our counterparties across various industries or geographies deteriorates further, additional reserves may be required.

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Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP, which require management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions. Our critical accounting policies relate to: (a) gross versus net revenue recognition; (b) impairment of goodwill; and (c) income taxes. The following discussion is an update to the discussion in our Annual Report regarding our critical accounting policies related to the impairment of goodwill. For additional information about our other critical accounting policies and our significant accounting policies, see “Item 7—MD&A—Critical Accounting Policies” and “Note 1” to our audited consolidated financial statements in our Annual Report.

Impairment of Goodwill

Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired, which could result from significant adverse changes in the business climate and declines in the value of our business. Such indicators may include a sustained, significant decline in our stock price; a decline in our expected future cash flows; significant disposition activity; a significant adverse change in the economic or business environment; and the testing for recoverability of a significant asset group, among others. The occurrence of these indicators could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements.

For purposes of our goodwill impairment test, we operate as a single reporting unit. There is considerable judgment involved in determining our operating segments, which impacts our reporting unit conclusion. Different judgments relating to the determination of reporting units could significantly affect the testing of goodwill for impairment and the amount of any impairment recognized. For additional information see “Item 7—MD&A—Critical Accounting Policies” in our Annual Report.

Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of our reporting unit to its carrying amount, including goodwill. If the estimated fair value of our reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of our reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. To measure the amount of impairment loss, if any, we determine the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination. Specifically, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

We experienced a significant decline in our stock price leading up to and subsequent to the announcement on August 9, 2011 of our financial results for the three months ended June 30, 2011. We determined that the magnitude of this stock price decline along with the weakness in the overall equity markets constituted a

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substantive change in circumstances in August that could potentially reduce the fair value of our single reporting unit below its carrying amount. Accordingly, we tested goodwill for impairment as of August 31, 2011 (the “interim testing date”).

The estimated fair value of our reporting unit was determined utilizing a market-based approach, as the primary input in this approach was a quoted market price in an active market. To determine the estimated fair value of our reporting unit, we calculated our market capitalization based on our stock price and adjusted it by a control premium of 50%. The premium used to arrive at a controlling interest equity value was determined based on values observed in recent market transactions. The reasonableness of the determined fair value was assessed by reference to another fair value indicator, a discounted cash flow approach. Determining fair value of our reporting unit requires the exercise of significant judgment, primarily related to the premium used to arrive at a controlling interest equity value used in the market-based approach. The control premium is determined based on recent market transactions and also takes into account recent trends in market capitalization as of the date of the interim impairment test, and therefore the control premium determined herein does not necessarily correlate to a control premium determined in the past or future goodwill impairment analyses. Significant changes in the estimates and assumptions used in deriving our control premium could materially affect the determination of fair value for our reporting unit, which could impact the magnitude of an impairment loss recognized or trigger future impairment. Due to the significant judgments used in deriving the control premium, the fair value of our single reporting unit determined in connection with the goodwill impairment test may not necessarily be indicative of the actual value that would be recognized in any future transaction.

Based on the goodwill impairment analysis as of the interim testing date, the estimated fair value of our sole reporting unit exceeded its book value and therefore no impairment charge was recorded for the three months ended September 30, 2011. Subsequent to the interim testing date, our stock price experienced additional declines during September; however, we concluded that such declines were temporary due to the recovery of our stock price during the month of October as well as the results of our discounted cash flow approach.

As the market-based approach is based on market capitalization, volatility in the stock price could have a significant impact on the estimated fair value of the sole reporting unit. If the estimated fair value of our reporting unit had been hypothetically lower by 5% as of the date of the interim impairment test, the fair value of our reporting unit would have still exceeded its book value. However, if the estimated fair value of our reporting unit had been hypothetically lower by 10% as of the date of the interim impairment test, the book value of our reporting unit would have exceeded fair value. If the book value of our reporting unit had been greater than fair value, the second step of the goodwill impairment test would have been required to be performed to determine the implied fair value of goodwill, and would likely have resulted in a significant goodwill impairment charge. We are required to perform our annual goodwill impairment test during the fourth quarter of 2011, and as a result, declines in the fair value of our single reporting unit, including sustained declines in our stock price, subsequent to the date of the interim impairment test could potentially result in a significant goodwill impairment charge in the fourth quarter.

Recent Accounting Standards Impacting Future Periods

In September 2011, new guidance was issued related to assessing goodwill impairment. The amendment provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value

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of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.

The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This new guidance will become effective for AOL on January 1, 2012 but we do not expect it will have any impact on our financial statements.

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ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information we are required to disclose in our financial reports is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms, and that such information is accumulated and communicated to senior management, as appropriate, to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011, at a reasonable assurance level.

Changes to Internal Control Over Financial Reporting

We have evaluated the changes in our internal control over financial reporting that occurred during the three and nine months ended September 30, 2011 and concluded that there have not been any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; In millions, except per share amounts)

See accompanying notes.

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ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)