America Online 2014 Annual Report Download - page 110

AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The significant components of AOL’s deferred tax assets and liabilities were as follows (in millions):
December 31,
2014 2013
Deferred tax assets:
Reserves and allowances .................................................. $ 6.9 $ 10.4
Equity-based compensation ................................................ 34.4 27.4
Net operating loss, capital loss and credit carryforwards ......................... 1,768.7 1,893.1
Outside basis differences .................................................. 97.4 121.5
Other ................................................................. 24.4 54.5
Subtotal ............................................................... 1,931.8 2,106.9
Less: Valuation allowance ................................................. (1,679.2) (1,730.3)
Total deferred tax assets .................................................. 252.6 376.6
Deferred tax liabilities
Capitalized software ..................................................... (28.9) (23.3)
Unrealized foreign exchange tax gain ........................................ (82.7) (132.0)
Property and equipment ................................................... (16.0) (29.2)
Intangible assets and goodwill .............................................. (58.2) (50.2)
Other ................................................................. (3.9) (5.0)
Total deferred tax liabilities ................................................ (189.7) (239.7)
Net deferred tax assets .................................................... $ 62.9 $ 136.9
AOL had $156.0 million and $217.3 million of U.S. federal net operating loss carryforwards as of
December 31, 2014 and 2013, respectively. When realized, approximately $75.8 million of U.S. federal net
operating loss carryforwards will be recognized as a benefit through additional paid in capital. AOL had
approximately $698.8 million and $658.0 million of net operating loss carryforwards in various state and local
jurisdictions as of December 31, 2014 and 2013, respectively. When realized, approximately $40.4 million of
state net operating loss carryforwards will be recognized as a benefit through additional paid in capital.
During 2014, AOL requested approval from the U.S. Internal Revenue Service (“IRS”) to change AOL’s
method of accounting for its advertising revenues. If approved, approximately $121.3 million of gross revenues
will be deferred from 2014 to future tax years for U.S. federal and state tax purposes, thereby increasing AOL’s
U.S. federal and state net operating loss carryforwards as of December 31, 2014. AOL will record the impact of
this accounting method change when approval is received from the IRS.
Certain of these U.S. federal, state and local net operating loss carryforwards are subject to statutory annual
use limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, an
insignificant amount of U.S. federal net operating loss carryforwards will begin to expire in 2018, with the
majority of losses expiring between 2028 and 2033. If not utilized, an insignificant amount of state and local net
operating loss carryforwards will begin to expire in 2015, with the majority of losses expiring between 2020 and
2033.
AOL had net operating losses from various foreign jurisdictions of $4,088.2 million and $4,406.9 million as
of December 31, 2014 and 2013, respectively. Many of these foreign losses are attributable to specific operations
and may not be utilized to offset taxable income of other operations of AOL. Although an insignificant amount of
foreign net operating losses begin to expire in 2015, the majority of the losses carry forward indefinitely.
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