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Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income (Loss), Net
Other loss, net was $3.5 million for the year ended December 31, 2011, as compared to other income, net of $13.4 million for the year ended
December 31, 2010. This decrease was due primarily to the gains in 2010 from the sales of our investments in Kayak and Brightcove of $17.5 million and
$8.0 million, respectively, partially offset by credit facility fees of $6.4 million incurred in 2010 and favorable foreign currency impacts of $2.3 million in
2011.
Other income, net was $13.4 million for the year ended December 31, 2010, as compared to other loss, net of $2.5 million for the year ended
December 31, 2009. This increase was primarily due to the gains in 2010 from the sales of our investments in Kayak and Brightcove of $17.5 million and $8.0
million, respectively, and $5.2 million of transaction costs incurred in 2009 related to the spin-off, partially offset by unfavorable foreign currency impacts of
$6.6 million and credit facility fees of $6.0 million incurred in 2010.
Income Tax Provision (Benefit)
We recorded income from continuing operations before income taxes of $42.3 million for the year ended December 31, 2011. Our effective tax rate for
income from continuing operations was 69.0% for the year ended December 31, 2011 and differed from the statutory U.S. federal income tax rate of 35.0%
due to the impact of foreign losses, for which no benefit is received on our U.S. income tax provision, and non-deductible acquisition-related expenses
incurred in 2011. These items were partially offset by a tax benefit associated with a worthless stock deduction related to the sale of a subsidiary in the first
quarter of 2011, and favorable adjustments related to escrow disbursements for which we have concluded we will be able to recognize a tax benefit.
Additionally, the effective rate for the year ended December 31, 2011 increased over the effective rate for the prior year period due to the goodwill
impairment charge recorded in the second quarter of 2010, the majority of which was non-deductible for income tax purposes. The significance of this
primarily non-deductible charge relative to our operating income in 2010 had the effect of significantly lowering our 2010 effective tax rate. This effect was
partially offset by the effect of the Bebo worthless stock deduction in 2010.
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 related 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. 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-deductible 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%.
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.
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