Time Magazine 2011 Annual Report Download - page 67

Download and view the complete annual report

Please find page 67 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)
Equity Risk
The Company is exposed to market risk as it relates to changes in the market value of its investments. The
Company invests in equity instruments of public and private companies for operational and strategic business
purposes. These securities are subject to significant fluctuations in fair market value due to the volatility of the
stock markets and the industries in which the companies operate. At December 31, 2011 and 2010, these
securities, which are classified in Investments, including available-for-sale securities in the accompanying
Consolidated Balance Sheet, included $939 million and $883 million, respectively, of investments accounted for
using the equity method of accounting, $204 million and $313 million, respectively, of cost-method investments,
primarily relating to equity interests in privately held businesses, $591 million and $547 million, respectively, of
investments related to the Company’s deferred compensation program and $86 million and $53 million,
respectively, of investments in available-for-sale securities.
The potential loss in fair value resulting from a 10% adverse change in the prices of the Company’s equity-
method investments, cost-method investments and available-for-sale securities would be approximately $125
million. While Time Warner has recognized all declines that are believed to be other-than-temporary, it is
reasonably possible that individual investments in the Company’s portfolio may experience an other-than-
temporary decline in value in the future if the underlying investee company experiences poor operating results or
the U.S. or certain foreign equity markets experience declines in value. In the fourth quarter of 2011, the
Company recorded a $163 million noncash impairment related to its investment in CME. See Note 4 to the
accompanying consolidated financial statements for additional discussion.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP, which
requires management to make estimates, judgments and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Management considers an accounting policy to be
critical if it is important to the Company’s financial condition and results of operations, and if it requires
significant judgment and estimates on the part of management in its application. The development and selection
of these critical accounting policies have been determined by the management of Time Warner and the related
disclosures have been reviewed with the Audit and Finance Committee of the Board of Directors of the
Company. The Company considers policies relating to the following matters to be critical accounting policies:
• Impairment of Goodwill and Intangible Assets;
• Multiple-Element Transactions;
• Income Taxes;
• Film Cost Recognition, Participations and Residuals and Impairments;
• Gross versus Net Revenue Recognition; and
• Sales Returns and Pricing Rebates.
For a discussion of each of the Company’s critical accounting policies, including information and analysis of
estimates and assumptions involved in their application, and other significant accounting policies, see Note 1 to
the accompanying consolidated financial statements.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This 2011 Annual Report to Stockholders contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not
relate strictly to historical or current facts. Forward-looking statements often include words such as “anticipates,”
“estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in
connection with discussions of future operating or financial performance. Examples of forward-looking
statements in this 2011 Annual Report to Stockholders include, but are not limited to, statements regarding (i) the
adequacy of the Company’s liquidity to meet its needs for the foreseeable future, (ii) the Company’s international
53