Time Magazine 2010 Annual Report Download - page 73

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judgments and estimates are involved in evaluating if such amounts will ultimately be fully collected. Each division
maintains a comprehensive approval process prior to issuing credit to third-party customers. On an ongoing basis,
the Company tracks customer exposure based on news reports, ratings agency information and direct dialogue with
customers. Counterparties that are determined to be of a higher risk are evaluated to assess whether the payment
terms previously granted to them should be modified. The Company also monitors payment levels from customers,
and a provision for estimated uncollectible amounts is maintained based on such payment levels, historical
experience, management’s 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. At December 31, 2010 and 2009, total reserves for
uncollectible accounts were approximately $324 million and $367 million, respectively. Bad debt expense
recognized during the years ended December 31, 2010, 2009 and 2008 totaled $42 million, $84 million and
$117 million, respectively. In general, the Company does not require collateral with respect to its trade receivable
arrangements. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on
payment histories, current credit ratings and other factors.
Investments
Investments in companies in which Time Warner has significant influence, but less than a controlling voting
interest, are accounted for using the equity method. Significant influence is generally presumed to exist when Time
Warner owns between 20% and 50% of the investee, holds substantial management rights or holds an interest of less
than 20%, but the investee is a limited liability partnership or limited liability corporation that is treated as a flow-
through entity.
Under the equity method of accounting, only Time Warner’s investment in and amounts due to and from the
equity investee are included in the consolidated balance sheet; only Time Warner’s share of the investee’s earnings
(losses) is included in the consolidated statement of operations; and only the dividends, cash distributions, loans or
other cash received from the investee, additional cash investments, loan repayments or other cash paid to the
investee are included in the consolidated statement of cash flows. Additionally, the carrying value of investments
accounted for using the equity method of accounting is adjusted downward to reflect any other-than-temporary
declines in value (see “Asset Impairments” below).
Investments in companies in which Time Warner does not have a controlling interest or over which it is unable
to exert significant influence are accounted for at market value if the investments are publicly traded. 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 tax, in the consolidated statement of
shareholders’ equity as a component of Accumulated other comprehensive income, net, until the investment is
sold or considered impaired (see “Asset Impairments” below), at which time the realized gain or loss is included in
Other income, net. Dividends and other distributions of earnings from both market-value investments and
investments accounted for at cost are included in Other income, net, when declared. For more information, see
Note 4.
Consolidation
Time Warner consolidates all entities in which it has a controlling voting interest and all VIEs in which the
Company is deemed to be the primary beneficiary. An entity is generally a VIE if it meets any of the following
criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial
support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations
or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of
the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are
conducted on behalf of the investor with disproportionately few voting rights. Time Warner periodically makes
judgments in determining whether entities in which it invests are VIEs and, each reporting period, the Company
assesses whether it is the primary beneficiary in any of its VIEs.
61
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)