Time Magazine 2010 Annual Report Download - page 98

Significant components of Time Warner’s net deferred tax liabilities are as follows (millions):
2010 2009
December 31,
Deferred tax assets:
Tax attribute carryforwards
(a)
.................................... $ 758 $ 700
Receivable allowances and return reserves .......................... 270 337
Royalties, participations and residuals . . ........................... 419 353
Investments ................................................. 179 208
Equity-based compensation ..................................... 891 1,187
Amortization and depreciation ................................... 410 556
Other ..................................................... 986 1,287
Valuation allowances
(a)
........................................ (594) (701)
Total deferred tax assets...................................... $ 3,319 $ 3,927
Deferred tax liabilities:
Assets acquired in business combinations ........................... $ 3,754 $ 3,821
Unbilled television receivables ................................... 780 861
Unremitted earnings of foreign subsidiaries ......................... 154 182
Total deferred tax liabilities ................................... 4,688 4,864
Net deferred tax liability
(b)
..................................... $ 1,369 $ 937
(a)
The Company has recorded valuation allowances for certain tax attribute carryforwards and other deferred tax assets due to uncertainty that
exists regarding future realizability. The tax attribute carryforwards consist of $327 million of tax credits, $170 million of capital losses and
$261 million of net operating losses that expire in varying amounts from 2011 through 2030. If in the future the Company believes that it is
more likely than not that these deferred tax benefits will be realized, the majority of the valuation allowances will be recognized in the
consolidated statement of operations.
(b)
The net deferred tax liability includes current deferred tax assets of $581 million and $670 million as of December 31, 2010 and 2009,
respectively.
U.S. income and foreign withholding taxes have not been recorded on permanently reinvested earnings of
certain foreign subsidiaries aggregating approximately $1.5 billion at December 31, 2010. Determination of the
amount of unrecognized deferred U.S. income tax liability with respect to such earnings is not practicable.
For accounting purposes, the Company records equity-based compensation expense and a related deferred tax
asset for the future tax deductions it may receive. For income tax purposes, the Company receives a tax deduction
equal to the stock price on the date that a restricted stock unit (or performance share unit) vests or the excess of the
stock price over the exercise price of an option upon exercise. As of December 31, 2010, the deferred tax asset
recognized for equity-based compensation awards is substantially greater than the tax benefit the Company may
ultimately receive (assuming no increase in the Company’s stock price). The applicable accounting rules require
that the deferred tax asset related to an equity-based compensation award be reduced only at the time the award
vests (in the case of a restricted stock unit or performance share unit), is exercised (in the case of a stock option) or
otherwise expires or is cancelled. This reduction is recorded as an adjustment to additional paid-in capital (“APIC”),
to the extent that the realization of excess tax deductions on prior equity-based compensation awards were recorded
directly to APIC. The cumulative amount of such excess tax deductions is referred to as the Company’s “APIC
Pool” and was approximately $800 million at December 31, 2010. Any shortfall balance recognized in excess of the
Company’s APIC Pool is charged to income tax expense in the consolidated statement of operations.
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)