Time Magazine 2012 Annual Report Download - page 77

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their
obligations to absorb the expected losses of the entity or receive the expected returns of the entity and
substantially all of the entity’s activities involve or are conducted on behalf of the investor with
disproportionately few voting rights. Time Warner periodically makes judgments in determining whether entities
in which it invests are VIEs and, each reporting period, the Company assesses whether it is the primary
beneficiary in any of its VIEs. Entities determined to be VIEs primarily consist of the Company’s investments in
HBO Asia, HBO South Asia and HBO Latin America Group (“HBO LAG”) because the Company’s ownership
and voting rights in these entities are disproportionate. These entities operate multi-channel premium pay and
basic tier television services and are accounted for using the equity method. See Note 4 for additional
information.
Derivative Instruments
The Company uses derivative instruments principally to manage the risk associated with movements in
foreign currency exchange rates and recognizes all derivative instruments on the Consolidated Balance Sheet at
fair value. Changes in fair value of derivative instruments that qualify for hedge accounting will either be offset
against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or
recognized in shareholders’ equity as a component of Accumulated other comprehensive loss, net, until the
hedged item is recognized in earnings, depending on whether the derivative instrument is being used to hedge
changes in fair value or cash flows. For qualifying hedge relationships, the Company excludes the impact of
forward points from its assessment of hedge effectiveness. The ineffective portion of a derivative instrument’s
change in fair value is immediately recognized in earnings. For those derivative instruments that do not qualify
for hedge accounting, changes in fair value are recognized immediately in earnings. See Note 7 for additional
information regarding derivative instruments held by the Company and risk management strategies.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions to property, plant and equipment generally
include material, labor and overhead. Time Warner also capitalizes certain costs associated with coding, software
configuration, upgrades and enhancements incurred for the development of internal use software. Depreciation is
recorded on a straight-line basis over estimated useful lives. Upon the occurrence of certain events or
circumstances, Time Warner evaluates the depreciation periods of property, plant and equipment to determine
whether a revision to its estimates of useful lives is warranted. Property, plant and equipment, including capital
leases, consist of (millions):
December 31, Estimated
Useful Lives2012 2011
Land(a) ............................................ $ 505 $ 502
Buildings and improvements .......................... 2,851 2,676 7 to 30 years
Capitalized software costs ............................. 1,869 1,770 3 to 7 years
Furniture, fixtures and other equipment .................. 3,541 3,518 3 to 10 years
8,766 8,466
Less accumulated depreciation ......................... (4,824) (4,503)
Total ............................................. $ 3,942 $ 3,963
(a) Land is not depreciated.
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