America Online 2014 Annual Report Download - page 111

AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AOL had $1,245.0 million and $1,251.7 million of U.S. federal and foreign capital loss carryforwards as of
December 31, 2014 and 2013 respectively, which are subject to a full valuation allowance. If sufficient capital
gains are not generated during the carryforward period, the U.S. federal capital loss carryforward will expire
between 2015 and 2017. If not utilized, foreign capital losses, which are insignificant in total, will expire in 2020.
AOL had $69.7 million and $38.8 million of credit carryforwards as of December 31, 2014 and 2013,
respectively. If not utilized the U.S. federal credit carryforwards begin to expire in 2027, with the majority
expiring between 2030 and 2034. When realized, approximately $4.6 million of U.S. federal credits will be
recognized as a benefit through additional paid in capital. Although an insignificant amount of foreign credit
carryforwards begin to expire in 2015, the majority of these credits carry forward indefinitely. Although an
insignificant portion of state credit carryforwards begin to expire in 2017, the majority of these credits carry
forward indefinitely.
Included in total deferred tax asset balances are valuation allowances of $1,679.2 million and $1,730.3
million as of December 31, 2014 and 2013, respectively. As of December 31, 2014, the total valuation allowance
of $1,679.2 million included $1,124.2 million related to foreign and state net operating loss carryforwards,
$494.7 million related to capital loss carryforwards and $42.7 million related to outside basis differences. Of the
$51.1 million decrease in valuation allowance from 2013 to 2014, $42.8 million is related to foreign attributes,
with the remainder of the activity attributable to valuation allowances on state tax attributes and outside basis
differences.
Realization of deferred tax assets for which valuation allowances have not been established is dependent
upon generation of sufficient future taxable income. The Company expects to realize the benefit of remaining
deferred tax assets through future reversals of existing deferred tax liabilities and through future taxable income.
The Company believes it is more likely than not these deferred tax assets will be realized.
U.S. federal income taxes are provided on the portion of AOL’s income from certain foreign subsidiaries
that is expected to be remitted to the United States. The Company has recorded deferred income taxes and
foreign withholding taxes on unremitted earnings from foreign subsidiaries in the amount of $5.2 million and
$4.8 million, as of December 31, 2014 and 2013, respectively. For AOL’s other foreign subsidiaries, the
Company has not provided for U.S. income and foreign withholding taxes on approximately $18.8 million of
certain foreign subsidiaries’ undistributed earnings as of December 31, 2014, because such earnings have been
retained and are intended to be indefinitely reinvested outside of the United States. It is not practicable to
estimate the amount of taxes that would be payable upon remittance of these earnings because such tax, if any, is
dependent on circumstances existing if and when remittance occurs.
Accounting for Uncertainty in Income Taxes
Changes in unrecognized tax benefits, excluding the related accrual for interest and penalties, from
January 1 to December 31 are set forth below (in millions):
Years Ended December 31,
2014 2013 2012
Beginning balance ................................................ $ 154.1 $ 152.1 $ 151.7
Increases for current year tax positions ................................ 11.7 4.2 —
Increases for prior year tax positions .................................. 2.4 2.6 1.6
Decreases for prior year tax positions ................................. (2.1) (4.3) (1.2)
Settlements ...................................................... — (0.5) —
Total ........................................................... $ 166.1 $ 154.1 $ 152.1
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