Time Magazine 2011 Annual Report Download - page 65

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
Future Film Licensing Obligations
In addition to the purchase obligations previously discussed, the Company has certain future film licensing
obligations, which represent studio movie deal commitments to acquire the right to air movies that will be
released in the future (i.e., after December 31, 2011). These arrangements do not meet the definition of a
purchase obligation since there are neither fixed nor minimum quantities under the arrangements. Because future
film licensing obligations are significant to its business, the Company has summarized these arrangements below.
Given the variability in the terms of these arrangements, significant estimates were involved in the determination
of these obligations, including giving consideration to historical box office performance and studio release
trends. Actual amounts, once known, could differ significantly from these estimates (millions).
Total 2012 2013-2014 2015-2016 Thereafter
Future Film Licensing Obligations ........ $ 4,345 $ 486 $ 1,293 $ 1,463 $ 1,103
Contingent Commitments and Programming Licensing Backlog
The Company has certain contractual arrangements that would require it to make payments or provide
funding if certain circumstances occur. In addition, the Company has contractual arrangements for the licensing
of theatrical and television product for which the telecast period has not yet commenced and for which the
Company has not yet recorded the related revenue. See Note 16, “Commitments and Contingencies,” to the
accompanying consolidated financial statements for further discussion of these items.
Customer Credit Risk
Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet its
agreed upon contractual payment obligations. Credit risk in the Company’s businesses originates from sales of
various products or services and is dispersed among many different counterparties. At December 31, 2011, no
single customer had a receivable balance greater than 5% of total Receivables. The Company’s exposure to
customer credit risk is largely concentrated in the following categories (amounts presented below are net of
reserves and allowances):
• Various retailers for home entertainment product of approximately $982 million;
• Various television network operators for licensed TV and film product of approximately $2.7 billion;
• Various cable system operators, satellite service distributors, telephone companies and other distributors
for the distribution of television programming services of approximately $1.3 billion; and
• Various advertisers and advertising agencies related to advertising services of approximately $1.4
billion.
For additional information regarding Time Warner’s accounting policies relating to customer credit risk,
refer to Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting
Policies,” to the accompanying consolidated financial statements.
MARKET RISK 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, 2011 and 2010 had an outstanding balance of
$19.251 billion and $16.276 billion, respectively, and an estimated fair value of $22.800 billion and $18.545
billion, respectively. Based on Time Warner’s fixed-rate debt obligations outstanding at December 31, 2011, a
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