America Online 2010 Annual Report Download - page 92

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
cash flows of buy.at have been reflected as discontinued operations for all periods presented. The results of operations of buy.at, excluding the related income
tax benefit, were not material to the Company's consolidated financial statements.
As discussed above, the sale of buy.at generated a capital loss deferred tax asset in the United States of $65.8 million. As a result of the Company's
disposition activity to date, $21.9 million of the deferred tax asset is expected to be utilized to offset capital gains generated during the year ended
December 31, 2010; however, significant uncertainty exists regarding the future realization of the remaining portion of this capital loss deferred tax asset
which may be carried forward for five years to offset any capital gains. Accordingly, the valuation allowance associated with the capital loss deferred tax asset
as of December 31, 2010 was $43.9 million. If in the future the Company believes that it is more likely than not that all or an additional portion of this
deferred tax asset will be realized, a reduction in the valuation allowance will be recognized within the statement of operations for that respective period.
Bebo
On June 16, 2010, the Company sold substantially all the assets of Bebo, resulting in a pre-tax loss of approximately $1.8 million. The Company
expects to treat the common stock of Bebo as worthless for U.S. income tax reporting purposes in its 2010 consolidated U.S. federal income tax return. The
Company's current estimated U.S. income tax basis in Bebo is $759.3 million. As a result of the worthless stock deduction for the common stock of Bebo
under U.S. income tax law, the Company recorded a deferred tax asset and corresponding income tax benefit of $300.0 million in 2010. The Company utilized
$141.6 million of this deferred tax asset to offset federal and state income tax obligations. Following this transaction, the Company expects to continue to
generate advertising revenues on AOL Properties from customers who previously purchased advertising on Bebo properties and accordingly, under the
accounting guidance for presentation of financial statements, the financial condition, results of operations and cash flows of Bebo have not been reflected as
discontinued operations.
ICQ
On July 8, 2010, the Company completed the sale of ICQ for $187.5 million in cash to Digital Sky Technologies Limited, now known as Mail.ru Group
Limited ("Mail.ru"). ICQ provides online instant messaging services and products, as well as software related to such services and products, primarily to
international online consumers. Sales proceeds included $5.4 million which was allocated to the Company's obligation to provide certain network
infrastructure related services to the buyer. This amount has been deferred and will be recognized as other income when the obligation is fulfilled.
As a result of the sale, the Company recorded a pre-tax gain on this sale of $119.6 million during the third quarter of 2010. From a tax perspective,
$40.5 million of the gain related to the sale of ICQ qualifies as a capital gain. The tax effect of this capital gain is being offset by a portion of the capital loss
deferred tax asset recorded in connection with the sale of buy.at.
After the disposition of ICQ, the Committee on Foreign Investment in the United States ("CFIUS") contacted Mail.ru and, subsequently, Mail.ru and
the Company submitted a joint voluntary filing to CFIUS commencing a review of the transaction under Section 721 of Title VII of the Defense Production
Act of 1950, as amended. AOL and Mail.ru are currently working with CFIUS to address their concerns. As a result of this process, it is probable that the
Company will agree to provide certain network infrastructure and other operational services to Mail.ru at a level and for a period in excess of the Company's
contractual obligations under the original transaction agreements as well as other modifications to the parties' respective obligations under the transaction
agreements. The Company's estimate of the range of loss to be incurred as a result of these
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