America Online 2011 Annual Report Download - page 75

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AOL recorded non-cash asset impairments and write-offs related to long-lived assets held and used and held for sale of $7.6 million, $12.1 million and
$23.1 million in 2011, 2010 and 2009, respectively, included in costs of revenues in the consolidated statement of operations. The charge recorded in 2011
related primarily to asset write-offs in connection with facility consolidation. The charge recorded in 2010 included a $6.2 million impairment charge related
to the sale of Pacific Corporate Park. The charge recorded in 2009 related primarily to an intangible asset write-off in connection with the Company's
anticipated disposition of a subsidiary, as well as the write-off of certain trade name intangible assets that were abandoned in 2009.
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. 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 the 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 historical 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 settlements with, the various taxing authorities, as well as changes
in tax laws, regulations and interpretations. The consolidated tax provision for any given year includes adjustments to prior year income tax accruals that are
considered appropriate and any related estimated interest. The Company's policy is to recognize, when applicable, interest and penalties on uncertain tax
positions as part of income tax expense. Effective with the spin-off, the Company and Time Warner entered into the Second Tax Matters Agreement, which
generally provides that Time Warner shall indemnify AOL for consolidated income taxes relating to any period prior to the spin-off. Accordingly, $368.1
million of liabilities for uncertain tax positions were reversed on the separation date, with an offsetting increase to equity. Liabilities for uncertain tax
positions are included in other long-term liabilities in the consolidated balance sheet. For further information, see "Note 6" and "Note 12".
Certain Risks and Concentrations
The Company's financial instruments include primarily cash and equivalents, accounts receivable, accounts payable, accrued expenses and other current
liabilities. Due to the short-term nature of these assets and liabilities, their carrying amounts approximate their fair value. Financial instruments that
potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable.
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