Time Magazine 2014 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,
2014 2013
(recast)
Deferred tax assets:
Tax attribute carryforwards(a) .............................................. $ 305 $ 999
Receivable allowances and return reserves ................................... 168 199
Royalties, participations and residuals ....................................... 429 444
Investments ............................................................ 62 180
Equity-based compensation ............................................... 218 239
Amortization ........................................................... 231 184
Other ................................................................. 1,345 1,169
Valuation allowances(a) ................................................... (275) (504)
Total deferred tax assets .................................................. $ 2,483 $ 2,910
Deferred tax liabilities:
Assets acquired in business combinations .................................... $ 2,874 $ 2,939
Unbilled television receivables ............................................. 998 933
Unremitted earnings of foreign subsidiaries ................................... 41 241
Depreciation ........................................................... 264 220
Other ................................................................. 326 495
Total deferred tax liabilities ............................................... 4,503 4,828
Net deferred tax liability .................................................. $ 2,020 $ 1,918
(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 $21 million of tax credits, $58 million of capital losses and $226 million of net
operating losses that expire in varying amounts from 2015 through 2034. 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 $1.1 billion at December 31, 2014. 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, 2014, 2013 and 2012.
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