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ANNUAL REPORT 2014
Annual Report 2014

Table of contents

  • Page 1
    ANNUAL REPORT 2014

  • Page 2
    Fueled by the passion, dedication, and ingenuity of our employees, we're working every day to tell the world's best stories and help shape the future of media.

  • Page 3
    ... and CEO Time Warner has a rich history of both extraordinary creativity and business-model innovation, and 2014 was another great year for both, which led to strong financial performance and returns for our shareholders. In many ways, 2014 was a milestone year for us. We spun off our publishing...

  • Page 4
    ...year when most kids networks saw audience declines, Cartoon Network grew its kids 6-11 audience and has carried that momentum into 2015. In news, CNN demonstrated how Turner's commitment to bringing distinct programming to broad audiences can work. Building on its status as the place the world turns...

  • Page 5
    NBA on TNT CONAN, Teen Titans Go!, Black Jesus Anderson Cooper 360°, The Librarians The Last Ship, Murder in the First Turner 3

  • Page 6
    ... 2014, HBO saw its highest domestic subscriber gains in more than three decades. HBO programming earned 19 Primetime Emmy Awards, the most of any network for the 13th year in a row. Also, Game of Thrones became the most-watched HBO original series ever - surpassing The Sopranos - and True Detective...

  • Page 7
    Game of Thrones The Knick Last Week Tonight with John Oliver, Ballers Bessie, HBO Boxing VEEP 5

  • Page 8
    ... its storied 90-plus-year history, and 2014 was no exception. Warner Bros. feature films crossed the $4 billion mark in worldwide box office for the sixth time, led by blockbusters including The LEGO Movie and The Hobbit: The Battle of the Five Armies. And American Sniper was the highestgrossing...

  • Page 9
    The LEGO Movie Videogame, American Sniper, Vacation The Big Bang Theory, The Flash, Gotham Batman v Superman: Dawn of Justice, The Leftovers, The Ellen DeGeneres Show 7

  • Page 10
    ... advanced digital video services. CONTENT EVERYWHERE We're executing our TV Everywhere (TVE) strategy to enhance the value of traditional pay-TV subscriptions by making access to our networks' content available on multiple devices via an Internet connection. HBO GO is the TVE gold standard, offering...

  • Page 11
    ... in early 2015 it launched an OTT service in Southeast Asia with Singtel and Sony Pictures Television. In content creation, Warner Bros. in 2014 announced the formation of Blue Ribbon Content, a short-form digital series production unit. And Warner Bros., Turner, and HBO each had subscription video...

  • Page 12
    ... forward, Turner is building out the Cartoon Network and Boomerang brands around the world, including in a new global programming and consumer products partnership with Warner Bros. Among premium television brands, HBO is the worldwide leader in subscription services, with premium-pay and basic-tier...

  • Page 13
    Oh!K, Malaysia Adam Looking for Eve, Germany Medcezir The O.C., Turkey 11

  • Page 14
    ...Free Cash Flow grew 12% to $3.5 billion Asia Pacific Rim By Geographic Region Latin America Other 3% 6% 6% 17% europe 68% u.s. 1 See page 116 for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures and other information. 12 Time Warner Annual Report

  • Page 15
    We are delivering strong returns to our shareholders Total Shareholder Returns Time Warner S&P 500 162.5% 244.3% 105.1% 74.6% 30.0% 13.7% 1-YR 3-YR 5-YR 13

  • Page 16
    .... TIME WARNER SENIOR CORpORATE ExECUTIVES Jeffrey L. Bewkes Chairman of the Board and CEO James L. Barksdale Chairman and President, Barksdale Management Corporation Howard M. Averill Executive Vice President and Chief Financial Officer Paul T. Cappuccio William P. Barr Former Attorney General...

  • Page 17
    TIME WARNER INC. INDEX TO COMPANY INFORMATION Page Company Description ...Risk Factors ...Management's Discussion and Analysis of Results of Operations and Financial Condition ...Consolidated Financial Statements: Consolidated Balance Sheet ...Consolidated Statement of Operations ...Consolidated ...

  • Page 18
    [THIS PAGE INTENTIONALLY LEFT BLANK] 2

  • Page 19
    ...generates revenues principally from fees received from affiliates that distribute Turner's programming to subscribers, the sale of advertising on its networks and the digital properties it owns or manages for other companies and the license of its original programming to SVOD services and its brands...

  • Page 20
    ... Mine. Syndicated series for the 2014-2015 season include The Big Bang Theory, Family Guy and The Office. TBS is also the home of the late night talk show Conan. Adult Swim is an evening and overnight block of programming airing on Turner's Cartoon Network. Adult Swim targets young adults and offers...

  • Page 21
    ... classic Warner Bros. animation programming and exclusive new original content. Cartoon Network offers original and syndicated animated and live-action series and motion pictures for youth and families. For the 2014-2015 season, Cartoon Network's original animated series include Adventure Time, The...

  • Page 22
    ... to work closely with Warner Bros. on original programming. Home Box Office premiered new series True Detective in January 2014, Silicon Valley in April 2014 and The Leftovers (produced by Warner Bros.) in June 2014. Home Box Office premiered its new series Togetherness in January 2015 and plans to...

  • Page 23
    ... 60 countries in Latin America, Asia and Europe by international affiliates to the affiliates' customers who subscribe to the HBO and Cinemax services, (ii) the distribution of original programming via licenses to international television networks and SVOD services and through sales of DVDs, Blu-ray...

  • Page 24
    ...over $4 billion at the global box office for the sixth year in a row. In October 2014, Warner Bros. announced an expansion of its film slate built around Warner Bros.' strongest global franchises. Warner Bros. is focusing on increasing the digital sales and rentals of its film and television content...

  • Page 25
    ... fees for the international distribution of Warner Bros.' television programming for free-to-air television, basic tier and premium pay television services, SVOD services and free VOD and (iv) revenues from the sale of the television programming of Warner Bros. and other companies in digital formats...

  • Page 26
    ... in theaters. After that, Warner Bros. licenses the feature films for domestic and international distribution to premium pay television services (including HBO and Cinemax), broadcast and basic cable networks, (including Turner's cable networks) and SVOD and other digital services and, in most cases...

  • Page 27
    ...by Time Warner and the credit facility and term loan provided by Time Warner. The CW The CW is a 50-50 joint venture between Warner Bros. and CBS Corporation. The CW's 2014-2015 schedule includes a 5-night, 10-hour primetime lineup of advertising-supported original programming such as America's Next...

  • Page 28
    ... obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Time Warner's actual results may vary materially from those expressed or implied by the statements in this 2014 Annual Report to Shareholders due to changes in economic...

  • Page 29
    ...failure to renew affiliate agreements on favorable terms or at all could cause the Company's subscription and advertising revenues to decline. The Company depends on agreements with affiliates for the distribution of Turner's cable networks and HBO and Cinemax. Competition from SVOD services and new...

  • Page 30
    ... the growing number of SVOD services has increased competition in the U.S. and internationally. Turner may have to increase the price it is willing to pay for acquired and sports programming, including the renewal of programming it currently licenses. Acquired and sports programming costs may also...

  • Page 31
    ...-on audience delivery thresholds. This may result in Turner's cable networks having less advertising time available to sell or to use to promote their own programming. Finally, if the television ratings system is not changed so that it captures the viewership of Turner's programming through digital...

  • Page 32
    ... minority rights and restrictions on foreign direct ownership; the existence of quotas and other content-related limitations or restrictions (e.g., government censorship); restrictions on television advertising, marketing and network packaging; issues related to occupational safety and adherence to...

  • Page 33
    ... negotiations and terms of these agreements. Union or labor disputes or player lock-outs relating to certain professional sports leagues may preclude the Company from producing and telecasting scheduled games or events and could negatively impact the Company's promotional and marketing opportunities...

  • Page 34
    ... of these events occurring cannot be eliminated entirely. As the Company distributes more of its content digitally, engages in more electronic transactions with consumers, increases the number of information technology systems used in its business operations, relies more on cloud-based services and...

  • Page 35
    ... shares in such transaction. In connection with the legal and structural separation of TWC from the Company in March 2009, Time Warner received a private letter ruling from the Internal Revenue Service ("IRS") and opinions of counsel confirming that the TWC separation should not result in the...

  • Page 36
    .... This section provides a description of the use of forward-looking information appearing in this 2014 Annual Report to Shareholders, including in MD&A and the consolidated financial statements. Such information is based on management's current expectations about future events, which are inherently...

  • Page 37
    ... the sale of advertising and sponsorships. Home Box Office. Time Warner's Home Box Office segment consists of businesses managed by Home Box Office, Inc. ("Home Box Office"). During the year ended December 31, 2014, the Home Box Office segment recorded Revenues of $5.398 billion (19% of the Company...

  • Page 38
    ... cable television networks. Warner Bros. also licenses many of its series internationally. In 16 countries (located across Europe and South America and in Australia and New Zealand), Warner Bros. operates a group of local television production companies that focus on developing non-scripted programs...

  • Page 39
    ...rate for the Company's business activities during the first quarter of 2015. At December 31, 2014, the Company had $25 million of net VEF-denominated consolidated monetary assets. Revolving Credit Facilities Maturity Date Extension On December 18, 2014, Time Warner amended its $5.0 billion of senior...

  • Page 40
    ... and CME issued warrants to Time Warner to purchase an additional 30 million shares of Class A common stock. The warrants issued to Time Warner, including the unit warrants in connection with the rights offering and the private offering, have a four-year term and an exercise price of $1.00 per share...

  • Page 41
    ... and distribution company, which are located in 15 countries (across Europe and South America and in Australia and New Zealand) for approximately $267 million, net of cash acquired (the "Eyeworks Acquisition"). Sale and Leaseback of Time Warner Center On January 16, 2014, Time Warner sold the...

  • Page 42
    ... networks in Spain and Belgium and $1 million related to miscellaneous assets, $7 million at the Warner Bros. segment related to miscellaneous assets and $7 million at Corporate related to certain internally developed software. During the year ended December 31, 2012, the Company recognized...

  • Page 43
    ... sale of a building in South America, a $7 million gain at the Warner Bros. segment primarily related to the sale of certain fixed assets and a $441 million gain at Corporate in connection with the sale and leaseback of the Company's space in Time Warner Center. For the year ended December 31, 2013...

  • Page 44
    ... to the Separation of Time Warner Cable Inc. For the years ended December 31, 2014, 2013 and 2012, the Company recognized $1 million of other expense, $10 million of other income and $9 million of other income, respectively, related to the expiration, exercise and net change in the estimated fair...

  • Page 45
    ... from a change in the foreign currency exchange rate used by the Company from the official rate to the SICAD 2 exchange rate. See "Recent Developments" for more information. The increase for the year ended December 31, 2013 primarily related to increases at the Home Box Office segment and Corporate...

  • Page 46
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) Restructuring and Severance Costs. For the years ended December 31, 2014, 2013 and 2012, the Company incurred Restructuring and severance costs primarily related to employee ...

  • Page 47
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) The remaining changes in Other loss, net for the year ended December 31, 2014 included lower net losses from equity method investees. The remaining changes in Other loss, net for the ...

  • Page 48
    ... segment are as follows (millions): 2014 Year Ended December 31, 2013 2012 % Change 2014 vs. 2013 2013 vs. 2012 Programming costs: Originals and sports ...$ Acquired films and syndicated series ...Total programming costs ...Other direct operating costs ...Costs of revenues(a) ...$ (a) 3,069 1,213...

  • Page 49
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) For the year ended December 31, 2014, Costs of revenues increased primarily due to programming charges of $526 million related to Turner's decision following its strategic evaluation ...

  • Page 50
    ... for the Home Box Office segment are as follows (millions): 2014 Year Ended December 31, 2013 2012 % Change 2014 vs. 2013 2013 vs. 2012 Programming costs: Acquired films and syndicated series ...Originals and sports ...Total programming costs ...Other direct operating costs ...Costs of revenues...

  • Page 51
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) The increase in Costs of revenues for the year ended December 31, 2014 reflected higher programming and other direct operating costs. The increase in programming costs for the year ...

  • Page 52
    ... on television) for the years ended December 31, 2014, 2013 and 2012 are as follows (millions): 2014 Year Ended December 31, 2013 2012 % Change 2014 vs. 2013 2013 vs. 2012 Theatrical product: Film rentals ...Home video and electronic delivery ...Television licensing ...Consumer products and other...

  • Page 53
    TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) The components of Costs of revenues for the Warner Bros. segment are as follows (millions): 2014 Year Ended December 31, 2013 2012 % Change 2014 vs. 2013 2013 vs. 2012 Film and ...

  • Page 54
    ... carryover revenues of $51 million from prior period releases. The Company released 18 and 17 theatrical films during 2013 and 2012, respectively. For the year ended December 31, 2013, theatrical product revenues from home video and electronic delivery decreased due to lower revenues of $120 million...

  • Page 55
    ... higher Restructuring and severance costs. Corporate. (millions): Operating Loss at Corporate for the years ended December 31, 2014, 2013 and 2012 was as follows Year Ended December 31, 2014 2013 2012 % Change 2014 vs. 2013 2013 vs. 2012 Selling, general and administrative(a) ...Curtailment ...Gain...

  • Page 56
    ... credit facilities and commercial paper program and access to capital markets. Time Warner's unused committed capacity at December 31, 2014 was $7.637 billion, which included $2.618 billion of Cash and equivalents. Current Financial Condition At December 31, 2014, Time Warner had net debt of $19.876...

  • Page 57
    ... 2015, the Company entered into agreements relating to the construction and development of office and studio space in the Hudson Yards development on the west side of Manhattan in order to consolidate its Corporate headquarters and its New York Citybased employees. Based on current construction cost...

  • Page 58
    ... the sale of space in Time Warner Center, partially offset by higher investments and acquisition spending. Included in Investments and acquisitions, net for the year ended December 31, 2014 is $102 million of payments related to the Company's plan to move its Corporate headquarters and its New York...

  • Page 59
    ...stock options. At December 31, 2014, all of the approximately 22 million exercisable stock options outstanding on such date had exercise prices below the closing price of the Company's common stock on the New York Stock Exchange. Cash used by financing activities for the year ended December 31, 2013...

  • Page 60
    ... obligations of Time Warner under the commercial paper program and the Company's outstanding publicly issued debt are directly or indirectly guaranteed 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...

  • Page 61
    ... information technology licenses and services; (5) obligations related to payments to the NCAA for Basketball Fan Festival rights at the Turner segment; and (6) obligations to purchase general and administrative items and services. The Company's material contractual obligations at December 31, 2014...

  • Page 62
    ... programming services of approximately $1.7 billion; and Various advertisers and advertising agencies related to advertising services of approximately $1.0 billion. For additional information regarding Time Warner's accounting policies relating to customer credit risk, refer to Note 1, "Description...

  • Page 63
    ... or forecasted royalties and license fees owed to Time Warner domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad because such amounts may be adversely affected by changes in foreign currency exchange rates. Similarly, the Company enters into foreign exchange...

  • Page 64
    ...fee payments. See Note 7, "Derivative Instruments," to the accompanying consolidated financial statements for additional information. Equity Risk The Company is exposed to market risk as it relates to changes in the market value of its investments. The Company invests in equity instruments of public...

  • Page 65
    ..., 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 66
    ... ...Total assets ...LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued liabilities ...Deferred revenue ...Debt due within one year ...Current liabilities of discontinued operations ...Total current liabilities ...Long-term debt ...Deferred income taxes ...Deferred revenue...

  • Page 67
    TIME WARNER INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, (millions, except per share amounts) 2014 2013 (recast) 2012 (recast) Revenues ...Costs of revenues ...Selling, general and administrative ...Amortization of intangible assets ...Restructuring and severance costs ...Asset...

  • Page 68
    TIME WARNER INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, (millions) 2014 2013 2012 Net income ...Other comprehensive income, net... ...Reclassification adjustment for gains realized in net income ...Change in securities ...Benefit obligations: Unrealized gains (losses) ...

  • Page 69
    ... the sale of Time Warner Center ...Other investment proceeds ...Cash provided (used) by investing activities from continuing operations ...FINANCING ACTIVITIES Borrowings ...Debt repayments ...Proceeds from exercise of stock options ...Excess tax benefit from equity instruments ...Principal payments...

  • Page 70
    ... to Discontinued Operations ...Amounts related to the Time Separation ...Cash dividends ...Common stock repurchases ...Noncontrolling interests of acquired businesses ...Amounts related primarily to stock options and restricted stock ...BALANCE AT DECEMBER 31, 2014 . . $ (a) 17 $ 17 $ 17 $ 17...

  • Page 71
    ... into three 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 pay and basic tier television services internationally; and Warner Bros.: consisting...

  • Page 72
    ... for the three months and year ended December 31, 2014, recognized a pretax foreign exchange loss of $173 million in the Consolidated Statement of Operations. Accounting Guidance Adopted in 2014 Share-Based Payment Awards with Performance Targets Attainable After the Requisite Service Period On July...

  • Page 73
    ... 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 74
    ...are disproportionate. HBO LAG 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. Investments Investments in companies in which Time Warner has significant influence, but less than...

  • Page 75
    ...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...

  • Page 76
    ... in the DCF analyses are based on the Company's most recent budgets and long range plans and perpetual growth rates are assumed for years beyond the current long range plan period. Discount rate assumptions are based on an assessment of market rates, capital structures and the risk inherent in the...

  • Page 77
    ...rates, which are based on the estimated rates at which similar tradenames are being licensed in the marketplace. The performance of the Company's 2014 annual...can be disposed of currently, appropriate levels of authority have approved the sale, and there is an active program to locate a buyer), the ...

  • Page 78
    ...'s common stock on the NYSE Composite Tape on the date of grant. Performance stock units ("PSUs") are subject to a performance condition such that the number of PSUs that ultimately vest generally depends on the adjusted earnings per share ("Adjusted EPS") achieved by the Company during a three-year...

  • Page 79
    ..., electronic sell-through, video-on-demand, subscription video-on-demand services, premium cable, basic cable and broadcast networks. Revenues from film rentals by theaters are recognized as the films are exhibited. Revenues from home video sales are recognized at the later of the delivery date or...

  • Page 80
    ... consideration to factors including the previous contractual rates, inflation, current payments by the affiliate and the status of the negotiations on a new contract. When the new distribution contract terms are finalized, an adjustment to Subscription revenues is recorded, if necessary, to reflect...

  • Page 81
    ...) and the expected number of theaters in which the film will be released. In the absence of revenues directly related to the exhibition of a film or television program that is owned by the Company on the Company's television networks or premium pay television services, management estimates a portion...

  • Page 82
    ..., in which the rights fees are amortized using the ratio of current period advertising revenue to total estimated remaining advertising revenue over the term of the arrangement. For premium pay television services that are not advertising-supported, each licensed program's costs are amortized on...

  • Page 83
    ... 2014, 2013 and 2012, 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. Such transactions are recognized by the programming licensee (e.g., a television network...

  • Page 84
    ... the years ended December 31, 2014 and 2013 were not significant. In accounting for this arrangement, the Company records Advertising revenues for the advertisements aired on Turner's networks and amortizes Turner's share of the programming rights fee based on the ratio of current period advertising...

  • Page 85
    ... events or substantive changes in circumstances. Goodwill The following summary of changes in the Company's Goodwill during the years ended December 31, 2014 and 2013, by reportable segment, is as follows (millions): Turner Home Box Office Warner Bros. Total Balance at December 31, 2012 (recast...

  • Page 86
    ... during the years ended December 31, 2014, 2013 and 2012 by reportable segment, as follows (millions): 2014 Year Ended December 31, 2013 2012 (recast) (recast) Turner ...$ Home Box Office ...Warner Bros...Time Warner ...$ 1 4 13 18 $ 18 1 19 $ 79 1 80 $ $ The Company's intangible assets...

  • Page 87
    ...million related to an investment. Acquisitions Eyeworks On June 2, 2014, Warner Bros. acquired the operations outside the U.S. of Eyeworks Group, a television production and distribution company, which are located in 15 countries (across Europe and South America and in Australia and New Zealand) for...

  • Page 88
    ... amounts): 2014 Year Ended December 31, 2013 2012 Total revenues ...Pretax income (loss) ...Income tax benefit (provision) ...Net income (loss) ...Net income (loss) attributable to Time Warner Inc. shareholders ...Per share information attributable to Time Warner Inc. common shareholders: Basic...

  • Page 89
    ... and CME issued warrants to Time Warner to purchase an additional 30 million shares of Class A common stock. The warrants issued to Time Warner, including the unit warrants in connection with the rights offering and the private offering, have a four-year term and an exercise price of $1.00 per share...

  • Page 90
    ... accrue interest at 8.5% from the date of the 2015 Term Loan or Time Warner Loan, as applicable, until paid. 2013 Transactions 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...

  • Page 91
    ...) Equity-Method Investments At December 31, 2014, investments accounted for using the equity method included the Company's investments in the Class A common stock and Series A convertible preferred stock of CME, HBO LAG (88% owned) and certain other ventures that are generally 20% to 50% owned. HBO...

  • Page 92
    ... to purchase shares of CME Class A common stock. The Company estimates the fair value of these warrants using a Monte Carlo Simulation model. Significant unobservable inputs used in the fair value measurement at December 31, 2014 are an expected term of 2.59 years and an expected volatility of...

  • Page 93
    ...December 31, 2013, the fair value of Time Warner's debt exceeded its carrying value by approximately $2.754 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...

  • Page 94
    ... to its fair value. During the year ended December 31, 2014, the Company performed impairment reviews of a tradename at Warner Bros., as well as certain intangible assets at international subsidiaries of Turner and Home Box Office. As a result, the Company recorded noncash impairments of $17 million...

  • Page 95
    ...years from December 31, 2014. In addition, approximately $1.9 billion or 68% 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, 2015. 7. DERIVATIVE INSTRUMENTS Time Warner uses...

  • Page 96
    ...commercial paper program. The Revolving Credit Facilities, commercial paper program and public debt of the Company rank pari passu with the senior debt of the respective obligors thereon. The weighted-average interest rate on Time Warner's total debt was 5.80% and 6.11% at December 31, 2014 and 2013...

  • Page 97
    ... paper program. Proceeds from the commercial paper program may be used for general corporate purposes. The obligations of the Company under the commercial paper program are directly or indirectly guaranteed, on an unsecured basis, by Historic TW, Home Box Office and Turner. Public Debt Time Warner...

  • Page 98
    ... due 2044 in a public offering. The securities issued pursuant to the offering are directly or indirectly guaranteed, on an unsecured basis, by Historic TW, Home Box Office and Turner. Maturities of Public Debt The Company's public debt matures as follows (millions): 2015 2016 2017 2018 2019...

  • Page 99
    ... were capitalized with approximately $2.9 billion of debt and equity from the third-party investors. These transactions resulted in reductions of film and television production cost amortization totaling $1 million, $1 million and $10 million during the years ended December 31, 2014, 2013 and 2012...

  • Page 100
    ... directly to contributed capital of $179 million in 2014, $179 million in 2013 and $83 million in 2012. The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes provided are as set forth below (millions): 2014 Year Ended December 31, 2013...

  • Page 101
    .... For accounting purposes, the Company records equity-based compensation expense and a related deferred tax asset for the future tax deductions it may receive. For income tax purposes, the Company receives a tax deduction equal to the stock price on the date that a restricted stock unit (or...

  • Page 102
    ... as of December 31, 2014 will significantly increase or decrease during the twelve-month period ended December 31, 2015; however, various events could cause the Company's current expectations to change in the future. During the year ended December 31, 2014, the Company recognized a tax benefit of...

  • Page 103
    ... 2014 New York City ...2009 through 2014 10. SHAREHOLDERS' EQUITY Common Stock Repurchase Program For the years ended December 31, 2014, 2013 and 2012, the number of shares repurchased pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and their cost...

  • Page 104
    ...expenses. Pretax (gains) losses included in Selling, general and administrative expenses, Costs of revenues and Other income (loss), net are as follows (millions): Year Ended December 31, 2014 2013 2012 Selling, general and administrative expenses ...Costs of revenues ...Other loss, net ...$ (5) (18...

  • Page 105
    ... vest in four equal annual installments, while RSUs granted under the Company's prior stock incentive plans generally vest 50% in each of the third and fourth anniversaries of the date of grant. The Company also has a PSU program for executive officers who are awarded a target number of PSUs that...

  • Page 106
    ...weighted-average assumptions used to value stock options at their grant date and the weighted-average grant date fair value per share: 2014 Year Ended December 31, 2013 2012 Expected volatility ...26.6% Expected term to exercise from grant date ...5.85 years Risk-free rate ...1.9% Expected dividend...

  • Page 107
    ..., approximately 30 million shares of Time Warner common stock were available for future grants of stock options under the Company's equity plan. The following table summarizes information about stock options exercised (millions): 2014 Year Ended December 31, 2013 2012 Total intrinsic value ...Cash...

  • Page 108
    ...): 2014 Year Ended December 31, 2013 (recast) 2012 (recast) Stock options ...RSUs and PSUs ...Total impact on operating income ...Tax benefit recognized ... $ $ $ 26 193 219 76 $ $ $ 33 205 238 78 $ $ $ 45 150 195 66 Total unrecognized compensation cost related to unvested Time Warner stock...

  • Page 109
    ...substantially all of Time Warner's domestic and international defined benefit pension plans is as follows: Benefit Obligation (millions) December 31, 2014 2013 (recast) Change in benefit obligation: Projected benefit obligation, beginning of year ...$ Service cost ...Interest cost ...Actuarial loss...

  • Page 110
    ... benefit obligations and net periodic benefit costs for the years ended December 31: 2014 Benefit Obligations 2013 (recast) 2012 (recast) 2014 Net Periodic Benefit Costs 2013 2012 (recast) (recast) Discount rate ...Rate of compensation increase ...Expected long-term return on plan assets ... 4.10...

  • Page 111
    ... described in Note 5, the assets held by the Company's defined benefit pension plans, including those assets related to The CW sub-plan, which were approximately $20 million and $18 million, respectively, as of December 31, 2014 and December 31, 2013 (millions): Asset Category Level 1 December 31...

  • Page 112
    ..., 2014 and December 31, 2013, 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 and related tax...

  • Page 113
    .... Total contributions made by the Company to multiemployer pension plans for the years ended December 31, 2014, 2013 and 2012 were $125 million, $113 million and $93 million, respectively. Included in these amounts are contributions that Home Box Office periodically makes to the Radio Television...

  • Page 114
    ... Office segment, $23 million at the Warner Bros. segment and $2 million at Corporate. During the years ended December 31, 2014 and December 31, 2013, the Company also adjusted certain charges related to the restructuring initiatives that were undertaken in 2012 and prior years as a result of changes...

  • Page 115
    ... as long-term are expected to be paid through 2018. 15. SEGMENT INFORMATION Time Warner classifies its operations into three reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay television services...

  • Page 116
    ... assets, Operating Income (Loss), Assets and Capital expenditures for each of Time Warner's reportable segments is set forth below (millions): 2014 Year Ended December 31, 2013 (recast) 2012 (recast) Revenues Turner ...Home Box Office ...Warner Bros...Intersegment eliminations ...Total revenues...

  • Page 117
    ... 67,999 $ $ 2014 Year Ended December 31, 2013 (recast) 2012 (recast) Capital Expenditures Turner ...Home Box Office ...Warner Bros...Corporate ...Total capital expenditures ... $ 173 58 206 37 474 $ 210 45 236 77 568 $ 229 65 270 45 609 $ $ $ Long-lived hard assets located outside the...

  • Page 118
    ...) 16. COMMITMENTS AND CONTINGENCIES Commitments Time Warner has commitments under certain network programming, film licensing, creative talent, employment and other agreements aggregating $33.577 billion at December 31, 2014. The Company also has commitments for office space, studio facilities and...

  • Page 119
    ...Programming Licensing Backlog Programming licensing backlog represents the amount of future revenues not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Because backlog generally relates...

  • Page 120
    ... sought a declaration regarding the validity of the alleged termination and an injunction against future use of the Superboy character. As described in the paragraph above regarding the Superman lawsuit, by orders dated March 20, 2013, April 18, 2013 and June 18, 2013, the district court entered...

  • Page 121
    ... CNN America's appeal to the U.S. Court of Appeals was placed on hold pending resolution of the motions for reconsideration. In April 2013, the Internal Revenue Service (the "IRS") Appeals Division issued a notice of deficiency to the Company relating to the appropriate tax characterization of stock...

  • Page 122
    ... (60) - 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): 2014 Year Ended December 31, 2013 (recast) 2012 (recast) Cash Flows Cash...

  • Page 123
    ...61 (150) (22) (111) December 31, 2014 $ (30) (180) (4) (214) December 31, 2013 (recast) $ $ $ Accounts Payable and Accrued Liabilities Accounts payable ...Accrued expenses ...Participations payable ...Programming costs payable ...Accrued compensation ...Accrued interest ...Accrued income taxes...

  • Page 124
    TIME WARNER INC. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). The Company's internal ...

  • Page 125
    ... in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Time Warner's internal control over financial reporting as of December 31, 2014, based on criteria established in...

  • Page 126
    ... statements of operations, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2014 of Time Warner and our report dated February 26, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP New York, NY February 26, 2015 110

  • Page 127
    ...Basic ...Diluted ...Selected Balance Sheet Information: Cash and equivalents ...Total assets ...Debt due within one year ...Long-term debt ...Time Warner Inc. shareholders' equity ...Total capitalization at book value ...Cash dividends declared per share of common stock ... $ 27,359 5,975 3,827 23...

  • Page 128
    ... million; and an increase in Income from continuing operations attributable to Time Warner Inc. common shareholders of $73 million. The common stock prices on or prior to June 6, 2014, the date of the legal and structural separation of Time Inc., have not been adjusted for the legal and structural...

  • Page 129
    ... per share amounts) 2013(a) Total revenues ...Operating income ...Income from continuing operations ...Discontinued operations, net of tax ...Net income ...Net income attributable to Time Warner Inc. shareholders ...Per share information attributable to Time Warner Inc. common shareholders: Basic...

  • Page 130
    COMPARISON OF CUMULATIVE TOTAL RETURNS The chart below compares the performance of the Company's Common Stock with the performance of the S&P 500 Index and a peer group index from December 31, 2009 through December 31, 2014. The peer group index includes CBS Corporation (Class B), Twenty-First ...

  • Page 131
    ...in 2012, (iv) $0.2875 per share in 2013 and (v) $0.3175 per share in 2014. Comparison of Cumulative Total Returns $400 $300 $200 $100 $0 10 11 12 13 D ec 09 D ec 10 D ec 11 D ec 12 D ec 13 14 Ju n Time Warner Inc. S&P 500 Index Peer Group Index Value at Company Common Stock D ec...

  • Page 132
    ... months ended December 31, 2014, related to the translation of net monetary assets denominated in Venezuelan currency resulting from the Company's change to begin using the SICAD 2 exchange rate. "Adjusted EPS" is Diluted Income per Common Share from Continuing Operations attributable to Time Warner...

  • Page 133
    ...; external costs related to mergers, acquisitions or dispositions; and amounts related to securities litigation and government investigations. For 2014 and 2013, reflects Time Warner's share of a noncash loss on extinguishment of debt of an equity method investee. For 2014, also reflects Time Warner...

  • Page 134
    ...unaudited) Year Ended December 31, 2014 2013 (recast) Cash provided by operations from continuing operations ...$ Add external costs related to mergers, acquisitions, investments or dispositions and contingent consideration payments ...Add excess tax benefits from equity instruments ...Less capital...

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  • Page 137
    ... information section of the company's website: www.timewarner.com/investors. Investor Relations Time Warner Inc. One Time Warner Center New York, NY 10019-8016 866-INFO-TWX e-mail: [email protected] Corporate Publications Copies of Time Warner's Annual Report on Form 10-K for the year ended...

  • Page 138
    Annual Report 2014