Time Magazine 2011 Annual Report Download - page 101

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Film Tax-Advantaged Arrangements
The Company’s filmed entertainment business, on occasion, enters into tax-advantaged transactions with
foreign investors that are thought to generate tax benefits for such investors. The Company believes that its tax
profile is not affected by its participation in these arrangements in any jurisdiction. The foreign investors provide
consideration to the Company for entering into these arrangements.
Although these transactions often differ in form, they generally involve circumstances in which the Company
enters into a sale-leaseback arrangement involving its film product with third-party SPEs owned by the foreign
investors. The Company maintains its rights and control over the use of its film product. The Company does not
have a controlling financial interest in, and accordingly does not consolidate, these SPEs. In addition, the
Company does not guarantee and is not otherwise responsible for the equity and debt in these SPEs and does not
participate in the profits or losses of these SPEs. The Company accounts for these arrangements based on their
substance. That is, the Company records the costs of producing the films as an asset and records the net benefit
received from the investors as a reduction of film costs resulting in lower film cost amortization for the films
involved in the arrangement. At December 31, 2011, such SPEs were capitalized with approximately $3.1 billion
of debt and equity from the third-party investors. These transactions resulted in reductions of film cost
amortization totaling $34 million, $7 million and $14 million during the years ended December 31, 2011, 2010
and 2009, respectively.
9. INCOME TAXES
Domestic and foreign income before income taxes and discontinued operations are as follows (millions):
Year Ended December 31,
2011 2010 2009
Domestic ............................................... $ 4,285 $ 3,575 $ 3,235
Foreign ................................................. 81 344 2
Total ................................................... $ 4,366 $ 3,919 $ 3,237
Current and Deferred income taxes (tax benefits) provided on Income from continuing operations are as
follows (millions):
Year Ended December 31,
2011 2010 2009
Federal:
Current ............................................... $ 922 $ 764 $ 413
Deferred .............................................. 178 84 467
Foreign:
Current(a) .............................................. 364 375 342
Deferred .............................................. (52) (23) (84)
State and Local:
Current ............................................... 63 120 51
Deferred .............................................. 9 28 (36)
Total ................................................. $ 1,484 $ 1,348 $ 1,153
(a) Includes foreign withholding taxes of $244 million in 2011, $226 million in 2010 and $216 million in 2009.
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