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Time Warner Inc. (TWX)

Analysis of Goodwill and Intangible Assets

Difficulty: Advanced

Goodwill and Intangible Assets Accounting Policy
Goodwill and Intangible Assets Disclosure
Analyst Adjustments: Removal of Goodwill
Adjusted Ratios: Removal of Goodwill (Summary)
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

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

		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014		Dec 31, 2013
	Film library
	Brands, tradenames and other intangible assets
	Intangible assets subject to amortization, gross
	Accumulated amortization
	Intangible assets subject to amortization, net
	Intangible assets not subject to amortization
	Intangible assets
	Goodwill
	Goodwill and intangible assets

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

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Total Time Warner Inc. Shareholders’ Equity
	Total Time Warner Inc. shareholders’ equity (as reported)
	Less: Goodwill
	Total Time Warner Inc. shareholders’ equity (adjusted)

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

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

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

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Selected Financial Data (USD $ in millions)
	Revenues
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Revenues
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

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
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

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

		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
	Total Time Warner Inc. shareholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted total assets
	Adjusted total Time Warner Inc. shareholders’ equity
	Ratio
	Adjusted financial leverage²

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
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Time Warner Inc. shareholders’ equity
= hidden ÷ hidden = hidden

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)

		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
	Total Time Warner Inc. shareholders’ equity
	Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net income attributable to Time Warner Inc. shareholders
	Adjusted total Time Warner Inc. shareholders’ equity
	Ratio
	Adjusted ROE²

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 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Adjusted total Time Warner Inc. shareholders’ equity
= 100 × hidden ÷ hidden = hidden

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

Adjusted Return on Assets (ROA)

		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
	Total assets
	Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net income attributable to Time Warner Inc. shareholders
	Adjusted total assets
	Ratio
	Adjusted ROA²

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 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

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.

	Time Warner Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality