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 Annual Report as well as the discussion in the "Item 1-Business" section. 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" and "Cautionary Statement Concerning Forward-Looking Statements."

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. This section provides a general description of our business and outlook for 2013, as well as recent developments we believe are important in understanding our 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 each of the three years in the period ended December 31, 2012.

• Liquidity and capital resources. This section provides a discussion of our current financial condition and an analysis of our cash flows for each of the three years in the period ended December 31, 2012. This section also provides a discussion of our contractual obligations and commitments, off-balance sheet arrangements, indemnification obligations and customer credit risk that existed at December 31, 2012. This section also includes a discussion of the amount of financial capacity available to fund our future commitments and ongoing operating activities.

• Critical accounting policies. This section identifies those accounting policies that are considered most important to our results of operations and financial condition and require the most significant judgment and estimates on the part of management.

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, advertisers, publishers and subscribers. We are focused on attracting and engaging internet consumers and providing valuable online advertising services. We market our offerings to advertisers on both AOL Properties and the Third Party Network. Through AOL Networks, 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.

On June 29, 2012, we announced a plan to form operating units in conjunction with a planned change in organizational structure. As of December 31, 2012, our business is organized into three reportable segments: the Brand Group, the Membership Group, and AOL Networks. We believe that this new operating structure will enhance our focus on profitability, coordinated business execution, and resource allocation across our portfolio of brands and services. Prior to this change in organization structure, we had one operating and reportable segment.

Brand Group

The Brand Group consists of our portfolio of distinct and unique content and certain of our service brands. The results for this segment reflect the performance of our advertising offerings on a number of owned and operated sites, such as AOL.com, The Huffington Post, Patch, TechCrunch and MapQuest. The Brand Group also includes co-branded websites owned or operated 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 the Brand Group through the sale of display advertising and search 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 sites within the Brand Group (i.e., in particular locations and on specific dates). In addition, we offer advertisers the opportunity to bid on unreserved advertising inventory on Brand Group sites 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 Brand Group sites not sold directly to advertisers, as described above, may be included for sale to advertisers with inventory purchased from third-party publishers through AOL Networks. Amounts received from external customers for inventory sold through AOL Networks are recognized in AOL Networks with a corresponding intersegment TAC charge. An amount equal to the TAC charge for these transactions, reflecting the revenue net of the margin retained by AOL Networks, is then reflected as intersegment revenue within the Brand Group. Search advertising revenue is generated when a consumer clicks on a text-based advertisement on Brand Group sites. 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. While the majority of AOL search revenues are reflected within the Brand Group, there are also search revenues within the Membership Group and AOL Networks for search offerings provided in each of those segments.

Membership Group

The Membership Group consists of offerings that serve AOL registered account holders, both free and paid, and are focused on delivering world-class experiences to AOL's loyal users who rely on these AOL products and properties every day. The results for this segment include AOL's subscription offerings and advertising offerings on Membership Group properties for our subscribers, including communications products such as AOL Mail and AIM.

In addition, we offer 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. We offer these products to our current and former access subscribers as well as other internet consumers. As with the Brand Group, advertising inventory on Membership Group sites not sold directly to advertisers may be included for sale to advertisers through AOL Networks and is reflected as intersegment revenue within the Membership Group. AOL Search is also offered on Membership Group Properties.

AOL Networks

AOL Networks consists of AOL's offerings to publishers and advertisers utilizing AOL's third-party advertising network as well as AOL's inventory sold by AOL Networks. The results for this segment include the performance of Advertising.com, ADTECH, Pictela, goviral, sponsored listings and AOL On. We generate

advertising revenues on AOL Networks through the sale of advertising on third party websites, which we collectively refer to as the Third Party Network and from advertising inventory on AOL Properties not sold directly to advertisers, as described above. Our advertising offerings on AOL Networks consist primarily of the sale of display advertising and also include search advertising through sponsored listings. In order to generate advertising revenues on the Third Party Network, we have historically had to incur higher TAC as compared to advertising on Brand Group or Membership Group properties.

Growth of our advertising revenues depends on our continued ability to attract consumers and increase engagement on our 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 potentially acquire, content, products and services designed to meet these goals. Our plans include the development of a number of platforms that are designed to facilitate the production, aggregation, distribution and consumption of national and local content. Additionally, we have invested in premium content brands to deliver a scaled and differentiated array of premium news, analysis, commentary, entertainment and community engagement.

Key indicators to understanding our operating results include:

• Growth of advertising revenues;

• Unique visitors to AOL Properties;

• Monthly average churn and average paid tenure of our domestic AOL-brand access subscribers;

• Our investment in the local online market, which we believe is a potential growth area; and

• Our ability to manage our operating cost structure.

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:

• As the number of subscribers has declined, our remaining subscriber base has become longer tenured. Additionally, we continue to modify and update our offerings of online products and services to provide significant value to our subscribers and other consumers. We believe that subscriber churn and the decline in subscription revenues will continue to moderate in the foreseeable future as our tenured base continues to mature and the value of the additional products and services offered to subscribers increases.

• Recently, certain areas of the online display advertising market have experienced pressure from the increase of programmatic buying of advertising inventory. We are addressing this trend of programmatic buying by investing in technology, such as the AdLearn Open Platform, in order for advertisers and agencies to better manage their advertising campaigns through the use of our optimization technology. Additionally, we believe there is a significant opportunity to attract advertisers through the increased sale of premium formats and video through AOL Networks. We believe our scale, premium audiences and investments in technology and premium formats will allow

us to increase the number of advertisers we work with and enable us to optimize the increase in programmatic buying. We have one sales force that sells products on the programmatic and marketing services side of our advertising business, and we believe our investments in premium formats and targeting will enable us to maximize yield for our advertisers across our offerings.

• We have different cost structures within our advertising offerings. In order to generate higher display advertising revenues on the Third Party Network, we incur higher TAC. While a majority of the costs associated with generating display advertising on the Third Party Network are variable, a majority of costs associated with generating display advertising revenue on AOL Properties are fixed. Therefore, to the extent we can generate higher display revenues on AOL Properties where we expect higher incremental margins, the increase in our operating income will be greater than it would with an equivalent increase in display revenues on the Third Party Network.

• We believe premium video presents a substantial opportunity for growth and we believe that video enhancements across our owned and operated properties and third party websites can enhance our advertising product offerings and increase monetization and distribution of our content. We seek to launch new format enhancements, increase advertiser adoption of these formats and attract additional publishers. We aim to create products that will deepen our relationships with existing advertisers and attract new advertisers by providing them with effective and efficient means of reaching targeted audiences through premium video experiences. We remain focused on the continued expansion of our video platform for both our properties and our partners globally.

Recent Developments

Accelerated Stock Repurchase Agreement

On August 26, 2012, we entered into a fixed dollar collared ASR Agreement with Barclays, as agent for Barclays Bank PLC, effective August 27, 2012. Under the ASR Agreement, on August 30, 2012, we paid $654.1 million from cash on hand to Barclays to repurchase outstanding shares of common stock. The consideration paid to Barclays to repurchase shares included $54.1 million in contemplation of a cash dividend announced by us on August 27, 2012 (the "Special Cash Dividend") and discussed further below, which was calculated as the present value of the Special Cash Dividend with respect to those shares deliverable under the ASR Agreement prior to the ex-dividend date of December 3, 2012.

Upon the termination of the hedging period on October 19, 2012, the cap price and the floor price under the ASR were established at $32.69 and $26.68, respectively. The cap and floor prices establish the expected minimum and maximum shares to be delivered in total upon completion of the ASR of 18.4 million to 22.5 million shares, respectively. During the year ended December 31, 2012 and to date, Barclays delivered 18.4 million shares to us, and in connection with this delivery of shares, we reclassified $620.2 million of the $654.1 million paid to Barclays from additional paid-in capital ("APIC") to treasury stock. On final settlement of the ASR Agreement, we may be entitled to receive additional shares of common stock, or if we elect, cash, from Barclays, or under certain circumstances specified in the ASR Agreement, we may be required to deliver shares or make a cash payment, at our option, to Barclays. In connection with this transaction, Barclays has purchased and is expected to continue to purchase common stock in the open market. The specific number of shares that we will ultimately receive under the ASR agreement will be based on the volume weighted average price of our shares from October 22, 2012 (the first trading day following termination of the hedging period) through the completion of the transaction as compared to the established cap and floor prices. Upon delivery of the final

shares to us (if any), we will reclassify the remaining $33.9 million under the ASR Agreement from APIC to treasury stock. We currently anticipate that the ASR will be completed in the second quarter of 2013. See "Note 7" in our accompanying consolidated financial statements for additional information on the ASR Agreement.

Special Cash Dividend

On August 26, 2012, we declared the Special Cash Dividend to be paid to shareholders in 2012. The total amount of the Special Cash Dividend payment paid to shareholders on December 14, 2012 was $434.4 million. In addition to the amount paid on December 14, 2012, individuals who hold restricted stock units ("RSUs") and performance stock units ("PSUs") will be paid out dividend equivalents in cash as the respective RSUs and PSUs vest. See "Note 7" in our accompanying consolidated financial statements for additional information on the Special Cash Dividend.

Tax Asset Protection Plan

As of December 31, 2012, we had significant domestic tax attributes, including both net operating loss deferred tax assets and capital loss carryforward deferred tax assets. Unless otherwise restricted, we can utilize these tax attributes in certain circumstances to offset future U.S. taxable income, including in connection with capital gains that may be generated from a potential asset sale. Should a "change of control" be triggered under
Section 382 of the Internal Revenue Code of 1986, as amended, we may not be able to utilize these tax attributes to offset future U.S. taxable income, or such utilization could be significantly delayed. As a result, during the third quarter of 2012, we adopted a TAPP that is intended to act as a deterrent to any individual, individual fund or family of funds with common dispositive power acquiring 4.9% or more of our outstanding shares without the approval of our Board. We intend to submit the TAPP for stockholder approval at our next annual meeting of stockholders. The adoption of the TAPP did not have a material impact on our financial statements as of and for the year ended December 31, 2012. See "Note 7" in our accompanying consolidated financial statements for additional information on the TAPP.

Stock Repurchase Program

On February 8, 2013, we announced that the Board approved a stock repurchase program, which authorizes us to repurchase up to $100.0 million of our outstanding shares of common stock from time to time over the next twelve months. Repurchases are subject to market conditions, share price and other factors. Repurchases will be made in accordance with applicable securities laws in the open market, in block trades, pursuant to pre-arranged trading plans, private transactions, and may include derivative transactions. The repurchase program may be suspended or discontinued at any time and is subject to the terms and conditions of the ASR Agreement.

Recent Acquisitions

During the fourth quarter of 2012, we completed the acquisition of Everlater, Inc., a company that produces software to simplify the creation and sharing of web content and Buysight, a company that operates a targeted advertising platform which uses machine learning technology to allow for real time optimization of advertising campaigns. See "Note 4" in our accompanying consolidated financial statements for additional information on these acquisitions.

Key Metrics

Audience Metrics

We utilize unique visitor numbers to evaluate the performance of AOL Properties. In addition, we utilize unique visitor numbers to evaluate the reach of our total advertising offerings, which we call the AOL Advertising Network and 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 year ended December 31, 2012, approximately 7% 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, compared to approximately 6% for the year ended December 31, 2011.

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.

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

                                                                 Years Ended December 31,
                                                              2012           2011        2010
Domestic average monthly unique visitors to AOL
Properties                                                       111            110        111
Domestic average monthly unique visitors to AOL
Advertising Network                                              186            184        184

Subscriber Access 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 are either terminated or cancel our services each month, factoring in new and reactivated subscribers. The domestic AOL-brand access subscriber monthly average churn was 1.8%, 2.3% and 2.6% for the years ended December 31, 2012, 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 11.8 years, 10.6 years and 9.1 years for the years ended December 31, 2012, 2011 and 2010, respectively.

Consolidated Results of Operations

Revenues

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



                                             Years Ended December 31,
                                                    % Change                       % Change
                                                    from 2011                      from 2010
                        2012           2011          to 2012          2010          to 2011
    Revenues:
    Advertising      $  1,418.5     $  1,314.2              8%     $  1,284.1              2%
    Subscription          705.3          803.2           (12)%        1,023.6           (22)%
    Other                  67.9           84.7           (20)%          109.0           (22)%

    Total revenues   $  2,191.7     $  2,202.1            (0)%     $  2,416.7            (9)%

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

                                         Years Ended December 31,
                                       2012           2011       2010
                    Revenues:
                    Advertising            65%          60%        53%
                    Subscription          32           36         42
                    Other                  3            4          5

                    Total revenues        100%         100%       100%

Advertising Revenues

Advertising revenues are generated on AOL Properties through display advertising and search 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 promotion 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, product purchases or other revenue sharing relationships. In addition, agreements with advertisers can include other advertising-related services 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.

                                    AOL INC.

PART II-ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS



Advertising revenues on AOL Properties and the Third Party Network for the years
ended December 31, 2012, 2011 and 2010 are as follows (in millions):



                                                                Years Ended December 31,
                                                                       % Change                         % Change
                                                                       from 2011                        from 2010
                                         2012            2011           to 2012           2010           to 2011
AOL Properties:
Display                               $    575.4      $    573.4               0%      $    512.3              12%
Search                                     371.5           357.1               4%           428.1            (17)%

. . .