Time Magazine 2015 Annual Report Download - page 78

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
management in its application. The development and selection of these critical accounting policies have been determined by
Time Warner’s management and the related disclosures have been reviewed with the Audit and Finance Committee of the
Board of Directors of the Company. Due to the significant judgment involved in selecting certain of the assumptions used in
these areas, it is possible that different parties could choose different assumptions and reach different conclusions. The
Company considers the policies relating to the following matters to be critical accounting policies:
• Impairment of Goodwill and Intangible Assets (see pages 67 to 68);
• Film and Television Production Cost Recognition, Participations and Residuals and Impairments (see page
72);
• Licensed Programming Inventory Cost Recognition and Impairment (see page 73);
• Gross versus Net Revenue Recognition (see pages 71 to 72);
• Sales Returns and Pricing Rebates (see page 71); and
• Income Taxes (see page 75).
Cash and Equivalents
Cash equivalents consist of investments that are readily convertible into cash and have original maturities of three
months or less. Cash equivalents are carried at cost, which approximates fair value. The Company monitors concentrations of
credit risk with respect to Cash and equivalents by placing such balances with higher quality financial institutions or
investing such amounts in liquid, short-term, highly-rated instruments or investment funds holding similar instruments. As of
December 31, 2015, the majority of the Company’s Cash and equivalents were invested with banks with a credit rating of at
least A and in Rule 2a-7 money market mutual funds. At December 31, 2015, the Company did not have more than $500
million invested in any single bank or money market mutual fund.
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, 2015
and 2014, total reserves for doubtful accounts were approximately $180 million and $152 million, respectively. For the year
ended December 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 recognized $28 million of bad debt
expense.
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”) and Hudson Yards North Tower Holdings LLC (“HYNTH”), the limited liability
company involved in the construction and development of the Company’s new headquarters building at Hudson Yards. See
Note 4 for additional information.
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