Time Magazine 2013 Annual Report Download - page 100

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2013 and 2012, assets and liabilities valued using significant unobservable inputs
(Level 3) primarily consisted of an asset related to equity instruments held by employees of a former subsidiary
of the Company, liabilities for contingent consideration and options to redeem securities. The following table
reconciles the beginning and ending balances of net derivative assets and liabilities classified as Level 3 and
identifies the total gains (losses) the Company recognized during the years ended December 31, 2013 and 2012,
respectively, on such assets and liabilities that were included in the Consolidated Balance Sheet as of
December 31, 2013 and 2012, respectively (millions):
December 31,
2013
December 31,
2012
Balance as of the beginning of the period .......................... $ 7 $ 3
Total gains (losses), net:
Included in operating income .................................. (1) 1
Included in other loss, net .................................... 12 14
Included in other comprehensive income (loss) .................... — —
Settlements .................................................. (15) (11)
Issuances .................................................... (2) —
Transfers in and/or out of Level 3 ................................ — —
Balance as of the end of the period ............................... $ 1 $ 7
Net gain for the period included in net income related to assets and
liabilities still held as of the end of the period ..................... $ 9 $ 15
Other Financial Instruments
The Company’s other financial instruments, including debt, are not required to be carried at fair value. Based
on the interest rates prevailing at December 31, 2013, the fair value of Time Warner’s debt exceeded its carrying
value by approximately $2.754 billion and, based on interest rates prevailing at December 31, 2012, the fair value
of Time Warner’s debt exceeded its carrying value by approximately $4.622 billion. The fair 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 not recognized in the consolidated financial
statements unless the debt is retired prior to its maturity. The carrying value for the majority of the Company’s
other financial instruments approximates fair value due to the short-term nature of the financial instruments or
because the financial instruments are of a longer-term nature and are recorded on a discounted basis. At
December 31, 2013, the estimated fair value of the Company’s investment in CME exceeded its carrying value
by approximately $167 million. For the remainder of the Company’s other financial instruments, differences
between the carrying value and fair value were not significant at December 31, 2013. The fair value of financial
instruments is generally determined by reference to the market value of the instrument as quoted on a national
securities exchange or an over-the-counter market. In cases where a quoted market value is not available, fair
value is based on an estimate using present value or other valuation techniques.
Non-Financial Instruments
The majority of the Company’s non-financial instruments, which include goodwill, intangible assets,
inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis.
However, if certain triggering events occur (or at least annually for goodwill and indefinite-lived intangible
assets), a non-financial instrument is required to be evaluated for impairment. The resulting asset impairment
would require that the non-financial instrument be written down to its fair value.
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