Time Magazine 2014 Annual Report Download - page 39

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TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
Recent Developments
Venezuela Currency
Certain of the Company’s divisions conduct business with third parties located in Venezuela and, as a result, the Company
holds net monetary assets denominated in Venezuelan Bolivares Fuertes (“VEF”) that primarily consist of cash and accounts
receivable. As of December 31, 2014, there were three legal foreign currency exchange systems administered by the
Venezuelan government, each with a different exchange rate: (i) the fixed official government rate as published by the
Central Bank of Venezuela, which as of December 31, 2014 was 6.3 VEF to each U.S. Dollar, (ii) the variable, auction-based
SICAD 1 rate, which as of December 31, 2014 was 12 VEF to each U.S. Dollar and (iii) the variable, transaction-based
SICAD 2 rate, which as of December 31, 2014 was approximately 50 VEF to each U.S. Dollar. Because of Venezuelan
government-imposed restrictions on the exchange of VEF into foreign currency in Venezuela, the Company has not been
able to convert VEF earned in Venezuela into U.S. Dollars through the official government rate. Further, the Company has
not been able to access the SICAD 1 and SICAD 2 exchanges due to government requirements and restrictions on
participation in the exchanges, including a requirement that an entity be domiciled in Venezuela to participate.
Prior to December 31, 2014, the Company used the official government exchange rate to remeasure its VEF-denominated
transactions and balances. This was principally due to the Company’s inability to access the SICAD 1 and SICAD 2
exchange systems, as noted above, as well as a lack of clarity about those exchange systems’ stability and transaction
volume. During the fourth quarter of 2014, the Company considered information about the companies that were able to
access the three exchange systems during 2014 and the fact that the SICAD 1 and SICAD 2 exchanges continued to operate,
as well as the state of the Venezuelan economy, which has been negatively impacted by significantly lower oil prices and
which the Venezuela Central Bank confirmed in late December 2014 had entered a recession. Based on these factors, as of
December 31, 2014, the Company concluded that the SICAD 2 exchange rate was the most appropriate legal exchange rate
for the Company’s business activities conducted in VEF. Accordingly, beginning on December 31, 2014, the Company
began using the SICAD 2 rate to remeasure its VEF-denominated transactions and balances and, 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.
On February 10, 2015, Venezuelan government officials announced changes to Venezuela’s current foreign currency
exchange system. Those changes include a merger of the SICAD I and SICAD 2 exchanges into a single SICAD exchange
whose rate was initially set at 12 VEF to each U.S. Dollar as well as the creation of a new free market foreign currency
exchange that is referred to as the Simadi exchange. On the initial date of activity, the Simadi exchange rate published by the
Central Bank of Venezuela was 170 VEF to each U.S. Dollar. Given the restrictions associated with the official government
rate and the SICAD exchange, the Company currently expects to use the Simadi exchange rates to remeasure its VEF-
denominated transactions and balances. However, the Company will continue to evaluate developments in Venezuela and
finalize its assessment of the most appropriate legal exchange 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 unsecured credit facilities (the “Revolving Credit
Facilities”), which consist of two $2.5 billion revolving credit facilities, to extend the maturity dates of both facilities from
December 18, 2018 to December 18, 2019. See “Financial Condition and Liquidity – Outstanding Debt and Other Financing
Arrangements” for more information.
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