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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements Disclosure [Abstract]

A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following tables present information about assets and liabilities required to be carried at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, respectively (millions):

	Fair Value Measurements
	June 30, 2011								December 31, 2010
Description		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Trading securities:
Diversified equity securities	$	271	$	5	$	-	$	276	$	261	$	4	$	-	$	265
Available-for-sale securities:
Equity securities		15		-		-		15		12		-		-		12
Debt securities		-		47		-		47		-		41		-		41
Derivatives:
Foreign exchange contracts		-		3		-		3		-		17		-		17
Other		4		-		22		26		4		-		19		23
Liabilities:
Derivatives:
Foreign exchange contracts		-		(60)		-		(60)		-		(20)		-		(20)
Other		-		-		(15)		(15)		-		-		(28)		(28)
Total	$	290	$	(5)	$	7	$	292	$	277	$	42	$	(9)	$	310

Assets and liabilities valued using significant unobservable inputs (Level 3) primarily consist of an asset related to equity instruments held by employees of a former subsidiary of the Company and liabilities for contingent consideration and options to redeem securities.

The Company primarily applies the market approach for valuing recurring fair value measurements.

The following table reconciles the beginning and ending balances of net assets and liabilities classified as Level 3 and identifies the total gains (losses) the Company recognized during the six months ended June 30, 2011 and 2010, respectively, on such assets and liabilities that were included in the balance sheet as of June 30, 2011 and 2010, respectively (millions):

	Derivatives
	June 30, 2011		June 30, 2010

Balance as of the beginning of the period	$	(9)	$	20
Total gains (losses):
Included in operating income		7		-
Included in other income (loss), net		6		(6)
Included in other comprehensive income		-		-
Settlements		3		(8)
Issuances		-		(50)
Transfers in and/or out of Level 3		-		-
Balance as of the end of the period	$	7	$	(44)

Total gain (loss) for the period included in
net income related to assets and liabilities still held as of the end of the period	$	13	$	(6)

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 June 30, 2011, the fair value of Time Warner's debt exceeded its carrying value by approximately $2.093 billion and, based on interest rates prevailing at December 31, 2010, the fair value of Time Warner's debt exceeded its carrying value by approximately $2.269 billion. 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. The carrying value of 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. For the remainder of the Company's other financial instruments, differences between the carrying value and fair value are not significant at June 30, 2011. The fair value of financial instruments is generally determined by reference to the market value of the instrument as quoted on a national securities exchange or an over-the-counter market. In cases where a quoted market value is not available, fair value is based on an estimate using present value or other valuation techniques.

Non-Financial Instruments

The majority of the Company's non-financial instruments, which include goodwill, intangible assets, inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill and indefinite-lived intangible assets) such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of cost or its fair value.

In determining the fair value of its films, the Company employs a discounted cash flow (“DCF”) methodology with assumptions for cash flows for periods not exceeding 10 years. Key inputs employed in the DCF methodology include estimates of a film's ultimate revenue and costs as well as a discount rate. The discount rate utilized in the DCF analysis is based on the weighted average cost of capital of the respective business (e.g., Warner Bros.) plus a risk premium representing the risk associated with producing a particular film. The fair value of any film costs associated with a film that management plans to abandon is zero. As the primary determination of fair value is made using a DCF model, the resulting fair value is considered a Level 3 measurement. During the three months ended June 30, 2011, certain film costs, which were recorded as inventory in the consolidated balance sheet, were written down to $184 million from their carrying value of $234 million. During the six months ended June 30, 2011, certain film costs, which were recorded as inventory in the consolidated balance sheet, were written down to $184 million from their carrying value of $239 million. During the three and six months ended June 30, 2010, there were no film costs that were required to be written down to fair value.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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