SEC Filings

10-Q
TIME WARNER INC. filed this Form 10-Q on 10/26/2017
Entire Document
 


Table of Contents

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

The Company primarily applies the market approach for valuing recurring fair value measurements. As of September 30, 2017 and December 31, 2016, assets valued using significant unobservable inputs (Level 3) primarily related to warrants to purchase shares of Class A common stock of CME valued at $309 million and $159 million, respectively. The Company estimates the fair value of these warrants using a Monte Carlo Simulation model. Significant unobservable inputs used in the fair value measurement at September 30, 2017 are an expected term of 0.52 years and an expected volatility of approximately 38%. As of September 30, 2017 and December 31, 2016, the other Level 3 assets consisted of equity instruments held by employees of a former subsidiary of the Company. As of September 30, 2017, Level 3 liabilities consisted of a liability related to contingent consideration.

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 nine months ended September 30, 2017 and 2016 on such assets and liabilities that were included in the Consolidated Balance Sheet as of September 30, 2017 and 2016 (millions):

 

                                                                               
     September 30,
2017
     September 30,
2016
 

Balance as of the beginning of the period

   $   161       $   173   

Total gains (losses), net:

     

Included in operating income

     —          

Included in other income (loss), net

     150         (44)  

Included in other comprehensive income (loss)

     —         —   

Purchases

     —         —   

Settlements

     (1)         

Issuances

     (1)        —   
  

 

 

    

 

 

 

Balance as of the end of the period

   $ 309       $ 136   
  

 

 

    

 

 

 

Net gain (loss) for the period included in net income related to assets and liabilities
still held as of the end of the period

   $ 150       $ (44)  
  

 

 

    

 

 

 

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 September 30, 2017, the fair value of Time Warner’s public debt exceeded its carrying value by approximately $2.432 billion and, based on interest rates prevailing at December 31, 2016, the fair value of Time Warner’s public debt exceeded its carrying value by approximately $2.238 billion. The fair value of Time Warner’s public debt is considered a Level 2 measurement as it is 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 as of September 30, 2017 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)

   $   —       $   294       Level 1

Series B convertible redeemable preferred shares

   $ —       $ 438       Level 2

 

 

(a)

Includes 1 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 September 30, 2017 closing price of CME’s common stock.

 

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