America Online 2010 Annual Report Download - page 56

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Tax Provision (Benefit)
We reported a loss from continuing operations before income taxes of $969.2 million for the year ended December 31, 2010. Included in the loss for the
year ended December 31, 2010 was a goodwill impairment charge of $1,414.4 million. In addition, we recorded an income tax benefit for the year ended
December 31, 2010 of $178.5 million, which is net of the tax effect of the nondeductible portion of the goodwill impairment charge and includes $300.0
million related to the tax benefit associated with the Bebo worthless stock deduction. Approximately $141.6 million of this benefit was used to offset 2010
federal and state income tax obligations. The remaining $158.4 million benefit is expected to offset cash taxes associated with our future ordinary income and
capital gains. In addition, we recognized a benefit of $30.5 million related to state and local taxes, net of the federal income tax effect and a benefit of $8.2
million related to the release of foreign reserves, partially offset by $13.1 million provided to establish valuation allowances, the majority of which are related
to foreign net operating losses. As a result of the goodwill impairment charge (the majority of which was non-deductable for income tax purposes), Bebo
worthless stock deduction and the discrete items mentioned above, the effective tax rate for the year ended December 31, 2010 is significantly lower than the
statutory U.S. federal income tax rate of 35.0%.
Our effective tax rate for income from continuing operations was 18.4% for the year ended December 31, 2010, as compared to an effective tax rate of
45.4% for the year ended December 31, 2009. The effective tax rate for the year ended December 31, 2010 differed from the statutory U.S. federal income tax
rate of 35.0% and the effective tax rates for the year ended December 31, 2009 primarily due to the decrease in the effective tax rate related to the
nondeductible portion of the goodwill impairment charge, partially offset by the effect of the Bebo worthless stock deduction.
For the year ended December 31, 2010, we recorded an income tax benefit on discontinued operations of $27.6 million. This benefit was primarily
derived from utilization of $21.9 million of the buy.at capital loss against other capital gains recognized during the year. See "Note 4" for additional
information on the sale of buy.at and related capital loss deferred tax assets.
We recorded income from continuing operations before income taxes of $460.1 million for the year ended December 31, 2009 and a loss from
continuing operations before income taxes of $1,167.6 million for the year ended December 31, 2008. Included in the loss for the year ended December 31,
2008 was a goodwill impairment charge of $2,207.0 million.
Our effective tax rate was 45.4% for the year ended December 31, 2009, as compared to a negative effective rate of 30.2% for the year ended
December 31, 2008. The effective tax rate for the year ended December 31, 2008 included the effect of the $2,207.0 million goodwill impairment charge, the
majority of which was non-deductible for income tax purposes. Excluding the effect of this charge, our effective tax rate for the year ended December 31,
2008 was 43.0%. The increase in the effective tax rate (after excluding the effect of this charge) was primarily due to taxable distributions from foreign
jurisdictions. The effective tax rate for the year ended December 31, 2009 differs from the statutory U.S. federal income tax rate of 35.0% due principally to
state income taxes and the impact of uncertain tax positions.
Discontinued Operations, Net of Tax
The financial results for the years ended December 31, 2010, 2009 and 2008 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 year ended
December 31, 2010 included the gain on the sale as well as the results of buy.at for the period from January 1, 2010 through February 26, 2010. See "Note 4"
in our accompanying consolidated financial statements for more information regarding this divestiture.
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