Time Magazine 2011 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2011 Time Magazine annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
25 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair
value of the fixed-rate debt by approximately $520 million. Such potential increases or decreases are based on
certain simplifying assumptions, including a constant level of fixed-rate debt and an immediate, across-the-board
increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the
period.
At December 31, 2011 and 2010, the Company had a cash balance of $3.476 billion and $3.663 billion,
respectively, which is primarily invested in variable-rate interest-earning assets. Based on Time Warner’s
variable-rate interest-earning assets outstanding at December 31, 2011, a 25 basis point increase or decrease in
the level of interest rates would have an insignificant impact on pretax income.
Foreign Currency Risk
Time Warner principally uses foreign exchange contracts to hedge the risk related to unremitted or
forecasted royalties and license fees owed to Time Warner domestic companies for the sale or anticipated sale of
U.S. copyrighted products abroad because such amounts may be adversely affected by changes in foreign
currency exchange rates. Similarly, the Company enters into foreign exchange contracts to hedge certain film
production costs denominated in foreign currencies as well as other transactions, assets and liabilities
denominated in foreign currencies. As part of its overall strategy to manage the level of exposure to the risk of
foreign currency exchange rate fluctuations, Time Warner hedges a portion of its foreign currency exposures
anticipated over a rolling twelve-month period. The hedging period for royalties and license fees covers revenues
expected to be recognized during the calendar year; however, there is often a lag between the time that revenue is
recognized and the transfer of foreign-denominated cash to U.S. dollars. To hedge this exposure, Time Warner
principally uses foreign exchange contracts that generally have maturities of three months to eighteen months
and provide continuing coverage throughout the hedging period. At December 31, 2011 and 2010, Time Warner
had contracts for the sale of $3.543 billion and $2.760 billion, respectively, and the purchase of $2.580 billion
and $2.206 billion, respectively, of foreign currencies at fixed rates. The following provides a summary of
foreign currency contracts by currency (millions):
December 31, 2011 December 31, 2010
Sales Purchases Sales Purchases
British pound .................................. $ 915 $ 594 $ 612 $ 646
Euro ......................................... 525 434 427 302
Canadian dollar ................................ 771 548 634 416
Australian dollar ................................ 676 474 587 534
Other ........................................ 656 530 500 308
Total ......................................... $ 3,543 $ 2,580 $ 2,760 $ 2,206
Based on the foreign exchange contracts outstanding at December 31, 2011, a 10% devaluation of the
U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at December 31,
2011 would result in a decrease of approximately $95 million in the value of such contracts. Conversely, a 10%
appreciation of the U.S. dollar would result in an increase of approximately $95 million in the value of such
contracts. For a hedge of forecasted royalty or license fees denominated in a foreign currency, consistent with the
nature of the economic hedge provided by such foreign exchange contracts, such unrealized gains or losses
largely would be offset by corresponding decreases or increases, respectively, in the dollar value of future foreign
currency royalty and license fee payments that would be received in cash within the hedging period from the sale
of U.S. copyrighted products abroad. See Note 7 to the accompanying consolidated financial statements for
additional discussion.
52