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Microsoft Excel LibreOffice Calc

Time Warner Inc. (TWX)

Analysis of Goodwill and Intangible Assets

Difficulty: Advanced

Goodwill and Intangible Assets Accounting Policy

Intangible Assets

Time Warner has a significant number of intangible assets, including acquired film and television libraries and other copyrighted products and tradenames. Time Warner does not recognize the fair value of internally generated intangible assets. Intangible assets acquired in business combinations are recorded at the acquisition date fair value in the Consolidated Balance Sheet. Acquired film libraries are amortized using the film forecast computation model.

Source: 10-K (filing date: 2018-02-22).

Goodwill and Intangible Assets Disclosure

Time Warner Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Film library 3,430  3,432  3,432  3,432  3,452 
Brands, tradenames and other intangible assets 707  702  716  710  2,156 
Intangible assets subject to amortization, gross 4,137  4,134  4,148  4,142  5,608 
Accumulated amortization (3,552) (3,351) (3,199) (3,001) (3,688)
Intangible assets subject to amortization, net 585  783  949  1,141  1,920 
Intangible assets not subject to amortization 7,006  7,005  7,029  7,032  7,629 
Intangible assets 7,591  7,788  7,978  8,173  9,549 
Goodwill 27,776  27,752  27,689  27,565  30,563 
Goodwill and intangible assets 35,367  35,540  35,667  35,738  40,112 

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

Item Description The company
Intangible assets Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Time Warner Inc.'s intangible assets declined from 2015 to 2016 and from 2016 to 2017.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Time Warner Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Goodwill and intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Time Warner Inc.'s goodwill and intangible assets declined from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Time Warner Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported) 69,209  65,966  63,848  63,259  67,994 
Less: Goodwill 27,776  27,752  27,689  27,565  30,563 
Total assets (adjusted) 41,433  38,214  36,159  35,694  37,431 
Adjustment to Total Time Warner Inc. Shareholders' Equity
Total Time Warner Inc. shareholders' equity (as reported) 28,375  24,335  23,619  24,476  29,904 
Less: Goodwill 27,776  27,752  27,689  27,565  30,563 
Total Time Warner Inc. shareholders' equity (adjusted) 599  (3,417) (4,070) (3,089) (659)

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

Time Warner Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Goodwill (Summary)

Time Warner Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Total Asset Turnover
Reported total asset turnover 0.45 0.44 0.44 0.43 0.44
Adjusted total asset turnover 0.75 0.77 0.78 0.77 0.80
Financial Leverage
Reported financial leverage 2.44 2.71 2.70 2.58 2.27
Adjusted financial leverage 69.17 – – – –
Return on Equity (ROE)
Reported ROE 18.49% 16.13% 16.23% 15.64% 12.34%
Adjusted ROE 875.96% – – – –
Return on Assets (ROA)
Reported ROA 7.58% 5.95% 6.00% 6.05% 5.43%
Adjusted ROA 12.66% 10.27% 10.60% 10.72% 9.86%

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Time Warner Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Time Warner Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Time Warner Inc., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Revenues 31,271  29,318  28,118  27,359  29,795 
Total assets 69,209  65,966  63,848  63,259  67,994 
Ratio
Total asset turnover1 0.45 0.44 0.44 0.43 0.44
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Revenues 31,271  29,318  28,118  27,359  29,795 
Adjusted total assets 41,433  38,214  36,159  35,694  37,431 
Ratio
Adjusted total asset turnover2 0.75 0.77 0.78 0.77 0.80

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

2017 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= 31,271 ÷ 69,209 = 0.45

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 31,271 ÷ 41,433 = 0.75

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Time Warner Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets 69,209  65,966  63,848  63,259  67,994 
Total Time Warner Inc. shareholders' equity 28,375  24,335  23,619  24,476  29,904 
Ratio
Financial leverage1 2.44 2.71 2.70 2.58 2.27
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets 41,433  38,214  36,159  35,694  37,431 
Adjusted total Time Warner Inc. shareholders' equity 599  (3,417) (4,070) (3,089) (659)
Ratio
Adjusted financial leverage2 69.17 – – – –

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

2017 Calculations

1 Financial leverage = Total assets ÷ Total Time Warner Inc. shareholders' equity
= 69,209 ÷ 28,375 = 2.44

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Time Warner Inc. shareholders' equity
= 41,433 ÷ 599 = 69.17

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Time Warner Inc. shareholders 5,247  3,926  3,833  3,827  3,691 
Total Time Warner Inc. shareholders' equity 28,375  24,335  23,619  24,476  29,904 
Ratio
ROE1 18.49% 16.13% 16.23% 15.64% 12.34%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Time Warner Inc. shareholders 5,247  3,926  3,833  3,827  3,691 
Adjusted total Time Warner Inc. shareholders' equity 599  (3,417) (4,070) (3,089) (659)
Ratio
Adjusted ROE2 875.96% – – – –

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

2017 Calculations

1 ROE = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Total Time Warner Inc. shareholders' equity
= 100 × 5,247 ÷ 28,375 = 18.49%

2 Adjusted ROE = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Adjusted total Time Warner Inc. shareholders' equity
= 100 × 5,247 ÷ 599 = 875.96%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Time Warner Inc. shareholders 5,247  3,926  3,833  3,827  3,691 
Total assets 69,209  65,966  63,848  63,259  67,994 
Ratio
ROA1 7.58% 5.95% 6.00% 6.05% 5.43%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Time Warner Inc. shareholders 5,247  3,926  3,833  3,827  3,691 
Adjusted total assets 41,433  38,214  36,159  35,694  37,431 
Ratio
Adjusted ROA2 12.66% 10.27% 10.60% 10.72% 9.86%

Based on: 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26), 10-K (filing date: 2014-02-26).

2017 Calculations

1 ROA = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Total assets
= 100 × 5,247 ÷ 69,209 = 7.58%

2 Adjusted ROA = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Adjusted total assets
= 100 × 5,247 ÷ 41,433 = 12.66%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Time Warner Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.