Time Magazine 2012 Annual Report Download - page 101

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Significant components of Time Warner’s net deferred tax liabilities are as follows (millions):
December 31,
2012 2011
Deferred tax assets:
Tax attribute carryforwards(a) ......................................... $ 835 $ 889
Receivable allowances and return reserves ............................... 244 274
Royalties, participations and residuals .................................. 474 438
Investments ....................................................... 170 188
Equity-based compensation ........................................... 280 443
Amortization and depreciation ........................................ 373 130
Other ............................................................ 1,087 1,131
Valuation allowances(a) .............................................. (560) (640)
Total deferred tax assets ............................................. $ 2,903 $ 2,853
Deferred tax liabilities:
Assets acquired in business combinations ................................ $ 3,521 $ 3,641
Unbilled television receivables ........................................ 915 939
Unremitted earnings of foreign subsidiaries .............................. 120 151
Total deferred tax liabilities ........................................... 4,556 4,731
Net deferred tax liability ............................................. $ 1,653 $ 1,878
(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 $315 million of tax credits, $240 million of capital
losses and $280 million of net operating losses that expire in varying amounts from 2013 through 2032. 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.
U.S. income and foreign withholding taxes have not been recorded on permanently reinvested earnings of
certain foreign subsidiaries aggregating approximately $1.9 billion at December 31, 2012. 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. The deferred tax asset consists of
amounts relating to individual unvested and/or unexercised equity-based compensation awards; accordingly,
deferred tax assets related to certain equity awards may currently be in excess of the tax benefit ultimately
received. 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.” Any shortfall
balance recognized in excess of the Company’s APIC Pool is charged to Income tax provision in the
Consolidated Statement of Operations. The Company’s APIC Pool was sufficient to absorb any shortfalls such
that no shortfalls were charged to the Income tax provision during the years ended December 31, 2012, 2011 and
2010.
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