America Online 2010 Annual Report Download - page 81

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 and held for sale of $12.1 million, $23.1 million and $33.0 million
in 2010, 2009 and 2008, respectively, included in costs of revenues in the consolidated statement of operations. The impairment charge recorded in 2010
included a $6.2 million impairment charge related to the sale of Pacific Corporate Park. See Note 4 for more information about this impairment charge. 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.
Income Taxes
Subsequent to the spin-off, AOL began filing its own U.S. federal consolidated income tax return (beginning with the short period December 10—
December 31, 2009) and income taxes are presented in the consolidated financial statements using the asset and liability method prescribed by the accounting
guidance for income taxes. Prior to the spin-off, income taxes as presented in the consolidated financial statements represented current and deferred income
taxes of Time Warner attributed to us in a manner that is systematic, rational and consistent with the asset and liability method prescribed by the accounting
guidance for income taxes. AOL's income tax provision prior to the spin-off was prepared under the "separate return method." 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.
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 difference between GAAP and tax reporting basis. Deferred income taxes
reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates
expected to be in effect when the taxes are actually paid or recovered. The tax effect of net operating loss, capital loss and general business credit carryovers
result in deferred tax assets. Valuation allowances are established when management determines it is "more likely than not" that some portion or all of the
deferred tax asset will not be realized. The Company considers all positive and negative evidence in evaluating its ability to realize its deferred income tax
assets, including its operating results, ongoing tax planning, and forecast of future taxable income, on a jurisdiction by jurisdiction basis.
With respect to uncertain tax positions, AOL recognizes in the consolidated financial statements those tax positions determined to be "more likely than
not" of being sustained upon examination, based on the technical merits of the positions. AOL records a liability for the difference between the benefit
recognized and measured pursuant to the accounting guidance for income taxes and the tax position taken on its tax return. The Company adjusts its estimated
liabilities for uncertain tax positions periodically because of ongoing examinations by, and
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