Time Magazine 2014 Annual Report Download - page 75

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Derivative Instruments
The Company uses derivative instruments principally to manage the risk associated with movements in foreign currency
exchange rates, and recognizes all derivative instruments on the Consolidated Balance Sheet at fair value. Changes in fair
value of derivative instruments that qualify for hedge accounting will either be offset against the change in fair value of the
hedged assets or liabilities through earnings or recognized in shareholders’ equity as a component of Accumulated other
comprehensive loss, net, until the hedged item is recognized in earnings, depending on whether the derivative instrument is
being used to hedge changes in fair value or cash flows. For qualifying hedge relationships, the Company excludes the
impact of forward points or option premiums from its assessment of hedge effectiveness and recognizes changes in the fair
value of a derivative instrument due to forward points or option premiums in Other income (loss), net each quarter. The
ineffective portion of a derivative instrument’s change in fair value is immediately recognized in earnings. For those
derivative instruments that do not qualify for hedge accounting, changes in fair value are recognized immediately in earnings.
See Note 7 for additional information regarding derivative 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, software configuration, upgrades and
enhancements incurred for the development of internal use software. Depreciation is recorded on a straight-line basis over
estimated useful lives. Leasehold improvements are depreciated over the lesser of the estimated useful life of the
improvement or the term of the applicable lease. Time Warner periodically evaluates the depreciation periods of property,
plant and equipment to determine whether a revision to its estimates of useful lives is warranted. Property, plant and
equipment, including capital leases, consist of (millions):
December 31, Estimated
Useful Lives2014 2013
(recast)
Land(a) ............................................... $ 274 $ 431 n/a
Buildings and improvements .............................. 1,549 2,287 7 to 30 years
Capitalized software costs ................................ 1,868 1,636 3 to 7 years
Furniture, fixtures and other equipment(b) .................... 3,102 3,236 3 to 10 years
6,793 7,590
Accumulated depreciation ................................ (4,138) (4,299)
Total ................................................. $ 2,655 $ 3,291
(a) Land is not depreciated.
(b) Includes $223 million and $327 million of construction in progress as of December 31, 2014 and 2013, respectively.
Intangible Assets
Time Warner has a significant number of intangible assets, including acquired film and television libraries and other
copyrighted products and tradenames. Time Warner does not recognize the fair value of internally generated intangible
assets. Intangible assets acquired in business combinations are recorded at the acquisition date fair value in the Company’s
Consolidated Balance Sheet. Acquired film libraries are amortized using the film forecast computation model. For more
information, see “Film and Television Production Cost Recognition, Participations and Residuals and Impairments” and
Note 2.
Asset Impairments
Investments
The Company’s investments consist of (i) investments carried at fair value, including available-for-sale securities and
certain deferred compensation-related investments, (ii) investments accounted for using the cost method of accounting,
(iii) investments accounted for using the equity method of accounting and (iv) held-to-maturity debt securities. The Company
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