Time Magazine 2011 Annual Report Download - page 97

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Euro, Australian Dollar and Canadian Dollar. Time Warner uses foreign exchange contracts that generally have
maturities of three to 18 months to hedge various foreign exchange exposures, including the following:
(i) variability in foreign-currency-denominated cash flows, such as the hedges of unremitted or forecasted royalty
and license fees owed to Time Warner domestic companies for the sale or anticipated sale of U.S. copyrighted
products abroad or cash flows for certain film production costs denominated in a foreign currency (i.e., cash flow
hedges) and (ii) currency risk associated with foreign-currency-denominated operating assets and liabilities (i.e.,
fair value hedges). For these qualifying hedge relationships, the Company excludes the impact of forward points
from its assessment of hedge effectiveness. As a result, changes in the fair value of forward points are recorded
in Other loss, net in the Consolidated Statement of Operations each quarter.
The Company also enters into derivative contracts that economically hedge certain of its foreign currency
risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. These
economic hedges are used primarily to offset the change in certain foreign currency denominated long-term
receivables and certain foreign-currency-denominated debt due to changes in the underlying foreign exchange
rates.
Gains and losses from hedging activities recognized in the Consolidated Statement of Operations, including
hedge ineffectiveness, were not material for the years ended December 31, 2011, 2010 and 2009. In addition,
such gains and losses were largely offset by corresponding economic gains or losses from the respective
transactions that were hedged.
The following is a summary of amounts recorded in the Consolidated Balance Sheet pertaining to Time
Warner’s use of foreign currency derivatives at December 31, 2011 and December 31, 2010 (millions):
December 31,
2011
December 31,
2010
Qualifying Hedges
Assets ...................................................... $ 105 $ 86
Liabilities ................................................... (91) (79)
Economic Hedges
Assets ...................................................... $ 30 $ 17
Liabilities ................................................... (16) (27)
The Company monitors its positions with, and the credit quality of, the financial institutions that are party to
its financial transactions. Additionally, netting provisions are included in existing agreements in situations where
the Company executes multiple contracts with the same counterparty. As a result, net assets or liabilities resulting
from foreign exchange derivatives subject to these netting agreements are classified within Prepaid expenses and
other current assets or Accounts payable and accrued liabilities in the Company’s Consolidated Balance Sheet.
At December 31, 2011 and December 31, 2010, $19 million of gains and $21 million of losses, respectively,
related to cash flow hedges are recorded in Accumulated other comprehensive loss, net and are expected to be
recognized in earnings at the same time the hedged items affect earnings. Included in Accumulated other
comprehensive loss, net are deferred net gains of less than $1 million and $17 million at December 31, 2011 and
December 31, 2010, respectively, related to hedges of cash flows associated with films that are not expected to be
released within the next twelve months.
83