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ANNUAL REPORT 2013

Table of contents

  • Page 1
    ANNUAL REPORT 2013

  • Page 2
    WI NN E R OF 1 0 2 014 AC AD E M Y AWARDS, IN C LU D IN G B E ST D I R E CTO R, ALF ON SO C UA RÃ" N , F OR G R AV IT Y

  • Page 3
    Several years ago we set out a strategy that refocused Time Warner as the world's leading storytelling company, with an emphasis on video and especially television. Put simply, our goals are to be the preferred home for the best talent and ideas, to create engaging and valuable content that we ...

  • Page 4
    All of our businesses are the LEADERS IN THEIR INDUSTRIES and the home for THE BEST STORYTELLING INVESTED OVER $5 BILLION IN TELE VISION NE T WORKS PROGR AMMING IN 2013 2 TIME WARNER 2013 ANNUAL REPORT

  • Page 5
    ... FOR THE MOST GOLDEN GLOBE AWARDS IN 2013 ALMOST HALF OF U.S. ADULTS EACH MONTH CABLE'S #1 AD-SUPPORTED NETWORK IN PRIMETIME AMONG ADULTS 18-49* RANKED #1 ON AD-SUPPORTED CABLE AMONG ADULTS 18-34 IN TOTAL DAY FOR THE NINTH YEAR IN A ROW* *Ratings information for year ended December 31, 2013. 3

  • Page 6
    ... 2013, Warner Bros.' digital sites, led by .com, reached more than added live In 2013, Turner main s for all of its streaming app of g with a trove networks alon to le b ntent availa on-demand co N O I L L I M 2 8 hol u.s. house ds 24 MILLION unique visitors 4 TIME WARNER 2013 ANNUAL REPORT

  • Page 7
    ... MILLION leading the industry average unique visitors* The HBO digital footprint in 2013 reached more than connections 75 MILLION across HBO.com, HBO mobile apps, Twitter, Facebook, and YouTube UltraViolet, supported by Warner Bros., gives consumers easy access to digital copies of their movie...

  • Page 8
    ..., INDIA DALAI LAMA AND CHRISTIANE AMANPOUR, CNN 150+ CHANNELS in 36 LANGUAGES in more than 200 COUNTRIES worldwide CNN is a MENTIRA PERFECTAS, COLUMBIA (NIP/TUCK) LEADING global news provider on television, online, and mobile HBO ASIA ORIGINAL SERIES SERANGOON ROAD OVER $3 BILLION in revenue 127...

  • Page 9
    ... AND BELOVED STORIES GOSSIP GIRL, MEXICO In 2013, Warner Bros.' international TV business generated revenue approaching $1.5 BILLION We've increased local and international television production through KOKOWÄÄH 2, GERMANY INVESTMENTS AND ACQUISITIONS In 2013, Warner Bros. films GROSSED OVER...

  • Page 10
    ...TOTAL SHAREHOLDER RETURN 8% GROWTH 128.2% 282.3% 32.4% 56.8% Thme Warner (1-YR, 3-YR, 5-YR) 1 S&P 500 (1-YR, 3-YR, 5-YR) See page 124 for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and other information. 8 TIME WARNER 2013 ANNUAL REPORT

  • Page 11
    OVER THE PAST FIVE YEARS, OUR ADJUSTED OPERATING INCOME 1 GREW 57% AND OUR ADJUSTED EARNINGS PER SHARE IS UP 1 OVER 165% CUMULATIVELY 9

  • Page 12
    WE ALL SHARE A DEDICATION TO LIGHT UP THE WORLD WITH THE BEST STORYTELLING ACROSS TECHNOLOGICAL FRONTIERS AND GEOGRAPHIC BOUNDARIES. 10 TIME WARNER 2013 ANNUAL REPORT

  • Page 13
    ...to set new standards - exemplified by Warner Bros.' 2014 Academy Award-winning films Gravity, The Great Gatsby, and Her. What all these films have in common is not only pioneering use of (and, in the case of Her, exploration of) technology, but also a powerful narrative core that audiences connected...

  • Page 14
    ...about. This year we will CNN, and Cartoon Network and Warner SHAREHOLDERS, introduce such promising shows as The Bros.' TV Studio. Among premium Leftovers, from Lost co-creator Damon WE CONTINUE television and subscription videoTO AGGRESSIVELY Lindelof, on HBO and produced by on-demand services, HBO...

  • Page 15
    ...'s suite of apps that now offer live streaming as well as rich on-demand libraries, popular online brands like TMZ and Turner's Bleacher Report, and video games such as Batman: Arkham Origins and our LEGO-branded franchise. We're also pleased with the progress we've made in finding new ways to reach...

  • Page 16
    ..., Inc. Time Warner Senior Corporate Executives Jeffrey L. Bewkes Chairman of the Board and CEO Howard M. Averill Executive Vice President and Chief Financial Officer Paul T. Cappuccio Executive Vice President and General Counsel Gary L. Ginsberg Executive Vice President, Corporate Marketing and...

  • Page 17
    ...Financial Statements ...Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Selected Financial Information ...Quarterly Financial Information ...Comparison of Cumulative Total Returns ...2013 Highlights - Reconciliations and...

  • Page 18
    [THIS PAGE INTENTIONALLY LEFT BLANK] 2

  • Page 19
    ...) under long-term agreements that provide for annual service fee increases and have fees generally related to the number of the affiliate's subscribers and from the sale of advertising. Turner's advertising revenues consist of consumer advertising, which is sold primarily on a national basis in the...

  • Page 20
    ...'s digital properties collectively averaged approximately 77 million average monthly domestic unique visitors (based on data sourced from comScore Media Metrix reports that do not include viewing on mobile devices) during the quarter ended December 31, 2013. TBS is television's "very funny" network...

  • Page 21
    ....com, on CNN and on the Team Stream app, as well as in Bleacher Report's daily sport- and team-specific email newsletters. Cartoon Network offers original and syndicated animated and live-action series and motion pictures for youth and families. For the 2013-2014 season, Cartoon Network's original...

  • Page 22
    ... WB, an English language entertainment network in India that features movies and television programming that is primarily licensed from Warner Bros. Entertainment Inc. In Korea, Turner operates Cartoon Network Korea through a joint venture. CNN International, an English language news network, was...

  • Page 23
    ...through CNN-IBN, a co-branded, 24-hour, English language general news and current affairs network in India. Home Box Office Home Box Office's businesses consist principally of premium pay television services domestically and premium pay and basic tier television services internationally. The premium...

  • Page 24
    ... a number of factors, including competition and the timing of vacation and holiday periods, in selecting release dates for its feature films. During 2013, Warner Bros. released 18 original feature films for theatrical exhibition in the U.S., including The Conjuring, Gravity, The Great Gatsby, The...

  • Page 25
    ...international markets, Warner Bros. generally releases its films for sale in EST (e.g., download to own) approximately two weeks in advance of their release on DVD, Blu-ray Disc and VOD. Warner Bros. generally releases newly produced films on DVD and Blu-ray Disc to by-mail and kiosk rental services...

  • Page 26
    ... releases of filmed entertainment product during 2013 included Argo, The Conjuring, The Great Gatsby, The Hangover Part III, The Hobbit: An Unexpected Journey, Man of Steel, Pacific Rim and We're the Millers. The DVDs and Blu-ray Discs for new titles in the U.S. include an UltraViolet digital copy...

  • Page 27
    ...publishes bi-monthly issues of the magazine, as well as special-edition books and magazines. In addition, DC Entertainment is a leader in digital publishing, with more than 14,000 comic books and graphic novels available on multiple distribution platforms. Time Inc. Time Warner's publishing business...

  • Page 28
    ... mail solicitation, subscription sales agents, Time Inc.'s owned websites, marketing agreements with other companies, insert cards in Time Inc.'s magazines and other publications, email solicitations and online advertising. Additionally, digital-only subscriptions and single-copy digital issues...

  • Page 29
    ... and Eastern European regional VOD service. The CW broadcast network ("The CW") is a 50-50 joint venture between Warner Bros. and CBS Corporation. The CW's 2013-2014 schedule includes, among other things, a 5-night, 10-hour primetime lineup of advertising-supported original programming such as...

  • Page 30
    ... all other sources of entertainment, news and other information, including feature films, television, premium pay television services, SVOD services, the Internet, home video products, videogames, social networking, print media, pirated content, live sports and other events and radio broadcasts, for...

  • Page 31
    ...and content sales as well as the distribution potential of the Company's premium pay and basic tier television services. A decline in the popularity of the Company's magazines can negatively affect subscription and advertising revenues. The failure to renew affiliate agreements on favorable terms or...

  • Page 32
    ... to increase or economic conditions worsen, subscribers may cancel their multichannel video service subscriptions, reduce the number of services they subscribe to or elect to subscribe to a lower-priced tier or offering that may not include all of the Company's cable networks or premium pay or basic...

  • Page 33
    ... in advertising market conditions or other factors that adversely impact advertising could cause the Company's revenues and operating results to decline. The Company derives substantial revenues from the sale of advertising on its cable networks, syndicated programming, magazines and websites...

  • Page 34
    ...by a decline in audience ratings, the number of unique visitors at the Company's websites or in circulation or magazine readership for the Company's magazines. If audience levels decline significantly, the Company's cable networks generally will be required to provide additional advertising units to...

  • Page 35
    ... Corporation for Assigned Names and Numbers plans to expand the Internet and has accepted over 1,900 applications for new generic top level domains (i.e., the names that appear to the right of the period in domain names, such as .com, .net and .org), which could significantly change the structure...

  • Page 36
    ...'s or its vendors' information systems and networks as a result of computer viruses, misappropriation of data or other malfeasance, natural disasters (including extreme weather), accidental releases of information or other similar events, may disrupt the Company's businesses, damage its reputation...

  • Page 37
    ...Company to incur additional costs or liabilities or disrupt its business practices. The Company's businesses are subject to a variety of U.S. and international laws and regulations. The Company could incur substantial costs to comply with new laws or regulations or changes in interpretations of laws...

  • Page 38
    ... shifts by advertisers from print to digital and weak domestic and global economic conditions, which have also adversely affected its newsstand revenues. For the years ended December 31, 2013, 2012 and 2011, the Company's advertising revenues at its publishing business declined 0.6% (3.3% excluding...

  • Page 39
    ... in operating expenses caused by rising raw material and energy costs. If paper prices increase significantly or the Company experiences significant supply channel disruptions, the Company's magazine publishing business, financial condition and results of operations could be adversely affected. 23

  • Page 40
    .... Among the Company's brands are TNT, TBS, CNN, HBO, Cinemax, Warner Bros., New Line Cinema, People, Sports Illustrated and Time. During the year ended December 31, 2013, the Company generated Revenues of $29.795 billion (up 4% from $28.729 billion in 2012), Operating Income of $6.605 billion (up 12...

  • Page 41
    ... by international affiliates of country-specific HBO and Cinemax premium pay and basic tier television services to their local subscribers. Additional sources of revenues for Home Box Office are the sale of its original programming, including Game of Thrones, True Blood and Boardwalk Empire, via...

  • Page 42
    ... the sale of advertising, magazine subscriptions and newsstand sales. The Time Inc. segment is experiencing declines in its print advertising and newsstand sales as a result of market conditions in the magazine publishing industry. During the third quarter of 2013, Time Inc. appointed a new chief...

  • Page 43
    ... impairment reviews of Time Inc.'s goodwill during 2014 for the periods prior to the Time Separation. The new long-range plan prepared by Time Inc.'s senior management served as the basis for the discounted cash flow analysis used in the 2013 annual impairment review. If market conditions worsen as...

  • Page 44
    ... premium pay and basic tier television services serving over 15 countries in Asia, including India. As a result of this acquisition, Home Box Office now owns 100% of HBO Asia and began consolidating its results of operations and financial condition effective September 30, 2013. For the year ended...

  • Page 45
    ... and $7 million at Corporate related to certain internally developed software. During the year ended December 31, 2012, the Company recognized $174 million of charges at the Turner segment in connection the shutdown of Turner's general entertainment network, Imagine, in India and its TNT television...

  • Page 46
    ... and $14 million for the years ended December 31, 2013, 2012 and 2011, respectively. External costs related to mergers, acquisitions or dispositions for the year ended December 31, 2013 were primarily related to the pending separation of Time Inc. from Time Warner. External costs related to mergers...

  • Page 47
    ...of Time Warner Cable Inc. For the years ended December 31, 2013, 2012 and 2011, the Company recognized other income of $10 million, $9 million and $4 million, respectively, related to the expiration, exercise and net change in the estimated fair value of Time Warner equity awards held by Time Warner...

  • Page 48
    ... Home Box Office segment and Corporate. The decrease for the year ended December 31, 2012 primarily related to declines at the Time Inc., Home Box Office and Turner segments, partly offset by increases at the Warner Bros. segment and Corporate. Included in Costs of revenues and Selling, general and...

  • Page 49
    ...are as follows (millions): Year Ended December 31, 2013 2012 2011 Turner ...Home Box Office ...Warner Bros...Time Inc...Corporate ...Total restructuring and severance costs ... $ 93 39 49 63 2 $ 52 15 23 27 2 $ 37 15 41 18 2 $ 246 $ 119 $ 113 The total number of employees terminated across...

  • Page 50
    ...years ended December 31, 2013, 2012 and 2011, respectively. Basic and Diluted net income per common share attributable to Time Warner Inc. common shareholders were $3.99 and $3.92, respectively, for the year ended December 31, 2013, $3.05 and $3.00, respectively, for the year ended December 31, 2012...

  • Page 51
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) Business Segment Results Turner. Revenues and Operating Income of the Turner segment for the years ended December 31, 2013, 2012 and 2011 are as follows (millions): Year Ended ...

  • Page 52
    ...costs and lower Gains on operating assets. 2012 vs. 2011 The increase in Subscription revenues for the year ended December 31, 2012 was primarily due to an increase in domestic subscription revenues of $213 million driven largely by higher domestic rates and an increase in international subscription...

  • Page 53
    ... and Selling, general and administrative expenses exclude depreciation. The components of Costs of revenues for the Home Box Office segment are as follows (millions): Year Ended December 31, 2013 2012 2011 % Change 2013 vs. 2012 2012 vs. 2011 Programming costs: Acquired films and syndicated series...

  • Page 54
    ... by lower acquired films and syndicated series programming costs. For the year ended December 31, 2012, Selling, general and administrative expenses decreased primarily due to lower marketing expenses in 2012 as compared to 2011, which included an HBO GO national marketing campaign. The increase in...

  • Page 55
    ... FINANCIAL CONDITION - (Continued) Warner Bros. Revenues and Operating Income of the Warner Bros. segment for the years ended December 31, 2013, 2012 and 2011 are as follows (millions): Year Ended December 31, 2013 2012 2011 % Change 2013 vs. 2012 2012 vs. 2011 Revenues: Subscription ...Advertising...

  • Page 56
    ... FINANCIAL CONDITION - (Continued) The components of Costs of revenues for the Warner Bros. segment are as follows (millions): Year Ended December 31, 2013 2012 2011 % Change 2013 vs. 2012 2012 vs. 2011 Film and television production costs . . Print and advertising costs ...Other costs, including...

  • Page 57
    ... off-network availability of The Big Bang Theory in 2011. The increase in television product revenues from home video and electronic delivery for the year ended December 31, 2012 was primarily related to higher electronic delivery revenues reflecting new SVOD agreements and higher EST sales. The...

  • Page 58
    .... 2013 vs. 2012 For the year ended December 31, 2013, Subscription revenues decreased primarily due to lower newsstand revenues of $58 million and lower domestic subscription revenues of $25 million, both of which were mainly due to market conditions in the magazine publishing industry. Included...

  • Page 59
    ... the $36 million pretax loss on the sale of the QSP Business. 2012 vs. 2011 For the year ended December 31, 2012, Subscription revenues decreased primarily due to lower newsstand sales, mainly as a result of market conditions in the magazine publishing industry as well as the economic environment in...

  • Page 60
    ... offset by higher editorial costs associated with investments in websites and tablet editions of magazines. For the year ended December 31, 2012, Selling, general and administrative expenses decreased primarily due to $65 million in lower costs as a result of the sale of the QSP Business as well as...

  • Page 61
    ... credit facilities and commercial paper program and access to capital markets. Time Warner's unused committed capacity at December 31, 2013 was $6.883 billion, which included $1.862 billion of Cash and equivalents. Current Financial Condition At December 31, 2013, Time Warner had net debt of...

  • Page 62
    ... negotiated transactions. The size and timing of these purchases are based on a number of factors, including price and business and market conditions. From January 1, 2013 through December 31, 2013, the Company repurchased 60 million shares of common stock for $3.700 billion pursuant to trading...

  • Page 63
    ... Details of Cash used by financing activities are as follows (millions): Year Ended December 31, 2013 2012 2011 Borrowings ...Debt repayments ...Proceeds from the exercise of stock options ...Excess tax benefit from equity instruments ...Principal payments on capital leases ...Repurchases of common...

  • Page 64
    ... 31, 2012, the Company issued approximately 35 million shares of common stock and received $1.107 billion in connection with the exercise of stock options. Outstanding Debt and Other Financing Arrangements Outstanding Debt and Committed Financial Capacity At December 31, 2013, Time Warner had total...

  • Page 65
    ... on an unsecured basis by Historic TW Inc., Home Box Office and Turner (other than $2 billion of debt publicly issued by Time Warner in 2006, which is not guaranteed by Home Box Office). See Note 8, "Long-Term Debt and Other Financing Arrangements," to the accompanying consolidated financial...

  • Page 66
    ... film's box office receipts (with license fees generally capped at specified amounts), or a combination of both. The amounts included in the table represent obligations for television series and films that had been released theatrically as of December 31, 2013 and are calculated using the actual or...

  • Page 67
    ... 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, 2013, no single customer had a receivable balance greater than 5% of...

  • Page 68
    ... 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, 2013 and 2012 had an outstanding balance...

  • Page 69
    ... 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, 2013 and 2012, Time Warner had contracts for the sale and the purchase of foreign currencies at fixed rates as...

  • Page 70
    ... first quarter of 2014 in connection with the sale of the Company's office space in Time Warner Center, (v) the Company's expectation that the soft market conditions that have adversely affected the Time Inc. segment's Subscription and Advertising revenues will continue, (vi) charges expected to be...

  • Page 71
    ..., license and/or sell Time Warner's content; competitive pressures, including as a result of audience fragmentation and changes in technology; the Company's ability to deal effectively with economic slowdowns or other economic or market difficulties; changes in advertising market conditions or...

  • Page 72
    ... Common stock, $0.01 par value, 1.652 billion and 1.652 billion shares issued and 895 million and 932 million shares outstanding ...Paid-in-capital ...Treasury stock, at cost (757 million and 720 million shares) ...Accumulated other comprehensive loss, net ...Accumulated deficit ...Total Time Warner...

  • Page 73
    TIME WARNER INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, (millions, except per share amounts) 2013 2012 2011 Revenues: Subscription ...Advertising ...Content ...Other ...Total revenues ...Costs of revenues ...Selling, general and administrative ...Amortization of intangible ...

  • Page 74
    TIME WARNER INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, (millions) 2013 2012 2011 Net income ...Other comprehensive income, net of tax: Foreign currency translation: Unrealized gains (losses) occurring during the period ...Less Reclassification adjustment for (gains)...

  • Page 75
    TIME WARNER INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, (millions) 2013 2012 2011 OPERATIONS Net income ...Less Discontinued operations, net of tax ...Net income from continuing operations ...Adjustments for noncash and nonoperating items: Depreciation and amortization ......

  • Page 76
    ..., 2012 ...Net income ...Other comprehensive income ...Cash dividends ...Common stock repurchases ...Noncontrolling interests of acquired businesses ...Amounts related primarily to stock options and restricted stock(b) ...BALANCE AT DECEMBER 31, 2013 ...(a) (b) $16 - - - - - 1 $17 17 17 $157,142...

  • Page 77
    ... networks, film and TV entertainment and publishing. Time Warner classifies its operations into four reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay television services domestically and premium...

  • Page 78
    ... 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 Time Warner's management and the related...

  • Page 79
    ... performs analyses of risks on a customer-specific basis. At December 31, 2013 and 2012, total reserves for doubtful accounts were approximately $261 million and $284 million, respectively. Bad debt expense recognized during the years ended December 31, 2013, 2012 and 2011 totaled $41 million, $55...

  • Page 80
    ... operates multi-channel premium pay and basic tier television services in Latin America and is accounted for using the equity method. See Note 4 for additional information. At December 31, 2012, HBO Asia and HBO South Asia were also considered VIEs of the Company. During 2013, the Company purchased...

  • Page 81
    ... term of the applicable lease. Time Warner periodically 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, 2013...

  • Page 82
    ... security in the near term and the fair value is below the Company's cost basis). For investments accounted for using the cost or equity method of accounting, the Company evaluates information (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in...

  • Page 83
    ... Time Inc. is experiencing declines in its print advertising and newsstand sales as a result of market conditions in the publishing industry. During the fourth quarter, senior management at Time Inc. prepared a new long-range plan that served as the basis for the DCF analysis used in the 2013 annual...

  • Page 84
    ...' years of service and compensation. Time Warner uses a December 31 measurement date for its plans. The pension expense recognized by the Company is determined using certain assumptions, including the expected long-term rate of return on plan assets, the interest factor implied by the discount rate...

  • Page 85
    ... yield percentage by dividing the expected annual dividend by the market price of Time Warner common stock at the date of grant. For more information, see Note 12. Revenues and Costs Turner and Home Box Office Subscription revenues are recognized as programming services are provided to cable system...

  • Page 86
    ... the network expects to use and benefit from providing the sports programming. For premium pay television services that are not advertising-supported, each licensed program's costs are amortized on a straight-line basis over its license period or estimated period of use, beginning with the month of...

  • Page 87
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Company's advertising-supported networks and premium pay television services, amortization expense also includes costs for programs owned by the Company amortized using the film forecast computation method. Under this ...

  • Page 88
    ...of magazine subscriptions is deferred until the magazine cover date, at which time a proportionate share of the gross subscription price is recognized in revenues, net of any commissions paid to subscription agents. Also included in Subscription revenues are revenues generated from single-copy sales...

  • Page 89
    ... related to pre-release theatrical films of $51 million, $92 million and $74 million in 2013, 2012 and 2011, respectively. Barter Transactions Time Warner enters into transactions that involve the exchange of advertising, in part, for other products and services, such as a license for programming...

  • Page 90
    ..., advertising and publicity for each film or videogame in all media, including the timing and extent of the releases, the pricing and packaging of packaged goods units and approval of all television licenses. Warner Bros. records revenue generated in these distribution arrangements on a gross basis...

  • Page 91
    ... over the term of the arrangement. Advertising Costs Time Warner expenses advertising costs as they are incurred, which generally is when the advertising is exhibited or aired. Advertising expense to third parties was $2.579 billion in 2013, $2.458 billion in 2012 and $2.980 billion in 2011. Income...

  • Page 92
    ... GOODWILL AND INTANGIBLE ASSETS Time Warner has a significant number of intangible assets, acquired film and television libraries and other copyrighted products and tradenames. Certain intangible assets are deemed to have finite lives and, accordingly, are amortized over their estimated useful lives...

  • Page 93
    ... December 31, 2011 Adjustments Adjustments 2012 Adjustments Adjustments 2013 Turner Gross goodwill ...Impairments ...Net goodwill ...Home Box Office Gross goodwill ...Impairments ...Net goodwill ...Warner Bros. Gross goodwill ...Impairments ...Net goodwill ...Time Inc. Gross goodwill ...Impairments...

  • Page 94
    ... assets during the years ended December 31, 2013, 2012 and 2011 by reportable segment, as follows (millions): Year Ended December 31, 2013 2012 2011 Turner ...Warner Bros...Time Inc...Time Warner ... $ 18 1 78 $ 97 $ 79 1 - $ 80 $ 5 1 13 $ 19 For the year ended December 31, 2013, the Company...

  • Page 95
    ... with the sale. Acquisitions AEP On October 1, 2013, Time Inc. acquired American Express Publishing Corporation ("AEP"), including Travel+Leisure and Food & Wine magazines and their related websites. Time Inc. also entered into a multi-year agreement to publish Departures magazine on behalf...

  • Page 96
    ... premium pay and basic tier television services serving over 15 countries in Asia, including India. As a result of this acquisition, Home Box Office now owns 100% of HBO Asia and has consolidated its results of operations and financial condition effective September 30, 2013. For the year ended...

  • Page 97
    ... 31, 2013, investments accounted for using the equity method primarily included the Company's investments in the Class A common stock and Series A convertible preferred stock of CME (49.9% economic interest), HBO LAG (88% owned) and certain other Turner, Home Box Office and Warner Bros. ventures...

  • Page 98
    ... (millions): 2013 December 31, 2012 2011 Equity-method investments ...Cost-method investments ...Available-for-sale securities ...Total ... $ 5 5 7 17 $ 25 14 7 46 $ 142 6 - 148 $ $ $ The impairment of equity-method investments incurred during the year ended December 31, 2012 is primarily...

  • Page 99
    ... related to deferred compensation. The Company primarily applies the market approach for valuing recurring fair value measurements. During the year ended December 31, 2013, approximately $13 million of certain available-for-sale debt securities classified within Level 2 were transferred into...

  • Page 100
    ... value of Time Warner's debt was considered a Level 2 measurement as it was based on observable market inputs such as current interest rates and, where available, actual sales transactions. Unrealized gains or losses on debt do not result in the realization or expenditure of cash and generally are...

  • Page 101
    ... write down the value of these assets to $492 million. During the year ended December 31, 2012, the Company performed an impairment review of certain long-lived assets at Imagine, Turner's general entertainment network in India. As a result of its review, the Company recorded a noncash impairment of...

  • Page 102
    ...years from December 31, 2013. In addition, approximately $1.7 billion or 72% of the film costs of released and completed and not released theatrical and television product are expected to be amortized during the twelve-month period ending December 31, 2014. 7. DERIVATIVE INSTRUMENTS Time Warner uses...

  • Page 103
    ... in the Consolidated Balance Sheet pertaining to Time Warner's use of foreign currency derivatives at December 31, 2013 and December 31, 2012 (millions): December 31, 2013(a) December 31, 2012(b) Prepaid expenses and other current assets ...Accounts payable and accrued liabilities ...(a) $ 10 (17...

  • Page 104
    ... Facilities may be used for general corporate purposes, and unused credit is available to support borrowings by Time Warner under its commercial paper program. The Revolving Credit Facilities also contain certain events of default customary for credit facilities of this type (with customary grace...

  • Page 105
    ..., 2013 and 2012, the weighted average interest rate on the Company's outstanding fixed-rate public debt was 6.13% and 6.23%, respectively. At December 31, 2013, the Company's fixed-rate public debt had maturities ranging from 2015 to 2043. Debt Offering On December 16, 2013, Time Warner issued $500...

  • Page 106
    ...-party investors. These transactions resulted in reductions of film and television production cost amortization totaling $1 million, $10 million and $34 million during the years ended December 31, 2013, 2012 and 2011, respectively. 9. INCOME TAXES Domestic and foreign income before income taxes and...

  • Page 107
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Current and Deferred income taxes (tax benefits) provided on Income from continuing operations are as follows (millions): Year Ended December 31, 2013 2012 2011 Federal: Current ...Deferred ...Foreign: Current(a) ...Deferred ...

  • Page 108
    ...related to certain equity awards may currently be in excess of the tax benefit ultimately received. The applicable accounting rules require that the deferred tax asset related to an equity-based compensation award be reduced only at the time the award vests (in the case of a restricted stock unit or...

  • Page 109
    ... twelve-month period ended December 31, 2014; however, various events could cause the Company's current expectations to change in the future. The Company and its subsidiaries file income tax returns in the U.S. and various state and local and foreign jurisdictions. The Internal Revenue Service ("IRS...

  • Page 110
    ... price and business and market conditions. Shares Authorized and Outstanding At December 31, 2013, shareholders' equity of Time Warner included 895 million shares of common stock (net of 757 million shares of common stock held in treasury). As of December 31, 2013, Time Warner is authorized to issue...

  • Page 111
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following summary sets forth the activity within Other comprehensive income (loss) (millions): Pretax Tax (provision) benefit Net of tax Year Ended December 31, 2011 Unrealized losses on foreign currency translation ......

  • Page 112
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2013 2012 2011 Selling, general and administrative expenses ...Costs of revenues ...Other loss, net ... $ (5) $ (27) (3) (12) $ - 10 34 - (4) The following summary sets forth the components of ...

  • Page 113
    ...the weighted-average assumptions used to value stock options at their grant date and the weighted-average grant date fair value per share: 2013 Year Ended December 31, 2012 2011 Expected volatility ...Expected term to exercise from grant date ...Risk-free rate ...Expected dividend yield ...Weighted...

  • Page 114
    ...-tomarket accounting that is reflected in the grant date fair values presented: 2013 Year Ended December 31, 2012 2011 RSUs ...PSUs ... $ 54.04 78.85 $ 37.52 85.13 $ 36.00 45.89 The following table summarizes information about unvested RSUs and target PSUs as of December 31, 2013: Number of...

  • Page 115
    ...): 2013 Year Ended December 31, 2012 2011 Stock options ...RSUs and PSUs ...Total impact on operating income ...Tax benefit recognized ... $ $ $ 37 219 256 84 $ $ $ 52 182 234 80 $ $ $ 70 155 225 82 Total unrecognized compensation cost related to unvested Time Warner stock option awards as...

  • Page 116
    ...for substantially all of Time Warner's domestic and international defined benefit pension plans is as follows: Benefit Obligation (millions) December 31, 2013 2012 Change in benefit obligation: Projected benefit obligation, beginning of year ...Service cost ...Interest cost ...Actuarial (gain) loss...

  • Page 117
    ...Weighted-average assumptions used to determine benefit obligations and net periodic benefit costs for the years ended December 31: Benefit Obligations 2013 2012 2011 Net Periodic Benefit Costs 2013 2012 2011 Discount rate ...Rate of compensation increase ...Expected long-term return on plan assets...

  • Page 118
    TIME WARNER...(d) (e) Investment grade corporate bonds have an S&P rating of BBB- or higher and non-investment grade corporate bonds have an S&P rating of BB+ or ...partnerships, 103-12 investments, derivative contracts, exchange-traded funds and mutual funds. At December 31, 2013 and December 31, 2012...

  • Page 119
    ...both December 31, 2013 and December 31, 2012, the defined benefit pension plans' assets did not include any securities issued by Time Warner. Expected cash flows After considering the funded status of the Company's defined benefit pension plans, movements in the discount rate, investment performance...

  • Page 120
    ... Protection Act of 2006 zone status as of December 31, 2012 was red (i.e., critical) and it was less than 65% funded. Home Box Office's contributions to this plan were less than $1 million in each of the years ended December 31, 2013, 2012 and 2011. Based on contributions reported in the most recent...

  • Page 121
    .... Restructuring and severance costs expensed as incurred for the years ended December 31, 2013, 2012 and 2011 are as follows (millions): Year Ended December 31, 2013 2012 2011 Turner ...Home Box Office ...Warner Bros...Time Inc...Corporate ...Total restructuring and severance costs ... $ 93 39 49...

  • Page 122
    ... its former Networks reportable segment into two reportable segments: Turner and Home Box Office. In addition, during the fourth quarter of 2013, the Company changed the names of its Film and TV Entertainment reportable segment to Warner Bros. and its Publishing reportable segment to Time Inc. The...

  • Page 123
    ...Subscription Year Ended December 31, 2012 Advertising Content Other Total Revenues Turner ...Home Box Office ...Warner Bros...Time... 12,635 $ 28,974 Year Ended December 31, 2013 2012 2011 Intersegment Revenues Turner ...Home Box Office ...Warner Bros...Time Inc...Total intersegment revenues ... ...

  • Page 124
    ...687 20,066 5,667 2,507 $ 67,994 $ 25,953 13,297 19,853 5,850 3,136 $ 68,089 Year Ended December 31, 2013 2012 2011 Capital Expenditures Turner ...Home Box Office ...Warner Bros...Time Inc...Corporate ...Total capital expenditures ...108 $ 210 45 236 34 77 602 $ 229 65 270 34 45 643 $ 235 95...

  • Page 125
    ... on location of customer. Revenues in the EuroZone countries comprise approximately 44%, 45% and 46% of Europe Revenues for the years ended 2013, 2012 and 2011, respectively. 16. COMMITMENTS AND CONTINGENCIES Commitments Time Warner has commitments under certain network programming, film licensing...

  • Page 126
    ... cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are $962 million (for a net present value of $411 million). To date, no payments have been made by the Company pursuant to the Six Flags Guarantee. Six Flags Entertainment Corporation (formerly known as...

  • Page 127
    ... entered an order of summary judgment finding, among other things, that plaintiffs' notices of termination were valid and that plaintiffs had thereby recaptured, as of April 16, 1999, their rights to a one-half interest in the Superman story material, as first published, but that the accounting for...

  • Page 128
    ... Services L.L.C. (collectively, "Anderson News") filed an antitrust lawsuit in the U.S. District Court for the Southern District of New York against several magazine publishers, distributors and wholesalers, including Time Inc. and one of its subsidiaries, Time/Warner Retail Sales & Marketing...

  • Page 129
    ...primarily relate to the licensing of television programming to The CW broadcast network and certain international networks by the Warner Bros. segment. Receivables due from related parties were $186 million and $184 million at December 31, 2013 and 2012, respectively. Payables due to related parties...

  • Page 130
    ... INFORMATION Additional financial information with respect to cash payments and receipts, Interest expense, net, Other loss, net, Accounts payable and accrued liabilities and Other noncurrent liabilities is as follows (millions): Year Ended December 31, 2013 2012 2011 Cash Flows Cash payments...

  • Page 131
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2013 December 31, 2012 Accounts Payable and Accrued Liabilities Accounts payable ...Accrued expenses ...Participations payable ...Programming costs payable ...Accrued compensation ...Accrued interest ...Accrued ...

  • Page 132
    ... of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline...

  • Page 133
    ..., the consolidated financial position of Time Warner at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our...

  • Page 134
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Time Warner Inc. We have audited Time Warner Inc.'s ("Time Warner") internal control over financial reporting as of December 31, 2013 based on criteria established in Internal Control - Integrated Framework issued...

  • Page 135
    ...made to conform to the 2013 presentation. 2013 Year Ended December 31, 2012 2011 2010 (millions, except per share amounts) 2009 Selected Operating Statement Information: Total revenues ...Operating income ...Net income ...Amounts attributable to Time Warner Inc. shareholders: Income from continuing...

  • Page 136
    ... stock of Central European Media Enterprises Ltd. ("CME") under the equity method of accounting for all prior periods from the date of the Company's initial investment in CME in May 2009. This recast resulted in an increase in net income of $34 million for the three months ended March 31, 2013...

  • Page 137
    ... stock of CME under the equity method of accounting for all prior periods from the date of the Company's initial investment in CME in May 2009. This recast resulted in a decrease in net income of $5 million, $17 million, $16 million and $56 million for the three months ended March 31, 2012...

  • Page 138
    .... (formerly named News Corporation) (Class A), Viacom Inc. (Class B) and The Walt Disney Company. In accordance with SEC rules, the Company constructed the peer group index with which to compare its stock performance because there is not a relevant published industry or line-of-business index. The...

  • Page 139
    ... and distributions on a monthly basis and quarterly market capitalization weighting. The Company's Common Stock performance has been adjusted to take into account the separations of Time Warner Cable Inc. and AOL Inc. from the Company in 2009. From 2009 through 2013, the Company paid a quarterly...

  • Page 140
    ... results to reflect the presentation of its investment in Central European Media Enterprises Ltd. ("CME") common stock and Series A convertible preferred stock under the equity method of accounting for all prior periods from the date of the Time Warner's initial investment in CME in May 2009. 124

  • Page 141
    ...) Year Ended December 31, 2013 2012 Items Affecting Comparability Asset impairments ...Gains on operating assets, net ...Other operating income items ...Gains (losses) on investments ...Other Amounts related to separation of Time Warner Cable Inc...Amounts related to separation of Warner Music...

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  • Page 145
    ... LLP Time Warner Inc. Contact Information Corporate Headquarters Time Warner Inc. One Time Warner Center New York, NY 10019-8016 212-484-8000 Time Warner Corporate website: www.timewarner.com Investor Relations Time Warner Inc. One Time Warner Center New York, NY 10019-8016 866-INFO-TWX e-mail: ir...

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