America Online 2011 Annual Report Download - page 89

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The items accounting for the difference between income tax expense (benefit) computed at the federal statutory rate of 35% and the provision for
income taxes were as follows:
Years Ended December 31,
2011 2010 2009
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of U.S. federal tax benefits(a) 15.3 3.7 3.6
Non-deductible goodwill — (50.8) —
Change in valuation allowance for deferred tax assets 16.9 (1.4) 1.9
Unrecognized tax benefits 0.8 0.5 3.8
Worthless stock deduction (15.9) 31.0 —
Shortfall on employee equity awards 6.7 — —
Escrow adjustments (17.2) — —
Non-deductible acquisition related costs 28.0 (0.2) —
Other (0.6) 0.6 1.1
Total 69.0% 18.4% 45.4%
(a) Due to the size of the foreign losses relative to pre-tax income, the effective tax rate for state and local taxes, net of U.S. federal benefit, increased in
2011.
Income taxes related to the years ended December 31, 2011 and 2010 and the short period from December 10, 2009 through December 31, 2009 are
calculated based on AOL's separate income tax status. For the periods prior to the spin-off, AOL's income taxes are computed and reported 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 for the entire period. Prior to the spin-off, AOL was included in Time Warner's consolidated U.S. federal income tax
return filings.
The significant components of AOL's deferred tax assets and liabilities were as follows (in millions):
December 31,
2011 2010
Deferred tax assets:
Reserves and allowances $ 12.5 $ 22.9
Equity-based compensation 21.2 19.0
Tax loss and credit carryforwards 1,479.8 1,448.4
Intangible assets and goodwill 98.7 147.1
Other 60.3 64.8
Subtotal 1,672.5 1,702.2
Less: Valuation allowance (1,160.2) (1,169.6)
Total deferred tax assets 512.3 532.6
Deferred tax liabilities:
Capitalized software (13.6) (19.3)
Unrealized foreign exchange tax gain (123.8) (110.6)
Property and equipment (57.3) (46.0)
Other (8.4) (15.4)
Total deferred tax liabilities(a) (203.1) (191.3)
Net deferred tax assets $ 309.2 $ 341.3
(a) As of December 31, 2011, $0.2 million of deferred tax liabilities were included in accrued expenses and other current liabilities on the consolidated
balance sheet.
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