TIME WARNER INC. | 2013 | FY | 3



The Company's investments consist of equity-method investments, fair-value and other investments, including available-for-sale securities, and cost-method investments. Time Warner's investments, by category, consist of (millions):


   December 31,
   2013 2012
 Equity-method investments $ 947 $ 1,123
 Fair-value and other investments, including available-for-sale securities:      
  Deferred compensation investments, recorded at fair value   248   251
  Deferred compensation insurance-related investments, recorded at cash      
  surrender value   397   358
  Available-for-sale securities   97   117
 Total fair-value and other investments   742   726
 Cost-method investments   335   117
 Total $ 2,024 $ 1,966

Available-for-sale securities are recorded at fair value in the Consolidated Balance Sheet, and the realized gains and losses are included as a component of Other loss, net in the Consolidated Statement of Operations. The cost basis, unrealized gains and fair market value of available-for-sale securities are set forth below (millions):

   December 31,
   2013 2012
 Cost basis $ 54 $ 96
 Gross unrealized gain   46   21
 Gross unrealized loss   (3)   -
 Fair value $ 97 $ 117

Gains and losses reclassified from Accumulated other comprehensive loss, net to Other loss, net in the Consolidated Statement of Operations are determined based on the specific identification method.


Equity-Method Investments


At December 31, 2013, investments accounted for using the equity method primarily included the Company's investments in the Class A common stock and Series A convertible preferred stock of CME (49.9% economic interest), HBO LAG (88% owned) and certain other Turner, Home Box Office and Warner Bros. ventures that are generally 20% to 50% owned. For more information regarding CME, see Note 3.

HBO LAG is a VIE and, because voting control of this entity is shared equally with the other investor, the Company has determined that it is not the primary beneficiary of this VIE. As of both December 31, 2013 and December 31, 2012, the Company's aggregate investment in HBO LAG was $580 million and was recorded in Investments, including available-for-sale securities, in the Consolidated Balance Sheet. The investment in HBO LAG is intended to enable the Company to more broadly leverage its programming and digital strategy in the territories served and to capitalize on growing multi-channel television opportunities in such territories. The Company provides programming as well as certain services, including distribution, licensing and technological and administrative support, to this entity. HBO LAG is financed through cash flows from its operations, and the Company is not obligated to provide HBO LAG with any additional financial support. In addition, the assets of HBO LAG are not available to settle the Company's obligations.

Cost-Method Investments


The Company's cost-method investments include its investment in the Series B convertible redeemable preferred shares of CME as well as its investments in entities such as start-up companies and investment funds. The Company uses available qualitative and quantitative information to evaluate all cost-method investments for impairment at least quarterly.


Gain on Sale of Investments


For the years ended December 31, 2013, the Company recognized net gains of $76 million, primarily related to a gain on the sale of the Company's investment in a theater venture in Japan and for the years ended December 31, 2012 and 2011, the Company recognized net gains of $11 million and $14 million, respectively, related to the sale of various investments.


Investment Writedowns


For the years ended December 31, 2013, 2012 and 2011, the Company incurred writedowns to reduce the carrying value of certain investments that experienced other-than-temporary impairments, as set forth below (millions):

   December 31,
   2013 2012 2011
 Equity-method investments $ 5 $ 25 $ 142
 Cost-method investments   5   14   6
 Available-for-sale securities   7   7   -
 Total $ 17 $ 46 $ 148

The impairment of equity-method investments incurred during the year ended December 31, 2012 is primarily related to the shutdown of TNT television operations in Turkey. The impairments of equity-method investments incurred during the year ended December 31, 2011 are primarily related to the Company's investment in CME. For more information on these investments, see Note 3. While Time Warner has recognized all declines that are believed to be other-than-temporary as of December 31, 2013, it is reasonably possible that individual investments in the Company's portfolio may experience other-than-temporary declines in value in the future if the underlying investees experience poor operating results or the U.S. or certain foreign equity markets experience further declines in value.