Time Magazine 2009 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...form than through regular mail. In addition, sending the documents electronically helps Time Warner reduce printing and postage expenses and helps protect the environment. For more information or to sign up for electronic delivery, please visit our Web site... Back Cover The Ellen DeGeneres Show The Wizarding...

  • Page 3
    ...We believe there will always be demand for our company's content: good stories, well told, that engage people's minds and emotions. We have great confidence in the future of high-quality content, in our strategic position and in our ability to enhance stockholder value." Jeff Bewkes Chairman and CEO

  • Page 4
    Time Warner / Annual Report 2009

  • Page 5
    ... long term. Time Warner began 2009 with an ambitious agenda, and we achieved what we set out to do. We delivered strong adjusted earnings-per-share growth last year, despite the worst recession in decades. Our Networks and Filmed Entertainment businesses posted record profits in 2009, driven largely...

  • Page 6
    ...the #1 news and information site on the Web. At HBO in 2010, in addition to bringing back acclaimed and popular original series like True Blood, Entourage, Big Love and Hung, we will premiere two new drama series: David Simon's Treme and Martin Scorsese's Boardwalk Empire. In March 2010, HBO debuted...

  • Page 7

  • Page 8
    Time Warner / Annual Report 2009

  • Page 9
    ...Our businesses will also continue to expand internationally. In 2009, for example, Time Warner acquired a significant stake in Central European Media Enterprises Ltd., a leading media company in Central and Eastern Europe. In 2010, we will continue to expand selectively in higher-growth markets. HBO...

  • Page 10
    ..., will launch new feeds in international markets and add new distributors. Our strategy for delivering stockholder returns includes paying dividends and buying back our stock. Earlier this year, we raised our quarterly dividend by 13.3% and increased our outstanding share purchase program to...

  • Page 11

  • Page 12
    ... Time Warner Senior Operating Executives Philip I. Kent Chairman and CEO, Turner Broadcasting System, Inc. Barry M. Meyer Chairman and CEO, Warner Bros. Entertainment Inc. Ann S. Moore Chairman and CEO, Time Inc. Bill Nelson Chairman and CEO, Home Box Office, Inc. Time Warner / Annual Report 2009

  • Page 13
    ...Notes to Consolidated Financial Statements ...Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Selected Financial Information ...Quarterly Financial Information ...Comparison of Cumulative Total Returns ... 3 10 21 61 62...

  • Page 14
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  • Page 15
    ...which sell advertising only in certain international markets). Home Box Office generates revenues principally from providing programming to affiliates that have contracted to receive and distribute such programming to subscribers who are generally free to cancel their subscriptions at any time. Home...

  • Page 16
    ... December 31, 2009. Home Box Office also offers HBO and Cinemax On Demand, subscription products that enable digital cable and telephone company customers who subscribe to the HBO and Cinemax services to view programs at the time they choose. In 2009, Home Box Office also began limited tests of HBO...

  • Page 17
    ... Company's feature films, television programming and characters. All of the foregoing businesses are principally conducted by various subsidiaries and affiliates of Warner Bros. Entertainment Inc., known collectively as the Warner Bros. Entertainment Group ("Warner Bros."), including New Line Cinema...

  • Page 18
    ...to cable, satellite and telephone company partners, as well as broadband customers. WBDD has also licensed movies to Netflix's subscription on demand service. In 2009, WBDD continued its VOD content release strategy of initiating the release, both domestically and in 15 international territories, of...

  • Page 19
    ... Editorial Expansión ("GEE") in Mexico. Time Inc. licenses over 50 editions of its magazines for publication outside the U.S. to publishers in over 20 countries. In addition, Time Inc. operates almost 50 websites. Time Inc. also operates certain direct-marketing businesses. In December 2009, Time...

  • Page 20
    .... and its Canadian affiliate, Quality Service Programs Inc., offers fundraising programs that help schools and youth groups raise money through the sale of magazine subscriptions to Time Inc. magazines and magazines of other publishers, among other products. Time/Warner Retail Sales & Marketing Inc...

  • Page 21
    ..." in this 2009 Annual Report to Stockholders as well as in filings made by Time Warner with the SEC. Time Warner is under no obligation, and expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise...

  • Page 22
    ... a lower price certain products and services that are currently offered to customers separately or at a premium. There is also the risk that the Company could develop or support a new technology or business initiative that is not adopted by consumers. In addition, traditional audience measures have...

  • Page 23
    ... cyclical, reflecting general economic conditions, and therefore, the deterioration of these conditions could adversely affect the Company's revenues since the Company's Networks and Publishing segments derive a substantial portion of their revenues from the sale of advertising. Declines in consumer...

  • Page 24
    ... diversified media companies that are well established in some developing nations, and the Company's strategies for growth may not be successful. The Company's businesses operate in highly competitive industries. Competition faced by the businesses in the Company's Networks and Filmed Entertainment...

  • Page 25
    ... products to digital forms of entertainment. The media and entertainment industries face a challenge in managing the transition from physical to electronic formats in a manner that continues to support the current DVD and Blu-ray Disc business and their relationships with large retail customers and...

  • Page 26
    .... Also, because of the migration to digital technology and other technological changes in the industries in which the Company operates, the Company may need to use technologies developed or licensed by third parties in order to conduct its businesses, and if Time Warner is not able to obtain or...

  • Page 27
    ... production or the release dates of the Company's feature films, television programs and magazines, as well as result in higher costs either from such actions or less favorable terms of the applicable agreements on renewal. The Company's businesses rely heavily on network and information systems or...

  • Page 28
    ... have voluntarily agreed to offer family tiers. The FCC also is examining the manner in which some programming distributors package or bundle services sold to distributors, and the same conduct is at issue in industry-wide antitrust litigation pending in Federal court in Los Angeles, in which the...

  • Page 29
    ... distribution services, telephone companies and other customers (known as affiliates) for the distribution of its networks and services, and there can be no assurance that these affiliation agreements will be renewed in the future on terms that are acceptable to the Networks segment. The renewal of...

  • Page 30
    ... marketing costs increase in the future, it may make it more difficult for the segment's films to generate a profit. Such increases also create a greater need for the Filmed Entertainment segment to generate revenues internationally or from other media, such as home entertainment, television and new...

  • Page 31
    ... operates a national distribution business that relies on wholesalers to distribute its magazines to newsstands and other retail outlets. A small number of wholesalers are responsible for a substantial percentage of the wholesale magazine distribution business in the U.S. In 2008 and 2009, there was...

  • Page 32
    (This page intentionally left blank) 20

  • Page 33
    ... section discusses how the Company monitors and manages exposure to potential gains and losses arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of financial instruments. Critical accounting policies. This section...

  • Page 34
    ...watched advertising-supported cable television networks than the national broadcast networks. The Turner networks generate revenues principally from providing programming to cable system operators, satellite distribution services, telephone companies and other distributors (known as affiliates) that...

  • Page 35
    ... networks (including The Closer and Nip/Tuck). The growth in home video revenues, in particular revenues from DVD sales, has been one of the largest drivers of the segment's profit over the last several years. The industry and the Company experienced a decline in home video revenues in 2009 and 2008...

  • Page 36
    ... (including advertising on digital properties), magazine subscriptions and newsstand sales. Time Inc. also owns the magazine subscription marketer, Synapse Group, Inc. ("Synapse"), and the school and youth group fundraising company, QSP, Inc. and its Canadian affiliate, Quality Service Programs Inc...

  • Page 37
    ... program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including price and business and market conditions. From the program's inception through February 17, 2010, the Company...

  • Page 38
    ... in a general entertainment network in India and $33 million at the Publishing segment related to certain fixed assets in connection with the Publishing segment's restructuring activities. During the year ended December 31, 2008, the Company recorded noncash impairments related to goodwill and...

  • Page 39
    ... for bankruptcy in September 2008, $21 million related to Southern Living At Home and $5 million related to certain other asset write-offs at the Publishing segment. During the year ended December 31, 2007, the Company recorded a $34 million noncash impairment at the Networks segment related to the...

  • Page 40
    ... year ended December 31, 2009 was primarily due to declines at the Publishing segment and, to a lesser extent, a decline at the Networks segment. The decrease at the Publishing segment was primarily due to declines in domestic print Advertising revenues and international print Advertising revenues...

  • Page 41
    ...at the Networks segment, $105 million at the Filmed Entertainment segment and $99 million at the Publishing segment. The total number of employees terminated across the segments in 2009 was approximately 1,500. During the year ended December 31, 2008, the Company incurred restructuring costs of $327...

  • Page 42
    ... was $1.194 billion in 2009 compared to $692 million in 2008. The Company's effective tax rate for continuing operations was 36% in 2009 compared to (16%) in 2008. The change is primarily attributable to the portion of the goodwill impairment in 2008 that did not generate a tax benefit and the...

  • Page 43
    ... Income of the Networks segment for the years ended December 31, 2009 and 2008 are as follows (millions): Years Ended December 31, 2009 2008 % Change Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues(a) ...Selling, general and administrative(a) ...Loss...

  • Page 44
    ... Entertainment segment for the years ended December 31, 2009 and 2008 are as follows (millions): Years Ended December 31, 2009 2008 % Change Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues(a) ...Selling, general and administrative(a) ...Loss on sale...

  • Page 45
    ... revenues for the years ended December 31, 2009 and 2008 are as follows (millions): Years Ended December 31, 2009 2008 % Change Theatrical product: Theatrical film ...Home video and electronic delivery ...Television licensing...Consumer products and other ...Total theatrical product ...Television...

  • Page 46
    ...of lower employee costs resulting from the operational reorganization of the New Line business in 2008 and Warner Bros.' restructuring activities in 2009, discussed below, as well as lower distribution expenses primarily associated with the declines in Home video and electronic delivery revenues. As...

  • Page 47
    ... rates at IPC, and lower online revenues. These declines primarily reflect the current weak economic conditions and increased competition for advertising dollars. Other revenues decreased due primarily to decreases at the non-magazine businesses, including Southern Living At Home, which was sold...

  • Page 48
    ...by higher revenues from newsstand sales for certain domestic magazine titles driven by price increases. The increase in Advertising revenues for the year ended December 31, 2008 was primarily due to growth at the Networks segment, partially offset by a decline at the Publishing segment. The increase...

  • Page 49
    ...partially offset by a reversal of $3 million at the Networks segment. The total number of employees terminated across the segments in 2008 was approximately 1,700. During the year ended December 31, 2007, the Company incurred restructuring costs of $114 million, primarily related to various employee...

  • Page 50
    ...to $859 million in 2007. The Company's effective tax rate for continuing operations was (16%) for the year ended December 31, 2008 compared to 31% for the year ended December 31, 2007. The change is primarily attributable to the portion of the goodwill impairments that did not generate a tax benefit...

  • Page 51
    ... Income of the Networks segment for the years ended December 31, 2008 and 2007 are as follows (millions): Years Ended December 31, 2008 2007 % Change Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues(a) ...Selling, general and administrative(a) ...Loss...

  • Page 52
    ...Income of the Filmed Entertainment segment for the years ended December 31, 2008 and 2007 are as follows (millions): Years Ended December 31, 2008 2007 % Change Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues(a) ...Selling, general and administrative...

  • Page 53
    ...by the 2008 off-network license fees from Seinfeld. The decrease in television product revenues from home video and electronic delivery primarily reflects a decline in catalog revenue which more than offsets revenue from new releases, including The Closer, Gossip Girl, One Tree Hill, Terminator: The...

  • Page 54
    ...from newsstand sales for certain domestic magazine titles driven by price increases. Advertising revenues decreased due primarily to declines in domestic print Advertising revenues, international print Advertising revenues, including the impact of foreign exchange rates at IPC, and custom publishing...

  • Page 55
    ... business include manufacturing costs (paper, printing and distribution) and editorial-related costs, which together decreased 3% to $1.627 billion in 2008 from $1.670 billion in 2007, primarily due to cost savings initiatives and the impacts of the 2007 magazine closures and the 2007 magazine sales...

  • Page 56
    ... paper program and access to capital markets. Time Warner's unused committed capacity at December 31, 2009 was $11.731 billion, including $4.800 billion of cash and equivalents. As part of the TWC Separation, the Company received $9.253 billion on March 12, 2009 as its portion of the payment...

  • Page 57
    ... program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including price and business and market conditions. From the program's inception through February 17, 2010, the Company...

  • Page 58
    .... The components of working capital are subject to wide fluctuations based on the timing of cash transactions related to production schedules, the acquisition of programming, collection of accounts receivable and similar items. The Company's net income tax payments increased in 2009 by $621 million...

  • Page 59
    ...Asia, HBO South Asia and HBO LAG ...- Imagen Acquisition...- TT Games ...- All other ...(216) Capital expenditures ...(561) Proceeds from the Special Dividend ...9,253 Proceeds from the sale of the Parenting Group and most of the Time4 Media magazine titles ...- Proceeds from the sale of the Company...

  • Page 60
    ... program, partially offset by declines in net borrowings (i.e., borrowings less repayments) and proceeds from the exercise of stock options. Cash Flows from Discontinued Operations Details of cash used by discontinued operations are as follows (millions): Years Ended December 31, 2009 2008 2007...

  • Page 61
    ... the year ended December 31, 2008, cash provided by operations from discontinued operations increased to $6.268 billion from $5.077 billion in 2007, primarily reflecting a change in working capital resulting from the timing of payments and cash collections and lower net income taxes paid. Cash used...

  • Page 62
    ...") issued by Time Warner Inc. and its subsidiaries under all of the indentures governing the publicly traded debt securities of the Company and its subsidiaries other than the indenture entered into in November 2006 (other than the 2006 indenture, collectively, the "Indentures"). Completion of...

  • Page 63
    ... or other buy-out arrangements involving certain of the Company's investees. The table does not include the Company's reserve for uncertain tax positions and related accrued interest and penalties, which at December 31, 2009 totaled $2.2 billion, as the specific timing of any cash payments relating...

  • Page 64
    ...Obligations to use certain printing facilities for the production of magazines ...Advertising, marketing and sponsorship obligations(c) ...Obligations to purchase information technology licenses and services ...Other, primarily general and administrative obligations(d) ...Total purchase obligations...

  • Page 65
    ... expects to incur an obligation to make any payments within that time period. In addition, amounts presented do not reflect the effects of any indemnification rights the Company might possess (millions). Nature of Contingent Commitments (a) Total Commitments 2010 2011-2012 2013-2014 Thereafter...

  • Page 66
    ... (the minimum was approximately $60.7 million in 2009 and is subject to annual cost of living adjustments); (b) making a minimum amount of capital expenditures each year (an amount approximating 6% of the Parks' annual revenues); (c) offering each year to purchase 5% of the limited partnership units...

  • Page 67
    ...facility would mature 5 years from their respective funding date. Interest will accrue at a rate at least equal to a LIBOR floor of 250 basis points plus a spread of 100 basis points over the applicable margin for a new Six Flags' senior term credit facility, which will close simultaneously with the...

  • Page 68
    ... (the "Supplemental Credit Agreement") between the Company (as lender) and TWC (as borrower) for a two-year senior unsecured supplemental term loan facility (the "Supplemental Credit Facility"), on March 26, 2009, TWC terminated the commitments of Time Warner under the Supplemental Credit Facility...

  • Page 69
    ... MANAGEMENT Market risk is the potential gain/loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of financial instruments. Interest Rate Risk Time Warner has issued fixed-rate debt that, at December 31, 2009...

  • Page 70
    ... currencies at fixed rates. The following provides a summary of foreign currency contracts by currency (millions): December 31, 2009 Sales Purchases December 31, 2008 Sales Purchases (recast) (recast) British pound ...Euro...Canadian dollar ...Australian dollar ...Other ...Total ... $ 684 482 484...

  • Page 71
    ... to benefit plans in 2010, the Company's international expansion plans and changes to existing reserves related to uncertain tax positions. The Company's forward-looking statements are based on management's current expectations and assumptions regarding the Company's business and performance, the...

  • Page 72
    ... to digital media, pressure from public interest groups, changes in laws and regulations and other societal, political, technological and regulatory developments; competitive pressures, including, as a result of audience fragmentation; the popularity of the Company's content; piracy and the Company...

  • Page 73
    ... Common stock, $0.01 par value, 1.634 billion and 1.630 billion shares issued and 1.157 billion and 1.196 billion shares outstanding ...Paid-in-capital ...Treasury stock, at cost (477 million and 434 million shares) ...Accumulated other comprehensive loss, net ...Accumulated deficit ...Total Time...

  • Page 74
    ...Years Ended December 31, (millions, except per share amounts) 2009 2008 (recast) 2007 (recast) Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues ...Selling, general... ...$ 2,468 Per share information attributable to Time Warner Inc. common shareholders: ...

  • Page 75
    ... and film costs ...Accounts payable and other liabilities ...Other changes ...Cash provided by operations from continuing operations(a) ...INVESTING ACTIVITIES Investments in available-for-sale securities ...Investments and acquisitions, net of cash acquired ...Capital expenditures ...Investment...

  • Page 76
    ... $440 million of common stock repurchased from Liberty Media Corporation, indirectly attributable to the exchange of the Atlanta Braves baseball franchise (the "Braves") and Leisure Arts, Inc. ("Leisure Arts"). Specifically, the $440 million represents the fair value at the time of the exchange of...

  • Page 77
    ... television and home video production and distribution; and Publishing: consisting principally of magazine publishing. Financial information for Time Warner's various reportable segments is presented in Note 14. Changes in Basis of Presentation The 2008 and 2007 financial information has been recast...

  • Page 78
    ...On January 1, 2009, the Company adopted, on a retrospective basis, accounting guidance which requires that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents (such as restricted stock units granted by the Company) be considered...

  • Page 79
    ... available to be issued. For the year ended December 31, 2009, the Company evaluated, for potential recognition and disclosure, events that occurred prior to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2009 on February 19, 2010. Fair Value Measurements On...

  • Page 80
    ... incurred on the film is determined by reference to the ratio of actual revenue earned to date in relation to total estimated ultimate revenues. For the years ended December 31, 2009, 2008 and 2007, participation costs of $321 million, $584 million and $502 million, respectively, were recorded in...

  • Page 81
    ... be deemed the primary beneficiary of HBO Asia, HBO South Asia and HBO LAG. Beginning in the first quarter of 2010, the Company will account for its investments in these entities using the equity method and will no longer consolidate their financial condition and results of operations. The adoption...

  • Page 82
    ...views on trends in the overall receivable agings at the different divisions, and for larger accounts, analyses of specific risks on a customer specific basis. Using this information, management reserves an amount that is expected to be uncollectible. At December 31, 2009 and 2008, total reserves for...

  • Page 83
    ... influence are accounted for at market value if the investments are publicly traded ("available-for-sale investments"). If the investment is not publicly traded, the investment is accounted for at cost. Unrealized gains and losses on investments accounted for at market value are reported, net-of...

  • Page 84
    ...-sale investments, investments accounted for using the cost method of accounting and investments accounted for using the equity method of accounting. The Company regularly reviews its investment securities for impairment, including when the carrying value of an investment exceeds its related market...

  • Page 85
    ... security in the near term and the fair value is below the Company's cost basis). For investments accounted for using the cost or equity method of accounting, the Company evaluates information (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in...

  • Page 86
    ... in the 2009 analysis ranged from 10.5% to 12% while the terminal growth rates used in the DCF analysis ranged from 2.5%-3.0%. To illustrate the magnitude of a potential impairment relative to future changes in estimated fair values, had the fair values of each of the Company's reporting units been...

  • Page 87
    .... The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Time Warner...

  • Page 88
    ... affiliate and the estimated number of subscribers for the respective affiliate. Management considers factors such as the previous contractual rates, inflation, current payments by the affiliate and the status of the negotiations in determining any estimates. When the new distribution contract terms...

  • Page 89
    ...to the subscribers by the network. Specifically, the Company determines the net realizable value for all of its premium pay service programming arrangements based on projections of estimated Subscription revenues and, where applicable, home video and other licensing revenues. In addition, changes in...

  • Page 90
    ...in all markets) are amortized using the film forecast method. For more information, see Note 2. Publishing Magazine Subscription and Advertising revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine cover date, at which time...

  • Page 91
    ... is accounted for as one unit of accounting which would generally result in revenue, or costs as the case may be, being recognized on a straight-line basis over the term of the agreement. In determining the fair value of the respective elements, the Company refers to quoted market prices (where...

  • Page 92
    ...with the customer, (ii) performs all of the billing and collection activities, and (iii) passes the proceeds from the subscription to the Publishing segment after deducting the agent's commission. • Advertising Costs Time Warner expenses advertising costs as they are incurred, which generally is...

  • Page 93
    ... of the positions. From time to time, the Company engages in transactions in which the tax consequences may be subject to uncertainty. Examples of such transactions include business acquisitions and dispositions, including dispositions designed to be tax free, issues related to consideration paid or...

  • Page 94
    ... Other Comprehensive Income (Loss) Balance at December 31, 2006...2007 activity ...Balance at December 31, 2007...2008 activity ...Balance at December 31, 2008...AOL Separation...Time Warner Cable Separation ...2009 activity ...Balance at December 31, 2009... $ 306 290 596 (956) (360) 278 - 221...

  • Page 95
    ... shares that may be issued under the Company's stock compensation plans because they do not have a dilutive effect. 2. GOODWILL AND INTANGIBLE ASSETS As a creator and distributor of branded information and copyrighted entertainment products, Time Warner has a significant number of intangible assets...

  • Page 96
    ... is provided generally on a straight-line basis over their respective useful lives. The weighted-average useful life for such intangibles is 17 years. The Company evaluates the useful lives of its finite-lived intangible assets each reporting period to determine whether events or circumstances...

  • Page 97
    ... four years, subject to certain exceptions. The Company's investment in CME is being accounted for under the cost method of accounting. HBO Acquisitions On December 27, 2007 and January 2, 2008, the Company, through its Networks segment, purchased additional interests in HBO Asia and HBO South Asia...

  • Page 98
    ... Discontinued operations in 2009, 2008 and 2007 reflect the financial condition and results of operations of TWC and AOL. In addition, discontinued operations in 2007 reflect certain businesses sold, which included the Parenting Group, most of the Time4 Media magazine titles, The Progressive...

  • Page 99
    ...31, 2009 2008 (recast) Equity-method investments ...Fair-value and other investments, including available-for-sale securities ...Cost-method investments ...Total ... $ 280 578 323 $ 313 608 106 $ 1,181 $ 1,027 Equity-Method Investments At December 31, 2009, investments accounted for using the...

  • Page 100
    ..., primarily Networks investments, and $15 million of available-for-sale securities. For the year ended December 31, 2008, the writedowns were $83 million including $56 million of available-for-sale securities, primarily the writedown of the Company's investment in Eidos (which was sold in 2009), and...

  • Page 101
    ..., 2009 December 31, 2008 Inventories: Programming costs, less amortization ...DVDs, books, paper and other merchandise ...Total inventories(a) ...Less: current portion of inventory ...Total noncurrent inventories ...Film costs - Theatrical: Released, less amortization ...Completed and not released...

  • Page 102
    ... following table presents information about assets and liabilities required to be carried at fair value on a recurring basis as of December 31, 2009 (millions): Fair Value Measurements as of December 31, 2009 Using Quoted Market Prices Significant Fair Value as of in Active Markets for Significant...

  • Page 103
    ... its films, the Company employs a discounted cash flow methodology with assumptions for cash flows for periods not exceeding 10 years. The discount rate utilized in the discounted cash flow analysis is based on the weighted average cost of capital of the respective business (e.g., Warner Bros.) plus...

  • Page 104
    ...discounts. The weighted-average interest rate on Time Warner's total debt was 7.14% at December 31, 2009 and 5.50% at December 31, 2008. The Company's public debt matures as follows: $0 in 2010... (ii) permit Time Warner to terminate the commitment of any such lender on terms substantially similar to ...

  • Page 105
    ...specifically relating to a material adverse change in Time Warner's financial condition or results of operations. Borrowings under the Revolving Facility may be used for general corporate purposes, and unused credit is available to support borrowings by Time Warner under its commercial paper program...

  • Page 106
    ... certain available short-term home video and network programming distribution trade accounts receivable. At December 31, 2009, these facilities were fully utilized. In connection with each of these securitization facilities, subsidiaries of the Company (each a "transferor") sell, on a revolving and...

  • Page 107
    ... are generally short-term in nature, the fair value of the retained interest approximated its carrying value at both December 31, 2009 and December 31, 2008. There were no net proceeds received and repaid under Time Warner's accounts receivable securitization program in both 2009 and 2008. For...

  • Page 108
    ... of film cost amortization totaling $14 million, $43 million and $34 million during the years ended December 31, 2009, 2008 and 2007, respectively. 8. INCOME TAXES Domestic and foreign income before income taxes, discontinued operations and cumulative effect of accounting change is as follows...

  • Page 109
    ...): Years Ended December 31, 2009 2008 2007 (recast) (recast) Taxes (tax benefits) on income at U.S. federal statutory rate ...$ State and local taxes (tax benefits), net of federal tax effects...Nondeductible goodwill impairments ...Litigation matters ...Valuation allowances ...Other ...Total...

  • Page 110
    ... 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 (for a restricted stock unit or performance share unit), is exercised...

  • Page 111
    ...reached during 2008 of approximately $14 million. During 2009, the Internal Revenue Service ("IRS") substantially concluded its examination of the Company's federal income tax returns for the 2002 - 2004 tax years, which did not result in the Company being required to make any material payments. One...

  • Page 112
    ..., paid by the Company during the period of time that the restricted stock or RSU awards are unvested. Time Warner also has a performance stock unit program for senior level executives. Under this program, recipients of performance stock units ("PSUs") are awarded a target number of PSUs that...

  • Page 113
    ...is reflected in the grant date fair value of the award, which is estimated using a Monte Carlo analysis to estimate the total return ranking of Time Warner among the S&P 500 Index companies over the performance period. In the case of PSUs granted in 2009, the performance condition is assumed to have...

  • Page 114
    ... date. 2009 Years Ended December 31, 2008 2007 Expected Expected Risk-free Expected volatility...35.2% term to exercise from grant date ...6.11 years rate ...2.5% dividend yield...4.4% 28.7% 5.95 years 3.2% 1.7% 22.3% 5.35 years 4.4% 1.1% The following table summarizes information about stock...

  • Page 115
    ... Stock, Restricted Stock Units and Target Performance Stock Units The following table summarizes information about unvested restricted stock, RSUs and Target PSUs as of December 31, 2009: Number of Shares/Units(a) (thousands) WeightedAverage Grant Date Fair Value(a) Unvested as of December 31, 2008...

  • Page 116
    ... - Defined Benefit Plans (millions) Domestic December 31, 2009 2008 (recast) International December 31, 2009 2008 Change in benefit obligation: Projected benefit obligation, beginning of year ...Service cost ...Interest cost ...Plan participants contribution ...Actuarial (gain)/loss ...Benefits...

  • Page 117
    ...(223) $ 646 $ $ Domestic December 31, 2009 2008 (recast) International December 31, 2009 2008 Fair value of plan assets ...Projected benefit obligation ...Funded status, amount recognized ... $ 2,092 2,501 $ (409) $ $ 1,702 2,347 (645) $ $ 870 911 (41) $ 646 623 $ 23 Amounts recognized in...

  • Page 118
    ... costs above, for which the expense was $38 million in 2009, $35 million in 2008 and $47 million in 2007. Assumptions Weighted-average assumptions used to determine benefit obligations at December 31: 2009 Domestic 2008 (recast) 2007 (recast) 2009 International 2008 2007 Discount rate ...Rate...

  • Page 119
    ... - (Continued) Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: 2009 Domestic 2008 (recast) 2007 (recast) 2009 International 2008 2007 Discount rate ...Expected long-term return on plan assets ...Rate of compensation increase ...(a) 6.09...

  • Page 120
    ... basis as of December 31, 2009 (millions): Fair Value Measurements at December 31, 2009 Quoted Market Prices in Active Significant Significant Other Markets for Unobservable Inputs Observable Inputs Identical Assets (Level 3) (Level 2) (Level 1) Asset Category Total (a) Cash and cash equivalents...

  • Page 121
    ...stock and 913,700 shares of Time Warner common stock in the amount of $28 million (2% of total plan assets) at December 31, 2009 and December 31, 2008, respectively. Expected cash flows After considering the funded status of the Company's defined benefit pension plans, movements in the discount rate...

  • Page 122
    ...assets, end of year...Funded status, amount recognized ...$ Amount recognized in accumulated other comprehensive income ...$ 156 - 156 (25) $ $ $ 176 - 176 (7) December 31, 2009 2008 2007 Net periodic benefit costs...12. RESTRUCTURING COSTS Merger Costs Capitalized as a Cost of Acquisition $13...

  • Page 123
    ... ranged from senior executives to line personnel. Restructuring costs expensed as incurred by segment for the years ended December 31, 2009, 2008 and 2007 are as follows (millions): Years Ended December 31, 2009 2008 2007 (recast) (recast) Networks ...Filmed Entertainment ...Publishing ...Corporate...

  • Page 124
    ... the Networks segment during the year ended December 31, 2008 as a result of changes in estimates of previously established restructuring accruals. Selected Information Selected information relating to accrued restructuring costs is as follows (millions): Employee Terminations Other Exit Costs Total...

  • Page 125
    ... to be released within the next twelve months. The following is a summary of amounts pertaining to Time Warner's use of foreign currency derivatives for the year ended December 31, 2009 (millions): December 31, 2009 Fair Value Hedges Gain (loss) - Effective Portion: Costs of revenues ...Gain...

  • Page 126
    ..."). Additionally, the Company has provided a summary of Operating Income (Loss) by segment. Subscription Year Ended December 31, 2009 Advertising Content Other (millions) Total Revenues Networks ...Filmed Entertainment ...Publishing ...Intersegment eliminations ...Total revenues ... ... $ $ 7,491...

  • Page 127
    ...Turner's interest in a general entertainment network in India. For the year ended December 31, 2008, includes an $18 million noncash impairment of GameTap, an online video game business, as well as a $3 million loss on the sale of GameTap. For the year ended December 31, 2007, includes a $34 million...

  • Page 128
    ...Turner's interest in a general entertainment network in India. For the year ended December 31, 2008, includes an $18 million noncash impairment of GameTap, an online video game business, as well as a $3 million loss on the sale of GameTap. For the year ended December 31, 2007, includes a $34 million...

  • Page 129
    ...- $ 65,730 $ 36,097 17,080 6,778 2,315 51,789 114,059 $ 2009 Years Ended December 31, 2008 2007 (millions) (recast) (recast) Capital Expenditures Networks ...Filmed Entertainment ...Publishing ...Corporate ...Total capital expenditures ... $ 282 187 58 34 561 $ 351 228 90 15 684 $ 347 208...

  • Page 130
    ..., network licensing, artist, franchise and other agreements aggregating $16.589 billion at December 31, 2009, which are payable principally over a ten-year period, as follows (millions): 2010 ...2011-2012 ...2013-2014 ...Thereafter ...$ ...4,137 5,248 3,956 3,248 16,589 Total ...$ The Company also...

  • Page 131
    ... (the minimum was approximately $60.7 million in 2009 and is subject to annual cost of living adjustments); (b) making a minimum amount of capital expenditures each year (an amount approximating 6% of the Parks' annual revenues); (c) offering each year to purchase 5% of the limited partnership units...

  • Page 132
    ...facility would mature 5 years from their respective funding date. Interest will accrue at a rate at least equal to a LIBOR floor of 250 basis points plus a spread of 100 basis points over the applicable margin for a new Six Flags' senior term credit facility, which will close simultaneously with the...

  • Page 133
    ... (the "Supplemental Credit Agreement") between the Company (as lender) and TWC (as borrower) for a two-year senior unsecured supplemental term loan facility (the "Supplemental Credit Facility"), on March 26, 2009, TWC terminated the commitments of Time Warner under the Supplemental Credit Facility...

  • Page 134
    ...the issue of whether the terms of various license agreements between DC Comics and Warner Bros. Entertainment Inc. were at fair market value or constituted "sweetheart deals." The second phase trial was previously scheduled to commence on December 1, 2009, and the parties are awaiting a new date for...

  • Page 135
    ...27, 2007 reconsideration ruling. The Company intends to defend against this lawsuit vigorously. On February 11, 2008, trustees of the Tolkien Trust and the J.R.R. Tolkien 1967 Discretionary Settlement Trust, as well as HarperCollins Publishers, Ltd. and two related publishing entities, sued New Line...

  • Page 136
    ... to CNN America's December 2003 and January 2004 terminations of its contractual relationships with Team Video, under which Team Video had provided electronic newsgathering services in Washington, DC and New York, NY. The National Association of Broadcast Employees and Technicians, under which...

  • Page 137
    ...the licensing of rights to carry cable television programming provided by the Networks segment. Income (expense) resulting from transactions with related parties consists of (millions): Years Ended December 31, 2009 2008 2007 (recast) (recast) Revenues ...$ Costs of revenues ...Selling, general and...

  • Page 138
    ... information with respect to cash (payments) and receipts is as follows (millions): 2009 Years Ended December 31, 2008 2007 (recast) (recast) Cash payments made for interest ...Interest income received ...Cash interest payments, net ...Cash payments made for income taxes ...Income tax refunds...

  • Page 139
    ...2009 December 31, 2008 (recast) Accounts payable ...Accrued expenses ...Participations payable ...Programming costs payable ...Accrued compensation ...Accrued interest ...Accrued income taxes ... ... $ 679 2,518 2,652 736 926 257 129 7,897 $ 749 2,482 2,522 681 923 265 157 7,779 Total accounts...

  • Page 140
    ... terms of the applicable contractual arrangements, may bill the customers for these sales. Unbilled accounts receivable, which primarily relate to the aforementioned distribution of television product, totaled $2.105 billion and $2.283 billion at December 31, 2009 and December 31, 2008, respectively...

  • Page 141
    ... inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline. Management conducted an evaluation of the effectiveness of the Company's system of internal control over financial reporting as of December 31, 2009 based on the framework...

  • Page 142
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), Time Warner's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations...

  • Page 143
    ... 31, 2009 and 2008, and the related consolidated statements of operations, cash flows and equity for each of the three years in the period ended December 31, 2009 of Time Warner and our report dated February 19, 2010 expressed an unqualified opinion thereon. Ernst & Young LLP New York, NY February...

  • Page 144
    ...statements not included herein. Capitalized terms are as defined and described in the consolidated financial statements or elsewhere herein. Certain reclassifications have been made to conform to the 2009 presentation. 2009 Years Ended December 31, 2008 2007 2006 (recast) (recast) (recast) (millions...

  • Page 145
    ... INFORMATION - (Continued) December 31, 2008 2007 2006 (recast) (recast) (recast) (millions, except per share amounts) 2009 2005 (recast) Selected Balance Sheet Information: Cash and equivalents ...$ 4,800 Total assets ...65,730 Debt due within one year ...59 Long-term debt ...15,357 Time...

  • Page 146
    ..., except per share amounts) 2009(a)(b)(d) Total revenues ...Operating income ...Amounts attributable to Time Warner Inc. shareholders: Income from continuing operations ...Discontinued operations, net of tax ...Net income ...Per share information attributable to Time Warner Inc. common shareholders...

  • Page 147
    ...fourth quarter. The per share information attributable to Time Warner Inc. common shareholders reflects the 1-for-3 reverse stock split of the Company's common stock that became effective on March 27, 2009. Per common share amounts for the quarters and full years have each been calculated separately...

  • Page 148
    ... quarter. As a result of the legal and structural separation of Time Warner Cable Inc., the Company has presented the results of operations of its former Cable segment as discontinued operations for all periods. In the fourth quarter of 2008, this resulted in a reduction of revenues, an increase in...

  • Page 149
    ... stock prices from December 31, 2004, plus reinvested dividends and distributions through 2009. In accordance with SEC rules, the Company created the Former Peer Group Index and the New Peer Group Index with which to compare its stock performance because there is not a relevant published industry...

  • Page 150
    ...500 Index New Peer Group Index Company Common Stock New Former Peer Group Peer Group Index Index Value at S&P 500 Index December 31, 2004 ...June 30, 2005 ...December 31, 2005 ...June 30, 2006 ...December 31, 2006 ...June 30, 2007 ...December 31, 2007 ...June 30, 2008 ...December 31, 2008 ...June...

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  • Page 153
    ... of new information, future events or otherwise. Corporate Publications Copies of Time Warner's Annual Report on Form 10-K for the year ended December 31, 2009 (excluding exhibits thereto) are available without charge upon written request to Time Warner Inc., One Time Warner Center, New York, NY...

  • Page 154
    Time Warner Inc. NYSE:TWX www.timewarner.com Corporate Headquarters One Time Warner Center New York, NY 10019-8016 General Information 212-484-8000 Investor Relations 866-INFO-TWX www.timewarner.com/investors [email protected] Media Relations 212-484-6511