Time Magazine 2013 Annual Report Download - page 96

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
associated with its shares of Class A common stock and Series A convertible preferred stock. Prior to the second
quarter of 2013, the Company accounted for its investment in CME under the cost method of
accounting. However, as a result of the end of the voting agreement with Mr. Lauder, the Company began
accounting for its investment in the Class A common stock and Series A convertible preferred stock of CME
under the equity method of accounting. In accordance with applicable accounting guidance, the Company has
recast its historical financial results to reflect the presentation of its investment in the Class A common stock and
Series A convertible preferred 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. The recast resulted in an increase in net income
of $34 million for the three months ended March 31, 2013 and a decrease in net income of $94 million for the
year ended December 31, 2012.
During the second quarter of 2013, CME conducted a public offering of shares of its Class A common stock
in which the Company purchased approximately 28.5 million shares for approximately $78 million in cash. As of
December 31, 2013, the Company owned 61.4 million shares of CME’s Class A common stock and 1 share of
Series A convertible preferred stock, which is convertible into 11.2 million shares of CME’s Class A common
stock and votes with the Class A common stock on an as-converted basis. The combination of these holdings
provides the Company with a 49.9% voting interest in CME’s common stock.
In addition, on June 25, 2013, the Company purchased $200 million of CME’s newly-issued, non-voting
Series B convertible redeemable preferred shares. The Series B convertible redeemable preferred shares will
accrete in value through the third anniversary of closing at an annual rate of 7.5% compounded quarterly and
from the third anniversary to the fifth anniversary of closing at an annual rate of 3.75% compounded quarterly.
Thereafter, the Series B convertible redeemable preferred shares will no longer accrete in value. CME has the
right from the third anniversary to pay a cash dividend to the Company in lieu of further accretion. Each Series B
convertible redeemable preferred share may be converted into shares of Class A common stock at the Company’s
option at any time after the third anniversary of the closing. The number of shares of Class A common stock
received upon conversion would be determined by dividing the accreted value of the Series B convertible
redeemable preferred shares (including any accrued but unpaid dividends) by the conversion price of
$3.1625. The Series B convertible redeemable preferred shares will also be redeemable at the option of CME at
any time after the third anniversary of the closing; however, upon notice from CME of a proposed redemption,
the Company may elect to receive cash or shares of Class A common stock. The Company accounts for its
investment in the Series B convertible redeemable preferred shares of CME under the cost method of
accounting.
In 2012 and 2011, the Company acquired additional interests in CME for $165 million and $61 million,
respectively. During 2011, the Company recorded a $131 million noncash impairment related to its investment in
CME.
HBO Asia and HBO South Asia
In September 2013, Home Box Office purchased its partner’s interests in HBO Asia and HBO South Asia
(collectively, “HBO Asia”) for $37 million in cash, net of cash acquired. HBO Asia operates HBO- and
Cinemax- branded 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 December 31,
2013, Home Box Office recognized a $104 million gain upon the Company’s acquisition of the controlling
interests in HBO Asia. The consolidation of HBO Asia’s operating results did not have a material impact on the
Company’s consolidated financial results for the year ended December 31, 2013.
Bleacher Report
In 2012, Turner acquired Bleacher Report, a leading online and mobile sports property, for $170 million, net
of cash acquired.
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