Time Magazine 2014 Annual Report Download - page 41

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)
amounts outstanding under the revolving credit facility bear interest at a rate per annum based on LIBOR (subject to a minimum
rate of 1.00%) plus 9%. CME can pay accrued interest for an applicable quarterly interest period either fully in cash or by
adding such amount to the outstanding principal amount of the revolving credit facility. The revolving credit facility also
contains a commitment fee on the average daily unused amount under the facility of 0.50% per annum. As of December 31,
2014, $25 million was outstanding under the revolving credit facility. The $30 million term loan bears interest at a rate of
15.0% per annum, paid semi-annually either fully in cash or by adding such amount to the principal amount of the loan.
These transactions did not change the Company’s approximate 49% voting interest, but resulted in the Company holding
an approximate 75% economic interest in CME on a diluted basis.
On November 14, 2014, Time Warner and CME entered into an agreement pursuant to which Time Warner agreed to
assist CME in refinancing $261 million aggregate principal amount of its Senior Convertible Notes due 2015 (“2015 Notes”)
and €240 million aggregate principal amount of its Senior Notes due 2017 (“2017 Notes”). In connection with this
agreement, CME entered into a €251 million senior unsecured term loan that matures on November 1, 2017 (the “2017 Term
Loan”) with third-party financial institutions the same day. Time Warner has guaranteed CME’s obligations under the 2017
Term Loan for a fee equal to 8.5% less the interest rate on the 2017 Term Loan. The fee is payable to Time Warner in cash or
in kind at CME’s option. CME used the proceeds of the 2017 Term Loan to redeem the 2017 Notes. CME also entered into
unsecured interest rate hedge arrangements to protect against changes in the applicable interest rate on the 2017 Term Loan
during its term. Time Warner has also guaranteed CME’s obligations under the hedge arrangements.
Upon maturity of the 2015 Notes in November 2015, Time Warner will, at its option, either (i) guarantee a $261 million
unsecured term loan due November 1, 2019 (the “2015 Term Loan”) obtained by CME from one or more third-party
financial institutions, for a fee equal to 8.5% less the interest rate on the 2015 Term Loan or (ii) provide a $261 million
senior secured term loan that matures on November 1, 2019 directly to CME, with an 8.5% interest rate (the “Time Warner
Loan”). The guarantee fee or interest payments, as applicable, will be paid to Time Warner in cash or in kind at CME’s
option. Not later than the maturity of the 2015 Term Loan or the Time Warner Loan, as applicable, Time Warner also will
earn a commitment fee of $9 million, which will accrue interest at 8.5% from the date of the 2015 Term Loan or Time
Warner Loan, as applicable, until paid.
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 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 space it owned in Time Warner Center for approximately $1.3 billion and
agreed to lease space in Time Warner Center from the buyer until early 2019. In connection with these transactions, the
Company recognized a pretax gain of $441 million and a tax benefit of $58 million during 2014. Additionally, a pretax gain
of approximately $325 million has been deferred and is being recognized ratably over the lease period. In February 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 City-
based employees. Based on current construction cost and space projections, the Company expects to invest approximately
$1.7 billion in the Hudson Yards development project over the next five years.
RESULTS OF OPERATIONS
Changes in Basis of Presentation
As discussed more fully in Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting
Policies,” to the accompanying consolidated financial statements, the 2013 and 2012 financial information has been recast so
that the basis of presentation is consistent with that of the 2014 financial information. This recast reflects the financial position
and results of operations of the Company’s former Time Inc. segment as discontinued operations for all periods presented.
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