|TIME WARNER INC. filed this Form 10-Q on 08/02/2017|
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
common stock on the New York Stock Exchange (NYSE) on each of the 15 consecutive NYSE trading days ending on and including the trading day that is three trading days prior to the closing of the merger (the Average Stock Price). The stock portion of the per share consideration will be subject to a collar such that if the Average Stock Price is between $37.411 and $41.349, Time Warner shareholders will receive shares of AT&T stock equal to $53.75 in value for each share of Time Warner common stock. If the Average Stock Price is below $37.411, Time Warner shareholders will receive 1.437 AT&T shares for each share of Time Warner common stock. If the Average Stock Price is an amount greater than $41.349, Time Warner shareholders will receive 1.300 AT&T shares for each share of Time Warner common stock. The merger is conditioned on the receipt of certain antitrust and other required regulatory consents. The merger is expected to close before year-end 2017. Should Time Warner terminate the Merger Agreement in specified circumstances, Time Warner may be required to pay AT&T a termination fee equal to $1.725 billion if Time Warner enters into or consummates an alternative transaction with a third party following such termination of the Merger Agreement.
For the six months ended June 30, 2016, Discontinued operations, net of tax was income of $40 million ($0.05 of diluted income from discontinued operations per common share), related to the recognition of certain tax benefits associated with foreign tax attributes of the Warner Music Group (WMG), which the Company disposed of in 2004.
Central European Media Enterprises Ltd.
As of June 30, 2017, the Company had an approximate 47% voting interest in Central European Media Enterprises Ltd.s (CME) common stock and an approximate 76% economic interest in CME on a diluted basis.
As of June 30, 2017, the Company owned 61.4 million shares of CMEs Class A common stock and 1 share of Series A convertible preferred stock, which is convertible into 11.2 million shares of CMEs Class A common stock and votes with the Class A common stock on an as-converted basis. The Company accounts for its investment in CMEs Class A common stock and Series A convertible preferred stock under the equity method of accounting. Although the book value of the Companys equity method investment in CME has been reduced to zero through the recognition of equity method losses, the Company has continued to record equity method losses because it has guaranteed an aggregate amount of 955 million of CMEs obligations. The amount of such equity method losses at June 30, 2017 was $107 million and is presented in Other noncurrent liabilities on the Consolidated Balance Sheet. In addition, in connection with these guarantees, the Company recognized a liability at the inception of each respective arrangement based on the estimated fair value of the applicable guarantee. At June 30, 2017, the carrying value of liabilities associated with such guarantees was $182 million, which is also included in Other noncurrent liabilities on the Consolidated Balance Sheet. In June 2017, the CME financing arrangements guaranteed by the Company were amended such that the lenders agreed that the pending merger of the Company with AT&T will not constitute an event of default under a change in control provision included in the financing arrangements, and that the loans to CME will remain outstanding following the closing of the AT&T merger.
As of June 30, 2017, the Company owned all of the outstanding shares of CMEs Series B convertible redeemable preferred shares, which are non-voting and may be converted into 107.2 million shares of CMEs Class A common stock at the Companys option. The Series B convertible redeemable preferred shares accrete in value until June 24, 2018 at an annual rate of 3.75% compounded quarterly. The Company accounts for its investment in CMEs Series B convertible redeemable preferred shares under the cost method of accounting.
As of June 30, 2017, the Company held 101 million warrants each to purchase one share of CME Class A common stock. The warrants, which became exercisable in May 2016, have a four-year term that expires in May 2018 and an exercise price of $1.00 per share and do not contain any voting rights. The warrants are carried at fair value in Investments, including available-for-sale securities in the Consolidated Balance Sheet, which at June 30, 2017, was $304 million.
As of June 30, 2017, there were no amounts outstanding under the $115 million revolving credit facility Time Warner provided CME in 2014.
On March 2, 2017, Time Warner, CME and CME Media Enterprises B.V. (CME BV), a wholly owned subsidiary of CME, entered into an amendment (the 2017 Amendment) to the Amended and Restated Reimbursement Agreement, dated as of November 14, 2014, and as amended and restated as of February 19, 2016. Effective March 1, 2017, the 2017 Amendment reduced