Time Magazine 2014 Annual Report Download - page 74

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Allowance for Doubtful Accounts
The Company monitors customer credit risk related to accounts receivable, including unbilled trade receivables primarily
related to the distribution of television product. Significant judgments and estimates are involved in evaluating if such
amounts will ultimately be fully collected. Each of the Company’s businesses maintains a comprehensive approval process
prior to issuing credit to third-party customers. Counterparties that are determined to be of a higher risk are evaluated to
assess whether the credit terms previously granted to them should be modified. The Company monitors customers’ accounts
receivable aging, and a provision for estimated uncollectible amounts is maintained based on customer payment levels,
historical experience and management’s views on trends in the overall receivable agings at the Company’s businesses. In
addition, for larger accounts, the Company performs analyses of risks on a customer-specific basis. At December 31, 2014
and 2013, total reserves for doubtful accounts were approximately $152 million and $191 million, respectively. For the year
ended December 31, 2014, the Company recognized $20 million of income related to bad debt primarily due to the reversal
of a reserve related to a Warner Bros. receivable. Bad debt expense recognized during the years ended December 31, 2013
and 2012 totaled $28 million and $37 million, respectively.
Consolidation
Time Warner consolidates all entities in which it has a controlling voting interest and all variable interest entities (“VIEs”)
in which the Company is deemed to be the primary beneficiary. Entities determined to be VIEs primarily consist of HBO
Latin America Group (“HBO LAG”) because the Company’s ownership and voting rights in this entity 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 a controlling voting interest, are
accounted for using the equity method. Significant influence is generally presumed to exist when Time Warner owns
between 20% and 50% of the voting interests in the investee, holds substantial management rights or holds an interest of less
than 20% in an investee that is a limited liability partnership or limited liability corporation that is treated as a flow-through
entity.
Under the equity method of accounting, only Time Warner’s investment in and amounts due to and from the equity
investee are included in the Consolidated Balance Sheet; only Time Warner’s share of the investee’s earnings (losses) is
included in the Consolidated Statement of Operations; and only the dividends, cash distributions, loans or other cash received
from the investee, additional cash investments, loan repayments or other cash paid to the investee are included in the
Consolidated Statement of Cash Flows.
Investments in companies in which Time Warner does not have a controlling voting interest or over which it is unable to
exert significant influence are generally accounted for at fair value if the investments are publicly traded. If the investment or
security is not publicly traded, the investment is accounted for at cost. Unrealized gains and losses on investments accounted
for at fair value are reported, net of tax, in Accumulated other comprehensive loss, net. Dividends and other distributions of
earnings from investments in companies in which Time Warner does not have a controlling voting interest or over which it is
unable to exert significant influence are included in Other loss, net, when declared. For more information, see Notes 3 and 4.
The company regularly reviews its investments for impairment. See “Asset Impairments” below for additional
information.
Foreign Currency Translation
Financial statements of subsidiaries operating outside the United States whose functional currency is not the U.S. Dollar
are translated at the rates of exchange on the balance sheet date for assets and liabilities and at average rates of exchange for
revenues and expenses during the period. Translation gains or losses on assets and liabilities are included as a component of
Accumulated other comprehensive loss, net.
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