Time Magazine 2014 Annual Report Download - page 93

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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table reconciles the beginning and ending balances of net derivative assets and liabilities classified as Level
3 and identifies the total gains (losses) the Company recognized during the year ended December 31, 2014 and 2013 on such
assets and liabilities that were included in the Consolidated Balance Sheet as of December 31, 2014 and 2013 (millions):
December 31,
2014
December 31,
2013
Balance as of the beginning of the period ...................................... $ 1 $ 7
Total gains (losses), net:
Included in operating income .............................................. - (1)
Included in other loss, net ................................................ 31 12
Included in other comprehensive income (loss) ............................... - -
Purchases ............................................................... 213 -
Settlements .............................................................. (20) (15)
Issuances ............................................................... 16 (2)
Transfers in and/or out of Level 3 ............................................ - -
Balance as of the end of the period ........................................... $ 241 $ 1
Net gain for the period included in net income related to assets and liabilities
still held as of the end of the period ......................................... $ 32 $ 9
Other Financial Instruments
The Company’s other financial instruments, including debt, are not required to be carried at fair value. Based on the
interest rates prevailing at December 31, 2014, the fair value of Time Warner’s debt exceeded its carrying value by
approximately $4.251 billion and, based on interest rates prevailing at 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 transactions. Unrealized gains or losses on debt do not result in the realization or expenditure of cash and generally are
not recognized in the consolidated financial statements unless the debt is retired prior to its maturity.
Information about the Company’s investments in CME that are not required to be carried at fair value on a recurring basis
is as follows (millions):
Carrying Value Fair Value Fair Value Hierarchy
Class A common stock(a) ....................... $ - $ 233 Level 1
Series B convertible redeemable preferred shares .... 148 297 Level 2
Senior secured notes .......................... 239 408 Level 2
(a) Includes one share of Series A convertible preferred stock.
The fair values of the Company’s investments in CME’s Class A common stock (including Series A convertible preferred
stock) and Series B convertible redeemable preferred shares are primarily determined by reference to the December 31, 2014
closing price of CME’s common stock. The fair value of the Company’s investment in CME’s Senior Secured Notes is
primarily determined by reference to observable sales transactions.
The carrying value for the majority of the Company’s other financial instruments approximates fair value due to the short-
term nature of the financial instruments or because the financial instruments are of a longer-term nature and are recorded on a
discounted basis.
77