Time Magazine 2010 Annual Report Download - page 83

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credits are recorded based on the amount of benefit the Company believes is “more likely than not” of being earned. The
majority of such research and development benefits have been recorded to shareholders’ equity as they resulted from
stock option deductions for which such amounts are recorded as an increase to additional paid-in-capital. Tax credits
received for the production of a film or program are offset against the cost of inventory capitalized.
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 received, and certain financing transactions.
Significant judgment is required in assessing and estimating the tax consequences of these transactions. The
Company prepares and files tax returns based on its interpretation of tax laws and regulations. In the normal course
of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations
may result in future tax and interest assessments by these taxing authorities. In determining the Company’s tax
provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such
positions are determined to be “more likely than not” of being sustained upon examination based on their technical
merits. There is considerable judgment involved in determining whether positions taken on the Company’s tax
returns are “more likely than not” of being sustained.
The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and
settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.
The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of
income tax expense. For further information, see Note 9.
Discontinued Operations
In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued
operation, the Company makes a determination of whether the group of assets being disposed of comprises a
component of the entity; that is, whether it has historic operations and cash flows that can be clearly distinguished
(both operationally and for financial reporting purposes). The Company also determines whether the cash flows
associated with the group of assets have been significantly (or will be significantly) eliminated from the ongoing
operations of the Company as a result of the disposal transaction and whether the Company has no significant
continuing involvement in the operations of the group of assets after the disposal transaction. If these determinations
can be made affirmatively, the results of operations of the group of assets being disposed of (as well as any gain or
loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results of
the Company in the consolidated financial statements. See Note 3 for a summary of discontinued operations.
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, acquired film and television libraries and other copyrighted products and
tradenames. Certain intangible assets are deemed to have finite lives and, accordingly, are amortized over their
estimated useful lives, while others are deemed to be indefinite-lived and therefore not amortized. Goodwill and
indefinite-lived intangible assets, primarily certain tradenames, are tested annually for impairment during the fourth
quarter, or earlier upon the occurrence of certain events or substantive changes in circumstances.
As more fully described in Note 1, in connection with the performance of its annual impairment analyses in
2010 and 2009, the Company did not record any asset impairments. In connection with the performance of its
annual impairment analyses in 2008, the Company recorded asset impairments of $7.139 billion, which was
reflective of the overall decline in the fair values of goodwill and other intangible assets. The asset impairments
recorded reduced the carrying values of goodwill at the Publishing segment by $6.007 billion and the carrying
values of certain tradenames at the Publishing segment by $1.132 billion, including $614 million of finite-lived
intangible assets.
71
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)