America Online 2009 Annual Report Download - page 90

Table of Contents
The differences between income taxes (tax benefits) expected at the U.S. federal statutory income tax rate of 35% and income taxes (tax benefits)
provided are as set forth below (in millions):
Years Ended December 31,
2009 2008 2007
Taxes (tax benefits) on income at U.S. federal statutory rate $ 159.4 $ (410.1) $ 649.3
State and local taxes, net of U.S. federal tax benefits 19.3 42.0 74.3
Non-deductible goodwill (including goodwill impairment charge) — 696.3 52.2
Change in valuation allowance for deferred tax assets 40.3 19.2 (71.6)
U.S. tax benefit from foreign operations (29.7) (13.9) (16.0)
Tax contingencies 21.8 25.2 21.4
Other (4.4) (3.6) (67.9)
Total $ 206.7 $ 355.1 $ 641.7
Significant components of AOL's deferred tax assets and liabilities are as follows (in millions):
December 31,
2009 2008
Deferred tax assets:
Reserves and allowances $ 38.8 $ 28.7
Equity-based compensation (a) 4.2 614.7
Tax loss and credit carryforwards (b) 1,303.2 1,045.1
Other 240.3 210.2
Valuation allowance (1,003.1) (902.2)
Total deferred tax assets 583.4 996.5
Deferred tax liabilities:
Capitalized software (38.0) (46.5)
Unrealized foreign exchange tax gain (175.3) (109.3)
Intangible assets and goodwill (161.0) (66.9)
Other (36.9) (25.3)
Total deferred tax liabilities (411.2) (248.0)
Net deferred tax assets $ 172.2 $ 748.5
(a) Upon the effective date of the spin-off, the Company reversed its equity-based compensation deferred tax asset totaling $436.1 million with a
corresponding decrease to additional paid-in capital, as this amount was retained by Time Warner under the terms of the Second Tax Matters
Agreement between Time Warner and AOL.
(b) The deferred tax asset relating to tax losses includes $67.5 million of tax losses corresponding to the December 10 through December 31 short period.
This short period loss is primarily attributable to restructuring expenses that occurred after the spin-off. It is anticipated that this tax loss carryforward
will be utilized during 2010.
AOL had approximately $4,273 million and $3,414 million of accumulated tax losses in various foreign jurisdictions, primarily from countries with
unlimited carryforward periods, as of December 31, 2009 and 2008, respectively. However, many of these foreign losses are attributable to specific operations
and may not be utilized against income of certain other operations of AOL. The valuation allowance outstanding at December 31, 2009 and 2008 is primarily
attributable to these foreign net operating loss carryforwards.
AOL had approximately $123.1 million and $160.3 million of U.S. federal net operating losses many of which are subject to use limitations as of
December 31, 2009 and 2008, respectively. In addition, AOL had approximately $771.9 million and $214.8 million of accumulated tax losses in various state
and local
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