America Online 2009 Annual Report Download - page 76

Table of Contents
of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, 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 purchase price paid. 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.
LONG-LIVED ASSETS
Long-lived assets, including finite-lived intangible assets (e.g., acquired technology and customer relationships), do not require that an annual
impairment test be performed; instead, long-lived assets are tested for impairment upon the occurrence of an indicator of impairment. Once an indicator of
impairment has occurred, the impairment test is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to
hold the asset for continued use, the impairment test first requires a comparison of estimated undiscounted future cash flows generated by the asset group
against the carrying value of the asset group. The Company groups long-lived assets for purposes of recognition and measurement of an impairment loss at the
lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the carrying value of the asset group
exceeds the estimated undiscounted future cash flows, the asset would be deemed to be impaired. Impairment would then be measured as the difference
between the estimated fair value of the asset and its carrying value. Fair value is generally determined by discounting the future cash flows associated with
that asset group. If the intent is to hold the asset group for sale and certain other criteria are met (i.e., the asset group can be disposed of currently, appropriate
levels of authority have approved the sale and there is an active program to locate a buyer), the impairment test involves comparing the asset group's carrying
value to its estimated fair value less estimated costs of disposal. To the extent the carrying value is greater than the asset group's estimated fair value less
estimated costs of disposal, an impairment loss is recognized for the difference.
AOL recorded non-cash asset impairments related to long-lived assets held and used of $23.1 million, $33.0 million and $16.2 million in 2009, 2008
and 2007, respectively, included in costs of revenues in the consolidated statement of operations. The impairment charge recorded in 2009 related primarily to
an intangible asset write-off in connection with the Company's anticipated disposition of Yedda, Inc., as well as the write-off of certain trade name intangible
assets that were abandoned in 2009. The impairment charge recorded in 2008 related primarily to asset write-offs in connection with facility consolidations.
The impairment charge recorded in 2007 related primarily to impairments of certain capitalized software no longer being used by AOL.
Income Taxes
Time Warner and its domestic subsidiaries, including AOL prior to the spin-off, file a consolidated U.S. federal income tax return. Income taxes as
presented in the consolidated financial statements represent current and deferred income taxes of Time Warner attributed to AOL for periods prior to the spin-
off using the "separate return method", a method that is systematic, rational and consistent with the asset-and-liability method prescribed by the accounting
guidance for income taxes. The separate return method applies the accounting guidance for income taxes to the financial statements as if AOL were a separate
taxpayer and a standalone enterprise for all periods. AOL will file its own consolidated U.S. federal income tax return following the spin-off (beginning with
the short period December 10 – December 31, 2009).
Income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable/refunds receivable and tax expense) are recorded based on
amounts refundable or payable in the current year and include the results of any deferred income taxes. Deferred income taxes reflect the tax effect of net
operating loss, capital loss and general business credit carryforwards and the net tax effects of temporary differences between the carrying amount of assets
and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when
management determines it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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