Time Magazine 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 Time Magazine annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

go
BANSHEE
a
m
e
r
i
c
a
n
c
e
n
t
u
r
y
r
e
c
o
r
d
s
nasty bits
WAY N E WAY N E
ANNUAL REPORT 2015

Table of contents

  • Page 1
    ANNUAL REPORT 2015 n c e n t u ry re cords am e ri ca nasty bits BANSHEE WAYNE WAYNE go

  • Page 2
    ...wherever and however they want it. Our divisions Warner Bros., Turner and Home Box Office together comprise the world's leading video-focused media company, and one measure of our success is how deeply we engage fans and audiences across so many genres. The following pages highlight the power of our...

  • Page 3
    heroic DC Entertainment's iconic characters have burst to life across screens and platforms - including an ambitious slate of big-screen blockbusters, action-packed shows all across television, new digital ventures and videogames. Batman v Superman: Dawn of Justice, Supergirl, Batman: Arkham ...

  • Page 4
    ... past, the best creators, writers and technical wizards in film and television come to us to realize their work and share it with the world. Game of Thrones, Blindspot Mad Max: Fury Road Major Crimes, Confirmation 2

  • Page 5
    Funny We work with some of the funniest people on earth to deliver big laughs across all our businesses - including some of the biggest comedies in broadcast, ad-supported cable, and premium television. Seriously. The Big Bang Theory, Veep, The Detour Rick and Morty, Silicon Valley 3

  • Page 6
    ... series, award-winning documentaries, and satirical takes on current affairs that help global audiences better understand and navigate a complex world. Anderson Cooper, A Girl in the River: The Price of Forgiveness, Last Week Tonight with John Oliver Full Frontal with Samantha Bee, New Day 4

  • Page 7
    ...'s the NBA, March Madness, Major League Baseball, must-see boxing matches, or the emerging field of eSports, we bring it home for sports fans - along with news and analysis that plays to win. NCAA March Madness, MLB on TBS eLeague, Friday Night Knockout Real Sports with Bryant Gumbel, NBA on TNT...

  • Page 8
    ... and however they choose. And that's why we are blazing the trail in broadband-delivered services and digital content ventures that both enhance the existing television ecosystem or operate beyond it. go HBO NOW, CNNgo Bleacher Report, DC All Access March Madness Live App Great Big Story 6

  • Page 9
    ...television brands, tapping into our widening digital presence, mastering our videogames, getting their hands on our consumer products or going to see the kid-focused features in our theatrical lineup. Teen Titans Go!, Sesame Street Steven Universe The LEGO Batman Movie, Be Cool, Scooby-Doo! 7 7

  • Page 10
    u n p r e d i c Ta b l e Our unscripted programming rivets its devoted audiences. Whether it's practical jokes, daytime talk, budding romance, late-night fun or celebrity dish, we've got it covered. Ellen, The Real, The Voice, The Bachelor Impractical Jokers, Little Big Shots 8

  • Page 11
    ...hits, blockbusters and the global excellence of news from CNN. At the same time, we are producing a growing lineup of TV shows and movies tailored to local tastes and customs. Wataha, HBO Poland, Palmeras en la Nieve, Spain Oh!K, Asia Pacific, CNN's Clarissa Ward, Syria Latin Grammy®Awards, TNT...

  • Page 12
    ... the eight years ending with 2015, the Company delivered a total return to shareholders of over 140% - far outpacing the S&P 500. The benefits of our strategy and the advantages of our scale and structure were evident in our many successes in 2015. For example, audiences at Turner's networks were...

  • Page 13
    ... to bolster its original content offerings across its traditional and broadband services by adding such renowned names as Bill Simmons, Jon Stewart and Sesame Street to its roster. Home Box Office continues to grow internationally as well, and in 2016 plans to significantly expand its footprint...

  • Page 14
    ... (SAIS), The Johns Hopkins University Olaf Olafsson Executive Vice President, International and Corporate Strategy Carlos M. Gutierrez Co-Chair, Albright Stonebridge Group Fred Hassan Partner and Managing Director, Warburg Pincus LLC Time Warner Senior Operating Executives John K. Martin, Jr...

  • Page 15
    ...Notes to Consolidated Financial Statements ...Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Selected Financial Information ...Quarterly Financial Information ...Comparison of Cumulative Total Returns ...Reconciliations...

  • Page 16
    [THIS PAGE INTENTIONALLY LEFT BLANK] 2

  • Page 17
    ... media and entertainment company. The Company classifies its businesses into the following three reportable segments Turner, consisting principally of cable networks and digital media properties; Home Box Office, consisting principally of premium pay television and streaming services domestically...

  • Page 18
    ... principally from providing programming to affiliates that distribute the programming to subscribers, the sale of advertising on its networks and the digital properties it owns or manages for other companies, and the license of its original programming to SVOD and other OTT services and its brands...

  • Page 19
    ... in Chile, and Esporte Interativo, a Brazilian linear television channel and streaming service that airs sports programming, including programming from South American and European soccer leagues. Turner also operates several regional entertainment networks in Europe, the Middle East and Asia. 5

  • Page 20
    ..., their related digital properties and bleacherreport.com. Turner's sports programming helps drive value across its networks in the form of higher affiliate fees, ratings and advertising rates as well as more promotional opportunities. Turner's sports programming features licensed programming from...

  • Page 21
    ... mobile products, increasing the amount of original short form video content it offers online and growing its online political news presence. In 2015, CNN launched Great Big Story and in 2014, CNN launched CNNGo, which allows subscribers to watch CNN's news and original programming live and...

  • Page 22
    ... such as The Leftovers and The Casual Vacancy. Home Box Office is also expanding the scope of the programming it offers to reach new audiences and support both its premium pay television services and HBO NOW. In 2016, Home Box Office will add new episodes and over 150 library episodes of Sesame...

  • Page 23
    ... for annual service fee increases and marketing support. While fees to Home Box Office under affiliate agreements are generally based on the number of subscribers served by the affiliates, the relationship between subscriber totals and the amount of revenues earned depends on the specific terms of...

  • Page 24
    ... international television production business through its global network of local production companies in 16 international territories. Warner Bros. ranked as the #3 U.S. videogame publisher, with two titles, Mortal Kombat X and Batman: Arkham Knight, ranked in the top ten videogame releases in 2015...

  • Page 25
    ... OTT services. Warner Bros. is also focused on expanding its international local television production business by using its global network of local production companies. Warner Bros. is actively collaborating with Turner to significantly expand their global kids businesses and maximize the related...

  • Page 26
    ... months following their theatrical release. During 2015, Warner Bros. licensed more than 900 feature films and over 3,000 hours of feature film programming to television networks, premium pay television services and SVOD and other OTT services. In international territories, Warner Bros. licenses...

  • Page 27
    ... on home entertainment product in physical formats has declined as a result of several factors, including consumers shifting to SVOD and other OTT services, discount rental kiosks and digital purchases and rentals; increasing competition for consumer discretionary time and spending; and piracy...

  • Page 28
    ... SVOD services. The CW also operates CW Seed, a digital-only platform for original and acquired comedy series that is available for streaming online and on mobile devices. AVAILABLE INFORMATION AND WEBSITE The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on...

  • Page 29
    ...implied by the statements in this 2015 Annual Report to Shareholders due to changes in economic, business, competitive, technological, strategic and/or regulatory factors and other factors affecting the operation of Time Warner's businesses. For more detailed information about these factors and risk...

  • Page 30
    ...of networks being offered by some affiliates. As a result of some of these risks, in 2015, the U.S. television industry experienced declines in subscribers to multichannel video services and industry-wide declines in ratings for programming, which has negatively affected advertising and subscription...

  • Page 31
    ... rate of decline in the number of multichannel video service subscribers increases or if subscribers shift to affiliates' lower-cost streaming services or smaller bundles of networks that do not include all of the Company's cable networks and premium pay services, the Company's subscription revenues...

  • Page 32
    ... OTT services and electronic purchases and rentals; consumers electing to rent films using discount rental kiosks, which generate significantly less profit per transaction for the Company than the sale of home entertainment products in physical formats; changing retailer strategies and initiatives...

  • Page 33
    ... in the financial markets. The Company's financial condition and results of operations may be adversely affected by weak economic conditions in the U.S. and other countries where the Company does business and the impact of those conditions on advertisers, affiliates, suppliers, retailers, insurers...

  • Page 34
    ... copies of content, such as the proliferation of cloud-based storage and streaming services, increased broadband Internet speeds and penetration rates, and increased availability and speed of mobile data transmission. Piracy is particularly prevalent in countries that lack effective copyright...

  • Page 35
    ... electronic transactions with consumers, increases the number of information technology systems used in its business operations, relies more on cloud-based services and information systems and increases its use of third-party service providers to perform information technology services, the related...

  • Page 36
    ... and strategic goals relating to the initiatives. The Company has multi-year enterprise efficiency initiatives underway to deliver certain business support services (e.g., real estate and certain information technology functions) centrally to the Company's divisions. The Company may incur greater...

  • Page 37
    .... Refer to "Risk Factors" in this 2015 Annual Report to Shareholders for a discussion of the risk factors applicable to the Company. • • • • • OVERVIEW Time Warner is a leading media and entertainment company whose major businesses encompass an array of the most respected and...

  • Page 38
    ... for annual service fee increases and marketing support. While fees to Home Box Office under affiliate agreements are generally based on the number of subscribers served by the affiliates, the relationship between subscriber totals and the amount of revenues earned depends on the specific terms of...

  • Page 39
    ..., including Game of Thrones, True Blood, Boardwalk Empire and True Detective, via physical and digital formats and (ii) the licensing of its original programming to SVOD services and international television networks. Warner Bros. Time Warner's Warner Bros. segment consists of businesses managed by...

  • Page 40
    ...advertising dollars to nontraditional video outlets. To address these changes, the Company's strategy over the past few years has focused on strengthening its position within the traditional TV ecosystem, enhancing the value of traditional pay television subscriptions for consumers, and pursuing new...

  • Page 41
    ... 10.5%, less the interest rate on the 2016 Term Loan, to be paid to Time Warner semi-annually. CME BV must pay a portion of the fee in cash and may, at CME BV's option, pay the remainder in cash or in kind. In April 2016, CME will use cash on hand and the proceeds of the 2016 Term Loan to repay in...

  • Page 42
    ... Condition and Liquidity - Outstanding Debt and Other Financing Arrangements" for further information. Debt Tender Offer and Redemption In June 2015, Time Warner purchased $687 million aggregate principal amount of the $1.0 billion aggregate principal amount outstanding of its 5.875% Notes due 2016...

  • Page 43
    ... described above, the Company incurred Restructuring and severance costs of $60 million, $512 million and $183 million for the years ended December 31, 2015, 2014 and 2013, respectively. For the years ended December 31, 2015 and 2014, the Turner segment incurred programming impairments of $131...

  • Page 44
    .... MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued) Asset Impairments During the year ended December 31, 2015, the Company recognized asset impairments of $15 million at Corporate primarily related to an asset held for disposal and certain internally...

  • Page 45
    ...during the third quarter of 2013. Amounts Related to the Separation of Time Warner Cable Inc. For the years ended December 31, 2015, 2014 and 2013, the Company recognized losses of $4 million, $10 million and $7 million, respectively, related to changes in the value of a Time Warner Cable Inc. ("TWC...

  • Page 46
    ... of the Company's results of operations and should be read in conjunction with the accompanying Consolidated Statement of Operations. Revenues. The components of Revenues are as follows (millions): 2015 Year Ended December 31, 2014 2013 % Change 2015 vs. 2014 2014 vs. 2013 Turner ...Home Box Office...

  • Page 47
    ... from a change in the foreign exchange rated used by the Company from the SICAD 2 exchange rate to the Simadi exchange rate. See "Recent Developments" for more information. The increase for the year ended December 31, 2014 primarily related to increases at the Turner segment and Corporate. In...

  • Page 48
    ... 2015, 2014 and 2013, the Company incurred Restructuring and severance costs primarily related to employee terminations and other exit activities. Restructuring and severance costs are as follows (millions): 2015 Year Ended December 31, 2014 2013 Turner ...Home Box Office ...Warner Bros...Corporate...

  • Page 49
    ... detail is shown in the table below (millions): 2015 Year Ended December 31, 2014 2013 Investment gains (losses), net ...Amounts related to the separation of TWC ...Amounts related to the disposition of WMG ...Amounts related to the separation of Time Inc...Premiums paid and costs incurred on debt...

  • Page 50
    ... for the years ended December 31, 2015, 2014 and 2013 are as follows (millions): 2015 Year Ended December 31, 2014 2013 % Change 2015 vs. 2014 2014 vs. 2013 Revenues: Subscription ...$ Advertising ...Content and other ...Total revenues ...Costs of revenues (a) ...Selling, general and administrative...

  • Page 51
    ... business, partially offset by lower audience delivery and demand at its domestic entertainment networks. International advertising revenues were flat as growth was offset by the unfavorable impact of foreign exchange rates of approximately $25 million. For the year ended December 31, 2014, Costs...

  • Page 52
    ... of the Home Box Office segment for the years ended December 31, 2015, 2014 and 2013 are as follows (millions): 2015 Year Ended December 31, 2014 2013 % Change 2015 vs. 2014 2014 vs. 2013 Revenues: Subscription ...Content and other ...Total revenues ...Costs of revenues (a) ...Selling, general and...

  • Page 53
    ... relating to the licensing of select original programming to an SVOD service, and higher home entertainment revenues of $71 million. The increase in Costs of revenues for the year ended December 31, 2014 reflected higher programming and other direct operating costs. The increase in programming costs...

  • Page 54
    ... on television) for the years ended December 31, 2015, 2014 and 2013 are as follows (millions): 2015 Year Ended December 31, 2014 2013 % Change 2015 vs. 2014 2014 vs. 2013 Theatrical product: Film rentals ...Home video and electronic delivery ...Television licensing ...Consumer products and other...

  • Page 55
    ... catalog titles. There were 24 and 18 home video and electronic delivery releases in 2015 and 2014, respectively. The decrease in theatrical product revenues from television licensing for the year ended December 31, 2015 was primarily due to the timing and mix of availabilities. Television product...

  • Page 56
    ... higher license fees from SVOD services, primarily internationally. The decrease in television product revenues from home video and electronic delivery for the year ended December 31, 2014 was primarily due to continued declines in sales of home entertainment product in physical formats. Television...

  • Page 57
    ... and severance costs, partially offset by higher Revenues. Corporate. (millions): Operating Loss at Corporate for the years ended December 31, 2015, 2014 and 2013 was as follows Year Ended December 31, 2014 % Change 2015 vs. 2014 2014 vs. 2013 2015 2013 Selling, general and administrative...

  • Page 58
    ... credit facilities and commercial paper program and access to capital markets. Time Warner's unused committed capacity at December 31, 2015 was $7.177 billion, which included $2.155 billion of Cash and equivalents. Current Financial Condition At December 31, 2015, Time Warner had net debt of $21.637...

  • Page 59
    ... negotiated transactions. The size and timing of these purchases are based on a number of factors, including price and business and market conditions. From January 1, 2016 through February 19, 2016, the Company repurchased 8 million shares of common stock for $557 million pursuant to trading...

  • Page 60
    ...): 2015 Year Ended December 31, 2014 2013 Borrowings ...Debt repayments ...Proceeds from the exercise of stock options ...Excess tax benefit from equity instruments ...Principal payments on capital leases ...Repurchases of common stock ...Dividends paid ...Other financing activities ...Cash used by...

  • Page 61
    ...exercise of stock options. Cash Flows from Discontinued Operations Cash flows from discontinued operations principally related to the Company's former Time Inc. segment. Details of Cash provided (used) by discontinued operations are as follows (millions): 2015 Year Ended December 31, 2014 2013 Cash...

  • Page 62
    ... amount outstanding of its 3.15% Notes due July 15, 2015. The remainder of the net proceeds will be used for general corporate purposes, including share repurchases. Debt Tender Offer and Redemption In June 2015, Time Warner purchased $687 million aggregate principal amount of the $1.0 billion...

  • Page 63
    ..., which support the commercial paper program. Additional Information The obligations of each of the borrowers under the Revolving Credit Facilities and the obligations of Time Warner under the commercial paper program and the Company's outstanding publicly issued debt are directly or indirectly...

  • Page 64
    ... film's box office receipts (with license fees generally capped at specified amounts), or a combination of both. The amounts included in the table represent obligations for television series and films that had been released theatrically as of December 31, 2015 and are calculated using the actual or...

  • Page 65
    ... arising from the impact of changes in market rates and prices, such as interest rates, foreign currency exchange rates, or equity prices, on the value of financial instruments. Interest Rate Risk Time Warner has issued fixed-rate debt that at December 31, 2015 and 2014 had an outstanding balance of...

  • Page 66
    ... in the level of interest rates would have an insignificant impact on pretax income. Foreign Currency Risk Time Warner principally uses foreign exchange contracts to hedge the risk related to unremitted or forecasted royalties and license fees owed to Time Warner domestic companies for the sale or...

  • Page 67
    ... and Residuals and Impairments; Licensed Programming Inventory Cost Recognition and Impairment; Gross versus Net Revenue Recognition; Sales Returns and Pricing Rebates; and Income Taxes. For a discussion of each of the Company's critical accounting policies, including information and analysis of...

  • Page 68
    ..., license and/or sell Time Warner's content; the Company's ability to renew affiliate agreements on favorable terms; competitive pressures, including as a result of audience fragmentation and changes in technology and consumer viewing behavior; changes in advertising market conditions or advertising...

  • Page 69
    ... or labor disputes or professional sports league player lockouts; the impact of terrorist acts, hostilities, natural disasters (including extreme weather) and pandemic viruses; and the other risks and uncertainties detailed in "Risk Factors" in this 2015 Annual Report to Shareholders. Any forward...

  • Page 70
    ... liabilities ...Deferred revenue ...Debt due within one year ...Total current liabilities ...Long-term debt ...Deferred income taxes ...Deferred revenue ...Other noncurrent liabilities ...Redeemable noncontrolling interest ...Commitments and Contingencies (Note 16) Equity Common stock, $0.01 par...

  • Page 71
    TIME WARNER INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, (millions, except per share amounts) 2015 2014 2013 Revenues ...$ Costs of revenues ...Selling, general and administrative ...Amortization of intangible assets ...Restructuring and severance costs ...Asset impairments ......

  • Page 72
    ...Year Ended December 31, (millions) 2015 2014 2013 Net income ...$ Other comprehensive income, net of tax: Foreign currency translation: Unrealized losses occurring during the period ...Reclassification adjustment for (gains) losses realized in net income ...Change... attributable to Time Warner Inc....

  • Page 73
    ... FLOWS Year Ended December 31, (millions) 2015 2014 2013 OPERATIONS Net income ...Less Discontinued operations, net of tax ...Net income from continuing operations ...Adjustments for noncash and nonoperating items: Depreciation and amortization ...Amortization of film and television costs ...Asset...

  • Page 74
    ...Common stock repurchases ...Noncontrolling interests of acquired businesses ...Amounts related primarily to stock options and restricted stock ...BALANCE AT DECEMBER 31, 2013... loss for the year ended December 31, 2015 relating to redeemable noncontrolling interests. See accompanying notes. 60

  • Page 75
    ... company, whose businesses include television networks, and film and TV entertainment. Time Warner classifies its operations into three reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay...

  • Page 76
    ...a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements. Debt Issuance Costs During the third quarter of 2015, the...

  • Page 77
    ...effect on the Company's consolidated financial statements. Accounting Guidance Not Yet Adopted Recognition and Measurement of Financial Assets and Liabilities In January 2016, guidance was issued that makes targeted changes to the accounting for financial instruments. The changes primarily relate to...

  • Page 78
    ... 31, 2015, the Company recognized $63 million of bad debt expense. 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. For the year ended December 31, 2013, the Company...

  • Page 79
    ...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...

  • Page 80
    ... 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 regularly reviews its investments for...

  • Page 81
    ...in the near term and the fair value is below the Company's cost basis). For investments accounted for using the cost or equity method of accounting, the Company evaluates information available (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in...

  • Page 82
    ... employees' qualifying years of service and compensation. Time Warner's largest defined benefit pension plan is closed for new employees and frozen to future benefit accruals. Time Warner uses a December 31st measurement date for its plans. The pension expense recognized by the Company is determined...

  • Page 83
    ... by distribution, generally commencing within three years of such initial exhibition, through sales of feature films in physical format, electronic sellthrough, video-on-demand, subscription video-on-demand services, premium cable, basic cable and broadcast networks. Revenues from film rentals by...

  • Page 84
    ... of the delivery date or the date that the product is made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns. Subscription Revenue Subscription revenues from the Company's cable networks and premium pay and basic tier television services are...

  • Page 85
    ... films, home video, television programs and/or videogames. The independent third-party company may retain final approval over the distribution, marketing, advertising and publicity for each film or videogame in all media, including the timing and extent of the releases, the pricing and packaging...

  • Page 86
    ...the film will be released. In the absence of revenues directly related to the exhibition of a film or television program that is owned by the Company on the Company's television networks or premium pay television or streaming services, management estimates a portion of the unamortized costs that are...

  • Page 87
    ... the rights fees are amortized using the ratio of current period advertising revenue to total estimated remaining advertising revenue over the term of the arrangement. For premium pay television and streaming services that are not advertising-supported, each licensed program's costs are amortized...

  • Page 88
    ... production costs of $17 million, $51 million and $53 million in 2015, 2014 and 2013, respectively. Barter Transactions Time Warner enters into transactions that involve the exchange of advertising, in part, for other products and services, such as a license for programming. Such transactions...

  • Page 89
    ... computation method. For the years ended December 31, 2015, 2014 and 2013, net participation costs related to third party investors of $406 million, $580 million and $522 million, respectively, were recorded in Costs of revenues. The aggregate programming rights fee, production costs, advertising...

  • Page 90
    .... Goodwill The following summary of changes in the Company's Goodwill during the years ended December 31, 2015 and 2014, by reportable segment, is as follows (millions): Turner Home Box Office Warner Bros. Total Balance at December 31, 2013 ...Acquisitions, dispositions and adjustments, net...

  • Page 91
    ... ended December 31, 2015, 2014 and 2013 by reportable segment, as follows (millions): 2015 Year Ended December 31, 2014 2013 Turner ...$ Home Box Office ...Warner Bros...Time Warner ...$ 1 - - 1 $ 1 4 13 18 $ 18 - 1 19 $ $ The Company's intangible assets subject to amortization and related...

  • Page 92
    ... pay, basic tier television and streaming services serving over 15 countries in Asia. As a result of this acquisition, Home Box Office owns 100% of HBO Asia and has consolidated its results of operations and financial condition effective September 30, 2013. For the year ended December 31, 2013, Home...

  • Page 93
    ... share amounts): Year Ended December 31, 2014 2013 Total revenues ...$ Pretax income (loss) ...Income tax benefit (provision) ...Net income (loss) ...Net income (loss) attributable to Time Warner Inc. shareholders ...Per share information attributable to Time Warner Inc. common shareholders: Basic...

  • Page 94
    ...'s Class A common stock at the Company's option at any time after June 25, 2016. The Company accounts for its investment in CME's Series B convertible redeemable preferred shares under the cost method of accounting. As of December 31, 2015, the Company owned 3.4 million of CME's 15% senior secured...

  • Page 95
    ... Offering and Related Transactions On May 2, 2014, pursuant to a rights offering by CME, Time Warner acquired approximately 2.8 million units, each consisting of a Senior Secured Note and 21 unit warrants, with each unit warrant entitling the Company to purchase one share of CME Class A common stock...

  • Page 96
    ... changes in the interest rate on the term loan during its term. Time Warner has guaranteed CME's obligations under the hedge arrangements. Equity-Method Investments At December 31, 2015, investments accounted for using the equity method included the Company's investments in the Class A common stock...

  • Page 97
    ... the years ended December 31, 2015, 2014 and 2013, the Company incurred writedowns to reduce the carrying value of certain investments that experienced other-than-temporary impairments, as set forth below (millions): 2015 December 31, 2014 2013 Equity-method investments ...Cost-method investments...

  • Page 98
    ...(Continued) The Company primarily applies the market approach for valuing recurring fair value measurements. As of December 31, 2015 and 2014, assets and liabilities valued using significant unobservable inputs (Level 3) primarily related to warrants to purchase shares of Class A common stock of CME...

  • Page 99
    ... assumptions for cash flows associated with the use and eventual disposition of the assets. During the years ended December 31, 2015 and December 31, 2014, the Company also performed fair value measurements related to certain theatrical films and television programs. In determining the fair value of...

  • Page 100
    ... costs of released and completed and not released theatrical and television product are expected to be amortized during the twelvemonth period ending December 31, 2016. 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Time Warner uses derivative instruments, primarily forward contracts, to manage...

  • Page 101
    ... and the Company does not economically hedge this exposure. Net gains and losses from hedging activities recognized in the Consolidated Statement of Operations were as follows (millions): 2015 Year Ended December 31, 2014 2013 Gains (losses) recognized in: Cost of revenues ...$ Selling, general and...

  • Page 102
    ...commercial paper program. The Revolving Credit Facilities, commercial paper program and public debt of the Company rank pari passu with the senior debt of the respective obligors thereon. The weighted-average interest rate on Time Warner's total debt was 5.65% and 5.83% at December 31, 2015 and 2014...

  • Page 103
    ... paper program. Proceeds from the commercial paper program may be used for general corporate purposes. The obligations of the Company under the commercial paper program are directly or indirectly guaranteed, on an unsecured basis, by Historic TW, Home Box Office and Turner. Public Debt Time...

  • Page 104
    ... tender offer. The premiums paid and costs incurred in connection with this purchase and redemption were $71 million for the year ended December 31, 2015 and were recorded in Other loss, net in the accompanying Consolidated Statement of Operations. Maturities of Public Debt The Company's public debt...

  • Page 105
    ... on Income from continuing operations are as follows (millions): 2015 Year Ended December 31, 2014 2013 Federal: Current ...Deferred ...Foreign: Current (a) ...Deferred ...State and Local: Current ...Deferred ...Total (b) ...(a) (b) $ 844 349 337 (29) 142 8 $ 128 152 466 - 25 14 $ 494 802 348...

  • Page 106
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes provided are as set forth below (millions): Year Ended December 31, 2014 2015 2013 Taxes on income at U.S. ...

  • Page 107
    ... related to uncertain income tax positions as of December 31, 2015 will significantly increase or decrease during the twelve-month period ended December 31, 2016; however, various events could cause the Company's current expectations to change in the future. During the year ended December 31, 2014...

  • Page 108
    ... 2015 New York City ...2009 through 2015 10. SHAREHOLDERS' EQUITY Common Stock Repurchase Program For the years ended December 31, 2015, 2014 and 2013, the number of shares repurchased pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and their cost...

  • Page 109
    .... Pretax (gains) losses included in Selling, general and administrative expenses, Costs of revenues and Other loss, net are as follows (millions): Year Ended December 31, 2014 2013 $ (5) (18) 1 $ (5) (27) (3) 2015 Selling, general and administrative expenses ...Costs of revenues ...Other loss, net...

  • Page 110
    ...generally vest 50% on each of the third and fourth anniversaries of the date of grant. The Company also has a PSU program for executive officers who are awarded a target number of PSUs that represent the contingent (unfunded) right to receive shares of Company common stock at the end of a three-year...

  • Page 111
    ...the weighted-average assumptions used to value stock options at their grant date and the weighted-average grant date fair value per share: Year Ended December 31, 2015 2014 2013 Expected volatility ...Expected term to exercise from grant date ...Risk-free rate ...Expected dividend yield ...Weighted...

  • Page 112
    ...-average grant date fair value of RSUs and target PSUs. For certain PSUs, the service inception date precedes the grant date and requires the Company to apply mark-to-market accounting that is reflected in the grant date fair values presented: 2015 Year Ended December 31, 2014 2013 RSUs ...PSUs...

  • Page 113
    ...): 2015 Year Ended December 31, 2014 2013 Stock options ...RSUs and PSUs ...Total impact on operating income ...Tax benefit recognized ... $ $ $ 39 143 182 64 $ $ $ 26 193 219 76 $ $ $ 33 205 238 78 Total unrecognized compensation cost related to unvested Time Warner stock option awards as...

  • Page 114
    ... substantially all of Time Warner's domestic and international defined benefit pension plans is as follows: Benefit Obligation (millions) December 31, 2015 2014 Change in benefit obligation: Projected benefit obligation, beginning of year ...$ Service cost ...Interest cost ...Actuarial loss (gain...

  • Page 115
    ... the years ended December 31, 2015, 2014 and 2013, respectively. Assumptions Weighted-average assumptions used to determine benefit obligations and net periodic benefit costs for the years ended December 31: 2015 Benefit Obligations 2014 2013 2015 Net Periodic Benefit Costs 2014 2013 Discount rate...

  • Page 116
    ... 5, the assets held by the Company's defined benefit pension plans, including those assets related to The CW sub-plan, which were approximately $18 million and $20 million, respectively, as of December 31, 2015 and December 31, 2014 (millions): Level 1 December 31, 2015 Level 2 Level 3 Total Level...

  • Page 117
    ... of portfolio management strategies. Under the Company's investment policy, the asset allocation target for the domestic defined benefit pension plans is approximately 35% equity investments and 65% fixed income investments. As and when funded status and market conditions permit, the Company intends...

  • Page 118
    ... largest multiemployer pension plans in which the Company participated during the years ended December 31, 2015, 2014 and 2013. The RT&RA Plan's most recently filed Form 5500 was for its plan year ended December 31, 2014. Pursuant to that filing, Home Box Office was one of eight employers obligated...

  • Page 119
    ... the 2014 initiatives, the Company incurred costs of $2 million at the Warner Bros. segment, and reversed $15 million at the Home Box Office segment and $2 million at Corporate. For the year ended December 31, 2015, the Company also reversed $1 million at the Warner Bros. segment related to 2013 and...

  • Page 120
    ... 2019. 15. SEGMENT INFORMATION Time Warner classifies its operations into three reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay television and streaming services domestically and premium...

  • Page 121
    ...461 $ $ $ 2015 Year Ended December 31, 2014 2013 Intersegment Revenues Turner ...Home Box Office ...Warner Bros...Total intersegment revenues ... $ 105 40 940 1,085 $ 101 36 824 961 $ 85 14 625 724 $ $ $ 2015 Year Ended December 31, 2014 2013 Supplemental Revenue Data Subscription...

  • Page 122
    ...447 63,146 $ $ 2015 Year Ended December 31, 2014 2013 Capital Expenditures Turner ...Home Box Office ...Warner Bros...Corporate ...Total capital expenditures ... $ 157 68 122 76 423 $ 173 58 206 37 474 $ 210 45 236 77 568 $ $ $ Long-lived hard assets located outside the United States...

  • Page 123
    ... 2015, $33 million for 2014 and $41 million for 2013. The commitments under certain programming, film licensing, talent and other agreements ("Programming and Other") and minimum rental commitments under noncancelable long-term operating leases ("Operating Leases") payable during the next five years...

  • Page 124
    ... fees are collected periodically over the term of the related licensing agreements. Backlog was approximately $6.3 billion and $6.5 billion at December 31, 2015 and 2014, respectively. Included in these amounts is licensing of film product from the Warner Bros. segment to the Home Box Office...

  • Page 125
    ... Inc. ("CNN America") and Team Video Services, LLC ("Team Video") related to CNN America's December 2003 and January 2004 terminations of its contractual relationships with Team Video, under which Team Video had provided electronic news gathering services in Washington, DC and New York, NY. The...

  • Page 126
    ...Additional financial information with respect to cash payments and receipts, Interest expense, net, Other loss, net, Accounts payable and accrued liabilities and Other noncurrent liabilities is as follows (millions): 2015 Year Ended December 31, 2014 2013 Cash Flows Cash payments made for interest...

  • Page 127
    TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2015 2014 Accounts Payable and Accrued Liabilities Accounts payable ...Accrued expenses ...Participations payable ...Programming costs payable ...Accrued compensation ...Accrued interest ...Accrued income taxes ...

  • Page 128
    ... management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Internal control over financial reporting...

  • Page 129
    ... 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP New York, New York...

  • Page 130
    ... the related consolidated statements of operations, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2015 of Time Warner and our report dated February 25, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP New York, New York...

  • Page 131
    ... financial statements or elsewhere herein. Year Ended December 31, 2015 2014 2013 2012 (millions, except per share amounts) 2011 Selected Operating Statement Information: Total revenues ...$ Operating income ...Net income ...Amounts attributable to Time Warner Inc. shareholders: Income from...

  • Page 132
    ... (Unaudited) The following table sets forth the quarterly information for Time Warner: March 31, Quarter Ended June 30, September 30, (millions, except per share amounts) December 31, 2015 Total revenues ...Operating income ...Income from continuing operations ...Discontinued operations, net...

  • Page 133
    ....08 62.76 0.3175 1.13 1.11 1.13 1.11 617 87.36 70.57 0.3175 0.86 0.84 0.85 0.84 1,007 86.71 70.64 0.3175 The common stock prices on or prior to June 6, 2014, the date of the legal and structural separation of Time Inc., have not been adjusted for the legal and structural separation of...

  • Page 134
    COMPARISON OF CUMULATIVE TOTAL RETURNS The chart below compares the performance of the Company's Common Stock with the performance of the S&P 500 Index and a peer group index from December 31, 2010 through December 31, 2015. The peer group index includes CBS Corporation (Class B), Twenty-First ...

  • Page 135
    ... on a monthly basis and quarterly market capitalization weighting. From 2011 through 2015, the Company paid a quarterly dividend of (i) $0.2350 in 2011, (ii) $0.2600 per share in 2012, (iii) $0.2875 per share in 2013, (iv) $0.3175 per share in 2014 and (v) $0.3500 per share in 2015. Comparison of...

  • Page 136
    ... from the Company's change to the SICAD 2 exchange rate beginning December 31, 2014 and the Simadi exchange rate during the quarter ended March 31, 2015, respectively. "Adjusted EPS" is Diluted Income per Common Share from Continuing Operations attributable to Time Warner Inc. common shareholders...

  • Page 137
    ... of Adjusted EPS to Diluted Income Per Common Share from Continuing Operations Attributable to Time Warner Inc. Common Shareholders (unaudited) Year Ended December 31, 2015 2014 Diluted income per common share from continuing operations attributable to Time Warner Inc. common shareholders ...Less...

  • Page 138
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 139
    ... to the stock & debt securities information section of the company's website: www.timewarner.com/investors. Investor Relations Time Warner Inc. One Time Warner Center New York, NY 10019-8016 866-INFO-TWX e-mail: [email protected] Corporate Publications Copies of Time Warner's Annual Report on Form...

  • Page 140