UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		for the quarterly period ended September 30, 2017 or
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		for the transition period from to

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended March 31, 2018 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________________ to ___________________

Commission file number 001-15062

TIME WARNER INC.

(Exact name of Registrant as specified in its charter)

Delaware

13-4099534

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Time Warner Center

New York, NY 10019-8016

(Address of Principal Executive Offices) (Zip Code)

(212) 484-8000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ☑				Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)				Smaller reporting company ☐
				Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Description of Class		Shares Outstanding as of ~~October~~April 20, ~~2017~~2018
Common Stock – $.01 par value		~~778~~782,~~592~~319,~~980~~431

TIME WARNER INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND OTHER FINANCIAL INFORMATION

	Page
PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Results of Operations and Financial Condition		1
Item 4. Controls and Procedures		2119
Consolidated Balance Sheet at September 30, 2017 and December 31, 2016		22
Consolidated Balance Sheet at March 31, 2018 and December 31, 2017		20
Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2017 and 2016		23
Consolidated Statement of Operations for the Three Months Ended March 31, 2018 and 2017		21
Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016		24
Consolidated Statement of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017		22
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2017 and 2016		25
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2018 and 2017		23
Consolidated Statement of Equity for the Nine Months Ended September 30, 2017 and 2016		26
Consolidated Statement of Equity for the Three Months Ended March 31, 2018 and 2017		24
Notes to Consolidated Financial Statements		2725
Supplementary Information		46
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		5553
Item 1A. Risk Factors		5553
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5553
Item 6. Exhibits		5553

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

INTRODUCTION

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on Time Warner Inc.’s (“Time Warner” or the “Company”) businesses, current developments, financial condition, cash flows and results of operations. MD&A is organized as follows:

•

Overview. This section provides a general description of Time Warner’s business segments, as well as recent developments the Company believes are important in understanding the results of operations and financial condition or in understanding anticipated future trends.

• Results of operations. This section provides an analysis of the Company’s results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018. This analysis is presented on both a consolidated and a business segment basis. In addition, a brief description of transactions and other items that affect the comparability of the results being analyzed is included.

• Financial condition and liquidity. This section provides an analysis of the Company’s financial condition as of ~~September~~March 3031, ~~2017~~2018 and cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018.

•

Caution concerning forward-looking statements. This section provides a description of the use of forward-looking information appearing in this report, including in MD&A and the consolidated financial statements.

OVERVIEW

Time Warner is a leading media and entertainment company whose major businesses encompass an array of the most respected and successful media brands. Among the Company’s brands are TNT, TBS, Adult Swim, Cartoon Network, CNN, HBO, Cinemax, Warner Bros. and New Line Cinema. During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Company generated Revenues of $227.~~660~~996 billion (up 63% from $217.~~427~~735 billion in ~~2016~~2017), Operating Income of $61.~~013~~811 billion (updown 313% from $52.~~856~~080 billion in ~~2016~~2017), ~~Income~~ ~~from continuing operations of $3.856 billion (up 7% from $3.597 billion in 2016),~~ Net Income attributable to Time Warner shareholders of $31.~~858~~643 billion (up 615% from $31.~~633~~424 billion in ~~2016~~2017) and Cash provided by operations of $31.~~947~~316 billion (updown 1210% from $31.~~534~~461 billion in ~~2016~~2017).

Time Warner Businesses

Time Warner classifies its operations into three reportable segments: Turner, Home Box Office and Warner Bros. ~~For additional information regarding Time Warner’s segments, refer to Note 13, “Segment Information,” to the accompanying consolidated financial statements.~~

As used in MD&A, the term “affiliates” refers to distributors that deliver packages of networks to their subscribers, including cable system operators, satellite service distributors and telephone companies (“traditional affiliates”) and virtual multichannel video programming distributors (“virtual MVPDs”); and the term “OTT services” refers to services that deliver video content to consumers over the internet and includes subscription video-on-demand (“SVOD”) services and advertising-supported VOD (“AVOD”) services such as social media platforms and user-generated content digital platforms, but does not include virtual MVPDs.

Turner. The Turner segment consists of businesses managed by Turner Broadcasting System, Inc. (“Turner”). During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Turner segment recorded Revenues of $83.~~958~~344 billion (3942% of the Company’s total Revenues) and Operating Income of $31.~~463~~092 billion.

Turner creates and programs branded news, entertainment, sports and kids multi-platform content for consumers around the world. The Turner networks and related businesses and brands include TNT, TBS, Adult Swim, truTV, Turner Classic Movies, Turner Sports, Bleacher Report, Cartoon Network, Boomerang, CNN, HLN and iStreamPlanet. The Turner networks generate revenues principally from licensing programming to affiliates that have contracted to receive and distribute this programming to subscribers, from the sale of advertising and from licensing its original programming and its brands and characters for consumer products and other business ventures. Turner also generates revenues from the sale of advertising and sponsorships through its digital properties. Turner’s programming is available to subscribers of affiliates for viewing live and on demand on television and various internet-connected devices on services provided by affiliates and on Turner’s digital properties. Turner is also pursuing direct-to-consumer distribution options for its programming and networks.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

~~properties.~~Home ~~Turner’s~~Box ~~programming~~Office. The isHome ~~available~~Box toOffice ~~subscribers~~segment ofconsists ~~affiliates for viewing~~of ~~live~~businesses ~~and~~managed ~~on demand on television and various internet-connected devices on services provided~~ by ~~affiliates~~Home ~~and~~Box onOffice, ~~Turner’s digital properties~~Inc. ~~Turner~~(“Home isBox ~~also pursuing direct-to-consumer distribution options for its programming and networks~~Office”). ~~For~~During ~~example,~~the inthree ~~November~~months ~~2016,~~ended ~~Turner launched its first domestic SVOD service~~March 31, ~~FilmStruck~~2018, ~~aimed~~ atthe ~~arthouse~~Home ~~film~~Box ~~enthusiasts.~~Office Insegment ~~addition,~~recorded inRevenues ~~April~~of ~~2017, Turner and Warner Bros~~$1.619 billion ~~launched~~(20% aof ~~new domestic SVOD service under~~ the ~~Boomerang~~Company’s ~~brand~~total ~~that~~Revenues) ~~offers new original animated series~~ and Operating ~~kids~~Income ~~programming~~of ~~from Warner Bros~~$516 million.’ ~~and Turner’s animation libraries.~~

Home Box Office operates the HBO and Cinemax multichannel premium pay television services, with the HBO service ranking as the most widely distributed multichannel premium pay television service. ~~The~~ ~~Home~~HBO ~~Box~~and ~~Office~~Cinemax ~~segment~~programming ~~consists~~is available in the U.S. to subscribers of affiliates for viewing live and on demand on television and on ~~businesses~~various ~~managed~~internet-connected bydevices on services provided through affiliates and on Home Box Office,’s ~~Inc~~digital properties. (“In addition, Home Box Office~~”).~~ ~~During~~offers ~~the~~HBO ~~nine~~NOW, ~~months~~a ~~ended~~domestic ~~September 30,~~stand-alone ~~2017,~~OTT ~~the~~service available through digital distributors and some affiliates on a variety of internet-connected devices. Home Box Office ~~segment~~also ~~recorded~~has ~~Revenues~~entered ofinto ~~$4.649 billion~~arrangements ~~(21%~~with a number of digital distributors to provide their subscribers access to the ~~Company’s~~HBO ~~total~~and ~~Revenues)~~Cinemax services and programming on digital ~~Operating~~platforms ~~Income~~and ofdevices. $1HBO- and Cinemax-branded premium pay, basic tier television and/or OTT services are distributed in over 65 countries in Latin America, Asia and Europe.~~666 billion.~~

In the U.S., Home Box Office ~~operates~~generates ~~the~~revenues ~~HBO~~principally ~~and~~from ~~Cinemax~~licensing ~~multichannel~~programming ~~premium~~to ~~pay~~affiliates ~~television~~and digital distributors ~~services,~~that ~~with~~have ~~the~~contracted ~~HBO~~to ~~service~~receive ~~ranking~~and asdistribute ~~the~~such ~~most~~programming ~~widely~~to ~~distributed~~their ~~multichannel~~customers ~~premium~~who ~~pay~~subscribe ~~television~~to ~~service.~~the HBO ~~and~~or Cinemax ~~programming~~services. isHome ~~available~~Box inOffice’s ~~the~~agreements ~~U.S.~~with toits ~~subscribers~~domestic of affiliates ~~for~~are ~~viewing~~typically ~~live~~multi-year ~~and~~arrangements onthat ~~demand~~provide onfor annual ~~television~~fee increases and ~~on various~~marketing ~~internet-connected~~support. ~~devices~~The onrelationship ~~services~~between ~~provided~~subscriber ~~through~~totals ~~affiliates~~ and onthe amount of revenues earned under Home Box Office’s ~~digital~~affiliate ~~properties.~~agreements Independs ~~addition~~on the specific terms of the applicable agreement, ~~Home~~which ~~Box~~may ~~Office~~include ~~offers~~basic and/or ~~HBO~~pay ~~NOW~~television subscriber thresholds, avolume ~~domestic~~discounts ~~stand~~and other performance-~~alone~~based ~~OTT~~discounts. ~~service~~Marketing ~~available~~and ~~through~~promotional ~~digital~~activities ~~distributors~~intended to retain existing subscribers and ~~some~~ ~~affiliates~~acquire onnew asubscribers ~~variety~~may ofalso ~~internet-connected~~impact ~~devices~~revenue earned. Internationally, Home Box Office ~~also~~generates ~~has~~subscription ~~entered~~revenues ~~into~~by ~~arrangements~~licensing ~~with~~programming ato ~~number~~international ofaffiliates ~~digital~~that ~~distributors~~have contracted to ~~provide~~receive ~~their~~and ~~subscribers~~distribute ~~access~~such programming to ~~HBO~~their ~~and~~customers. ~~Cinemax~~In some countries, Home Box Office also generates subscription revenues from OTT services ~~and~~that ~~programming~~are ondistributed ato ~~variety~~consumers ~~of digital~~either ~~platforms~~directly ~~and~~or ~~devices~~through third parties. ~~HBO-~~Additional ~~and~~sources ~~Cinemax-branded~~of ~~premium~~revenues ~~pay~~for Home Box Office are the licensing of its original programming, ~~basic~~including ~~tier~~Game ~~television~~of Thrones, Westworld and ~~OTT~~Strike ~~services~~Back, ~~are~~and ~~distributed~~the inhome ~~over~~entertainment 60sales ~~countries~~of inits ~~Latin~~original ~~America,~~programming ~~Asia~~via physical and ~~Europe~~digital formats.

InWarner ~~the U~~Bros.~~S.,~~ The ~~Home~~Warner ~~Box~~Bros. ~~Office~~segment ~~generates~~consists ~~revenues~~of ~~principally~~businesses ~~from~~managed ~~licensing~~by ~~programming~~Warner toBros. ~~affiliates~~Entertainment ~~and digital distributors~~Inc. ~~that~~(“Warner ~~have contracted to receive and distribute such programming to their customers who subscribe to the HBO or Cinemax services~~Bros.”) ~~Home Box Office’s agreements with its domestic affiliates are typically long-term arrangements~~ that ~~provide~~principally ~~for annual~~produce ~~fee increases~~ and ~~marketing~~distribute support. The relationship between subscriber totals and the amount of revenues earned under Home Box Office affiliate agreements depends on the specific terms of the applicable agreement, which may include basic and/or pay television ~~subscriber thresholds~~shows, ~~volume~~feature ~~discounts~~films and ~~other~~games. ~~performance-based~~Warner ~~discounts~~Bros.’ ~~Marketing~~television, ~~and~~film ~~promotional activities intended to retain existing subscribers~~ and ~~acquire~~game ~~new~~businesses ~~subscribers~~benefit ~~may~~from ~~also~~a ~~impact~~shared ~~revenue earned. Internationally~~infrastructure, ~~Home~~including ~~Box~~shared ~~Office generates subscription revenues by licensing programming to international affiliates that have contracted to receive and distribute such programming to their customers. In some countries~~production, ~~Home Box Office also~~distribution, ~~generates~~marketing ~~subscription~~and ~~revenues~~administrative ~~from~~functions ~~OTT~~and ~~services that are distributed to consumers either directly or through third parties~~resources. ~~Additional~~During ~~sources of revenues for Home Box Office are~~ the ~~licensing~~three ofmonths ~~its~~ended ~~original programming~~March 31, ~~including Game of Thrones~~2018, ~~Big~~the ~~Little~~Warner ~~Lies~~Bros. ~~and~~segment ~~VEEP,~~recorded ~~and~~Revenues ~~the~~of ~~home~~$3.238 billion ~~entertainment~~(38% ~~sales~~ of ~~its~~the ~~original~~Company’s ~~programming~~total ~~via~~Revenues) ~~physical~~ and ~~digital~~Operating ~~formats~~Income of $322 million.

Warner Bros. ~~The~~ ~~Warner~~is ~~Bros.~~a ~~segment~~leader ~~consists~~in oftelevision ~~businesses~~production ~~managed~~and bydistribution. Warner Bros. ~~Entertainment~~generates television ~~Inc.~~product ~~(“Warner~~revenues ~~Bros.”)~~principally ~~that~~from ~~principally~~the ~~produce~~licensing of programs to broadcast and ~~distribute~~cable television ~~shows,~~networks ~~feature~~and ~~films~~premium pay television and ~~videogames~~OTT services. For the 2017/2018 season, Warner Bros. is producing approximately 70 original series in the U.S., including (i) at least four series for each of the five broadcast networks (including Arrow, The Bachelor, The Big Bang Theory, Black Lightning, Blindspot, DC’s ~~television~~Legends of Tomorrow, Deception, ~~film~~Ellen’s ~~and~~Game ~~videogame~~of ~~businesses~~Games, ~~benefit~~The ~~from~~Flash, aGotham, ~~shared~~iZombie, ~~infrastructure~~Lethal Weapon, ~~including~~Little ~~shared~~Big ~~production~~Shots, Lucifer, The Middle, Mom, Riverdale, Splitting Up Together, ~~distribution~~Supergirl, ~~marketing~~Supernatural, The Voice and ~~administrative~~Young ~~functions~~Sheldon), (ii) series for basic cable networks (including Animal Kingdom, Claws, Krypton, People of Earth and ~~resources.~~Queen ~~During~~Sugar), ~~the~~(iii) series for ~~nine~~premium ~~months~~pay ~~ended~~television ~~September~~services (including Shameless and Westworld), (iv) 30series for SVOD services (including Castle Rock, ~~2017~~Fuller House and Longmire), (v) series for first-run syndication (including The Ellen DeGeneres Show, Extra, The Real and TMZ) and (vi) animated series for Cartoon Network, Boomerang and the Boomerang-branded SVOD service (including New Looney Tunes and The Tom and Jerry Show). Warner Bros.’ ~~segment~~programming ~~recorded~~also ~~Revenues~~includes short-form live-action series and animated programming for digital platforms. Warner Bros. also licenses the rights to many of $9its U.~~813 billion~~S. ~~(40%~~original television series in international territories. Outside the U.S., Warner Bros. has a global network of production companies in many countries, which allows Warner Bros. to develop programming specifically tailored for the audiences ~~Company’s~~in ~~total~~these ~~Revenues)~~territories. These local-language production companies also focus on developing non-scripted programs and ~~Operating Income~~formats ofthat $1can be adapted and sold internationally and in the U.~~249 billion~~S.

Warner Bros. is a leader in ~~television production and distribution. Warner Bros. generates television product revenues principally from~~ the ~~licensing~~feature offilm ~~programs~~industry ~~to broadcast~~ and ~~cable~~produces ~~television~~feature ~~networks~~films ~~and~~under ~~premium~~its ~~pay~~Warner ~~television~~Bros. and ~~OTT~~New ~~services~~Line Cinema banners. ~~For the 2017/2018 season,~~ Warner Bros. isgenerates ~~producing~~theatrical ~~over~~product 70revenues ~~original~~principally ~~series~~through inrental ~~the~~fees ~~U.S., including~~from ~~(i) at~~theatrical ~~least~~exhibition ~~three series for each~~ of ~~the~~feature ~~five~~films, ~~broadcast networks (~~including ~~Arrow,~~the ~~The~~following ~~Bachelor,~~recently ~~The~~released ~~Big~~films: ~~Bang~~Blade ~~Theory,~~Runner ~~Blindspot~~2049, ~~DC’s~~Game ~~Legends of Tomorrow~~Night, ~~The Flash~~It, ~~Gotham,~~ ~~iZombie,~~Justice ~~Lethal Weapon~~League, ~~Little Big Shots~~Rampage, ~~Lucifer,~~Ready ~~The~~Player ~~Middle,~~One ~~Mom,~~and ~~Riverdale,~~Tomb ~~Supergirl~~Raider, ~~Supernatural, The Voice~~ and ~~Young~~subsequently ~~Sheldon),~~through ~~(ii) series~~licensing ~~for~~fees ~~basic~~received ~~cable~~from ~~networks (including~~the ~~Animal~~distribution ~~Kingdom, Claws, People~~ of ~~Earth~~films ~~and~~on ~~Queen Sugar), (iii) series for~~ premium pay television services ~~(including Shameless and Westworld)~~, ~~(iv) series~~broadcast ~~for SVOD services (including Castle Rock, Disjointed, Fuller House~~ and ~~Longmire),~~cable ~~(v)~~television ~~series for first-run syndication (including The Ellen DeGeneres Show, Extra, The Real and TMZ) and (vi) animated series for Cartoon Network, Boomerang, Adult Swim and third party~~ networks ~~(including New Looney Tunes and Teen Titans Go!). Warner Bros. also licenses the rights to many of its U.S. original television~~ series in international territories. Outside the U.S., Warner Bros. has a global network of production companies in many countries, which allows Warner Bros. to develop programming specifically tailored for the audiences in these territories. These local production companies also focus on developing non-scripted programs and ~~formats~~OTT ~~that can be adapted and sold internationally and in the U~~services.S.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Warner Bros. is a leader in the ~~feature~~home ~~film~~entertainment ~~industry~~ and ~~produces~~game ~~feature~~industries. The ~~films~~segment ~~under~~generates ~~its~~television ~~Warner Bros.~~ and ~~New Line Cinema banners. Warner Bros. generates~~ theatrical product revenues ~~principally through rental fees~~ from ~~theatrical~~the ~~exhibition~~distribution of ~~feature~~television ~~films,~~and ~~including~~theatrical ~~the~~product ~~following~~in ~~recently~~various ~~released~~physical ~~films:~~and ~~Annabelle: Creation,~~digital ~~Blade~~formats ~~Runner 2049~~(e.g., ~~Dunkirk,~~electronic ~~It,~~sell-through ~~Kong:~~(“EST”) ~~Skull~~and ~~Island,~~video-on-demand ~~The~~(“VOD”)). ~~LEGO~~In ~~Batman Movie~~addition, ~~The~~the ~~LEGO~~segment ~~Ninjago~~generates ~~Movie~~revenues ~~and Wonder Woman, and subsequently~~ through ~~licensing fees received from~~ the ~~distribution of~~development ~~films on premium pay television services, broadcast~~ and ~~cable~~distribution ~~television~~of ~~networks and OTT services~~games.

~~Warner~~The ~~Bros.~~distribution and sale of home entertainment product in physical formats is a large contributor to the segment’s ~~leader~~revenues and profits. For the past several years, sales of home entertainment product in physical formats have declined as the home entertainment ~~and~~industry ~~videogame~~has ~~industries~~been undergoing significant changes as home entertainment consumption patterns have shifted. ~~The~~Several ~~segment~~factors ~~generates~~have ~~television~~contributed ~~and~~to ~~theatrical~~this ~~product~~decline, ~~revenues~~including ~~from~~consumers ~~the~~shifting ~~distribution~~to OTT ofservice ~~television~~subscriptions and, ~~theatrical~~to ~~product~~a inlesser ~~various~~degree, ~~physical~~digital purchases and ~~digital~~transactional ~~formats~~VOD rentals of content; changing retailer initiatives and strategies (e.g., ~~electronic sell-through~~reduction ~~(“EST”~~of floor space devoted to home entertainment product in physical formats); retail store closures; increasing competition for consumer discretionary time and ~~video-on-demand~~spending; ~~(“VOD”))~~and piracy. InDuring ~~addition~~the first quarter of 2018, across the ~~segment~~home ~~generates~~entertainment ~~revenues~~industry, ~~through~~consumer ~~the~~spending ~~development~~on home entertainment product in physical formats continued to decline and ~~distribution~~consumer spending on electronic delivery continued to increase. The electronic delivery of film and television content is ~~videogames~~growing and becoming more important to the Warner Bros. segment, which has helped to offset some of the decline in sales of home entertainment product in physical formats.

The distribution and sale of home entertainment product in physical formats is a large contributor to the segment’s revenues and profits. For the past several years, sales of home entertainment product in physical formats have declined as the home entertainment industry has been undergoing significant changes as home entertainment consumption patterns have shifted. Several factors have contributed to this decline, including consumers shifting to digital purchases and transactional VOD rentals of content; changing retailer initiatives and strategies (e.g., reduction of floor space devoted to home entertainment product in physical formats); retail store closures; increasing competition for consumer discretionary time and spending; and piracy. Consumers have also been increasingly shifting to OTT services that are based on a subscription model rather than a transactional model. During the first nine months of 2017, across the home entertainment industry, consumer spending on home entertainment product in physical formats continued to decline and consumer spending on electronic delivery continued to increase. The electronic delivery of film and television content is growing and becoming more important to the Warner Bros. segment, which has helped to offset some of the decline in sales of home entertainment product in physical formats.

Television Industry

The television industry continues to evolve, with changes in technology, rapid growth in new video services, and a corresponding increase in overall video content consumption and shift in consumer viewing patterns. Consumers are watching an increasing amount of programming on demand and across a wide variety of services and internet-connected devices. Over the past few years, the number of subscribers to multichannel video services provided by traditional affiliates in the U.S. has declined, and the Company expects ~~further~~these declines towill continue and possibly accelerate in the future. To counteract this trend, some traditional affiliates are placing greater emphasis on selling smaller bundles of linear networks, resulting in higher subscriber declines for most individual networks than for traditional affiliates in total. In addition, some traditional affiliates as well as media and technology companies have launched, ~~or have announced that they will launch,~~ virtual MVPD services, many of which offer fewer networks at a lower cost than most of the bundles of linear networks offered by traditional affiliates.

At the same time, the penetration of internet-connected devices has grown, which has led to a growing number and variety of internet-delivered video services that do not require a traditional affiliate subscription or set-top box hardware. These include SVOD services that feature general entertainment programming with broad appeal, such as Amazon Prime Video, Hulu and Netflix, as well as niche SVOD services that offer differentiated programming. ~~Several of these SVOD services have continued to increase their number of subscribers and have been, and are expected to continue, making significant investments in acquired and original programming.~~ Some television networks and premium pay television services, such as HBO, have also launched OTT services. AVOD services, such as YouTube and Facebook, also have continued to gain in popularity. Several of these SVOD and AVOD services have significant and growing subscriber/user bases and have been, and are expected to continue, making significant investments in acquired and original programming.

As a result of these changes, consumers have more options for obtaining video content, including lower-cost alternatives, and consumers are spending an increased amount of time viewing video content through OTT services. The combination of new competitors, changes in viewing habits and declines in subscribers to traditional affiliates’ multichannel video services has negatively affected overall television ratings and, as a result, television advertising revenues for the industry and certain of the Company’s networks. ~~There~~The ~~also~~advantages ~~has~~of ~~been~~digital aadvertising, ~~corresponding~~including ~~shift~~the ability to target consumers, track consumer behavior and measure consumer responsiveness to advertising, and the increased amount of consumer time spent online and on mobile activities have resulted in advertisers shifting more of their advertising ~~dollars~~budgets tofrom ~~non-~~traditional ~~video~~television advertising ~~outlets~~to digital advertising.

To address these changes, the Company’s strategy over the past ~~few~~several years has focused on strengthening its position within the traditional TV ecosystem, enhancing the value of traditional multichannel video service subscriptions for consumers and affiliates and the value of television advertising for advertisers, and pursuing new opportunities outside the traditional TV ecosystem. As part of this strategy, the Company ~~plans~~is continuing to ~~continue~~invest ~~increasing its investment~~ in high-quality distinctive programming to enhance the value of its networks, as well as ~~continue~~continuing ~~expanding~~to expand the amount of its content that is available on demand to capitalize on the shift in consumption habits. In addition, Turner has introduced new advertising products that provide greater data analytic tools and targeting capabilities to advertisers in order to compete more effectively with non-traditional outlets. The Company is also pursuing a number of initiatives to capitalize on the new opportunities presented by these changes, including launching OTT services and investing in and obtaining distribution of its content through other companies’ OTT services and virtual MVPD services, as well as investing in short-form content production and digital-first news and entertainment networks.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

a number of initiatives to capitalize on the new opportunities presented by these changes, including launching OTT services and investing in and obtaining distribution of its content through other companies’ OTT services, as well as investing in short-form content production and digital-first news and entertainment networks. In addition, the Company is focused on increasing the digital sales and rentals of its television and film content and is a leader in various initiatives designed to make digital ownership of content more compelling for consumers.

AT&T and Time Warner Merger Agreement

On October 22, 2016, Time Warner entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AT&T Inc. (“AT&T”), West Merger Sub, Inc. and West Merger Sub II, LLC, pursuant to which Time Warner will combine with AT&T in a stock-and-cash transaction. The Merger Agreement was approved unanimously by the boards of directors of both companies. Time Warner shareholders adopted the Merger Agreement at a special meeting of shareholders held on February 15, 2017. Subject to the satisfaction of the remaining conditions in the Merger Agreement, upon consummation of the merger, Time Warner’s shareholders will receive per share consideration consisting of $53.75 in cash and a specified number of shares of AT&T stock, as set forth in the Merger Agreement and determined by reference to the average of the volume weighted averages of the trading price of AT&T common stock on the New York Stock Exchange (“NYSE”) on each of the 15 consecutive NYSE trading days ending on and including the trading day that is three trading days prior to the closing of the merger (the “Average Stock Price”). The stock portion of the per share consideration will be subject to a collar such that if the Average Stock Price is between $37.411 and $41.349, Time Warner shareholders will receive shares of AT&T stock equal to $53.75 in value for each share of Time Warner common stock. If the Average Stock Price is below $37.411, Time Warner’s shareholders will receive 1.437 AT&T shares for each share of Time Warner common stock. If the Average Stock Price is above $41.349, Time Warner shareholders will receive 1.300 AT&T shares for each share of Time Warner common stock. ~~The merger is conditioned on the receipt of certain antitrust and other required regulatory consents. The merger is expected to close before year-end 2017.~~ Should Time Warner terminate the Merger Agreement in specified circumstances, Time Warner may be required to pay AT&T a termination fee equal to $1.725 billion if Time Warner enters into or consummates an alternative transaction with a third party following such termination of the Merger Agreement.

The merger is conditioned on the receipt of certain antitrust and other required regulatory consents. On November 20, 2017, the United States Department of Justice (the “DOJ”) filed a lawsuit in the United States District Court for the District of Columbia (the “Court”) under a federal antitrust statute to enjoin the merger. The trial began the week of March 19, 2018 and the parties’ presentation of their cases is expected to conclude in early May 2018. Time Warner and AT&T have agreed to extend the termination date of the Merger Agreement to April 22, 2018, and each has agreed to waive, until June 21, 2018, its right to terminate the Merger Agreement based on the merger not being completed by April 22, 2018.

The merger with AT&T is consistent with the Company’s strategy of ensuring that its content is available to consumers on a wide range of distribution platforms. The Company expects the merger will accelerate the Company’s efforts to spur innovation in the media industry and improve the consumer experience with pay television bundles by creating compelling consumer offerings and developing more targeted advertising offerings, and it will accelerate and reduce the risk in Time Warner’s strategy to distribute content through other online and mobile services, including those offered directly to consumers.

~~RESULTS~~Recent OFDevelopments ~~OPERATIONS~~

~~Recent~~Central European ~~Accounting~~Media ~~Guidance~~Enterprises Ltd.

~~See~~On ~~Note~~April 25, 12018, the Company exercised warrants it held to purchase 101 million shares of Class A common stock of Central European Media Enterprises Ltd.’s (“~~Description~~CME”) at an aggregate cost of ~~Business~~$101 million. ~~and~~Simultaneously, ~~Basis~~the Company entered into a standing proxy arrangement whereby it granted the right to vote the Class A common stock it received upon exercise of ~~Presentation~~the warrants,” for all matters other than regarding a change of control event, to the ~~accompanying~~independent ~~consolidated~~members ~~financial~~of CME’s Board of Directors. In accordance with the ~~statements~~standing ~~for~~proxy arrangement, such shares will be voted by the proxyholder in a ~~discussion~~manner that reflects the proportion of ~~recent~~all ~~accounting~~votes ~~guidance~~cast excluding those shares covered by the standing proxy arrangement. The Company has agreed with CME that the proxy arrangement will be in effect for two years and is not revocable by the Company. In addition, the Company has the right to extend the proxy arrangement for an additional one-year period at its option. The Company will continue to account for its investment in CME’s Class A common stock under the equity method of accounting.

On April 25, 2018, CME, CME Media Enterprises B.V. (“CME BV”), Time Warner and third-party financial institution lenders agreed to extend the maturity dates of CME’s €235 million senior unsecured term loan (the “2015 Term Loan”) from November 1, 2019 to November 1, 2021 and CME BV’s €469 million senior unsecured term loan (the “2016 Term Loan”) from February 19, 2021 to April 26, 2023. Time Warner has agreed to continue to guarantee CME’s and CME BV’s obligations under the term loans as well as related interest rate hedges.

On April 25, 2018, Time Warner, CME and CME BV entered into an amendment and restatement agreement (the “2018 Reimbursement Amendment”) to further amend and restate the Amended and Restated Reimbursement Agreement, dated as of November 14, 2014, and as amended and restated as of February 19, 2016. The 2018 Reimbursement Amendment, among other

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

things, reduced the guarantee fees payable by CME and CME BV to Time Warner for Time Warner’s guarantees of CME’s obligations under its €151 million senior unsecured term loan (the “2014 Term Loan”) that matures on May 1, 2019 and the 2015 Term Loan, as well as CME BV’s obligation under the 2016 Term Loan. The reduced fee to be paid to Time Warner for each of these guarantees is equal to a rate (the “all-in” rate) ranging between 3.25% and 6.00%, in the case of the 2014 Term Loan and 2015 Term Loan, and between 3.50% and 6.50%, in the case of the 2016 Term Loan, measured quarterly based on CME’s consolidated net leverage ratio, less the interest rate on the applicable term loan. The fees are payable in cash. The 2018 Reimbursement Amendment also provides that if CME’s consolidated debt level is less than €815 million by September 30, 2018, the all-in rate will be decreased further, in most cases by 50 basis points. The 2018 Reimbursement Amendment also makes less restrictive certain of the maintenance and negative covenants that apply to CME and its subsidiaries.

Also on April 25, 2018, Time Warner, CME and CME BV entered into an amendment and restatement agreement (the “2018 Revolver Amendment”) to further amend and restate CME’s Amended and Restated Revolving Loan Facility Credit Agreement, dated as of May 2, 2014, and as amended and restated as of February 19, 2016. The 2018 Revolver Amendment increased the size of the revolving credit facility from $50 million to $75 million and extended the maturity date from February 19, 2021 to April 26, 2023. Amounts outstanding under the revolving credit facility generally bear interest at a margin ranging from 3.25% to 6.25% over the applicable Libor rate for Eurodollar loans based on CME’s net leverage and, effective with the 2018 Revolver Amendment, are payable entirely in cash. The revolving credit facility continues to contain a commitment fee on the average daily unused amount under the facility of 0.50% per annum. The 2018 Revolver Amendment also makes less restrictive certain of the maintenance and negative covenants that apply to CME and its subsidiaries.

RESULTS OF OPERATIONS

Recent Accounting Guidance

See Note 1, “Description of Business and Basis of Presentation,” to the accompanying consolidated financial statements for a discussion of recent accounting guidance.

Transactions and Other Items Affecting Comparability

As more fully described herein and in the related notes to the accompanying consolidated financial statements, the comparability of Time Warner’s results from continuing operations has been affected by transactions and certain other items in each period as follows (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Asset impairments	$	~~(9)~~—	$	(301)	$	~~(11)~~	$	~~(35)~~
Gain (loss) on operating assets, net		13(23)		~~(12)~~7		69		77
Costs related to the AT&T merger		(93146)		—(82)		~~(276)~~		—
Other		~~(5)~~—		(141)		~~(16)~~		~~(28)~~
Impact on Operating Income		(94169)		(5677)		~~(234)~~		14
Investment gains, net		—		57		255		93
Investment gains (losses), net		(47)		159
Amounts related to the separation or disposition of formerTime Warner segments		(4)		(8)		(10)		(17)
Amounts related to the separation or disposition of former Time Warner segments		(13)		(4)
Items affecting comparability relating to equity method investments		121		(1)		1		~~(139)~~
Pretax impact		(97208)		~~(6)~~77		12		~~(49)~~
Income tax impact of above items		3042		3539		45		~~(18)~~
Impact of items affecting comparability on income fromcontinuing operations	$	(67)	$	29	$	57	$	(67)
Impact of items affecting comparability on net income	$	(166)	$	116

In addition to the items affecting comparability described above, the Company incurred Restructuring and severance costs of $~~3 million~~0 ~~and $23 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017,~~2018 ~~respectively,~~ and $1112 million ~~and $64 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016,~~ ~~respectively~~2017. For further information regarding the Restructuring and severance costs, see “Consolidated Results” and “Business Segment Results.”

Asset Impairments

During the three and nine months ended September 30, 2017, the Company recognized asset impairments, relating primarily to software, of $9 million and $11 million, respectively, which consisted of $4 million and $6 million, respectively, at the Warner Bros. segment and $5 million for both periods at the Turner segment. During the three and nine months ended September 30, 2016, the Company recognized asset impairments of $30 million and $35 million, respectively, which consisted of $25 million at Turner for both periods relating to an international broadcast license, $5 million and $6 million, respectively, at Warner Bros. relating to certain internally developed software and, for the nine months ended September 30, 2016, $4 million at Corporate relating to miscellaneous assets.

Gain (Loss) on Operating Assets, Net

During the three and nine months ended September 30, 2017, the Company recognized a $13 million gain on operating assets primarily relating to a non-income tax receivable at the Turner segment. During the nine months ended September 30, 2017, the Company also recognized a $49 million gain on the sale of an Atlanta broadcast television station at the Turner segment as well as miscellaneous gains of $6 million at the Turner segment and $1 million at the Warner Bros. segment. For the three months ended September 30, 2016, the Company recognized $12 million of loss on operating assets, primarily relating to the pending disposition of a business at the Turner segment. For the nine months ended September 30, 2016, the Company recognized $77 million of net gain on operating assets, consisting of $92 million of gains at the Warner Bros. segment, principally relating to the gain on the sale of the net assets of Warner Bros.’ Flixster business to Fandango Media, LLC, and $15 million of losses at the Turner segment, principally relating to the pending disposition of a business.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Asset Impairments

During the three months ended March 31, 2017, the Company recognized miscellaneous asset impairments of $1 million at the Warner Bros. segment.

Gain (Loss) on Operating Assets, Net

During the three months ended March 31, 2018, the Company recognized net losses on operating assets of $23 million, consisting of $24 million of costs at the Warner Bros. segment associated with a fair value adjustment on a contingent consideration arrangement, partially offset by a miscellaneous gain of $1 million at the Turner segment. During the three months ended March 31, 2017, the Company recognized miscellaneous gains on operating assets of $7 million, consisting of $6 million at the Turner segment and $1 million at the Warner Bros. segment.

Costs Related to the AT&T Merger

For the three ~~and nine~~ months ended ~~September~~March 3031, 2018 and 2017, the Company recognized $93146 million and $~~276~~82 million, respectively, of costs related to the AT&T merger, consisting of $3253 million and $8326 million, respectively, at ~~the Turner segment~~Corporate, $2937 million and $7822 million, respectively, at the ~~Warner~~Turner ~~Bros.~~ segment, $1937 million and $7522 million, respectively, at ~~Corporate~~the Warner Bros. segment and $1319 million and $4012 million, respectively, at the Home Box Office segment. For the three ~~and nine~~ months ended ~~September~~March 3031, 2018 and 2017, these costs reflected $644 million and $4218 million, respectively, of external transaction costs and $87102 million and $~~234~~64 million, respectively, of costs from merger-related employee retention and incentive programs (as discussed below). For the three ~~and nine~~ months ended ~~September~~ March 3031, 2018 and 2017, approximately $90145 million and $~~268~~80 million, respectively, of these costs are included in Selling, general and administrative expenses and the remainder in Costs of revenues in the accompanying Consolidated Statement of Operations.

In connection with entering into the Merger Agreement, the Company has granted 5.7 million special retention restricted stock units (“Special Retention RSUs”) as of ~~September~~March 3031, ~~2017~~2018 to certain employees of Time Warner and its divisions, including all executive officers of Time Warner. Half of the Special Retention RSUs will vest 25% per year on each of the first four anniversaries of February 15, 2017, and the remaining half will vest 25% per year on each of the first four anniversaries of February 15, 2018. Pursuant to the Special Retention RSU agreements, vesting as a result of retirement is not permitted unless the employee retires after the merger has closed. In addition, the awards do not accelerate automatically following the closing of the merger. Instead, the employee must remain employed following the closing, and the awards will vest only on the scheduled vesting date or upon termination of employment under certain circumstances, such as termination without cause, for good reason or due to retirement.

In addition, ~~certain~~the Company has implemented merger-related cash-based incentive plans, including a retention plan for certain employees of Time Warner and its divisions, including executive officers of Time Warner other than the Chairman and CEO, ~~have~~and ~~received or will receive~~ a ~~cash~~ retention ~~award.~~and ~~Half~~incentive ofplan ~~the~~focused ~~award~~on ~~will become payable upon~~ the ~~closing~~operating ofdivisions’ ~~the~~2018 ~~merger,~~performance ~~and the remaining half will become payable six months thereafter,~~ in ~~both~~which ~~cases,~~the ~~subject~~executive toofficers ~~continued~~of ~~employment~~Time onWarner ~~the~~do ~~relevant~~not ~~payment date~~participate. ~~Payment~~ ~~will also be made upon termination without cause or for good reason.~~

Other

For the three ~~and nine~~ months ended ~~September~~March 3031, 2017, Other includes external costs related to mergers, acquisitions or ~~dispositions~~ ~~(other than the AT&T merger)~~ dispositions of $5 million and $16 million, respectively, consisting of $5 million and $15 million at the Warner Bros. segment primarily related to severance costs associated with the shutdown of a business in Latin America and, for the nine months ended September 30, 2017, $1 million at the Turner segment. ~~For the three and nine months ended September~~ 30, 2016, Other includes external costs related to mergers, acquisitions or dispositions of $4 million and $9 million, respectively, consisting of $3 million and $4 million, respectively, at the Turner segment and $1 million and $2 million, respectively, at the Warner Bros. segment and, for the nine months ended September 30, 2016, $3 million at Corporate. For the three and nine months ended September 30, 2016, Other also includes $10 million of pension settlement charges at Corporate, and for the nine months ended September 30, 2016, $9 million of expenses at the Home Box Office segment related to Home Box Office’s withdrawal from a multiemployer benefit plan. External costs related to mergers, acquisitions or dispositions ~~and the accrued benefit plan withdrawal expenses~~ are included in Selling, general and administrative expenses in the accompanying Consolidated Statement of Operations.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Investment Gains (Losses), Net

Investment gains (losses), net are included in Other income (loss), net in the accompanying Consolidated Statement of Operations. The detail of Investment gains, net is shown in the table below (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Sale of interest in Omni Atlanta hotel joint venture	$	—	$	—99	$	99	$	—
Gain on CME (a)		—		—		—		95
Fair value adjustments (a)		(45)		54
Gain on joint venture in Netherlands (b)		—		41		—		41
Gain (loss) on other investments		(2)		6
Fair value adjustments (c)		5		18		150		(44)
Investment gains (losses), net	$	(47)	$	159
Gain (loss) on other investments		(5)		(2)		6		1
Investment gains, net	$	—	$	57	$	255	$	93

(a) ~~Related~~Primarily related to ~~financing~~warrants ~~transactions~~to ~~with~~purchase ~~Central~~Class ~~European~~A ~~Media~~common ~~Enterprises~~stock ~~Ltd.~~of (“CME”) ~~that~~held ~~were~~by ~~completed~~the inCompany, which the ~~second~~Company ~~quarter~~exercised ofon ~~2016~~April 25, 2018. See “Recent Developments.”

(b) Related to a gain associated with an agreement to dissolve a Home Box Office joint venture in the Netherlands.

Amounts Related to the Separation or Disposition of Former Time Warner Segments

~~The~~For ~~Company~~the ~~recognized~~three $4months ended March ~~million~~31, ~~and~~2018, the Company recognized $1013 million ~~for~~of losses related to the ~~three~~disposition ~~and~~of ~~nine~~former ~~months~~Time ~~ended~~Warner ~~September 30~~segments, ~~2017, respectively,~~primarily ~~and~~related ~~$8 million~~to ~~and~~changes ~~$17 million~~in ~~for~~ the ~~three~~value ~~and~~of ~~nine~~a Time Warner Cable Inc. (“TWC”) tax indemnification receivable. For the three months ended ~~September~~March 3031, ~~2016~~ 2017, ~~respectively,~~the Company recognized $4 million of losses related to the disposition of former Time Warner segments, primarily reflecting pension and other retirement benefits related to employees and former employees of Time Inc. These amounts have been reflected in Other income (loss), net in the accompanying Consolidated Statement of Operations.

Items Affecting Comparability Relating to Equity Method Investments

For ~~both~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, the Company recognized $121 million of income primarily related to its share of net investment gains recorded by equity method investees. For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017, the Company recognized $1 million ~~and $11 million~~ of ~~income,~~losses ~~respectively, primarily~~ related to ~~net~~ its share of investment ~~gains~~losses recorded by equity method investees ~~and, for the nine months ended September 30, 2016, $150 million of losses related to the financing transactions with CME in 2016~~. These amounts have been reflected in Other income (loss), net in the accompanying Consolidated Statement of Operations.

Income Tax Impact

The income tax impact reflects the estimated tax provision or tax benefit associated with each item affecting comparability using the effective tax rate for the item. The estimated tax provision or tax benefit can vary based on certain factors, including the taxability or deductibility of the item and the applicable tax jurisdiction for the item. For the ~~nine~~three months ended ~~September~~March 3031, 2017, the income tax impact includes a $69 million benefit primarily reflecting the reversal of a valuation allowance related to the use of capital loss carryforwards to offset the gains on the Turner segment’s ~~sales~~ sales of its interest in the joint venture that owns the Omni Atlanta hotel and its Atlanta broadcast television station.

Consolidated Results

The following discussion provides an analysis of the Company’s results of operations and should be read in conjunction with the accompanying Consolidated Statement of Operations.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Revenues. The components of Revenues are as follows (millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		% Change		2017		2016		% Change
	2018		2017		% Change
Turner	$	23,~~768~~344	$	23,~~610~~088	6%	8%	$	~~8,958~~	$	~~8,526~~	5%
Home Box Office		1,~~605~~619		1,~~426~~568	~~13%~~	3%		~~4,649~~		~~4,399~~	6%
Warner Bros.		3,~~460~~238		3,~~402~~365	2%	(4)%		~~9,813~~		~~9,169~~	7%
Intersegment eliminations		(~~238~~205)		(~~271~~286)	~~(12)%~~	(28)%		~~(760)~~		~~(667)~~	~~14%~~
Total revenues	$	7,~~595~~996	$	7,~~167~~735	6%	3%	$	~~22,660~~	$	~~21,427~~	6%

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, Revenues at the Turner ~~and~~segment ~~Home Box Office segments~~ increased ~~primarily~~ driven by higher Subscription and Advertising revenues, ~~and~~ Revenues at the ~~Warner~~Home ~~Bros.~~Box Office segment increased ~~primarily~~ driven by higher ~~Theatrical~~Subscription ~~product~~revenues, ~~and~~which ~~Videogames~~were partially offset by lower Content and other revenues, ~~which,~~and ~~for~~Revenues at the ~~three~~Warner ~~months ended~~Bros. ~~September 30,~~segment ~~2017~~decreased driven by lower Television and Theatrical product revenues, ~~was~~which were partially offset by ~~lower~~higher ~~Television~~Games ~~product~~and other revenues. Each of the revenue categories is discussed in greater detail by segment in “Business Segment Results.”

Costs of Revenues. Costs of revenues were $34.~~928~~717 billion ~~and $12.466 billion~~ for the three ~~and~~ ~~nine~~ months ended ~~September~~March 3031, ~~2017,~~2018 ~~respectively,~~ and $34.~~873~~332 billion ~~and $11.718 billion~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016, respectively~~2017. The increase in Costs of revenues for the three months ended ~~September 30,~~ 2017 primarily reflected higher programming expenses at the Turner and Home Box Office segments, partially offset by lower print and advertising costs at the Warner Bros. segment. The increase in Costs of revenues for the nine months ended SeptemberMarch 3031, ~~2017~~2018 primarily reflected higher ~~film and television production costs at the Warner Bros. segment and higher~~ programming expenses at the Turner segment. The segment variations are discussed in “Business Segment Results.”

Selling, General and Administrative Expenses. For the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2017~~2018, Selling, general and administrative expenses increased 1710% ~~and 11%, respectively,~~ to $1.~~378~~402 billion ~~and $4.080 billion, respectively,~~ from $1.~~179~~272 billion ~~and $3.688 billion~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017, ~~respectively,~~ primarily reflecting higher AT&T merger costs at all segments, ~~and~~ higher marketing expense at the Turner and Home Box Office segments and the impact of foreign exchange rates at the Warner Bros. segment. For the three ~~and nine~~ months ended ~~September~~March 3031, 2018 and 2017, Selling, general and administrative expenses included approximately $90145 million and $~~268~~80 million, respectively, of costs related to the AT&T merger. The segment variations are discussed in “Business Segment Results.”

Included in Costs of revenues and Selling, general and administrative expenses is depreciation expense of $~~124~~128 million ~~and $367 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017,~~2018 ~~respectively,~~ and $~~118~~120 million ~~and $359 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016, respectively~~2017.

Amortization Expense. Amortization expense was $4543 million ~~and $136 million~~ for the three ~~and~~ ~~nine~~ months ended ~~September~~March 3031, ~~2017, respectively,~~ 2018 and $4845 million ~~and $143 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016, respectively~~2017.

Restructuring and Severance Costs. For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~ 2017, ~~the Company incurred~~ Restructuring and severance costs primarily related to employee terminations and other exit activities. Restructuring and severance costs are as follows (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Turner	$	1(2)	$	82	$	8	$	15
Home Box Office		113		—2		6		41
Warner Bros.		(112)		19		8		6
Corporate		21		2(1)		1		2
Total restructuring and severance costs	$	3—	$	1112	$	23	$	64

Operating Income. Operating Income decreased to $1.811 billion for the three months ended March 31, 2018 from $2.080 billion for the three months ended March 31, 2017. Excluding the items noted under “Transactions and Other Items Affecting Comparability” totaling $169 million and $77 million of expense for the three months ended March 31, 2018 and 2017, respectively, Operating Income decreased $177 million, primarily reflecting decreases at the Warner Bros., Turner and Home Box Office segments.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Operating Income. Operating Income increased to $2.245 billion for the three months ended September 30, 2017 from $2.014 billion for the three months ended September 30, 2016. Excluding the items noted under “Transactions and Other Items Affecting Comparability” totaling $94 million and $56 million of expense for the three months ended September 30, 2017 and 2016, respectively, Operating Income increased $269 million, primarily reflecting increases at the Warner Bros., Turner and Home Box Office segments. Operating Income increased to $6.013 billion for the nine months ended September 30, 2017 from $5.856 billion for the nine months ended September 30, 2016. Excluding the items noted under “Transactions and Other Items Affecting Comparability” totaling $234 million of expense and $14 million of income for the nine months ended September 30, 2017 and 2016, respectively, Operating Income increased $405 million, primarily reflecting increases at the Warner Bros. and Home Box Office segments, partially offset by a decrease at the Turner segment.

Interest Expense, Net. Interest expense, net detail is shown in the table below (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Interest expense	$	(~~305~~255)	$	(~~350~~308)	$	~~(919)~~	$	~~(1,045)~~
Interest income		5148		5249		~~157~~		~~171~~
Interest expense, net	$	(~~254~~207)	$	(~~298~~259)	$	~~(762)~~	$	~~(874)~~

The decrease in interest expense for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~ 2018 was primarily due to lower average ~~interest~~debt ~~rates~~balances and lower average ~~debt balances. The decrease in~~ interest ~~income for the nine months ended September 30, 2017 was primarily driven by the financing transactions with CME that were completed in the second quarter of 2016~~rates.

Other Income (Loss), Net. Other income (loss), net detail is shown in the table below (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Investment gains, net	$	—	$	57	$	255	$	93
Investment gains (losses), net	$	(47)	$	159
Amounts related to the separation or disposition of former Time Warner segments		(413)		(84)		~~(10)~~		~~(17)~~
Loss from equity method investees		(6520)		(5976)		~~(160)~~		~~(261)~~
Other		(114)		(177)		~~(8)~~		~~(13)~~
Other income (loss), net	$	(7094)	$	~~(27)~~72	$	77	$	~~(198)~~

Investment gains (losses), net and amounts related to the separation or disposition of former ~~Time~~ Time Warner segments are discussed under “Transactions and Other Items Affecting Comparability.” The decrease in loss from equity method investees for the nine months ended September 30, 2017 was primarily due to the recognition during the nine months ended September 30, 2016 of the Company’s share of losses from CME related to the 2016 CME financing transactions.

Income Tax Benefit (Provision). Income tax ~~provision~~benefit ~~increased~~was to $~~550~~132 million ~~and~~ ~~$1.472 billion~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017,~~2018 ~~respectively,~~compared ~~from~~to ~~$217 million~~an ~~and~~Income tax provision of $~~1.187~~470 ~~billion~~million for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2016, respectively~~2017. The Company’s effective tax rate was 29(9%) ~~and 28%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017,~~2018 ~~respectively,~~ compared to ~~13% and~~ 25% for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016, respectively~~2017. The ~~increases~~decrease in the effective tax rate for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2017~~2018 ~~were~~was primarily ~~due~~related to ~~a change in~~ the ~~Company’s~~settlement ~~tax method~~ of ~~accounting~~a ~~for~~U.S. ~~film~~federal ~~and~~tax ~~television~~audit, ~~cost amortization that was approved by~~ the ~~Internal~~2018 ~~Revenue~~impact ~~Service~~of ~~during~~ the ~~third~~U.S. ~~quarter~~tax ~~of 2016,~~reform ~~partially~~legislation ~~offset~~enacted byat the ~~impact~~end of ~~the~~2017 ~~Company’s~~and ~~adoption of~~ the ~~new~~2018 ~~share-based~~extension ~~compensation~~of ~~accounting~~an ~~guidance~~expired ~~relating to excess~~ tax ~~benefits~~law ~~recognized~~retroactive ~~with respect~~ to ~~share-based~~January 1, ~~awards and the expected utilization of certain tax attribute carryovers in~~ 2017.

~~Income~~Net ~~from Continuing Operations~~Income. Net Income ~~from continuing operations~~ was $1.~~371~~642 billion and $1.~~472~~423 billion for the three months ended ~~September~~ March 3031, ~~2017~~2018 and ~~2016~~2017, respectively. Excluding the items noted under “Transactions and Other Items Affecting Comparability” totaling $67166 million of expense and $29116 million of income for the three months ended ~~September~~ March 3031, ~~2017~~2018 and ~~2016~~2017, respectively, Net Income ~~from~~increased ~~continuing operations decreased~~ $5501 million, primarily due to ~~higher~~lower income tax expense, partially offset by lower Operating Income.

Net Loss Attributable to Noncontrolling Interests. Net loss attributable to noncontrolling interests was $1 million for both the three months ended March 31, 2018 and 2017.

Net Income attributable to Time Warner shareholders. Net income attributable to Time Warner shareholders was $1.643 billion for the three months ended March 31, 2018 and $1.424 billion for the three months ended March 31, 2017. Basic and Diluted net income per common share were $2.10 and $2.07, respectively, for the three months ended March 31, 2018 and were $1.84 and $1.80, respectively, for the three months ended March 31, 2017.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

by higher Operating Income. Basic and Diluted income from continuing operations per common share were $1.76 and $1.73, respectively, for the three months ended September 30, 2017 and were $1.89 and $1.87, respectively, for the nine months ended September 30, 2016.

Income from continuing operations was $3.856 billion and $3.597 billion for the nine months ended September 30, 2017 and 2016, respectively. Excluding the items noted under “Transactions and Other Items Affecting Comparability” totaling $57 million of income and $67 million of expense for the nine months ended September 30, 2017 and 2016, respectively, Income from continuing operations increased $135 million, primarily due to higher Operating Income, partially offset by higher income tax expense. Basic and Diluted income from continuing operations per common share were $4.95 and $4.88, respectively, for the nine months ended September 30, 2017 and were $4.58 and $4.53, respectively, for the nine months ended September 30, 2016.

Discontinued Operations, Net of Tax. For the three months ended September 30, 2016, Discontinued operations, net of tax was expense of $5 million related to pension settlement charges related to businesses the Company previously disposed of. For the nine months ended September 30, 2016, Discontinued operations, net of tax was income of $35 million, which also included the recognition of additional tax benefits associated with certain foreign tax attributes of Warner Music Group (“WMG”), which the company disposed of in 2004. Basic and Diluted loss from discontinued operations per common share were $0.00 and $0.01 for the three months ended September 30, 2016. Both Basic and Diluted income from discontinued operations per common share were $0.04 for the nine months ended September 30, 2016.

Net Income attributable to Time Warner shareholders. Net income attributable to Time Warner shareholders was $1.372 billion and $3.858 billion for the three and nine months ended September 30, 2017, respectively, and $1.467 billion and $3.633 billion for the three and nine months ended September 30, 2016, respectively. Basic and Diluted net income per common share were $1.76 and $1.73, respectively, for the three months ended September 30, 2017 and were $1.89 and $1.86, respectively, for the three months ended September 30, 2016. Basic and Diluted net income per common share were $4.95 and $4.88, respectively, for the nine months ended September 30, 2017 and were $4.62 and $4.57, respectively, for the nine months ended September 30, 2016.

Business Segment Results

Turner. Revenues and Operating Income of the Turner segment for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2017~~ 2018 and ~~2016~~2017 are as follows (millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		% Change		2017		2016		% Change
	2018		2017		% Change
Revenues:
Subscription	$	1,~~666~~790	$	1,~~480~~665	~~13%~~	8%	$	~~5,003~~	$	~~4,455~~	~~12%~~
Advertising		~~963~~1,326		~~996~~1,213	~~(3)%~~	9%		~~3,441~~		~~3,576~~	~~(4)%~~
Content and other		~~139~~228		~~134~~210	4%	9%		~~514~~		~~495~~	4%
Total revenues		23,~~768~~344		23,~~610~~088	6%	8%		~~8,958~~		~~8,526~~	5%
Costs of revenues (a)		(1,~~002~~697)		(~~935~~1,413)	7%	20%		~~(3,930)~~		~~(3,505)~~	~~12%~~
Selling, general and administrative (a)		(~~476~~502)		(~~415~~455)	~~15%~~	10%		~~(1,456)~~		~~(1,279)~~	~~14%~~
Gain (loss) on operating assets		13		(13)	(200)%			68		(15)	NM
Gain on operating assets		1		6		(83)%
Asset impairments		(5)		(25)	(80)%			(5)		(25)	(80)%
Restructuring and severance costs		2		(2)		NM
Restructuring and severance costs		(1)		(8)	(88)%			(8)		(15)	(47)%
Depreciation		(52)		(50)		4%
Depreciation		(50)		(48)	4%			(151)		(143)	6%
Amortization		(4)		(4)		—%
Amortization		(4)		(4)	—%			(13)		(13)	—%
Operating Income	$	1,092	$	1,170		(7)%
Operating Income	$	1,243	$	1,162	7%		$	3,463	$	3,531	(2)%

(a)	Costs of revenues and Selling, general and administrative expenses exclude depreciation.

For the three months ended March 31, 2018, the increase in Subscription revenues reflected higher domestic subscription revenues of $66 million due to higher contractual rates, partially offset by a decrease in subscribers. International subscription revenues increased $59 million primarily due to growth in Latin America, mainly due to a new premium pay-television sports offering in Argentina.

For the three months ended March 31, 2018, the increase in Advertising revenues reflected higher domestic revenues of $106 million primarily due to Turner airing the Final Four games of the NCAA Division I Men’s Basketball Championship Tournament (the “NCAA Tournament”) on its networks.

The components of Costs of revenues for the Turner segment are as follows (millions):


	Three Months Ended March 31,
	2018		2017		% Change
Programming costs:
Originals and sports	$	1,219	$	982		24%
Acquired films and syndicated series		225		210		7%

Total programming costs		1,444		1,192		21%
Other direct operating costs		253		221		14%

Costs of revenues (a)	$	1,697	$	1,413		20%

(a)	Costs of revenues exclude depreciation.

For the three months ended March 31, 2018, programming costs increased reflecting higher costs for sports programming mainly due to Turner airing the Final Four NCAA Tournament games on its networks and, to a lesser extent, higher costs for original series.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, ~~Subscription~~Selling, general and ~~revenues~~administrative expenses increased primarily ~~reflecting~~due to higher ~~domestic~~marketing ~~subscription~~expense ~~revenues~~ of $~~167~~21 million ~~and~~primarily ~~$506 million,~~related ~~respectively,~~to ~~due~~new toseasons ~~higher~~of ~~contractual~~original ~~rates,~~programming ~~partially~~and ~~offset~~increased bycosts arelated ~~decrease~~to inthe ~~subscribers~~AT&T merger of $15 million.

~~For~~Refer ~~the~~to ~~three~~“Transactions ~~months~~and ~~ended~~Other ~~September 30,~~Items ~~2017,~~Affecting ~~the~~Comparability” ~~decrease~~for ina ~~Advertising~~discussion ~~revenues~~of ~~reflected~~Gain ~~lower~~on ~~domestic~~operating ~~revenues~~assets ofand ~~$36 million,~~costs ~~primarily~~related ~~driven~~to bythe ~~lower~~AT&T ~~audience~~merger ~~delivery~~for ~~at Turner’s entertainment networks, partially offset by increases at Turner’s news businesses. For~~ the ~~nine~~three months ended ~~September~~March 3031, 2018 and 2017, ~~the~~which ~~decrease~~affected inthe ~~Advertising revenues~~comparability ~~reflected lower domestic revenues~~ of ~~$157 million primarily due to~~ the ~~comparison to the revenues associated with the NCAA Division I Men’s Basketball Championship Tournament (the “NCAA Tournament”) in the prior year period when~~ Turner’s ~~networks aired the championship and two Final Four games, as well as lower audience delivery at Turner~~segment’s ~~entertainment networks, partially offset by increases at Turner’s news businesses~~results.

~~The~~Operating ~~components~~Income offor the three months ended March 31, 2018 decreased due to higher Costs of revenues ~~for~~and ~~the~~Selling, ~~Turner~~general and ~~segment~~administrative ~~are~~expenses, aspartially ~~follows~~offset ~~(millions):~~by higher Revenues.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Programming costs:
Originals and sports	$	555	$	506	10%	$	2,606	$	2,277	14%
Acquired films andsyndicated series		208		203	2%		628		593	6%
Total programming costs		763		709	8%		3,234		2,870	13%
Other direct operating costs		239		226	6%		696		635	10%
Costs of revenues (a)	$	1,002	$	935	7%	$	3,930	$	3,505	12%

Home Box Office. Revenues and Operating Income of the Home Box Office segment for the three months ended March 31, 2018 and 2017 are as follows (millions):


	Three Months Ended March 31,
	2018		2017		% Change
Revenues:
Subscription	$	1,429	$	1,302		10%
Content and other		190		266		(29)%

Total revenues		1,619		1,568		3%
Costs of revenues (a)		(833)		(758)		10%
Selling, general and administrative (a)		(227)		(200)		14%
Restructuring and severance costs		(13)		(2)		NM
Depreciation		(26)		(19)		37%
Amortization		(4)		(4)		—%

Operating Income	$	516	$	585		(12)%

(a) Costs of revenues and Selling, general and administrative expenses exclude depreciation.

For the three months ended March 31, 2018, Subscription revenues increased due to higher domestic subscription revenues of $98 million reflecting increased subscribers and higher contractual rates, partially offset by the $63 million impact of a change in accounting due to the adoption of new revenue recognition guidance and its application to minimum fee provisions in multi-year affiliate distribution arrangements. International subscription revenues for the three months ended March 31, 2018 increased $29 million primarily reflecting growth in Europe.

For the three months ended March 31, 2018, Content and other revenues decreased primarily due to lower international licensing revenues.

The components of Costs of revenues for the Home Box Office segment are as follows (millions):


	Three Months Ended March 31,
	2018		2017		% Change
Programming costs:
Originals and sports	$	277	$	263		5%
Acquired films and syndicated series		320		289		11%

Total programming costs		597		552		8%
Other direct operating costs		236		206		15%

Costs of revenues (a)	$	833	$	758		10%

(a)	Costs of revenues exclude depreciation.

For the three months ended September 30, 2017, programming costs increased primarily due to higher costs for original series. For the nine months ended September 30, 2017, programming costs increased mainly due to higher costs for National Basketball Association programming, partially offset by lower costs for NCAA Tournament programming. The increase in other direct operating costs for the three and nine months ended September 30, 2017 primarily related to costs associated with digital content and technology initiatives.

For the three and nine months ended September 30, 2017, Selling, general and administrative expenses increased primarily due to $31 million and $80 million, respectively, of costs related to the AT&T merger as well as higher marketing expense of $44 million and $76 million, respectively.

Refer to “Transactions and Other Items Affecting Comparability” for a discussion of Gain (loss) on operating assets, costs related to the AT&T merger and external costs related to mergers, acquisitions and dispositions for the three and nine months ended September 30, 2017 and 2016, which affected the comparability of the Turner segment’s results.

Operating Income for the three months ended September 30, 2017 increased due to higher Revenues, higher Gain on operating assets and lower Asset impairments, partially offset by higher Costs of revenues and Selling, general and administrative expenses. Operating Income for the nine months ended September 30, 2017 decreased due to higher Costs of revenues and Selling, general and administrative expenses, partially offset by higher Revenues, higher Gain on operating assets and lower Asset impairments.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

~~Home~~The ~~Box~~increase ~~Office. Revenues~~in ~~and~~programming ~~Operating~~costs ~~Income~~for of the three months ended March 31, 2018 was primarily due to higher acquired programming costs for Home Box Office’s ~~segment~~domestic ~~for~~and ~~the~~international ~~three~~businesses. ~~and~~The ~~nine~~increase ~~months~~in ~~ended~~other ~~September 30,~~direct ~~2017~~operating ~~and~~costs ~~2016~~primarily ~~are~~reflected ashigher ~~follows~~distribution ~~(millions):~~costs.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Revenues:
Subscription	$	1,418	$	1,262	12%	$	4,077	$	3,751	9%
Content and other		187		164	14%		572		648	(12)%
Total revenues		1,605		1,426	13%		4,649		4,399	6%
Costs of revenues (a)		(758)		(690)	10%		(2,204)		(2,181)	1%
Selling, general andadministrative (a)		(268)		(185)	45%		(701)		(623)	13%
Restructuring andseverance costs		(1)		—	NM		(6)		(41)	(85)%
Depreciation		(22)		(17)	29%		(61)		(55)	11%
Amortization		(4)		(4)	—%		(11)		(11)	—%
Operating Income	$	552	$	530	4%	$	1,666	$	1,488	12%

For the three months ended March 31, 2018, Selling, general and administrative expenses increased primarily due to higher marketing expenses of $12 million and increased costs related to the AT&T merger of $7 million.

Refer to “Transactions and Other Items Affecting Comparability” for a discussion of costs related to the AT&T merger for the three months ended March 31, 2018 and 2017, which affected the comparability of the Home Box Office segment’s results.

The decrease in Operating Income for the three months ended March 31, 2018 was primarily due to higher Costs of revenues and Selling, general and administrative expenses, partially offset by higher Revenues.

Warner Bros. Revenues and Operating Income of the Warner Bros. segment for the three months ended March 31, 2018 and 2017 are as follows (millions):


	Three Months Ended March 31,
	2018		2017		% Change
Revenues:
Theatrical product	$	1,336	$	1,377		(3)%
Television product		1,498		1,675		(11)%
Games and other		404		313		29%

Total revenues		3,238		3,365		(4)%
Costs of revenues (a)		(2,334)		(2,331)		—%
Selling, general and administrative (a)		(493)		(454)		9%
Gain (loss) on operating assets		(24)		1		NM
Asset impairments		—		(1)		NM
Restructuring and severance costs		12		(9)		NM
Depreciation		(42)		(44)		(5)%
Amortization		(35)		(37)		(5)%

Operating Income	$	322	$	490		(34)%

(a)	Costs of revenues and Selling, general and administrative expenses exclude depreciation.

For the three and nine months ended September 30, 2017, Subscription revenues increased due to higher domestic subscription revenues of $128 million and $267 million, respectively, reflecting increased subscribers and higher contractual rates, as well as higher international subscription revenues of $28 million and $59 million, respectively, reflecting growth in Europe.

For the three months ended September 30, 2017, Content and other revenues increased primarily due to higher international licensing revenues of $12 million and higher home entertainment revenues of $9 million. For the nine months ended September 30, 2017, Content and other revenues decreased due to lower home entertainment revenues, primarily due to the timing of releases.

The components of Costs of revenues for the Home Box Office segment are as follows (millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Programming costs:
Originals and sports	$	288	$	236	22%	$	800	$	824	(3)%
Acquired films andsyndicated series		265		281	(6)%		816		783	4%
Total programmingcosts		553		517	7%		1,616		1,607	1%
Other direct operatingcosts		205		173	18%		588		574	2%
Costs of revenues (a)	$	758	$	690	10%	$	2,204	$	2,181	1%

(a) Costs of revenues exclude depreciation.

The increase in originals and sports programming costs for the three months ended September 30, 2017 was primarily due to the timing of original programming. The decrease in originals and sports programming costs for the nine months ended September 30, 2017 was primarily due to lower original programming charges, partially offset by the timing of original programming. The decrease in acquired films and syndicated series programming costs for the three months ended September 30, 2017 was primarily related to lower acquired programming costs for HBO’s domestic businesses, partially offset by higher acquired

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

~~programming~~Revenues ~~costs~~primarily ~~for~~relate ~~HBO’s~~to ~~international~~theatrical ~~businesses.~~product ~~The~~(which ~~increase~~is incontent ~~acquired~~made available ~~films~~for initial exhibition in theaters) and ~~syndicated~~television ~~series~~product ~~programming~~(which ~~costs~~is ~~for~~content ~~the~~made ~~nine~~available ~~months~~for ~~ended~~initial ~~September 30,~~airing ~~2017~~on ~~was~~television ~~primarily related~~or toOTT ~~higher~~services). ~~acquired~~The ~~programming~~components ~~costs~~of Revenues for ~~both~~the ~~HBO’s~~three ~~international~~months ended March 31, 2018 and ~~domestic~~2017 ~~businesses.~~are as follows (millions):

For the three and nine months ended September 30, 2017, Selling, general and administrative expenses increased primarily due to higher marketing expenses of $57 million and $51 million, respectively, and costs related to the AT&T merger of $11 million and $35 million, respectively. In addition, the nine months ended September 30, 2016 included $9 million of expenses related to Home Box Office’s withdrawal from a multiemployer benefit plan.


	Three Months Ended March 31,
	2018		2017		% Change
Theatrical product:
Film rentals	$	273	$	443		(38)%
Home video and electronic delivery		394		368		7%
Television licensing		570		485		18%
Consumer products and other		99		81		22%

Total theatrical product	$	1,336	$	1,377		(3)%

Television product:
Television licensing		1,335		1,490		(10)%
Home video and electronic delivery		75		87		(14)%
Consumer products and other		88		98		(10)%

Total television product	$	1,498	$	1,675		(11)%

~~Refer~~The toWarner ~~“Transactions~~Bros. ~~and~~segment ~~Other~~had ~~Items~~the ~~Affecting~~following ~~Comparability”~~number ~~for a discussion~~ of ~~costs~~theatrical ~~related~~film, totheatrical ~~the~~product ~~AT&T~~home ~~merger~~video ~~for~~and ~~the~~electronic ~~three~~delivery and ~~nine~~game ~~months~~releases ~~ended~~during ~~September 30, 2017, which affected~~ the ~~comparability~~three ofmonths ~~the~~ended ~~Home~~March 31, ~~Box~~2018 ~~Office~~and ~~segment’s~~2017: ~~results.~~

The results for the nine months ended September 30, 2016 included $41 million of Restructuring and severance costs principally related to executive severance costs.


	Three Months Ended March 31,
	2018		2017
Theatrical film releases		6		4
Theatrical product home video and electronic delivery releases		4		4
Game releases		1		2

The ~~increase~~decrease in ~~Operating~~Revenues ~~Income~~ for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2017~~2018 ~~was~~included ~~primarily~~a ~~due~~net favorable toimpact ~~higher~~of ~~Revenues,~~foreign ~~partially~~exchange ~~offset~~rates ~~by higher Costs~~ of ~~revenues~~approximately ~~and higher Selling, general and administrative expenses, and for the nine months ended September~~$95 ~~30, 2017, lower Restructuring and severance costs~~million.

~~Warner~~Theatrical ~~Bros. Revenues~~product ~~and~~revenue ~~Operating~~from ~~Income~~film rentals ofdecreased for the ~~Warner~~three ~~Bros.~~months ~~segment~~ended ~~for~~March 31, ~~the three~~2018, ~~and~~reflecting ~~nine~~lower ~~months~~revenues ~~ended~~of ~~September~~$149 ~~30,~~million from theatrical films released during the first quarter of 2018 compared to the first quarter of 2017 and ~~2016~~lower ~~are~~carryover asrevenues ~~follows~~of $21 million ~~(millions):~~from prior period releases.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Revenues:
Theatrical product	$	1,697	$	1,605	6%	$	4,425	$	3,926	13%
Television product		1,308		1,430	(9)%		4,134		4,058	2%
Videogames andother		455		367	24%		1,254		1,185	6%
Total revenues		3,460		3,402	2%		9,813		9,169	7%
Costs of revenues (a)		(2,343)		(2,447)	(4)%		(6,863)		(6,519)	5%
Selling, general andadministrative (a)		(494)		(436)	13%		(1,442)		(1,309)	10%
Gain on operatingassets		—		1	NM		1		92	(99)%
Asset impairments		(4)		(5)	(20)%		(6)		(6)	—%
Restructuring andseverance costs		1		(1)	NM		(8)		(6)	33%
Depreciation		(45)		(46)	(2)%		(134)		(142)	(6)%
Amortization		(37)		(40)	(8)%		(112)		(119)	(6)%
Operating Income	$	538	$	428	26%	$	1,249	$	1,160	8%

For the three months ended March 31, 2018, theatrical product revenues from home video and electronic delivery increased primarily due to higher revenues of $55 million from releases during the first quarter of 2018 compared to the first quarter of 2017, partially offset by lower revenues of $29 million from prior period releases, including catalog titles.

~~(a)~~The ~~Costs~~increase ofin theatrical product revenues ~~and~~from ~~Selling~~television licensing for the three months ended March 31, ~~general~~2018 ~~and~~was ~~administrative~~primarily ~~expenses~~due ~~exclude~~to ~~depreciation~~higher international licensing revenues.

The decrease in television product revenues from television licensing for the three months ended March 31, 2018 was primarily due to a change in mix of availabilities.

Games revenues increased for the three months ended March 31, 2018 primarily due to higher carryover revenues of $107 million from prior period releases, partially offset by lower revenues of $9 million from releases during the first quarter of 2018 compared to the first quarter of 2017.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Revenues primarily relate to theatrical product (which is content made available for initial exhibition in theaters) and television product (which is content made available for initial airing on television or OTT services). The components of Revenues for the three and nine months ended September 30, 2017 and 2016 are as follows (millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Theatrical product:
Film rentals	$	772	$	794	(3)%	$	1,759	$	1,603	10%
Home video andelectronic delivery		424		368	15%		1,135		910	25%
Television licensing		427		369	16%		1,315		1,207	9%
Consumer productsand other		74		74	—%		216		206	5%
Total theatrical product	$	1,697	$	1,605	6%	$	4,425	$	3,926	13%
Television product:
Television licensing		1,111		1,200	(7)%		3,578		3,451	4%
Home video andelectronic delivery		98		134	(27)%		263		313	(16)%
Consumer productsand other		99		96	3%		293		294	—%
Total television product	$	1,308	$	1,430	(9)%	$	4,134	$	4,058	2%

The Warner Bros. segment had the following number of theatrical film, theatrical product home video and electronic delivery and videogame releases during the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Theatrical film releases		4		6		14		15
Theatrical product home video and electronic delivery releases		6		7		13		16
Videogame releases		1		3		7		8

Theatrical product revenue from film rentals decreased for the three months ended September 30, 2017, reflecting lower revenues of $47 million from theatrical films released during the third quarter of 2017 compared to the third quarter of 2016, partially offset by higher carryover revenues of $25 million from prior period releases. Theatrical product revenue from film rentals increased for the nine months ended September 30, 2017, primarily reflecting higher revenues from theatrical films released during the first nine months of 2017 compared to the first nine months of 2016.

For the three months ended September 30, 2017, theatrical product revenues from home video and electronic delivery increased primarily due to higher revenues from prior period releases, including catalog titles, during the third quarter of 2017 compared to the third quarter of 2016. For the nine months ended September 30, 2017, theatrical product revenues from home video and electronic delivery increased due to higher revenues of $189 million from releases during the first nine months of 2017 compared to the first nine months of 2016 and higher revenues of $36 million from prior period releases, including catalog titles, during the first nine months of 2017 compared to the first nine months of 2016.

The increase in theatrical product revenues from television licensing for the three and nine months ended September 30, 2017 was primarily due to the timing and mix of availabilities.

The decrease in television product revenues from television licensing for the three months ended September 30, 2017 was primarily due to lower initial telecast revenues. The increase in television product revenues from television licensing for the nine

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

months ended September 30, 2017 was primarily due to higher domestic licensing revenues related to library series, partially offset by lower initial telecast revenues.

Videogames revenues increased for the three months ended September 30, 2017 primarily due to higher carryover revenues from prior period releases. Videogames revenues decreased for the nine months ended September 30, 2017 primarily due to lower carryover revenues of $73 million from prior period releases, partially offset by higher revenues of $59 million from releases during the first nine months of 2017 compared to the first nine months of 2016. In addition, other revenues for the three and nine months ended September 30, 2017 increased $42 million and $83 million, respectively, primarily related to higher revenues from digital initiatives.

The components of Costs of revenues for the Warner Bros. segment are as follows (millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		% Change		2017		2016		% Change
	2018		2017		% Change
Film and televisionproduction costs	$	1,656	$	1,650	—%		$	4,809	$	4,430	9%
Film and television production costs	$	1,574	$	1,667		(6)%
Print and advertisingcosts		468		549	(15)%			1,465		1,410	4%
Print and advertising costs		497		492		1%
Other costs, includingmerchandise andrelated costs		219		248	(12)%			589		679	(13)%
Other costs, including merchandise and related costs		263		172		53%
Costs of revenues (a)	$	2,~~343~~334	$	2,~~447~~331	~~(4)%~~	—%	$	~~6,863~~	$	~~6,519~~	5%

(a)	Costs of revenues excludes depreciation.

Included in film and television production costs are production costs related to ~~videogames~~games, as well as theatrical film and ~~videogame~~ game valuation adjustments resulting primarily from revisions to estimates of ultimate revenue and/or costs for certain theatrical films and ~~videogames~~games. Theatrical film valuation adjustments were $~~0 for both the three months ended September~~1 ~~30, 2017 and 2016 and $11~~ million and $110 million for the ~~nine~~three months ended ~~September~~ March 3031, ~~2017~~2018 and ~~2016~~2017, respectively. ~~Videogame~~Game valuation adjustments were $0 ~~for both the three months ended September 30, 2017~~ and ~~2016~~ ~~and~~ $5 million ~~and $4 million~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, respectively. The ~~increase~~decrease in film and television production costs for the ~~nine~~three months ended ~~September~~ March 3031, ~~2017~~2018 was primarily a result of ~~higher~~ ~~costs~~lower ~~for~~expenses ~~theatrical~~associated ~~and~~with television product. The decrease in print and advertising costs for the three months ended September 30, 2017 was primarily due to theatrical product, reflecting the type and number of releases, and, for the nine months ended September 30, 2017, the increase in print and advertising costs was primarily due to the type of videogame releases. Other costs, including merchandise and related costs ~~decreased~~increased for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2017~~2018 primarily due to ~~lower~~ higher distribution-related costs offor ~~sales~~games ~~for~~as ~~videogames~~well ~~and~~as ~~home~~higher ~~entertainment~~foreign ~~product~~exchange losses.

Selling, general and administrative expenses increased for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 primarily due to the impact of foreign exchange rates and increased costs related to the AT&T merger of $2915 million ~~and $78 million, respectively, and higher costs related to digital initiatives~~.

Refer to “Transactions and Other Items Affecting Comparability” for a discussion of Gain (loss) on operating assets, ~~Asset~~ Asset impairments, and costs related to the AT&T merger ~~and external costs related to mergers, acquisitions and dispositions~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, which affected the comparability of the Warner Bros. segment’s results.

The ~~increase~~decrease in Operating Income for the three months ended ~~September~~March 3031, ~~2017~~2018 was due to lower ~~Costs of revenues and higher~~ Revenues, ~~partially offset by higher Selling, general~~ and ~~administrative expenses. The increase in Operating Income for the nine months ended September 30, 2017 was due to~~ higher ~~Revenues, partially offset by higher Costs of revenues and~~ Selling, general and administrative expenses ~~and lower Gains on operating assets~~.

15Corporate. Corporate’s Operating Loss for the three months ended March 31, 2018 and 2017 was as follows (millions):


	Three Months Ended March 31,
	2018		2017		% Change
Selling, general and administrative (a)	$	(124)	$	(108)		15%
Restructuring and severance costs		(1)		1		NM
Depreciation		(8)		(7)		14%

Operating Loss	$	(133)	$	(114)		17%

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Corporate. Corporate’s Operating Loss for the three and nine months ended September 30, 2017 and 2016 was as follows (millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		% Change	2017		2016		% Change
Selling, general and administrative (a)	$	(83)	$	(86)	(3)%	$	(312)	$	(305)	2%
Asset impairments		—		—	—%		—		(4)	NM
Restructuring andseverance costs		(2)		(2)	—%		(1)		(2)	(50)%
Depreciation		(7)		(7)	—%		(21)		(19)	11%
Operating Loss	$	(92)	$	(95)	(3)%	$	(334)	$	(330)	1%

(a)	Selling, general and administrative expenses exclude depreciation.

Refer to “Transactions and Other Items Affecting Comparability” for a discussion of ~~Asset impairments,~~ costs related to the AT&T merger ~~and external costs related to mergers, acquisitions and dispositions~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, which affected the comparability of Corporate’s results.

For the three months ended ~~September~~March 3031, ~~2017~~2018, Operating loss ~~decreased~~increased primarily due to ~~lower~~higher ~~equity-based compensation expense, partially offset by~~ costs related to the AT&T merger of $1927 million. For the nine months ended September 30, 2017, Operating loss increased primarily due to costs related to the AT&T merger of $75 million, partially offset by lower equity-based compensation expense and lower costs of $14 million primarily related to technology initiatives. In addition, the results for the three and nine months ended September 30, 2016 included $10 million of pension settlement charges.

FINANCIAL CONDITION AND LIQUIDITY

Management believes that cash generated by or available to the Company should be sufficient to fund its capital and liquidity needs for the foreseeable future, including scheduled debt repayments and quarterly dividend payments. Time Warner’s sources of cash include Cash provided by operations, Cash and equivalents on hand, available borrowing capacity under its committed credit facilities and commercial paper program and access to capital markets. Time Warner’s unused committed capacity at September 30, 2017 was $7.639 billion, which included $2.621 billion of Cash and equivalents.

~~Current~~14 ~~Financial Condition~~

At September 30, 2017, Time Warner had $23.055 billion of debt and $2.621 billion of Cash and equivalents, resulting in net debt of $20.434 billion, compared to $24.339 billion of debt and $1.539 billion of Cash and equivalents, or net debt of $22.800 billion, at December 31, 2016. At September 30, 2017, Total equity was $27.268 billion compared to $24.337 billion at December 31, 2016.

The following table shows the significant items contributing to the decrease in net debt from December 31, 2016 to September 30, 2017 (millions):

Balance at December 31, 2016	$	22,800
Cash provided by operations		(3,947)
Capital expenditures		362
Dividends paid to common stockholders		948
Investments and acquisitions, net of cash acquired, including available-for-sale securities		511
Proceeds from the exercise of stock options		(167)
Other investment proceeds, including available-for-sale securities		(341)
All other, net		268
Balance at September 30, 2017	$	20,434

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

facilities and commercial paper program and access to capital markets. Time Warner’s unused committed capacity at March 31, 2018 was $5.526 billion, which included $1.691 billion of Cash and equivalents.

Current Financial Condition

At March 31, 2018, Time Warner had $22.253 billion of debt and $1.691 billion of Cash and equivalents, resulting in net debt of $20.562 billion, compared to $23.744 billion of debt and $2.621 billion of Cash and equivalents, or net debt of $21.123 billion, at December 31, 2017. At March 31, 2018, Total equity was $29.806 billion compared to $28.376 billion at December 31, 2017.

The following table shows the significant items contributing to the decrease in net debt from December 31, 2017 to March 31, 2018 (millions):


Balance at December 31, 2017	$	21,123
Cash provided by operations		(1,316)
Capital expenditures		147
Dividends paid to common stockholders		317
Investments and acquisitions, net of cash acquired, including available-for-sale securities		165
Proceeds from the exercise of stock options		(20)
Other investment proceeds		(4)
All other, net		150

Balance at March 31, 2018	$	20,562

Cash Flows

For the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, Cash and equivalents ~~increased~~decreased by $~~1.082~~930 ~~billion~~million and $~~153~~89 million, respectively. Components of these changes are discussed below in more detail.

Operating Activities

Details of Cash provided by operations are as follows (millions):

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016
	2018		2017
Operating Income	$	61,~~013~~811	$	52,~~856~~080
Depreciation and amortization		~~503~~171		~~502~~165
Net interest payments (a)		(~~853~~267)		(~~903~~303)
Net income taxes paid (b)		(1,092)		(695)
Net income taxes refunded (paid) (b)		228		(118)
All other, net, including working capital changes		(~~624~~627)		(~~1,226~~363)
Cash provided by operations	$	31,~~947~~316	$	31,~~534~~461

(a) Includes cash interest received of $4910 million ~~and $110 million~~ for both the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016, respectively~~2017.

(b) Includes income tax refunds received of $23302 million and $~~124~~4 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, respectively.

Cash provided by operations for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 ~~increased~~decreased primarily due to aan ~~decrease~~increase in cash used by working capital, mainly due to ~~the~~higher ~~timing~~content investments and ~~mix~~the timing of ~~production~~receipts, and ~~programming~~lower ~~spending~~Operating Income, partially offset by ~~higher~~lower net income taxes paid. For the nine months ended September 30, 2016, all other net, including working capital changes was favorably impacted by approximately $280 million related to CME’s repayment of its senior secured notes and the term loan Time Warner provided CME in 2014.

~~Investing~~15 ~~Activities~~

Details of Cash used by investing activities are as follows (millions):

	Nine Months Ended September 30,
	2017		2016
Investments in available-for-sale securities	$	(1)	$	(7)
Investments and acquisitions, net of cash acquired:
Hulu		(33)		(590)
Hudson Yards development project		(272)		(179)
All other		(205)		(206)
Capital expenditures		(362)		(270)
Other investment proceeds, including available-for-sale securities		341		253
Cash used by investing activities	$	(532)	$	(999)

The decrease in Cash used by investing activities for the nine months ended September 30, 2017 was primarily due to decreases in investments and acquisitions, net of cash acquired and higher other investment proceeds, including available-for-sale securities, partially offset by higher capital expenditures. Other investment proceeds, including available-for-sale securities, for the nine months ended September 30, 2017 primarily related to the sale of the Turner segment’s interest in the joint venture that owns the Omni Atlanta hotel, and other investment proceeds, including available-for-sale securities, for the nine months ended September 30, 2016 primarily related to CME’s repayment of CME’s senior secured notes and the term loan Time Warner provided CME in 2014.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Investing Activities

Details of Cash used by investing activities are as follows (millions):


	Three Months Ended March 31,
	2018		2017
Investments and acquisitions, net of cash acquired	$	(165)	$	(168)
Capital expenditures		(147)		(98)
Other investment proceeds		4		240

Cash used by investing activities	$	(308)	$	(26)

The increase in Cash used by investing activities for the three months ended March 31, 2018 was primarily due to lower other investment proceeds, including available-for-sale securities and higher capital expenditures. Included in Investments and acquisitions, net of cash acquired for the three months ended March 31, 2018 and 2017 are payments of $75 million and $85 million, respectively, related to the construction and development of office and studio space in the Hudson Yards development on the west side of Manhattan for the Company’s new corporate headquarters and its New York City-based employees. Other investment proceeds, including available-for-sale securities, for the three months ended March 31, 2017 primarily related to the sale of the Turner segment’s interest in the joint venture that owns the Omni Atlanta hotel.

Financing Activities

Details of Cash used by financing activities are as follows (millions):

			Nine Months Ended September 30,
	Three Months Ended March 31,
			2017			2016
	2018		2017
Borrowings	$	4	$	—		$	~~942~~
Debt repayments		(1,535)		(1,~~396~~144)	)		~~(304~~	)
Proceeds from the exercise of stock options		20		~~167~~56			~~127~~
Excess tax benefit from equity instruments				—			59
Principal payments on capital leases		(11)		(3)
Principal payments on capital leases				(32	)		(11	)
Dividends paid		(317)		(316)
Repurchases of common stock				—			(2,119	)
Other financing activities		(99)		(117)
Dividends paid				(948	)		(954	)
Cash used by financing activities	$	(1,938)	$	(1,524)
Other financing activities				(124	)		(122	)
Cash used by financing activities from continuing operations			$	(2,333	)	$	(2,382	)

Cash used by financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 ~~decreased~~increased primarily due to ~~the~~higher ~~impact~~debt ~~of the discontinuation of share repurchases under the stock repurchase program in connection with the Company’s entry into the Merger Agreement, partially offset by an increase in Debt~~ repayments ~~and a decrease in Borrowings~~.

~~Outstanding~~16 ~~Debt and Other Financing Arrangements~~

Outstanding Debt and Committed Financial Capacity

At September 30, 2017, Time Warner had total committed capacity, defined as maximum available borrowings under various existing debt arrangements and cash and short-term investments, of $30.720 billion. Of this committed capacity, $7.639 billion was unused and $23.055 billion was outstanding as debt. At September 30, 2017, total committed capacity, outstanding letters of credit, outstanding debt and total unused committed capacity were as follows (millions):

	CommittedCapacity (a)		Letters ofCredit (b)		OutstandingDebt (c)		UnusedCommittedCapacity
Cash and equivalents	$	2,621	$	—	$	—	$	2,621
Revolving credit facilities and commercial paper program (d)		5,000		—		—		5,000
Fixed-rate public debt		22,835		—		22,835		—
Other obligations (e)		264		26		220		18
Total	$	30,720	$	26	$	23,055	$	7,639

(a) The revolving credit facilities, commercial paper program and public debt of the Company rank pari passu with the senior debt of the respective obligors thereon. The weighted average maturity of the Company’s outstanding debt and other financing arrangements was 11.3 years as of September 30, 2017.

(b) Represents the portion of committed capacity, including from bilateral letter of credit facilities, reserved for outstanding and undrawn letters of credit.

(c) Represents principal amounts adjusted for premiums and discounts and $97 million of unamortized debt issuance costs. At September 30, 2017, the principal amounts of the Company’s publicly issued debt mature as follows: $500 million in October 2017, $600 million in 2018, $650 million in 2019, $1.4 billion in 2020, $2.0 billion in 2021, $1.0 billion in 2022 and $16.868 billion thereafter. In the period after 2022, no more than $2.0 billion will mature in any given year.

(d) The revolving credit facilities consist of two $2.5 billion revolving credit facilities. The Company may issue unsecured commercial paper notes up to the amount of the unused committed capacity under the revolving credit facilities.

(e) Unused committed capacity includes committed financings of subsidiaries under local bank credit agreements. Other debt obligations totaling $57 million are due within the next twelve months.

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

~~Programming~~Outstanding ~~Licensing~~Debt ~~Backlog~~and Other Financing Arrangements

~~Programming~~Outstanding ~~licensing~~Debt ~~backlog represents the amount of future revenues not yet recorded from cash contracts for the worldwide licensing of theatrical~~ and ~~television~~Committed ~~product~~Financial ~~for~~Capacity premium cable, basic cable, network and syndicated television and OTT exhibition. Backlog was $7.2 billion and $6.8 billion at September 30, 2017 and December 31, 2016, respectively. Included in the backlog amounts is licensing of theatrical and television product from the Warner Bros. segment to the Turner segment in the amount of $945 million and $942 million at September 30, 2017 and December 31, 2016, respectively. Also included in the backlog amounts is licensing of theatrical product from the Warner Bros. segment to the Home Box Office segment in the amount of $681 million and $689 million at September 30, 2017 and December 31, 2016, respectively.

At March 31, 2018, Time Warner had total committed capacity, defined as maximum available borrowings under various existing debt arrangements and cash and short-term investments, of $27.810 billion. Of this committed capacity, $5.526 billion was unused and $22.253 billion was outstanding as debt. At March 31, 2018, total committed capacity, outstanding letters of credit, outstanding debt and total unused committed capacity were as follows (millions):


	Committed Capacity (a)		Letters of Credit (b)		Unamortized Discount on Commercial Paper		Outstanding Debt (c)		Unused Committed Capacity
Cash and equivalents	$	1,691	$	—	$	—	$	—	$	1,691
Bank credit facilities and commercial paper program (d)		7,000		—		3		3,180		3,817
Fixed-rate public debt		18,900		—		—		18,900		—
Other obligations (e)		219		28		—		173		18

Total	$	27,810	$	28	$	3	$	22,253	$	5,526

(a)	The bank credit facilities, commercial paper program and public debt of the Company rank pari passu with the senior debt of the respective obligors thereon. The weighted average maturity of the Company’s outstanding debt and other financing arrangements was 9.0 years as of March 31, 2018.

(b)	Represents the portion of committed capacity, including from bilateral letter of credit facilities, reserved for outstanding and undrawn letters of credit.

(c)

Represents principal amounts adjusted for premiums and discounts and $74 million of unamortized debt issuance costs. At March 31, 2018, the principal amounts of the Company’s publicly issued debt mature as follows: $600 million in June 2018, $650 million in 2019, $1.4 billion in 2020, $2.0 billion in 2021, $1.0 billion in 2022, $1.6 billion in 2023 and $11.787 billion thereafter. In the period after 2023, no more than $2.0 billion will mature in any given year.

(d)

The bank credit facilities consist of a $2.0 billion senior unsecured delayed draw term loan facility and two $2.5 billion revolving credit facilities. The Company may issue unsecured commercial paper notes up to the amount of the unused committed capacity under the revolving credit facilities. Unsecured commercial paper notes issued by the Company typically mature in less than 90 days.

(e)	Unused committed capacity includes committed financings of subsidiaries under local bank credit agreements. Other debt obligations totaling $142 million are due within the next twelve months.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. Examples of the forward-looking statements in this report include, but are not limited to, the statements regarding (i) the expected ~~timing~~declines ofin the ~~completion~~number of ~~the~~subscribers ~~AT&T~~to ~~merger~~multichannel ~~and~~video services provided by traditional affiliates in the U.S.; (ii) the expected ~~Company’s~~conclusion ~~expectations~~in ~~regarding~~early ~~the~~May ~~impact~~2018 of the presentation by the DOJ and Time Warner and AT&T of their cases in the trial relating to the merger; onand (iii) the Company’s ~~efforts~~expectation tothat the merger will spur innovation in the media industry and improve the consumer experience and the expected impact of the merger on the Company’s strategy.

The Company’s forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. The Company’s actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the Company’s actual results to differ materially from those in its forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors:

• the occurrence of any event, change or other circumstances that could ~~give~~result ~~rise~~in to the termination of the Merger Agreement;

•

the outcome and timing of resolution of the DOJ lawsuit;

•

the risk that the necessary regulatory approvals for the proposed merger may not be obtained or may be obtained subject to conditions that are not anticipated;

• ~~risks that~~ any oflitigation ~~the~~other ~~closing~~than ~~conditions to~~ the ~~merger~~DOJ ~~may~~lawsuit ~~not be satisfied~~ in aconnection ~~timely~~with ~~manner~~the merger;

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

•

risks that one or more of the closing conditions to the merger may not be satisfied in a timely manner;

•

risks related to disruption of management time from ongoing business operations due to the merger;

• delay in realizing or failure to realize the benefits expected from the merger;

•

the effect of the merger on the ability of Time Warner to retain customers and retain and hire key personnel;

•

the effect of the merger on the ability of Time Warner to maintain relationships with its suppliers;

•

the effect of the merger on Time Warner’s operating results and businesses generally;

• any litigation in connection with the merger;

•

recent and future changes in technology, services and standards, including alternative methods for the delivery, storage and consumption of digital media and evolving home entertainment formats;

•

changes in consumer behavior, including changes in spending behavior and viewing patterns;

•

changes in the Company’s plans, initiatives and strategies, and the acceptance thereof by consumers, affiliates and other third parties with which the Company does business;

•

changes in the plans, initiatives and strategies of the third parties that distribute, license and/or sell Time Warner’s content;

•

the popularity of the Company’s content;

•

the Company’s ability to enter into or renew affiliate agreements on favorable terms;

• competitive pressures, including as a result of audience fragmentation, ~~and~~ changes in technology and consumer viewing patterns and increased competition from OTT services;

• changes in advertising market conditions or television advertising expenditures due to various factors related to the disruption of the advertising supported television business model, including further shifts in consumer viewing patterns, decreasing numbers of subscribers to multichannel video services provided by traditional affiliates, ~~changes~~and indeclining ~~consumer~~audience ~~viewing~~ratings ~~patterns~~for television programming, as well as other factors such as economic conditions, pressure from public interest groups, changes in laws and regulations and other societal or political developments;

•

changes in how the Company sells advertising, including offering data- and analytics-driven advertising products, and advertisers’ acceptance thereof;

TIME WARNER INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

•

the Company’s ability to deal effectively with economic slowdowns or other economic or market difficulties, including impacts on the economies of the United Kingdom and European Economic Area resulting from the United Kingdom’s pending exit from the European Union (“Brexit”);

•

changes in foreign exchange rates, including as a result of Brexit;

•

increased volatility or decreased liquidity in the capital markets, including any limitation on the Company’s ability to access the capital markets for debt securities, refinance its outstanding indebtedness or obtain bank financings on acceptable terms;

•

piracy and the Company’s ability to exploit and protect its intellectual property rights in and to its content and other products;

•

the effects of any other significant acquisitions, dispositions and other similar transactions by the Company;

•

a disruption or failure of the Company’s or its vendors’ network and information systems or other technology relied on by the Company;

•

the failure to meet earnings expectations;

•

lower than expected valuations associated with the cash flows and revenues at Time Warner’s reporting units, which could result in Time Warner’s inability to realize the value recorded for intangible assets and goodwill at those reporting units;

•

the adequacy of the Company’s risk management framework;

•

changes in U.S. GAAP or other applicable accounting standards and policies;

•

changes in tax, federal communication and other laws and regulations;

•

currency exchange restrictions and currency devaluation risks in some foreign countries;

•

the effect of union or labor disputes or professional sports league player lockouts;

•

the impact of terrorist acts, hostilities, natural disasters (including extreme weather) and pandemic viruses; and

• the other risks and uncertainties detailed in Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

Any forward-looking statement made by the Company in this report speaks only as of the date on which it is made. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise.

2018

TIME WARNER INC.

Item 4. CONTROLS AND PROCEDURES

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management to allow timely decisions regarding the required disclosure.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the quarter ended ~~September~~March 3031, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

2119

TIME WARNER INC.

CONSOLIDATED BALANCE SHEET

(Unaudited; millions, except share amounts)

	September 30,2017		December 31,2016
	March 31, 2018		December 31, 2017
ASSETS
Current assets
Cash and equivalents	$	21,~~621~~691	$	12,~~539~~621
Receivables, less allowances of $712 and $981		8,997		8,699
Receivables, less allowances of $158 and $896		10,279		9,401
Inventories		2,~~198~~071		2,~~062~~401
Prepaid expenses and other current assets		~~792~~1,097		~~1,185~~796
Total current assets		1415,~~608~~138		1315,~~485~~219
Noncurrent inventories and theatrical film and television production costs		8,~~367~~481		78,~~916~~275
Investments, including available-for-sale securities		3,~~732~~980		3,~~337~~924
Property, plant and equipment, net		2,~~555~~753		2,~~510~~707
Intangible assets subject to amortization, net		~~647~~543		~~783~~585
Intangible assets not subject to amortization		7,~~006~~007		7,~~005~~006
Goodwill		27,~~784~~800		27,~~752~~776
Other assets		3,~~644~~295		3,~~178~~717
Total assets	$	68,~~343~~997	$	6569,~~966~~209
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	78,~~969~~021	$	7,~~192~~916
Deferred revenue		~~725~~1,002		~~564~~711
Debt due within one year		13,~~157~~922		15,~~947~~450
Total current liabilities		912,~~851~~945		914,~~703~~077
Long-term debt		2118,~~898~~331		2218,~~392~~294
Deferred income taxes		21,~~490~~812		21,~~678~~584
Deferred revenue		~~480~~468		~~486~~468
Other noncurrent liabilities		65,~~320~~599		6,~~341~~375
Redeemable noncontrolling interest		36		2935
Commitments and Contingencies (Note 14)
Commitments and Contingencies (Note 13)
Equity
Common stock, $0.01 par value, 1.652 billion and 1.652 billion shares issued and779 million and 772 million shares outstanding		17		17
Common stock, $0.01 par value, 1.652 billion and 1.652 billion shares issued and 782 million and 780 million shares outstanding		17		17
Additional paid-in capital		~~145~~144,~~373~~797		~~146~~145,~~780~~077
Treasury stock, at cost (873 million and 880 million shares)		(47,137)		(47,497)
Treasury stock, at cost (870 million and 872 million shares)		(46,930)		(47,074)
Accumulated other comprehensive loss, net		(1,~~389~~353)		(1,~~510~~437)
Accumulated deficit		(6966,~~597~~726)		(7368,~~455~~208)
Total Time Warner Inc. shareholders’ equity		2729,~~267~~805		2428,~~335~~375
Noncontrolling interest		1		21
Total equity		2729,~~268~~806		2428,~~337~~376
Total liabilities and equity	$	68,~~343~~997	$	6569,~~966~~209

See accompanying notes.

2220

TIME WARNER INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited; millions, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Revenues	$	7,~~595~~996	$	7,~~167~~735	$	~~22,660~~	$	~~21,427~~
Costs of revenues		(34,~~928~~717)		(34,~~873~~332)		~~(12,466)~~		~~(11,718)~~
Selling, general and administrative		(1,~~378~~402)		(1,~~179~~272)		~~(4,080)~~		~~(3,688)~~
Amortization of intangible assets		(4543)		(4845)		~~(136)~~		~~(143)~~
Restructuring and severance costs		~~(3)~~—		(1112)		~~(23)~~		~~(64)~~
Asset impairments		~~(9)~~—		(301)		~~(11)~~		~~(35)~~
Gain (loss) on operating assets, net		13(23)		~~(12)~~7		69		77
Operating income		21,~~245~~811		2,~~014~~080		~~6,013~~		~~5,856~~
Interest expense, net		(~~254~~207)		(~~298~~259)		~~(762)~~		~~(874)~~
Other income (loss), net		(7094)		~~(27)~~72		77		~~(198)~~
Income from continuing operations before income taxes		1,921		1,689		5,328		4,784
Income before income taxes		1,510		1,893
Income tax provision		(550)		(217)		(1,472)		(1,187)
Income tax benefit (provision)		132		(470)
Income from continuing operations		1,371		1,472		3,856		3,597
Net income		1,642		1,423
Discontinued operations, net of tax		—		(5)		—		35
Less Net loss attributable to noncontrolling interests		1		1
Net income		1,371		1,467		3,856		3,632
Net income attributable to Time Warner Inc. shareholders	$	1,643	$	1,424
Less Net loss attributable to noncontrolling interests		1		—		2		1
Per share information attributable to Time Warner Inc. common shareholders:
Net income attributable to Time Warner Inc. shareholders	$	1,372	$	1,467	$	3,858	$	3,633
Basic net income per common share	$	2.10	$	1.84
Amounts attributable to Time Warner Inc.shareholders:
Average basic common shares outstanding		780.9		773.6
Income from continuing operations	$	1,372	$	1,472	$	3,858	$	3,598
Diluted net income per common share	$	2.07	$	1.80
Discontinued operations, net of tax		—		(5)		—		35
Average diluted common shares outstanding		792.0		789.3
Net income	$	1,372	$	1,467	$	3,858	$	3,633
Cash dividends declared per share of common stock	$	0.4025	$	0.4025
Per share information attributable to Time Warner Inc. common shareholders:
Basic income per common share from continuingoperations	$	1.76	$	1.89	$	4.95	$	4.58
Discontinued operations		—		—		—		0.04
Basic net income per common share	$	1.76	$	1.89	$	4.95	$	4.62
Average basic common shares outstanding		778.0		776.2		775.8		783.8
Diluted income per common share from continuingoperations	$	1.73	$	1.87	$	4.88	$	4.53
Discontinued operations		—		(0.01)		—		0.04
Diluted net income per common share	$	1.73	$	1.86	$	4.88	$	4.57
Average diluted common shares outstanding		791.7		787.5		790.3		795.1
Cash dividends declared per share of common stock	$	0.4025	$	0.4025	$	1.6100	$	1.2075

See accompanying notes.

2321

TIME WARNER INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited; millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Net income	$	1,~~371~~642	$	1,~~467~~423	$	~~3,856~~	$	~~3,632~~
Other comprehensive income (loss), net of tax:
Foreign currency translation:
Unrealized gains (losses) occurring during the period		~~152~~90		(3811)		~~217~~		~~(42)~~
Securities:
Benefit obligations:
Unrealized gains occurring during the period		31		—2		3		—
Benefit obligations:
Reclassification adjustment for losses realized in net income		8		5
Unrealized losses occurring during the period		—		(143)		(41)		(125)
Change in benefit obligations		9		7
Reclassification adjustment for losses realized in net income		5		17		17		28
Derivative financial instruments:
Change in benefit obligations		5		(126)		(24)		(97)
Unrealized losses occurring during the period		(55)		(15)
Derivative financial instruments:
Reclassification adjustment for losses realized in net income		43		2
Unrealized gains (losses) occurring during the period		(81)		2		(126)		(8)
Change in derivative financial instruments		(12)		(13)
Reclassification adjustment for (gains) losses realizedin net income		39		(5)		51		(21)
Other comprehensive income (loss)		87		(17)
Change in derivative financial instruments		(42)		(3)		(75)		(29)
Comprehensive income		1,729		1,406
Other comprehensive income (loss)		118		(167)		121		(168)
Less Comprehensive loss attributable to noncontrolling interests		1		1
Comprehensive income		1,489		1,300		3,977		3,464
Comprehensive income attributable to Time Warner Inc. shareholders	$	1,730	$	1,407
Less Comprehensive loss attributable to noncontrolling interests		1		—		2		1
Comprehensive income attributable to Time Warner Inc. shareholders	$	1,490	$	1,300	$	3,979	$	3,465

See accompanying notes.

2422

TIME WARNER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

~~Nine~~Three Months Ended ~~September~~March 3031,

(Unaudited; millions)

	2017		2016
	2018		2017
OPERATIONS
Net income	$	31,~~856~~642	$	31,~~632~~423
Less Discontinued operations, net of tax		—		(35)
Net income from continuing operations		3,856		3,597
Adjustments for noncash and nonoperating items:
Depreciation and amortization		~~503~~171		~~502~~165
Amortization of film and television costs		62,~~381~~490		52,~~884~~203
Asset impairments		11—		351
Gain on investments and other assets, net		(324)		(75)
(Gain) loss on investments and other assets, net		46		(166)
Equity in losses of investee companies, net of cash distributions		~~188~~38		~~293~~93
Equity-based compensation		~~178~~47		~~201~~57
Deferred income taxes		~~(120)~~279		~~267~~(44)
Changes in operating assets and liabilities, net of acquisitions		(63,~~715~~392)		(72,~~160~~266)
Cash provided by operations from continuing operations		31,~~958~~321		31,~~544~~466
Cash used by operations from discontinued operations		(115)		(105)
Cash provided by operations		31,~~947~~316		31,~~534~~461
INVESTING ACTIVITIES
Investments in available-for-sale securities		(1)		(7)
Investments and acquisitions, net of cash acquired		(165)		(168)
Investments and acquisitions, net of cash acquired		(510)		(975)
Capital expenditures		(147)		(98)
Capital expenditures		(362)		(270)
Other investment proceeds		4		240
Other investment proceeds		341		253
Cash used by investing activities		(308)		(26)
Cash used by investing activities		(532)		(999)
FINANCING ACTIVITIES
Borrowings		—4		~~942~~—
Debt repayments		(1,~~396~~535)		(~~304~~1,144)
Proceeds from exercise of stock options		~~167~~20		~~127~~56
Excess tax benefit from equity instruments		—		59
Principal payments on capital leases		(11)		(3)
Principal payments on capital leases		(32)		(11)
Dividends paid		(317)		(316)
Repurchases of common stock		—		(2,119)
Other financing activities		(99)		(117)
Dividends paid		(948)		(954)
Cash used by financing activities		(1,938)		(1,524)
Other financing activities		(124)		(122)
DECREASE IN CASH AND EQUIVALENTS		(930)		(89)
Cash used by financing activities		(2,333)		(2,382)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		2,621		1,539
INCREASE IN CASH AND EQUIVALENTS		1,082		153
CASH AND EQUIVALENTS AT END OF PERIOD	$	1,691	$	1,450
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		1,539		2,155
CASH AND EQUIVALENTS AT END OF PERIOD	$	2,621	$	2,308

See accompanying notes.

2523

TIME WARNER INC.

CONSOLIDATED STATEMENT OF EQUITY

~~Nine~~Three Months Ended ~~September~~March 3031,

(Unaudited; millions)

	2017						2016
	2018						2017
	Time WarnerShareholders		NoncontrollingInterests		Total Equity		Time WarnerShareholders		NoncontrollingInterests		Total Equity
	TimeWarnerShareholders		NoncontrollingInterests		TotalEquity		TimeWarnerShareholders		NoncontrollingInterests		TotalEquity
BALANCE AT BEGINNING OF PERIOD	$	2428,~~335~~375	$	21	$	2428,~~337~~376	$	2324,~~619~~335	$	—2	$	2324,~~619~~337
Net income (loss) (a)		3,858		(1)		3,857		3,633		1		3,634
Cumulative effect of revenue recognition accounting change		(164)		—		(164)		—		—		—
Other comprehensive income (loss)		121		—		121		(168)		—		(168)
Net income (a)		1,643		—		1,643		1,424		—		1,424
Dividends (b)		(1,265)		—		(1,265)		(954)		—		(954)
Other comprehensive income (loss)		87		—		87		(17)		—		(17)
Common stock repurchases		—		—		—		(2,138)		—		(2,138)
Dividends		(318)		—		(318)		(316)		—		(316)
Other, primarily related to stock options andrestricted stock units		218		—		218		286		—		286
Other, primarily related to stock options and restricted stock units		182		—		182		(1)		—		(1)
BALANCE AT END OF PERIOD	$	2729,~~267~~805	$	1	$	2729,~~268~~806	$	2425,~~278~~425	$	12	$	2425,~~279~~427

(a) Net income excludes losses of $1 million ~~and $2 million~~ for both the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 and ~~September~~March 3031, ~~2016~~2017, ~~respectively,~~ relating to redeemable noncontrolling interests.

(b) Consistent with the Agreement and Plan of Merger with AT&T Inc. dated as of October 22, 2016, Time Warner has aligned the timing of its quarterly dividend with the timing of AT&T Inc.’s dividend, and, on September 29, 2017, Time Warner declared its fourth quarter dividend of $0.4025 per share of common stock, payable in cash on November 1, 2017 to shareholders of record at the close of business on October 10, 2017.

See accompanying notes.

2624

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and entertainment company, whose businesses include television networks, and film and TV entertainment. Time Warner classifies its operations into three reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay television services and a service that delivers video content to consumers over the internet (“OTT service”) domestically and premium pay, basic tier television and OTT services internationally; and Warner Bros.: consisting principally of television, feature film, home video and ~~videogame~~game production and distribution. Time Warner’s reportable segments have been determined in accordance with its internal management structure and the financial information that is evaluated regularly by the Company’s chief operating decision maker.

In the ordinary course of business, Time Warner’s reportable segments enter into transactions with one another. The most common types of intersegment transactions include the Warner Bros. segment generating revenues by licensing television and theatrical programming to the Turner and Home Box Office segments. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses or assets recognized by the segment that is the counterparty to the transaction) are eliminated in consolidation and, therefore, do not affect consolidated results.

Basis of Presentation

Interim Financial Statements

The consolidated financial statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”) applicable to interim periods. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Time Warner included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the “~~2016~~2017 Form 10-K”).

Basis of Consolidation

The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of entities in which Time Warner has a controlling interest (“subsidiaries”). Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

Significant estimates and judgments inherent in the preparation of the consolidated financial statements include accounting for asset impairments, multiple-element transactions, allowances for doubtful accounts, depreciation and amortization, the determination of ultimate revenues as it relates to amortization or impairment of capitalized film and programming costs and participations and residuals, home video and ~~videogame~~game product returns, business combinations, pension and other postretirement benefits, equity-based compensation, income taxes, contingencies, litigation matters, reporting revenue for certain transactions on a gross versus net basis, and the determination of whether the Company should consolidate certain entities.

~~Accounting~~25 ~~Guidance Adopted in 2017~~

Share-Based Payments

On January 1, 2017, the Company adopted, on a prospective basis, new accounting guidance that changes the reporting for certain aspects of share-based payments. One aspect of the guidance requires that the income tax effects of share-based awards be recognized in the Income tax provision in the Consolidated Statement of Operations when the awards vest or are settled. Under the previous guidance, excess tax benefits and deficiencies were recognized in Additional paid-in capital in the Consolidated Balance Sheet. For the nine months ended September 30, 2017 and 2016, the amount of excess tax benefits, net of deficiencies, recognized in Income tax provision and Additional paid-in capital, respectively, was $130 million and $54 million, respectively. In addition, because excess tax benefits are no longer recognized in Additional paid-in capital under the new guidance, such amounts are no longer included in the determination of assumed proceeds in applying the treasury stock method when computing earnings per share. Another aspect of the new guidance requires that excess tax benefits be classified as a cash flow from operating activities, rather

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~than~~Accounting aGuidance ~~cash~~Adopted ~~flow from financing activities,~~ in ~~the~~2018 Consolidated Statement of Cash Flows. For the nine months ended September 30, 2017 and 2016, the amount of excess tax benefits presented as a cash flow from operating activities and financing activities, respectively, was $130 million and $59 million, respectively. The other aspects of the new guidance did not have a material effect on the Company’s consolidated financial statements.

~~Accounting~~Revenue ~~Guidance~~Recognition ~~Not Yet Adopted~~

~~Derivatives~~On January 1, 2018, the Company adopted, on a modified retrospective basis, accounting guidance that establishes a new revenue recognition framework in GAAP for all companies and ~~Hedging~~industries. The core principle of the new revenue framework is that an entity should recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive for those goods or services. The revenue framework includes a five-step model to determine the timing and amount of revenue to recognize related to contracts with customers. In addition, this revenue framework requires new or expanded disclosures related to the amounts of revenue recognized and judgments made by companies when following this framework.

InThe ~~August~~adoption ~~2017,~~of the new accounting guidance ~~was~~did ~~issued~~not ~~related~~result toin ~~the~~significant ~~accounting~~changes ~~for~~in ~~hedging~~the ~~activities. The~~way ~~guidance~~the ~~principally:~~Company records subscription ~~(i) expands~~revenue, ~~hedge~~advertising ~~accounting~~revenue ~~for~~and ~~both~~a ~~financial~~significant ~~and~~portion ~~non-financial~~of ~~risk~~its ~~components,~~content ~~(ii) eliminates~~revenue. ~~the~~While ~~separate~~guidance ~~measurement~~pertaining ~~and~~to ~~presentation~~the evaluation of ~~hedge~~whether ~~ineffectiveness,~~revenue ~~(iii) changes~~should ~~the presentation~~be ofpresented ~~hedge~~on ~~results~~a togross ~~require~~or ~~that~~net ~~changes~~basis inwas ~~the~~changed ~~value~~in ofconnection ~~hedging~~with ~~instruments~~the benew ~~presented~~revenue inframework, the application ~~same~~of ~~income~~such ~~statement~~change ~~line~~did ~~item~~not assignificantly impact the ~~earnings~~presentation ~~effect~~ of revenues in the ~~hedged~~consolidated ~~item,~~financial ~~and~~statements. ~~(iv) simplifies~~In ~~the~~addition, ~~method~~changes to ~~assess~~the ~~hedge effectiveness. This~~accounting guidance ~~will~~for becosts ~~effective~~incurred ~~for~~to ~~all~~obtain ~~existing~~a ~~hedge~~contract ~~relationships~~did asnot ofsignificantly ~~January 1,~~impact ~~2019~~the consolidated financial statements. ~~The~~ ~~Company~~However, isthere ~~evaluating~~are ~~the~~several ~~impact~~areas ~~this~~where ~~guidance~~the ~~will~~Company’s ~~have~~revenue onrecognition ~~its~~did ~~consolidated~~change ~~financial~~under ~~statements.~~the new guidance:

Renewals of Licenses of Intellectual Property - Under the prior guidance, when the term of an existing license agreement was extended, without any other changes to the provisions of the license, revenue for the renewal period was recognized on the date the renewal was agreed to contractually. Under the new guidance, revenue for the renewed license term cannot be recognized until the date the renewal term begins. This change results in delayed revenue recognition as compared with prior revenue recognition guidance. This change primarily impacts the Warner Bros. segment, but it also, to a lesser degree, impacts the Home Box Office and Turner segments.

ii.

License of Content Library - Under the prior guidance, when a company licensed a completed library of content and agreed to refresh the library with new content as it became available, and the licensee was not entitled to a refund if no further library titles are delivered, revenue was recognized once access to the library was granted to the licensee. Pursuant to the new guidance, because there was an implicit obligation for the Company to refresh the library with additional content in the future, the Company estimates the additional content it will deliver in the future and allocates a portion of the transaction price to that content. As compared with the prior guidance, this results in a deferral of a portion of the transaction price until delivery of future library content. This change primarily impacts the Home Box Office segment.

iii.

Licenses of Symbolic Intellectual Property - Certain intellectual property, such as brands, tradenames and logos, is categorized in the new guidance as “symbolic” intellectual property. An assumption inherent in the new guidance is that a licensee’s ability to derive benefit from a license of symbolic intellectual property depends on the licensor continuing to support or maintain the intellectual property throughout the license term. Accordingly, under the new guidance, revenue from licenses of symbolic intellectual property is recognized over the corresponding license term. In certain arrangements where the Company had no remaining performance obligations, under the prior guidance, revenue from licenses of symbolic intellectual property was recognized at the inception of the license term. Therefore, the new guidance results in a deferral of revenue recognition as compared to prior guidance. This change primarily impacts the Warner Bros. segment.

iv.

Minimum Fees in Multi-Year Affiliate Distribution Arrangements - In several international affiliate arrangements, and more recently in certain multi-year virtual multichannel video programming distributor (“virtual MVPD”) arrangements, the Company is paid an annual minimum guarantee that can vary from year to year. Under the prior guidance, the Company generally recognized the annual minimum guarantee fee ratably within each discrete annual period. In accordance with the new guidance, the Company is required to recognize the cumulative minimum guaranteed fees ratably over the contract term as it continuously delivers the content. Depending on how the minimum guaranteed fees vary in each contract year, this could result in an acceleration of revenue into earlier contractual years or a deferral of revenue into later contractual years as compared with the prior guidance. This change primarily impacts the Home Box Office and Turner segments.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In some cases, the changed aspects of the accounting for transactions noted above in items (i)-(iv) necessitated making new judgments pertaining to the allocation of the transaction price to performance obligations and to the timing of satisfaction of certain performance obligations. However, there were no changes in significant judgments that affect the determination of the amount and timing of revenue resulting from the adoption of the new guidance. In addition, while the adoption of the new guidance necessitated a change to certain of the Company’s internal controls over financial reporting, such changes were not significant.

In connection with adopting the new guidance on a modified retrospective basis, the Company recorded a transition adjustment for all open contracts existing as of January 1, 2018 of $164 million as a reduction to the opening balance of Retained Earnings related principally to the areas noted above. Such adjustment is presented in the Consolidated Statement of Equity as the Cumulative Effect of a Change in Accounting Principle, Revenue Recognition. Also, under the new guidance, the Company presents sales returns and certain sales incentives, such as price protection reserves, as liabilities instead of as contra-asset allowances within Receivables. On January 1, 2018, the liabilities for such sales returns and incentives were $726 million. For more information, see Note 15.

Changes to the opening balances of current assets, total assets, current liabilities and total liabilities resulting from the adoption of the new guidance were as follows (millions):


	December 31, 2017		Impact of Adoption		January 1, 2018
Current assets	$	15,219	$	828	$	16,047
Total assets		69,209		632		69,841
Current liabilities		14,077		974		15,051
Total liabilities		40,833		796		41,629

Modification of Share-Based Payments

InOn ~~May~~January 1, ~~2017~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a prospective basis, new accounting guidance that clarifies when changes to the terms and conditions of share-based awards must be accounted for as modifications. The guidance does not change the accounting treatment for modifications. The guidance, ~~which~~did ~~will become effective on a prospective basis on January 1, 2018, is~~ not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

Net Periodic Benefit Costs

InOn ~~March~~January 1, ~~2017~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a retrospective basis, new accounting guidance that requires that an employer disaggregate the service cost component from the other components of net periodic benefit costs relating to defined benefit pension and other postretirement benefit plans. While the service cost component of net periodic benefit costs ~~will continue~~ continues to be presented as an operating expense, the other components are ~~now~~presented ~~required to be recorded~~ outside of operating income in the Consolidated Statement of Operations. ~~For~~The ~~the~~adoption ~~year~~of ~~ended~~this ~~December 31,~~guidance ~~2016,~~resulted ~~net~~in ~~periodic~~increases ~~benefit~~in ~~costs~~Operating ~~relating~~income toof ~~defined~~$4 million, $5 million, ~~benefit~~$5 million ~~pension~~ and ~~other postretirement~~$4 million, ~~benefit~~for ~~plans~~the ~~were~~three ~~$46~~months ended March ~~million~~31, $42017, June ~~million~~30, of2017, ~~which~~September 30, ~~related~~2017, toand ~~the~~December 31, ~~service~~2017, ~~cost component~~respectively. The ~~guidance~~increases ~~will~~in ~~become~~Operating ~~effective~~income onwere aoffset ~~retrospective~~by ~~basis~~higher expenses ~~for~~of ~~the~~equal ~~Company~~amounts onincluded ~~January 1~~in Other income (loss), ~~2018~~net in each of these three-month periods.

Simplifying the Accounting for Goodwill Impairment

In January 2017, guidance was issued to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under this new guidance, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will become effective on a prospective basis for the Company on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements.

Definition of a Business

InOn January 1, ~~2017~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a prospective basis, new accounting guidance that changes the definition of a business for accounting purposes. Under the new guidance, an entity first determines whether substantially all of the fair value of a set of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of assets is not deemed to be a business. If the threshold is not met, the entity then evaluates whether the set of assets meets the requirement to be deemed a business, which at a minimum, requires there to be an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance ~~will~~did ~~become effective on a prospective basis for the Company on January 1, 2018 and is~~ not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

~~Restricted~~27 ~~Cash~~

In November 2016, guidance was issued that requires that a statement of cash flows present the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~generally~~Restricted ~~described~~Cash as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The guidance will become effective on a retrospective basis for the Company on January 1, 2018 and is not expected to have a material impact on the Company’s consolidated financial statements.

On January 1, 2018, the Company adopted, on a retrospective basis, new accounting guidance that requires that a statement of cash flows present the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The guidance did not have a material impact on the Company’s consolidated financial statements.

Intra-Entity Transfers of Assets Other than Inventory

InOn ~~October~~January 1, ~~2016~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a modified retrospective basis, new accounting guidance that requires entities to recognize the income tax consequences of an intercompany transfer of an asset other than inventory when the transfer occurs, rather than deferring the income tax consequences of the intercompany transfer of assets until the asset has been sold to a third party. The guidance ~~will~~did ~~become effective on a modified retrospective basis for the Company on January 1, 2018 and is~~ not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

Classification of Certain Cash Receipts and Cash Payments

InOn ~~August~~January 1, ~~2016~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a retrospective basis, new accounting guidance that clarifies the presentation of certain cash receipts and payments in a company’s statement of cash flows. The guidance primarily relates to the classification of cash flows associated with certain (i) debt transactions, (ii) contingent consideration arrangements related to business combinations, (iii) insurance claims and policies, (iv) distributions received from equity method investees and (v) securitization transactions. The guidance ~~will~~did ~~become effective on a retrospective basis for the Company on January 1, 2018 and is~~ not ~~expected to~~ have a material impact on the Company’s consolidated financial statements.

Accounting for Leases

In February 2016, guidance was issued regarding accounting for leases. The main difference between the current guidance and the new guidance is the recognition by the lessee of lease assets and liabilities for those leases it classified as operating leases under the current guidance. Under the new guidance, the recognition, measurement and presentation of expenses and cash flows arising from a lease as well as the lessor accounting model have not significantly changed from current guidance. This guidance also requires qualitative and quantitative disclosures of key information about leasing arrangements. The new guidance will become effective on a modified retrospective basis for the Company on January 1, 2019. The Company is still evaluating the impact of the new guidance on its consolidated financial statements. Because the Company is a party to more than 2,000 operating leases with future minimum rental commitments at December 31, 2016 of $1.154 billion, it expects that the impact of recognizing lease assets and liabilities for these operating leases will be significant to the Company’s Consolidated Balance Sheet.

Recognition and Measurement of Financial Assets and Liabilities

InOn January 1, ~~2016~~2018, ~~guidance~~the ~~was~~Company ~~issued~~adopted, on a prospective basis, new accounting guidance that makes limited changes to the accounting for financial instruments. The changes primarily relate to (i) the requirement to measure equity investments in unconsolidated subsidiaries, other than those accounted for under the equity method of accounting, at fair value, with changes in the fair value recognized in earnings, (ii) an alternative approach for the measurement of equity investments that do not have a readily determinable fair value, (iii) the elimination of the other-than-temporary impairment model and its replacement with a requirement to perform a qualitative assessment to identify the impairment of equity investments, and a requirement to recognize impairment losses in earnings based on the difference between the fair value and the carrying value of the equity investment, (iv) the elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost, (v) the addition of a requirement to use the exit price concept when measuring the fair value of financial instruments for disclosure purposes and (vi) the addition of a requirement to present financial assets and financial liabilities separately in the notes to ~~the~~ financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or market) and by form of financial asset (e.g., loans, equity securities). ~~This~~Adoption of the guidance resulted ~~will~~in ~~become~~a ~~effective~~cumulative ~~for~~effect ~~the~~adjustment ~~Company~~of on$3 million ~~January~~related to deferred gains as of December 131, ~~2018.~~2017 ~~The~~for ~~Company~~equity ~~does~~securities ~~not~~with ~~expect~~readily ~~the~~determinable ~~new~~fair ~~guidance to~~values ~~have~~from aAccumulated ~~material~~other ~~impact~~comprehensive onloss, ~~its~~net ~~consolidated~~to ~~financial~~Accumulated ~~statements~~deficit on the Consolidated Balance Sheet.

~~Revenue~~Accounting ~~Recognition~~Guidance Not Yet Adopted

InDerivatives ~~May 2014, guidance was issued that establishes a new revenue recognition framework in GAAP for all companies~~ and ~~industries.~~ ~~The~~Hedging core principle of the new guidance is that an entity should recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive for those goods or services. The guidance includes a five-step framework to determine the timing and amount of revenue to recognize related to contracts with

29In August 2017, guidance was issued related to hedge accounting. The guidance principally: (i) expands hedge accounting for both financial and non-financial risk components, (ii) eliminates the separate measurement and presentation of hedge ineffectiveness, (iii) changes the presentation of hedge results to require that changes in the value of hedging instruments be presented in the same income statement line item as the earnings effect of the hedged item, and (iv) simplifies the method to assess hedge effectiveness. This guidance will become effective for all existing hedge relationships on January 1, 2019. The Company is evaluating the impact this guidance will have on its consolidated financial statements.

Simplifying the Accounting for Goodwill Impairment

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~customers. In~~reporting ~~addition,~~unit’s ~~this~~carrying ~~guidance~~value ~~requires~~exceeds ~~new~~its orfair ~~expanded~~value, ~~disclosures~~not ~~related~~ to exceed the ~~judgments~~carrying ~~made~~amount byof ~~companies~~goodwill. ~~when~~The ~~following~~guidance ~~this~~will ~~framework. Based~~become effective on ~~the~~a ~~current~~prospective ~~guidance,~~basis for the ~~new~~ ~~framework~~Company ~~will~~on January 1, ~~become~~2020 ~~effective~~and onis ~~either~~not aexpected ~~full~~to orhave ~~modified~~a ~~retrospective~~material ~~basis~~impact ~~for~~on the Company’s onconsolidated ~~January 1,~~financial ~~2018~~statements.

~~Subsequent~~Accounting tofor ~~the issuance of the May 2014 guidance, several clarifications and updates have been issued by the FASB on this~~Leases topic, the most recent of which was issued in December 2016. Many of these clarifications and updates to the guidance, as well as a number of interpretive issues, apply to companies in the media and entertainment industry.

In February 2016, guidance was issued regarding accounting for leases. The ~~Company’s~~main ~~assessment~~difference ofbetween the ~~impact~~current guidance ofand ~~adopting~~the ~~this~~ new guidance is ~~essentially~~the ~~complete,~~recognition ~~and~~by the ~~Company~~lessee ~~is executing~~of ~~its~~lease ~~implementation~~assets ~~plan.~~and ~~The~~liabilities ~~Company~~for ~~currently~~those ~~expects~~leases ~~that~~it classified as operating leases under the ~~adoption~~current ofguidance. Under the new guidance, ~~will~~the ~~not~~recognition, ~~have~~measurement aand ~~material~~presentation ~~impact~~of expenses onand ~~the~~cash ~~Company’s~~flows ~~financial~~arising ~~statements,~~from ~~principally~~a ~~because~~lease as well as the ~~Company~~lessor ~~does~~accounting ~~not~~model ~~expect~~have ~~significant~~not ~~changes~~significantly ~~in the~~changed ~~way~~from itcurrent ~~will~~guidance. ~~record~~The ~~subscription~~guidance ~~revenue,~~also ~~advertising~~requires ~~revenue,~~qualitative and aquantitative ~~significant~~disclosures ~~portion~~ of ~~its~~key ~~content~~information ~~revenue~~about leasing arrangements. ~~However,~~The itnew isguidance ~~possible~~will ~~that~~become ~~the~~effective ~~Company’s~~on ~~evaluation~~a ofmodified ~~the~~retrospective ~~expected~~basis ~~impact~~for of the ~~new~~Company ~~guidance~~ on ~~certain~~January 1, ~~transactions~~2019. ~~could change~~The ifCompany ~~there~~is ~~are~~still ~~additional~~evaluating ~~interpretations~~the impact of the new ~~revenue~~ guidance ~~that~~on ~~are~~its ~~different~~consolidated ~~from~~financial ~~the Company’s conclusions~~statements. ~~Although~~Because the Company ~~currently~~is ~~does~~a ~~not~~party ~~expect~~to ~~the~~approximately ~~impact~~2,000 ofoperating ~~adopting~~leases ~~the~~with ~~new~~future ~~guidance~~minimum torental becommitments ~~material~~at December 31, ~~there~~2017 ~~are several~~of ~~areas~~$1.128 billion, ~~where~~it ~~the~~expects ~~Company’s~~that ~~revenue~~the ~~recognition~~impact isof ~~expected~~recognizing tolease ~~change~~assets asand ~~compared~~liabilities ~~with~~for ~~historical~~these ~~GAAP.~~operating ~~The~~leases will ~~more~~be significant ofto ~~these~~the ~~areas~~Consolidated ~~are~~Balance asSheet. ~~follows:~~

i. Renewals of Licenses of Intellectual Property - Under guidance currently in effect, when the term of an existing license agreement is extended, without any other changes to the provisions of the license, revenue for the renewal period is recognized on the date the renewal is agreed to contractually. Under the new guidance, revenue for the renewed license term will not be recognized until the date the renewal term begins. This change will result in delayed revenue recognition as compared with current revenue recognition guidance. The Company expects that this change will primarily impact the Warner Bros. segment, but it will also, to a lesser degree, impact the Home Box Office and Turner segments.

ii. License of Content Library - Under guidance currently in effect, when a company licenses a completed library of content and agrees to refresh the library with new content as it becomes available, and the licensee is not entitled to a refund if no further library titles are delivered, revenue is recognized once access to the library is granted to the licensee. Under the new guidance, because there is an implicit obligation for the company to refresh the library with additional content in the future, the company will need to estimate the additional content it will deliver in the future and allocate a portion of the transaction price to that content. As compared with current guidance, this results in a deferral of a portion of the transaction price until delivery of future library content. The Company expects this change will primarily impact the Home Box Office segment.

iii. Licenses of Symbolic Intellectual Property - Certain intellectual property, such as brands, tradenames and logos, is categorized in the new guidance as symbolic. An assumption inherent in the new guidance is that a licensee’s ability to derive benefit from a license of symbolic intellectual property depends on the licensor continuing to support or maintain the intellectual property throughout the license term. Accordingly, under the new guidance, revenue from licenses of symbolic intellectual property is recognized over the corresponding license term. In certain arrangements where the Company has no remaining performance obligations, under the guidance currently in effect, revenue from licenses of symbolic intellectual property is recognized at the inception of the license term. Therefore, the new guidance will result in a deferral of revenue recognition as compared to current guidance. This change will primarily impact the Warner Bros. segment.

The evaluation of the impact of the new guidance on certain other transactions is still in process; however, the Company does not expect the completion of that evaluation to impact the Company’s conclusion that the adoption will not have a material impact on the Company’s financial statements.

The Company currently expects to adopt the standard in 2018 using the modified retrospective method of adoption. However, the transition method ultimately selected could be affected by the Company’s pending merger with AT&T Inc. (“AT&T”) if the merger closes prior to the adoption of the new guidance. For more information regarding the AT&T merger, see Note 2.

2.	MERGER AGREEMENT WITH AT&T

On October 22, 2016, Time Warner entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AT&T Inc. (“AT&T”). The Merger Agreement provides for the merger of a newly formed wholly owned subsidiary of AT&T with and into Time Warner, with Time Warner continuing as the surviving company in the merger. Immediately thereafter, Time Warner will merge with and into a limited liability company formed by AT&T, which will continue as the surviving entity and a wholly owned subsidiary of AT&T. The Merger Agreement was unanimously approved by all members of Time Warner’s and AT&T’s boards of directors. Time Warner shareholders adopted the Merger Agreement at a special meeting of shareholders on February 15, 2017. Subject to the satisfaction of the remaining conditions set forth in the Merger Agreement, upon consummation of the merger, each share of the Company’s common stock will be converted into the right to receive $53.75 in cash and a specified number of shares of AT&T stock, as set forth in the Merger Agreement and determined by reference to the average of the volume weighted averages of the trading price of AT&T common stock on the New York Stock Exchange (“NYSE”) on each of the 15 consecutive NYSE trading days ending on and including the trading day that is three trading days prior to the closing of the merger (the “Average Stock Price”). The stock portion of the per share consideration will be subject to a collar such that if the Average Stock Price is between $37.411 and $41.349, Time Warner shareholders will receive shares of AT&T stock equal to $53.75 in value for each share of Time Warner common stock. If the Average Stock Price is below $37.411, Time Warner shareholders will receive 1.437 AT&T shares for each share of Time Warner common stock. If the Average Stock Price is an amount greater than $41.349, Time Warner shareholders will receive 1.300 AT&T shares for each share of Time Warner common stock. Should Time Warner terminate the Merger Agreement in specified circumstances, Time Warner may be required to pay AT&T a termination fee equal to $1.725 billion if Time Warner enters into or consummates an alternative transaction with a third party following such termination of the Merger Agreement.

30The merger is conditioned on the receipt of certain antitrust and other required regulatory consents. On November 20, 2017, the United States Department of Justice (the “DOJ”) filed a lawsuit in the United States District Court for the District of Columbia (the “Court”) under a federal antitrust statute to enjoin the merger. The trial began the week of March 19, 2018 and the parties’ presentation of their cases is expected to conclude in early May 2018. Time Warner and AT&T have agreed to extend the termination date of the Merger Agreement to April 22, 2018, and each has agreed to waive, until June 21, 2018, its right to terminate the Merger Agreement based on the merger not being completed by April 22, 2018.

3.	INVESTMENTS

Central European Media Enterprises Ltd.

As of March 31, 2018, the Company had an approximate 46% voting interest in Central European Media Enterprises Ltd.’s (“CME”) common stock and an approximate 75% ownership interest in CME (on a fully diluted basis).

As of March 31, 2018, the Company owned 61.4 million shares of CME’s Class A common stock and 1 share of Series A convertible preferred stock, which is convertible into 11.2 million shares of CME’s Class A common stock and votes with the Class A common stock on an as-converted basis. The Company accounts for its investment in CME’s Class A common stock and Series A convertible preferred stock under the equity method of accounting. Although the book value of the Company’s equity method investment in CME has been reduced to zero through the recognition of equity method losses, the Company has continued to

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Time~~record ~~Warner~~equity ~~continuing~~method aslosses ~~the~~because ~~surviving~~it ~~company~~has inguaranteed ~~the~~an ~~merger.~~aggregate ~~Immediately~~amount ~~thereafter, Time Warner will merge with and into a limited liability company formed by AT&T, which will continue as the surviving entity and a wholly owned subsidiary~~ of ~~AT&T.~~€855 million ~~The Merger Agreement was unanimously approved by all members~~ of ~~Time Warner~~CME’s ~~and~~obligations. ~~AT&T’s~~The ~~boards~~amount of ~~directors.~~such ~~Time~~equity ~~Warner~~method ~~shareholders~~losses ~~adopted the Merger Agreement~~ at ~~a special meeting of shareholders on February~~March 1531, ~~2017.~~2018 ~~Subject~~was $4 million toand ~~the~~is ~~satisfaction~~presented ~~of the remaining conditions set forth~~ in ~~the~~Other ~~Merger~~noncurrent ~~Agreement,~~liabilities ~~upon~~on ~~consummation of~~ the ~~merger,~~Consolidated ~~each~~Balance ~~share of the Company’s common stock will be converted into the right to receive $53~~Sheet.75 inIn ~~cash and a specified number of shares of AT&T stock~~addition, ~~as set forth~~ in ~~the~~connection ~~Merger~~with ~~Agreement~~these ~~and~~guarantees, ~~determined by reference to~~ the ~~average~~Company ofrecognized ~~the~~a ~~volume~~liability ~~weighted~~at ~~averages of~~ the ~~trading~~inception ~~price~~ of ~~AT&T common stock on the New York Stock Exchange (“NYSE”) on~~ each ofrespective ~~the~~arrangement 15based ~~consecutive NYSE trading days ending~~ on ~~and including~~ the estimated ~~trading~~fair ~~day~~value ~~that is three trading days prior to the closing~~ of the ~~merger~~applicable ~~(the “Average Stock Price”)~~guarantee. ~~The stock~~At ~~portion~~March 31, of2018, the ~~per~~carrying ~~share consideration will be subject to a collar such that if the Average Stock Price is between $37.411 and $41.349, Time Warner shareholders will receive shares of AT&T stock equal to $53.75 in~~ value ~~for each share~~ of ~~Time~~ ~~Warner~~liabilities ~~common~~associated ~~stock.~~with Ifsuch ~~the~~guarantees ~~Average~~was ~~Stock Price is below~~ $~~37.411~~168 million, ~~Time~~which ~~Warner shareholders will receive 1.437 AT&T shares for each share of Time Warner common stock. If the Average Stock Price~~ is analso ~~amount~~included ~~greater~~in ~~than~~Other ~~$41.349,~~noncurrent ~~Time~~liabilities ~~Warner shareholders will receive 1.300 AT&T shares for each share of Time Warner common stock. The merger is conditioned~~ on the ~~receipt~~Consolidated of certain antitrust and other required regulatory consents. The merger is expected to close before year-end 2017. Should Time Warner terminate the Merger Agreement in specified circumstances, Time Warner may be required to pay AT&T a termination fee equal to $1.725 billion if Time Warner enters into orBalance ~~consummates an alternative transaction with a third party following such termination of the Merger Agreement~~Sheet.

As of March 31, 2018, the Company owned all of the outstanding shares of CME’s Series B convertible redeemable preferred shares, which are non-voting and may be converted into 110.3 million shares of CME’s Class A common stock at the Company’s option. ~~BUSINESS~~The ~~DISPOSITIONS~~Series ~~AND~~B ~~ACQUISITIONS~~convertible redeemable preferred shares accrete in value until June 24, 2018 at an annual rate of 3.75% compounded quarterly. The Company accounts for its investment in CME’s Series B convertible redeemable preferred shares at cost less impairment, plus or minus subsequent adjustments for observable price changes.

~~For~~As ~~the~~of ~~three months ended September~~March 3031, ~~2016~~2018, ~~Discontinued~~the ~~operations,~~Company ~~net~~held ~~of tax was expense of $5~~101 million ~~($0.01~~ ofwarrants, ~~diluted~~each ~~loss~~to ~~from~~purchase ~~discontinued~~one ~~operations per common~~ share) ~~related~~of toCME ~~pension~~Class A ~~settlement~~common ~~charges related to businesses the Company previously disposed of~~stock. ~~For~~The ~~the~~warrants ~~nine~~had ~~months~~an ~~ended~~exercise ~~September 30,~~price ~~2016, Discontinued operations, net~~ of ~~tax was income of~~ $~~35 million ($0~~1.0400 ofper ~~diluted~~share ~~income~~and ~~from~~did ~~discontinued~~not ~~operations~~contain ~~per~~any ~~common~~voting ~~share),~~rights. ~~which~~The ~~also~~warrants ~~included~~were ~~the~~carried ~~recognition~~at offair ~~certain~~value ~~tax~~in ~~benefits~~Investments, ~~associated~~including ~~with~~available-for-sale ~~foreign~~securities ~~tax~~in ~~attributes of~~ the ~~Warner~~Consolidated ~~Music~~Balance ~~Group (“WMG”)~~Sheet, which ~~the~~, ~~Company~~at ~~disposed~~March 31, of2018, inwas ~~2004~~$324 million.

4On April 25, 2018, the Company exercised the warrants at an aggregate cost of $101 million and received 101 million shares of CME Class A common stock. ~~INVESTMENTS~~Simultaneously, the Company entered into a standing proxy arrangement whereby it granted the right to vote the Class A common stock it received upon exercise of the warrants, for all matters other than regarding a change of control event, to the independent members of CME’s Board of Directors. In accordance with the standing proxy arrangement, such shares will be voted in a manner that reflects the proportion of all votes cast excluding those shares covered by the standing proxy arrangement. The Company has agreed with CME that the proxy arrangement will be in effect for two years and is not revocable by the Company. In addition, the Company has the right to extend the standing proxy arrangement for an additional one-year period at its option. The Company will continue to account for its investment in CME’s Class A common stock under the equity method of accounting.

~~Central~~On ~~European~~April 25, 2018, CME, CME Media Enterprises ~~Ltd~~B.V. (“CME BV”), Time Warner and third-party financial institution lenders agreed to extend the maturity dates of CME’s €235 million senior unsecured term loan (the “2015 Term Loan”) from November 1, 2019 to November 1, 2021 and CME BV’s €469 million senior unsecured term loan (the “2016 Term Loan”) from February 19, 2021 to April 26, 2023. Time Warner has agreed to continue to guarantee CME’s and CME BV’s obligations under the term loans as well as related interest rate hedges.

AsOn April 25, 2018, Time Warner, CME and CME BV entered into an amendment and restatement agreement (the “2018 Reimbursement Amendment”) to further amend and restate the Amended and Restated Reimbursement Agreement, dated as of ~~September~~November 3014, ~~2017~~2014, and as amended and restated as of February 19, 2016. The 2018 Reimbursement Amendment, among other things, reduced the ~~Company~~guarantee ~~had~~fees anpayable ~~approximate~~by ~~47%~~CME ~~voting~~and ~~interest~~CME inBV ~~Central~~to ~~European~~Time ~~Media~~Warner ~~Enterprises Ltd.~~for Time Warner’s guarantees of CME’s obligations under its €151 million senior unsecured term loan (the “2014 Term Loan”) that matures on May 1, 2019 and the 2015 Term Loan, as well as CME BV’s obligation under the 2016 Term Loan. The reduced fee to be paid to Time Warner for each of these guarantees is equal to a rate (the “all-in” rate) ~~common~~ranging ~~stock~~between 3.25% and an6.00%, ~~approximate~~in 76the case of the 2014 Term Loan and 2015 Term Loan, and between 3.50% ~~economic~~and ~~interest~~6.50%, in the case of the 2016 Term Loan, measured quarterly based on CME’s consolidated net leverage ratio, less the interest rate on athe ~~diluted~~applicable term loan. The fees are payable in cash. The 2018 Reimbursement Amendment also provides that if CME’s consolidated debt level is less than €815 million by September 30, 2018, the all-in rate will be decreased further, in most cases by 50 basis points. The 2018 Reimbursement Amendment also makes less restrictive certain of the maintenance and negative covenants that apply to CME and its subsidiaries.

AsAlso ~~of September 30~~on April 25, ~~2017~~2018, ~~the~~Time ~~Company~~Warner, ~~owned 61.4 million shares of~~ CME’s ~~Class A common stock~~ and 1CME ~~share~~BV ofentered ~~Series A convertible preferred stock, which is convertible~~ into ~~11.2 million shares of CME’s Class A common~~an ~~stock~~amendment and ~~votes~~restatement ~~with~~agreement (the ~~Class A~~“2018 ~~common~~Revolver ~~stock~~Amendment”) onto anfurther ~~as-converted~~amend ~~basis.~~and ~~The~~restate ~~Company accounts for its investment in~~ CME’s ~~Class A~~Amended ~~common stock~~ and ~~Series~~Restated ARevolving ~~convertible~~Loan ~~preferred~~Facility ~~stock~~Credit ~~under~~Agreement, ~~the equity~~dated ~~method~~as of ~~accounting.~~May 2, ~~Although~~2014, ~~the~~and ~~book~~as ~~value~~amended ofand ~~the~~restated ~~Company’s~~as ~~equity~~of February 19, ~~method~~2016. ~~investment~~The in2018 ~~CME~~Revolver ~~has~~Amendment ~~been~~increased ~~reduced to zero through~~ the ~~recognition~~size of ~~equity method losses,~~ the ~~Company~~revolving ~~has~~credit ~~continued~~facility tofrom ~~record equity method losses because it has guaranteed an aggregate amount of €955~~$50 million ofto ~~CME’s obligations. The amount of such equity method losses at September 30, 2017 was~~ $7875 million and isextended ~~presented~~the inmaturity ~~Other~~date ~~noncurrent~~from ~~liabilities~~February on19, ~~the~~2021 ~~Consolidated Balance~~to ~~Sheet.~~April ~~In addition~~26, in2023. ~~connection~~Amounts ~~with~~outstanding ~~these~~under ~~guarantees,~~ the revolving ~~Company~~credit ~~recognized~~facility agenerally ~~liability~~bear interest at ~~the~~a ~~inception~~margin ofranging ~~each~~from ~~respective~~3.25% ~~arrangement~~to ~~based~~6.25% onover the ~~estimated fair value of the~~ applicable ~~guarantee.~~Libor Atrate ~~September 30,~~for ~~2017,~~Eurodollar ~~the carrying~~loans ~~value~~based ofon ~~liabilities~~CME’s ~~associated~~net ~~with~~leverage ~~such guarantees was $181 million~~and, ~~which~~effective iswith ~~also included in Other noncurrent liabilities on~~ the ~~Consolidated~~2018 ~~Balance~~Revolver ~~Sheet. In June 2017~~Amendment, ~~the~~are ~~CME~~payable ~~financing~~entirely ~~arrangements guaranteed by the Company~~in ~~were~~cash. ~~amended~~The ~~such~~revolving ~~that~~credit ~~the~~facility ~~lenders~~continues ~~agreed~~to ~~that~~contain ~~the~~a ~~pending~~commitment ~~merger~~fee ofon the ~~Company~~average ~~with~~daily ~~AT&T~~unused ~~will~~amount ~~not constitute an event of default~~ under ~~a change in control provision included in~~ the ~~financing~~facility ~~arrangements,~~of ~~and~~0.50% ~~that~~per ~~the~~annum. ~~loans~~The to2018 ~~CME~~Revolver ~~will~~Amendment ~~remain outstanding~~also ~~following~~makes ~~the~~less ~~closing~~restrictive certain of the ~~AT&T~~maintenance ~~merger.~~and negative

~~As of September~~ 30, 2017, the Company owned all of the outstanding shares of CME’s Series B convertible redeemable preferred shares, which are non-voting and may be converted into 108.2 million shares of CME’s Class A common stock at the Company’s option. The Series B convertible redeemable preferred shares accrete in value until June 24, 2018 at an annual rate of 3.75% compounded quarterly. The Company accounts for its investment in CME’s Series B convertible redeemable preferred shares under the cost method of accounting.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As covenants ofthat ~~September 30,~~apply ~~2017, the Company held 101 million warrants each~~ to ~~purchase one share of~~ CME ~~Class A~~and ~~common~~its ~~stock~~subsidiaries. ~~The~~As ~~warrants,~~of ~~which~~both ~~became exercisable in May 2016~~March 31, ~~have a four-year term that expires in May~~ 2018 and anApril ~~exercise~~25, ~~price~~2018, ofthere ~~$1.00~~were ~~per~~no ~~share~~amounts ~~and~~outstanding dounder ~~not contain any voting rights. The warrants are carried at fair value in Investments, including available-for-sale securities in~~ the ~~Consolidated~~revolving ~~Balance~~credit ~~Sheet, which at September 30, 2017, was $309 million~~facility.

As4. ofFAIR ~~September 30,~~VALUE ~~2017, there were no amounts outstanding under the $115 million revolving credit facility Time Warner provided CME in 2014.~~ MEASUREMENT

OnA ~~March 2,~~fair ~~2017,~~value ~~Time~~measurement ~~Warner,~~is ~~CME~~determined ~~and~~based ~~CME~~on ~~Media~~the ~~Enterprises~~assumptions ~~B.V. (“CME~~that ~~BV”),~~ a ~~wholly~~market ~~owned~~participant ~~subsidiary~~would ofuse ~~CME,~~in ~~entered~~pricing ~~into~~ an ~~amendment~~asset ~~(the~~or liability. ~~“2017~~A ~~Amendment”)~~three-tiered tohierarchy ~~the~~draws ~~Amended~~distinctions ~~and~~between ~~Restated~~market ~~Reimbursement~~participant ~~Agreement,~~assumptions ~~dated~~based ason ~~of November~~(i) ~~14,~~observable ~~2014,~~inputs ~~and~~such as ~~amended~~quoted ~~and~~prices ~~restated~~in asactive ~~of February 19,~~markets ~~2016.~~(Level ~~Effective March~~ 1), ~~2017,~~(ii) inputs ~~the~~other ~~2017~~than ~~Amendment~~quoted ~~reduced~~prices ~~the~~in ~~guarantee~~active ~~fees~~markets ~~payable~~that ~~by CME and CME BV to Time Warner for Time Warner’s guarantees of CME’s obligations under its €251 million senior~~are ~~unsecured~~observable ~~term~~either ~~loan~~directly ~~that~~or ~~matures~~indirectly on(Level ~~November 1,~~2) ~~2018~~ and ~~its €235~~(iii) ~~million~~unobservable ~~senior~~inputs ~~unsecured term loan~~ that ~~matures~~require onthe ~~November 1,~~Company ~~2019 as well as CME BV’s obligation under its €469 million senior unsecured term loan that matures on February 19, 2021. The reduced fee~~ to beuse ~~paid~~present tovalue ~~Time~~and ~~Warner~~other ~~for~~valuation ~~each~~techniques ~~of these guarantees is equal to a rate (the “all-~~in” ~~rate) ranging between 5% and 8.5%, measured quarterly based on CME’s consolidated net leverage ratio, less~~ the ~~interest~~determination ~~rate on the term loans. A portion~~ of ~~the~~fair ~~fee~~value ~~equal~~(Level ~~to 5~~3).0% ~~less~~The ~~the~~following ~~interest~~table ~~rate~~presents oninformation about ~~the~~assets ~~term loans is payable in cash by CME~~ and ~~CME~~liabilities BVrequired ~~and~~to ~~the remainder may~~ be ~~payable~~ incarried ~~cash or in kind,~~ at ~~CME’s~~fair ~~option.~~value ~~The~~on ~~2017~~a ~~Amendment~~recurring ~~also~~basis ~~provides~~as ~~that~~of ~~if CME’s consolidated debt level is less than €815~~March ~~million by September 30~~31, 2018, ~~the~~and ~~all-in rate will be decreased further by 50 basis points. In addition~~December 31, ~~if there is a change in control of CME~~2017, ~~the~~respectively ~~all-in rate will increase to the lower of~~ (imillions) ~~the~~: then applicable guarantee fee payable to Time Warner plus 3.5% and (ii) 10.0% on the date that is 180 days following such change of control. The 2017 Amendment did not affect the terms of the guarantees the Company provided to CME’s and CME BV’s lenders under the term loans.

5. FAIR VALUE MEASUREMENT


	March 31, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Equity securities:
Diversified equity securities (a)	$	168	$	—	$	—	$	168	$	168	$	—	$	—	$	168
Other		14		—		—		14		18		—		—		18
Available-for-sale debt securities		—		31		—		31		—		31		—		31
Derivatives:
Foreign exchange contracts		—		—		—		—		—		4		—		4
Other		—		—		325		325		—		—		369		369
Liabilities:
Derivatives:
Foreign exchange contracts		—		(135)		—		(135)		—		(50)		—		(50)
Other		—		—		(40)		(40)		—		—		(1)		(1)

Total	$	182	$	(104)	$	285	$	363	$	186	$	(15)	$	368	$	539

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 table presents information about assets and liabilities required to be carried at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, respectively (millions):

	September 30, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Trading securities:
Diversified equity securities (a)	$	161	$	—	$	—	$	161	$	163	$	—	$	—	$	163
Available-for-sale securities:
Equity securities		21		—		—		21		17		—		—		17
Debt securities		—		32		—		32		—		37		—		37
Derivatives:
Foreign exchange contracts		—		10		—		10		—		153		—		153
Other		—		—		310		310		—		—		161		161
Liabilities:
Derivatives:
Foreign exchange contracts		—		(115)		—		(115)		—		(9)		—		(9)
Other		—		—		(1)		(1)		—		—		—		—
Total	$	182	$	(73)	$	309	$	418	$	180	$	181	$	161	$	522

(a)	Consists of investments related to deferred compensation.

32The Company primarily applies the market approach for valuing recurring fair value measurements. As of March 31, 2018 and December 31, 2017, assets valued using significant unobservable inputs (Level 3) primarily related to warrants to purchase shares of Class A common stock of CME valued at $324 million and $368 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 March 31, 2018 are an expected term of 0.09 years and an expected volatility of approximately 37%. As of March 31, 2018 and December 31, 2017, the other Level 3 assets consisted of equity instruments held by employees of a former subsidiary of the Company. As of March 31, 2018 and December 31, 2017, Level 3 liabilities consisted of a liability related to contingent consideration.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The ~~Company~~following ~~primarily~~table ~~applies~~reconciles the ~~market~~beginning ~~approach~~and ~~for~~ending ~~valuing~~balances ~~recurring~~of ~~fair~~net ~~value~~derivative ~~measurements.~~assets ~~As of September 30, 2017~~ and ~~December 31,~~liabilities ~~2016,~~classified ~~assets~~as ~~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,~~identifies ~~respectively.~~the ~~The~~total ~~Company~~gains ~~estimates~~(losses) the ~~fair~~Company ~~value~~recognized ofduring ~~these warrants using a Monte Carlo Simulation model. Significant unobservable inputs used in~~ the ~~fair~~three ~~value~~months ~~measurement~~ended ~~at September~~March 3031, ~~2017~~2018 ~~are an expected term of 0.52 years~~ and ~~an expected volatility of approximately 38%. As of September 30,~~ 2017 ~~and~~on ~~December 31,~~such ~~2016, the other Level 3~~ assets ~~consisted~~and ofliabilities ~~equity~~that ~~instruments~~were ~~held~~included byin ~~employees~~the Consolidated ofBalance aSheet ~~former~~as ~~subsidiary~~ of ~~the Company. As of September~~March 3031, ~~2017,~~2018 ~~Level 3~~and ~~liabilities~~2017 ~~consisted~~(millions): ~~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):


	March 31, 2018		March 31, 2017
Balance as of the beginning of the period	$	368	$	161
Total gains (losses), net:
Included in operating income		(24)		—
Included in other income (loss), net		(44)		54
Included in other comprehensive income (loss)		—		—
Purchases		—		—
Settlements		—		(1)
Issuances		(15)		(1)

Balance as of the end of the period	$	285	$	213

Net gain (loss) for the period included in net income related to assets and liabilities still held as of the end of the period	$	(68)	$	54

	September 30,2017		September 30,2016
Balance as of the beginning of the period	$	161	$	173
Total gains (losses), net:
Included in operating income		—		2
Included in other income (loss), net		150		(44)
Included in other comprehensive income (loss)		—		—
Purchases		—		—
Settlements		(1)		5
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 liabilitiesstill 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~~March 3031, ~~2017~~2018, the fair value of Time Warner’s public debt exceeded its carrying value by approximately $~~2.432~~981 ~~billion~~million and, based on interest rates prevailing at December 31, ~~2016~~2017, the fair value of of Time Warner’s public debt exceeded its carrying value by approximately $21.~~238~~583 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~~March 3031, ~~2017~~2018 about the Company’s investments in CME that ~~are~~ are not required to be carried at fair value on a recurring basis is as follows (millions):

Carrying Value

Fair Value

Fair ValueHierarchy

Class A common stock (a)

—

~~294~~305

~~Level 1~~

Level 1

Series B convertible redeemable preferred shares

—

~~438~~463

~~Level 2~~

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~~March 3031, ~~2017~~2018 closing price of CME’s common stock.

33The carrying value for 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.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The carrying value for 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.

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), a non-financial instrument is required to be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value.

During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2018 and March 31, 2017, the Company also performed anfair ~~impairment~~value ~~review~~measurements related to certain theatrical films and television programs. In determining the fair value of its theatrical films, the Company employs a ~~broadcast license~~DCF atmethodology anthat ~~international~~includes ~~subsidiary~~cash flow estimates of ~~Turner.~~a Asfilm’s ultimate revenue and costs as well as a discount ~~result,~~rate. ~~during~~The ~~the~~discount ~~three~~rate ~~and~~utilized ~~nine~~in ~~months~~the ~~ended~~DCF ~~September 30,~~analysis ~~2016,~~is based on the ~~Company~~weighted ~~recorded~~average acost ~~noncash~~of ~~impairment~~capital of ~~$25 million~~the torespective ~~write~~business ~~down~~(e.g., Warner Bros.) plus a risk premium representing the risk associated with producing a particular theatrical film. The fair value of ~~the~~any ~~asset~~theatrical films and television programs that management plans to ~~$10 million~~abandon is zero. ~~The~~ ~~resulting~~Because the primary determination of fair value ~~measurements~~is ~~were~~made ~~considered~~using toa beDCF model, the resulting fair value is considered a Level 3 ~~measurements~~measurement. ~~and~~The ~~were~~following ~~determined~~table ~~using~~presents acertain ~~discounted~~theatrical ~~cash~~film ~~flow~~and ~~(“DCF”)~~television ~~methodology~~production ~~with~~costs, ~~assumptions~~which ~~for~~were ~~cash~~recorded ~~flows~~as ~~associated~~inventory ~~with~~in the ~~use~~Consolidated ~~and~~Balance ~~eventual~~Sheet, ~~disposition~~that ~~of the~~were ~~assets.~~written down to fair value (millions):

During the three and nine months ended September 30, 2017 and September 30, 2016, the Company also performed fair value measurements related to certain theatrical films and television programs. In determining the fair value of its theatrical films, the Company employs a DCF methodology that includes cash flow 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 theatrical film. The fair value of any theatrical films and television programs that management plans to abandon is zero. Because the primary determination of fair value is made using a DCF model, the resulting fair value is considered a Level 3 measurement. The following table presents certain theatrical film and television production costs, which were recorded as inventory in the Consolidated Balance Sheet, that were written down to fair value (millions):


	Carrying value before write down		Carrying value after write down
Fair value measurements made during the three months ended March 31,:
2018	$	7	$	4
2017	$	51	$	30

	Carrying valuebeforewrite down		Carrying valueafter write down
Fair value measurements made during the three months ended September 30,:
2017	$	12	$	—
2016	$	27	$	—
Fair value measurements made during the nine months ended September 30,:
2017	$	69	$	30
2016	$	89	$	3

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

65. INVENTORIES AND THEATRICAL FILM AND TELEVISION PRODUCTION COSTS

Inventories and theatrical film and television production costs consist of (millions):

	September 30,2017		December 31,2016
	March 31,2018		December 31,2017
Inventories:
Programming costs, less amortization (a)	$	3,~~756~~614	$	3,~~625~~859
Other inventory, primarily DVDs and Blu-ray Discs		~~217~~159		~~184~~186
Total inventories		3,~~973~~773		34,~~809~~045
Less: current portion of inventory		(2,~~198~~071)		(2,~~062~~401)
Total noncurrent inventories		1,~~775~~702		1,~~747~~644
Theatrical film production costs: (b)
Released, less amortization		~~678~~729		~~818~~709
Completed and not released		~~461~~495		~~460~~502
In production		1,~~384~~074		1,~~286~~219
Development and pre-production		~~142~~167		~~133~~152
Television production costs: (b)
Released, less amortization		12,~~849~~052		1,~~618~~844
Completed and not released		~~900~~964		~~841~~835
In production		1,~~164~~280		~~995~~1,357
Development and pre-production		1418		1813
Total theatrical film and television production costs		6,~~592~~779		6,~~169~~631
Total noncurrent inventories and theatrical film and television production costs	$	8,~~367~~481	$	78,~~916~~275

(a)	Includes the costs of certain programming rights, primarily sports, for which payments have been made prior to the related rights being received.

(b) Does not include $~~418~~338 million and $~~518~~368 million of acquired film library intangible assets as of ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, respectively, which are included in Intangible assets subject to amortization, net in the Consolidated Balance Sheet.

76. ~~DERIVATIVE~~SHAREHOLDERS’ ~~INSTRUMENTS AND HEDGING ACTIVITIES~~EQUITY

~~Time~~Comprehensive ~~Warner~~Income uses derivative instruments, primarily forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates. The principal currencies being hedged include the British Pound, Euro, Australian Dollar and Canadian Dollar. Time Warner uses foreign exchange contracts that generally have maturities of three to 18 months to hedge various foreign exchange exposures, including the following: (iLoss) ~~variability~~ in foreign-currency-denominated cash flows, such as the hedges of unremitted or forecasted royalty and license fees owed to Time Warner’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency (i.e., cash flow hedges), and (ii) currency risk associated with foreign-currency-denominated operating assets and liabilities (i.e., fair value hedges).

~~The~~Comprehensive ~~Company~~income ~~also~~(loss) ~~enters~~is ~~into~~reported ~~derivative~~in ~~contracts~~the ~~that~~Consolidated ~~economically~~Statement ~~hedge~~of ~~certain~~Comprehensive ofIncome ~~its~~and ~~foreign~~consists ~~currency~~of ~~risks,~~Net ~~even~~income ~~though~~and ~~hedge~~other ~~accounting~~gains ~~does~~and ~~not~~losses ~~apply~~affecting orshareholders’ ~~the~~equity ~~Company~~that, ~~elects~~under ~~not~~GAAP, toare ~~apply~~excluded ~~hedge~~from ~~accounting~~Net income. ~~These~~For ~~economic~~Time ~~hedges~~Warner, ~~are~~such ~~used~~items consist primarily toof ~~offset~~foreign ~~the~~currency ~~change~~translation ingains (losses), unrealized gains and losses on certain derivative ~~foreign-currency-denominated~~financial ~~intercompany~~instruments ~~debt~~and ~~due~~equity tosecurities, and changes in ~~the~~benefit ~~underlying~~plan ~~foreign exchange rates~~obligations.

~~The~~34 translation of revenues and expenses denominated in the functional currency of a foreign subsidiary may result in fluctuations in the U.S. Dollar-equivalent value of such revenues and expenses as compared to prior periods. Such transactions are not eligible for qualifying hedge accounting treatment, and the Company does not economically hedge this exposure.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following summary sets forth the activity within Other comprehensive income (loss) (millions):


	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
	Pretax		Tax (provision) benefit		Net of tax		Pretax		Tax (provision) benefit		Net of tax
Unrealized gains (losses) on foreign currency translation	$	82	$	8	$	90	$	(10)	$	(1)	$	(11)
Unrealized gains on benefit obligations		2		(1)		1		3		(1)		2
Reclassification adjustment for losses on benefit obligations realized in net income (a)		10		(2)		8		8		(3)		5
Unrealized losses on derivative financial instruments		(57)		2		(55)		(23)		8		(15)
Reclassification adjustment for losses on derivative financial instruments realized in net income (b)		44		(1)		43		3		(1)		2

Other comprehensive income (loss)	$	81	$	6	$	87	$	(19)	$	2	$	(17)

(a)	Pretax losses included in Other income (loss), net.

(b)	Pretax (gains) losses are included in Selling, general and administrative expenses, Costs of revenues and Other income (loss), net are as follows (millions):


	Three Months Ended March 31,
	2018			2017
Selling, general and administrative expenses	$	—		$	3
Costs of revenues		45			—
Other income (loss), net		(1	)		—

7.	REVENUES

The tables below present Revenues by segment, type and region (i.e., domestic or international) as well as Content revenues by segment and line of business for the three months ended March 31, 2018 and 2017 (millions). Management uses these categories of Revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.


	Three Months Ended March 31, 2018								Three Months Ended March 31, 2017
Revenue by Type	Turner		Home Box Office		Warner Bros.		Total		Turner		Home Box Office		Warner Bros.		Total
Subscription:
Domestic	$	1,508	$	1,300	$	—	$	2,808	$	1,442	$	1,202	$	—	$	2,644
International		282		129		—		411		223		100		—		323
Advertising:
Domestic		1,196		—		—		1,196		1,090		—		—		1,090
International		130		—		—		130		123		—		—		123
Content:
Domestic		105		37		1,631		1,773		102		28		1,909		2,039
International		55		151		1,454		1,660		42		236		1,321		1,599
Other		68		2		153		223		66		2		135		203

		3,344		1,619		3,238		8,201		3,088		1,568		3,365		8,021
Intersegment eliminations		(22)		(2)		(181)		(205)		(21)		(2)		(263)		(286)

Total revenues	$	3,322	$	1,617	$	3,057	$	7,996	$	3,067	$	1,566	$	3,102	$	7,735

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Net gains and losses from hedging activities recognized in the Consolidated Statement of Operations were as follows (millions):


	Three Months Ended March 31, 2018								Three Months Ended March 31, 2017
Content Revenues	Turner		Home Box Office		Warner Bros.		Total		Turner		Home Box Office		Warner Bros.		Total
Theatrical	$	—	$	—	$	1,336	$	1,336	$	—	$	—	$	1,376	$	1,376
Television		150		188		1,466		1,804		135		264		1,651		2,050
Games and other		10		—		283		293		9		—		203		212

Total content revenues	$	160	$	188	$	3,085	$	3,433	$	144	$	264	$	3,230	$	3,638

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Gains (losses) recognized in:
Cost of revenues	$	(86)	$	21	$	(102)	$	30
Selling, general and administrative		(13)		3		(25)		8
Other income (loss), net		31		(8)		47		(8)

The prior year information in the above tables has not been adjusted under the modified retrospective method of adoption of the new revenue recognition guidance.

~~Amounts~~Performance ~~included~~Obligations in Other income (loss), net include the impact of forward points and option premiums, which are excluded from the assessment of hedge effectiveness. Other amounts included in Other income (loss), net relate to hedge of foreign-currency-denominated debt and hedge ineffectiveness, which are not material.

~~The~~Remaining ~~Company~~performance ~~monitors~~obligations ~~its~~represent ~~positions~~future ~~with,~~revenues ~~and~~not ~~the~~yet ~~credit~~recorded ~~quality~~for ~~of,~~firm ~~the~~orders ~~financial institutions~~ that ~~are~~have ~~party~~not toyet ~~its~~been ~~financial~~performed. ~~transactions~~The ~~and~~Company’s ~~has~~most ~~entered~~significant ~~into~~remaining ~~collateral~~performance ~~agreements~~obligations ~~with~~relate ~~these counterparties~~ to ~~further protect~~ the ~~Company~~licensing ~~in the event~~ of ~~deterioration~~theatrical ofand ~~the~~television ~~credit~~content ~~quality~~which ofwill ~~such~~be ~~counterparties~~made onavailable ~~outstanding~~to ~~transactions.~~customers ~~Additionally,~~at ~~netting~~some ~~provisions are~~point ~~included~~ in ~~agreements in situations where~~ the ~~Company executes multiple contracts with the same counterparty~~future. ~~For~~Revenues ~~such~~expected ~~foreign exchange contracts, the Company offsets the fair values of the amounts owed~~ to orbe ~~due~~recognized ~~from the same counterparty and classifies the net amount as a net asset or net liability within Prepaid expenses and other current assets or Accounts payable and accrued liabilities, respectively,~~ in the ~~Consolidated Balance Sheet. The following is a summary of amounts recorded~~ infuture ~~the~~related ~~Consolidated Balance Sheet pertaining~~ to ~~Time~~performance ~~Warner’s~~obligations ~~use~~that ofare ~~foreign~~unsatisfied ~~currency derivatives~~ at ~~September~~March 3031, ~~2017~~2018 ~~and~~are ~~December 31,~~as ~~2016~~follows (millions):

			September 30, 2017 (a)			December 31, 2016 (b)
	Rest of 2018		2019			2020			Thereafter		Total
Prepaid expenses and other current assets			$	10		$	153
Subscription	$	521	$	533		$	381		$	347	$	1,782
Accounts payable and accrued liabilities				(115	)		(9	)
Advertising		98		119			68			13		298
Content		3,419		1,693			799			1,649		7,560
Total	$	4,038	$	2,345		$	1,248		$	2,009	$	9,640

~~(a)~~The ~~Includes~~above ~~$170~~table ~~million~~excludes ~~($159~~Subscription ~~million~~revenues ofassociated ~~qualifying~~with ~~hedges~~arrangements ~~and~~that ~~$11~~include ~~million~~a fixed offee ~~economic hedges)~~ and ~~$275~~have ~~million~~an ~~($263~~expected ~~million~~contract ofduration ~~qualifying hedges and $12 million~~ of ~~economic~~one ~~hedges)~~year ofor ~~foreign exchange derivative contracts in asset and liability positions, respectively~~less.

~~(b)~~Advertising ~~Includes~~arrangements ~~$297~~that ~~million~~have ~~($272~~an ~~million~~expected contract duration of ~~qualifying~~one ~~hedges~~year ~~and~~or ~~$25~~less ~~million~~are ofexcluded ~~economic~~from ~~hedges)~~the ~~and~~above ~~$153~~table. ~~million~~Typically, ~~($141~~advertising ~~million~~arrangements ofinclude ~~qualifying~~a ~~hedges~~targeted audience guarantee and ~~$12~~revenues ~~million~~for ofany ~~economic~~shortfall ~~hedges)~~in ofthe ~~foreign~~guaranteed ~~exchange~~audience ~~derivative~~delivery ~~contracts~~are deferred until delivery is met, typically by providing additional advertisements. Unrecognized revenues related to the audience guarantee shortfall, which are not reflected in ~~asset~~the ~~and~~above ~~liability~~table, ~~positions~~were $110 million at March 31, ~~respectively~~2018, and are expected to be recognized over an approximate 24-month period.

AtFor ~~September 30~~Content revenues, ~~2017~~including revenues associated with licensing of theatrical and ~~December 31~~television product for cable networks, ~~2016~~broadcast networks, ~~$50 million~~premium ofpay ~~losses~~television services, and ~~$46 million~~syndicated oftelevision ~~gains,~~and ~~respectively~~OTT exhibition, ~~related~~ tothe ~~cash~~Company ~~flow~~has ~~hedges~~included ~~are~~all ~~recorded~~contracts inregardless ~~Accumulated~~of ~~other~~duration. ~~comprehensive~~Content revenues ~~loss,~~included ~~net~~in ~~and~~the ~~are~~above ~~expected~~table toinclude beestimates ~~recognized~~for inproduct ~~earnings~~that atis ~~the~~not ~~same~~yet ~~time~~completed. Additionally, the ~~hedged~~above ~~items~~table ~~affect~~does ~~earnings.~~not ~~Included~~include inestimates ~~Accumulated~~of ~~other~~variable ~~comprehensive~~consideration ~~loss,~~for ~~net~~transactions atinvolving sales-based or usage-based royalties in ~~September 30~~exchange for licenses of intellectual property, ~~2017~~including ~~and~~many ~~December 31~~subscription arrangements, ~~2016~~certain ~~are~~theatrical ~~net~~and ~~gains~~digital ofcontent ~~$20 million~~licensing arrangements and ~~net~~certain ~~losses~~filmed ofentertainment ~~$3 million,~~licensing ~~respectively,~~contracts ~~related~~that provide for certain revenue to ~~hedges~~be earned ofand cash ~~flows~~collected, ~~associated~~based ~~with~~on ~~films~~delivery ~~that~~of ~~are~~advertising ~~not~~spots ~~expected~~ to betargeted ~~released~~audience ~~within~~viewing the ~~next~~filmed ~~twelve months~~content.

AtRevenues ~~September 30, 2017, the carrying amount~~ of ~~the Company’s €700~~$502 million ~~aggregate~~were ~~principal amount~~recognized ofduring ~~debt due 2023 is designated as a hedge of~~ the ~~variability~~three inmonths ~~the~~ended ~~Company’s Euro-denominated net investments. The gain or loss on the debt that is designated as~~March 31, ~~and~~2018 isfrom ~~effective~~performance ~~as, an economic hedge of the net investment in a foreign~~obligations ~~operation~~satisfied isprior ~~recorded~~to ~~as a currency translation adjustment within Accumulated other comprehensive loss~~December 31, ~~net~~2017. inThese ~~the~~revenues ~~Consolidated~~were ~~Balance~~predominately ~~Sheet.~~associated ~~For~~with the ~~three~~distribution ~~and nine months ended September 30, 2017, such amounts totaled $55 million and $106 million~~ of ~~losses,~~television ~~respectively. For the three~~ and ~~nine~~theatrical ~~months~~product ~~ended~~in ~~September 30,~~electronic ~~2016,~~sell-through ~~such amounts totaled $0 million~~ and video-on-demand ~~$17 million of losses, respectively~~formats.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8.Contract ~~SHAREHOLDERS’~~Assets ~~EQUITY~~and Deferred Revenue

~~Comprehensive~~The ~~Income~~timing of revenue recognition, billings and cash collections affects the recognition of accounts receivable, contract assets and deferred revenue. At March 31, 2018 and January 1, 2018, contract assets and deferred revenue are as follows (~~Loss~~in millions):

Comprehensive income (loss) is reported in the Consolidated Statement of Comprehensive Income and consists of Net income and other gains and losses affecting shareholders’ equity that, under GAAP, are excluded from Net income. For Time Warner, such items consist primarily of foreign currency translation gains (losses), unrealized gains and losses on certain derivative financial instruments and equity securities, and changes in benefit plan obligations.


	March 31, 2018		January 1, 2018
Contract asset - current (a)	$	91	$	51
Contract asset - noncurrent (b)		61		90
Deferred revenue - current		1,002		1,023
Deferred revenue - noncurrent		468		380

~~The~~(a) ~~following~~Included ~~summary sets~~in ~~forth~~Prepaid ~~the~~expenses ~~activity~~and ~~within~~other ~~Other~~current ~~comprehensive~~assets ~~income~~in ~~(loss)~~the ~~(millions):~~Consolidated Balance Sheet.

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Pretax		Tax(provision)benefit		Net of tax		Pretax		Tax(provision)benefit		Net of tax
Unrealized gains on foreign currency translation	$	135	$	17	$	152	$	187	$	30	$	217
Unrealized gains on securities		5		(2)		3		5		(2)		3
Unrealized losses on benefit obligations		—		—		—		(64)		23		(41)
Reclassification adjustment for losses on benefit obligations realized in net income (a)		9		(4)		5		27		(10)		17
Unrealized losses on derivative financialinstruments		(107)		26		(81)		(177)		51		(126)
Reclassification adjustment for losses on derivative financial instruments realized in net income (b)		63		(24)		39		80		(29)		51
Other comprehensive income	$	105	$	13	$	118	$	58	$	63	$	121
	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Pretax		Tax(provision)benefit		Net of tax		Pretax		Tax(provision)benefit		Net of tax
Unrealized losses on foreign currency translation	$	(45)	$	7	$	(38)	$	(54)	$	12	$	(42)
Unrealized losses on benefit obligations		(224)		81		(143)		(198)		73		(125)
Reclassification adjustment for losses on benefit obligations realized in net income (a)		26		(9)		17		43		(15)		28
Unrealized gains (losses) on derivative financial instruments		4		(2)		2		(11)		3		(8)
Reclassification adjustment for gains on derivative financial instruments realized in net income (b)		(8)		3		(5)		(34)		13		(21)
Other comprehensive loss	$	(247)	$	80	$	(167)	$	(254)	$	86	$	(168)

(b)	Included in Other assets in the Consolidated Balance Sheet.

~~(a)~~Contract ~~Pretax~~assets ~~losses~~relate ~~included~~to inthe ~~Selling,~~Company’s ~~general~~conditional ~~and~~right ~~administrative~~to ~~expenses,~~consideration ~~with~~for completed performance under the ~~exception~~contract (unbilled ofreceivables). $8In ~~million~~the ~~included~~Company’s inlong-term ~~Discontinued~~content ~~operations~~licensing agreements, ~~net~~billing ofoccurs ~~tax~~in ~~for~~accordance ~~the~~with ~~three~~agreed-upon contract terms and ~~nine~~is ~~months~~sometimes ~~ended~~subsequent ~~September~~to 30revenue recognition, ~~2016~~resulting in the recognition of contract assets.

~~(b)~~Deferred ~~Pretax~~revenue ~~(gains)~~principally ~~losses~~relates ~~are~~to ~~included~~customer advances received prior to performance under the contract. Deferred revenue also can result when the Company has the contractual right to invoice its customers in ~~Selling,~~advance ~~general~~of ~~and~~performance. ~~administrative~~Reductions ~~expenses,~~in ~~Costs~~deferred revenue are a result of ~~revenues~~the ~~and~~Company’s ~~Other~~performance ~~income~~under ~~(loss)~~the contract. Revenues of $530 million were recognized during the three months ended March 31, ~~net~~2018 ~~are~~related asto ~~follows~~the ~~(millions):~~balance of deferred revenue at January 1, 2018.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Selling, general and administrative expenses	$	—	$	3	$	5	$	2
Costs of revenues		64		(12)		76		(22)
Other income (loss), net		(1)		1		(1)		(14)

Summarized Income Statement Comparison of New and Prior Revenue Recognition Guidance

The following chart illustrates the amounts by which each summarized income statement line item was affected by the adoption of the new revenue guidance described in Note 1 (millions):


	Three Months Ended March 31, 2018
	As Reported		Adjustments		Without Adoption of New Revenue Guidance
Revenues	$	7,996	$	46	$	8,042
Costs of revenues		(4,717)		14		(4,703)
Selling, general and administrative		(1,402)		—		(1,402)
Other		(66)		—		(66)

Operating Income		1,811		60		1,871
Interest expense, net		(207)		—		(207)
Other income (loss), net		(94)		—		(94)

Income before income taxes		1,510		60		1,570
Income tax provision		132		(14)		118

Net income	$	1,642	$	46	$	1,688

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

98. NET INCOME PER COMMON SHARE

Set forth below is a reconciliation of Basic and Diluted net income per common share ~~from continuing operations~~ attributable to Time Warner Inc. common shareholders (millions, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Income from continuing operations attributable to Time Warner Inc. shareholders	$	1,372	$	1,472	$	3,858	$	3,598
Net income attributable to Time Warner Inc. shareholders	$	1,643	$	1,424
Income allocated to participating securities		(3)		(2)		(14)		(8)
Net income allocated to participating securities		(3)		(4)
Income from continuing operations attributable to Time Warner Inc. common shareholders — basic	$	1,369	$	1,470	$	3,844	$	3,590
Net income attributable to Time Warner Inc. common shareholders — basic	$	1,640	$	1,420
Average basic common shares outstanding		~~778~~780.09		~~776~~773.26		~~775.8~~		~~783.8~~
Dilutive effect of equity awards		1311.71		1115.37		~~14.5~~		~~11.3~~
Average diluted common shares outstanding		~~791~~792.70		~~787~~789.53		~~790.3~~		~~795.1~~
Antidilutive common share equivalents excluded from computation		—		5—		—		6
Income per common share from continuing operations attributable to Time Warner Inc. common shareholders:
Net income per common share attributable to Time Warner Inc. common shareholders:
Basic	$	12.7610	$	1.8984	$	~~4.95~~	$	~~4.58~~
Diluted	$	12.7307	$	1.8780	$	~~4.88~~	$	~~4.53~~

109. ~~EQUITY-BASED~~DERIVATIVE ~~COMPENSATION~~INSTRUMENTS AND HEDGING ACTIVITIES

Time Warner uses derivative instruments, primarily forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates. The ~~following~~principal ~~table~~currencies ~~sets~~being ~~forth~~hedged include the ~~number~~British Pound, Euro, Australian Dollar and Canadian Dollar. Time Warner uses foreign exchange contracts that generally have maturities of ~~stock~~three ~~options~~to 18 months to hedge various foreign exchange exposures, ~~restricted~~including ~~stock~~the ~~units~~following: (~~“RSUs”~~i) variability in foreign-currency-denominated cash flows, such as the hedges of unremitted or forecasted royalty and ~~performance~~license ~~stock~~fees owed to Time Warner’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign ~~units~~currency (~~“PSUs”~~i.e., cash flow hedges), ~~granted~~and ~~during~~(ii) currency ~~the~~risk ~~nine~~associated ~~months~~with ~~ended~~foreign-currency-denominated ~~September 30,~~operating ~~2017~~assets and ~~2016~~liabilities (~~millions~~i.e., fair value hedges):.

	Nine Months Ended September 30,
	2017		2016
Stock options		—		2.3
RSUs		0.5		2.9
PSUs		—		0.2

The Company also enters into derivative contracts that economically hedge certain of its foreign currency risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. These economic hedges are used primarily to offset the change in certain foreign-currency-denominated intercompany debt due to changes in the underlying foreign exchange rates.

The ~~following~~translation ~~table~~of ~~sets~~revenues ~~forth~~and ~~the~~expenses ~~weighted-average~~denominated ~~grant~~in ~~date~~the ~~fair~~functional ~~value~~currency of ~~RSUs~~a ~~granted~~foreign subsidiary ~~during~~may ~~the~~result ~~nine~~in ~~months~~fluctuations ~~ended~~in ~~September 30,~~the ~~2017~~U.S. ~~and~~Dollar-equivalent ~~2016~~value ~~and~~of ~~PSUs~~such ~~granted~~revenues ~~during~~and ~~the~~expenses ~~nine~~as ~~months~~compared ~~ended~~to ~~September 30,~~prior ~~2016~~periods. ~~For~~Such ~~PSUs,~~transactions ~~the~~are ~~service~~not ~~inception~~eligible ~~date~~for ~~precedes~~qualifying ~~the~~hedge ~~grant~~accounting ~~date~~treatment, and ~~requires~~ the Company todoes ~~apply~~not ~~mark-to-market~~economically ~~accounting~~hedge ~~that~~this exposure. ~~is reflected in the grant date fair values presented:~~

	Nine Months Ended September 30,
	2017		2016
RSUs	$	96.75	$	62.90
PSUs		—		122.94

Net gains and losses from hedging activities recognized in the Consolidated Statement of Operations were as follows (millions):

In connection with entering into the Merger Agreement, the Company granted special retention restricted stock units (“Special Retention RSUs”) to certain employees of Time Warner and its divisions, including all executive officers of Time Warner. Half of the Special Retention RSUs will vest 25% per year on each of the first four anniversaries of February 15, 2017, and the remaining half will vest 25% per year on each of the first four anniversaries of February 15, 2018. Pursuant to the Special Retention RSU agreements, vesting as a result of retirement is not permitted unless the employee retires after the merger has closed. In addition, the awards do not accelerate automatically following the closing of the merger. Instead, the employee must remain employed following


	Three Months Ended March 31,
	2018		2017
Gains (losses) recognized in:
Cost of revenues	$	(63)	$	(1)
Selling, general and administrative		(5)		(3)
Other income (loss), net		13		1

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~the~~Amounts ~~closing~~included in Other income (loss), ~~and~~net include the ~~awards~~impact ~~will~~of ~~vest~~forward points ~~only~~and onoption ~~the~~premiums, ~~scheduled~~which ~~vesting~~are ~~date~~excluded orfrom ~~upon~~the ~~termination~~assessment of ~~employment~~hedge ~~under~~effectiveness. ~~certain~~Other ~~circumstances,~~amounts ~~such~~included asin ~~termination~~Other ~~without~~income ~~cause~~(loss), ~~for~~net ~~good~~relate ~~reason~~to orhedge ~~due to~~of ~~retirement.~~foreign-currency-denominated debt and hedge ineffectiveness, which are not material.

The Company monitors its positions with, and the credit quality of, the financial institutions that are party to its financial transactions and has entered into collateral agreements with these counterparties to further protect the Company in the event of deterioration of the credit quality of such counterparties on outstanding transactions. Additionally, netting provisions are included in agreements in situations where the Company executes multiple contracts with the same counterparty. For such foreign exchange contracts, the Company offsets the fair values of the amounts owed to or due from the same counterparty and classifies the net amount as a net asset or net liability within Prepaid expenses and other current assets or Accounts payable and accrued liabilities, respectively, in the Consolidated Balance Sheet. The following is a summary of amounts recorded in the Consolidated Balance Sheet pertaining to Time Warner’s use of foreign currency derivatives at March 31, 2018 and December 31, 2017 (millions):


	March 31, 2018 (a)			December 31, 2017 (b)
Prepaid expenses and other current assets	$	—		$	4
Accounts payable and accrued liabilities		(135	)		(50	)

(a)	Includes $113 million of qualifying hedges and $6 million of economic hedges of foreign exchange derivative contracts in asset positions and $242 million of qualifying hedges and $12 million of economic hedges of foreign exchange derivative contracts in liability positions.

(b)	Includes $77 million of qualifying hedges and $9 million of economic hedges of foreign exchange derivative contracts in asset positions and $132 million of qualifying hedges of foreign exchange derivative contracts in liability positions.

At March 31, 2018 and December 31, 2017, $22 million and $9 million of losses, respectively, related to cash flow hedges are recorded in Accumulated other comprehensive loss, net and are expected to be recognized in earnings at the same time the hedged items affect earnings. Included in Accumulated other comprehensive loss, net at March 31, 2018 and December 31, 2017 are net gains of $1 million and net losses of $1 million, respectively, related to hedges of cash flows associated with films that are not expected to be released within the next twelve months.

At March 31, 2018, the carrying amount of the Company’s €700 million aggregate principal amount of debt due 2023 is designated as a hedge of the variability in the Company’s Euro-denominated net investments. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within Accumulated other comprehensive loss, net in the Consolidated Balance Sheet. For the three months ended March 31, 2018 and 2017, such amounts totaled $39 million and $13 million of losses, respectively.

10.

EQUITY-BASED COMPENSATION

The Company did not grant any stock options, restricted stock units (“RSUs”) or performance stock units (“PSUs”) during the three months ended March 31, 2018. The Company granted 0.4 million RSUs during the three months ended March 31, 2017 with a weighted-average grant date fair value of $96.28.

The impact of equity-based compensation awards on Operating income is as follows (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Stock options	$	47	$	67	$	18	$	34
RSUs and PSUs		5140		3950		~~160~~		~~167~~
Total impact on operating income	$	5547	$	4557	$	~~178~~	$	~~201~~
Tax benefit recognized	$	1911	$	1519	$	62	$	70

Total unrecognized compensation cost related to unvested Time Warner stock options as of ~~September~~March 3031, ~~2017~~2018, without taking into account expected forfeitures, is $3321 million and is expected to be recognized over a weighted-average period of approximately one year. Total unrecognized compensation cost related to unvested RSUs ~~and~~ and PSUs as of ~~September~~March 3031, ~~2017~~2018, without taking into ~~account expected forfeitures, is $519 million and is expected to be recognized over a weighted-average period between one and two years.~~

11. BENEFIT PLANS

Components of Net Periodic Benefit Costs

A summary of the components of the net periodic benefit costs from continuing operations recognized for substantially all of Time Warner’s defined benefit pension plans for the three and nine months ended September 30, 2017 and 2016 is as follows (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Service cost	$	—	$	—	$	2	$	2
Interest cost		15		21		47		64
Expected return on plan assets		(15)		(22)		(45)		(64)
Amortization of prior service cost		1		1		1		1
Amortization of net loss		4		4		11		13
Settlements		—		10		—		10
Net periodic benefit costs (a)	$	5	$	14	$	16	$	26
Contributions	$	8	$	8	$	25	$	23

(a) Excludes net periodic benefit costs related to discontinued operations of $3 million and $10 million for both the three and nine months ended September 30, 2017 and 2016, respectively, primarily related to employees and former employees of Time Inc. These amounts have been reflected in Other income (loss), net in the Consolidated Statement of Operations. In addition, net periodic benefit costs for the three and nine months ended September 30, 2016 also excludes $8 million of pension settlement charges related to businesses the Company previously disposed of. These amounts have been reflected in Discontinued Operations, net of tax, in the Consolidated Statement of Operations.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

account expected forfeitures, is $419 million and is expected to be recognized over a weighted-average period between one and two years.

11.

BENEFIT PLANS

Components of Net Periodic Benefit Costs

A summary of the components of the net periodic benefit costs from continuing operations recognized for substantially all of Time Warner’s defined benefit pension plans for the three months ended March 31, 2018 and 2017 is as follows (millions):


	Three Months Ended March 31,
	2018		2017
Service cost	$	1	$	1
Interest cost		15		16
Expected return on plan assets		(16)		(15)
Amortization of net loss		4		3

Net periodic benefit costs (a)	$	4	$	5

Contributions	$	6	$	10

(a)

Excludes net periodic benefit costs related to discontinued operations of $1 million and $3 million for the three months ended March 31, 2018 and 2017, respectively, primarily related to employees and former employees of Time Inc. These amounts have been reflected in Other income (loss), net in the Consolidated Statement of Operations.

12.

RESTRUCTURING AND SEVERANCE COSTS

The Company’s Restructuring and severance costs primarily related to employee termination costs, ranging from senior executives to line personnel, and other exit costs, including lease terminations and real estate consolidations. Restructuring and severance costs expensed as incurred for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017 are as ~~follows~~ follows (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Turner	$	1(2)	$	82	$	8	$	15
Home Box Office		113		—2		6		41
Warner Bros.		(112)		19		8		6
Corporate		21		2(1)		1		2
Total restructuring and severance costs	$	3—	$	1112	$	23	$	64
	Three Months Ended September 30,				Nine MonthsEnded September 30,
	2017		2016		2017		2016
2017 initiatives	$	4	$	—	$	35	$	—
2016 and prior initiatives		(1)		11		(12)		64
Total restructuring and severance costs	$	3	$	11	$	23	$	64

Selected information relating to accrued restructuring and severance costs is as follows (millions):


	Three Months Ended March 31,
	2018		2017
2018 initiatives	$	19	$	—
2017 and prior initiatives		(19)		12

Total restructuring and severance costs	$	—	$	12

	Employee Terminations			Other Exit Costs			Total
Remaining liability as of December 31, 2016	$	162		$	9		$	171
Net accruals		24			(1	)		23
Noncash reductions (a)		(2	)		—			(2	)
Cash paid		(70	)		(4	)		(74	)
Remaining liability as of September 30, 2017	$	114		$	4		$	118

(a) Noncash reductions relate to the settlement of certain liabilities relating to employee compensation with equity instruments.

As of September 30, 2017, of the remaining $118 million liability, $73 million was classified as a current liability in the Consolidated Balance Sheet, with the remaining $45 million classified as a long-term liability. Amounts classified as long-term are expected to be paid through 2020.

13. SEGMENT INFORMATION

Time Warner classifies its operations into three reportable segments: Turner: consisting principally of cable networks and digital media properties; Home Box Office: consisting principally of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally; and Warner Bros.: consisting principally of television, feature film, home video and videogame production and distribution. Time Warner’s reportable segments have been determined in accordance with its internal management structure and the financial information that is evaluated regularly by the Company’s chief operating decision maker.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~transactions~~Selected toinformation ~~determine~~relating ~~segment~~to ~~performance,~~accrued ~~the~~restructuring ~~revenues (~~and ~~corresponding~~severance ~~expenses~~costs ~~or assets recognized by the segment that~~ is as ~~the~~follows ~~counterparty to the transaction~~(millions): ~~are eliminated in consolidation and, therefore, do not affect consolidated results.~~

Information as to the Revenues, intersegment revenues, Operating Income (Loss) and Assets of Time Warner’s reportable segments is set forth below (millions):


	Employee Terminations		Other Exit Costs		Total
Remaining liability as of December 31, 2017	$	194	$	3	$	197
Cash paid		(33)		—		(33)

Remaining liability as of March 31, 2018	$	161	$	3	$	164

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues
Turner	$	2,768	$	2,610	$	8,958	$	8,526
Home Box Office		1,605		1,426		4,649		4,399
Warner Bros.		3,460		3,402		9,813		9,169
Intersegment eliminations		(238)		(271)		(760)		(667)
Total revenues	$	7,595	$	7,167	$	22,660	$	21,427
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Intersegment Revenues
Turner	$	19	$	25	$	69	$	79
Home Box Office		1		(3)		6		2
Warner Bros.		218		249		685		586
Total intersegment revenues	$	238	$	271	$	760	$	667
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Operating Income (Loss)
Turner	$	1,243	$	1,162	$	3,463	$	3,531
Home Box Office		552		530		1,666		1,488
Warner Bros.		538		428		1,249		1,160
Corporate		(92)		(95)		(334)		(330)
Intersegment eliminations		4		(11)		(31)		7
Total operating income	$	2,245	$	2,014	$	6,013	$	5,856
					September 30,2017		December 31,2016
Assets
Turner					$	26,720	$	26,317
Home Box Office						14,750		14,636
Warner Bros.						22,066		21,550
Corporate						4,807		3,463
Total assets					$	68,343	$	65,966

As of March 31, 2018, of the remaining $164 million liability, $113 million was classified as a current liability in the Consolidated Balance Sheet, with the remaining $51 million classified as a long-term liability. Amounts classified as long-term are expected to be paid through 2021.

4113. COMMITMENTS AND CONTINGENCIES

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. COMMITMENTS AND CONTINGENCIES

Commitments

Six Flags

In connection with the Company’s former investment in the Six Flags theme parks located in Georgia and Texas (collectively, the “Parks”), in 1997, certain subsidiaries of the Company (including Historic TW and, in connection with the separation of Time Warner Cable Inc. in 2009, Warner Bros. Entertainment Inc.) agreed to guarantee (the “Six Flags Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships, including: annual payments made at the Parks or to the limited partners and additional obligations at the end of the respective terms for the Partnerships in 2027 and 2028 (the “Guaranteed Obligations”). The aggregate undiscounted estimated future cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are $~~908~~920 million ~~(for a net present value of $459 million)~~. To date, no payments have been made by the Company pursuant to the Six Flags Guarantee.

Six Flags Entertainment Corporation (formerly known as Six Flags, Inc. and Premier Parks Inc.) (“Six Flags”), which has the controlling interest in the Parks, has agreed, pursuant to a subordinated indemnity agreement (the “Subordinated Indemnity Agreement”), to guarantee the performance of the Guaranteed Obligations when due and to indemnify Historic TW, among others, if the Six Flags Guarantee is called upon. If Six Flags defaults in its indemnification obligations, Historic TW has the right to acquire control of the managing partner of the Parks. Six Flags’ obligations to Historic TW are further secured by its interest in all limited partnership units held by Six Flags.

Because the Six Flags Guarantee existed prior to December 31, 2002 and no modifications to the arrangements have been made since the date the guarantee came into existence, the Company is required to continue to account for the Guaranteed Obligations as a contingent liability. Based on its evaluation of the current facts and circumstances surrounding the Guaranteed Obligations and the Subordinated Indemnity Agreement, the Company is unable to predict the loss, if any, that may be incurred under the Guaranteed Obligations, and no liability for the arrangements has been recognized at ~~September~~March 3031, ~~2017~~2018. Because of the specific circumstances surrounding the arrangements and the fact that no active or observable market exists for this type of financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and related Subordinated Indemnity Agreement.

Contingencies

In the ordinary course of business, the Company and its subsidiaries are defendants in or parties to various legal claims, actions and proceedings. These claims, actions and proceedings are at varying stages of investigation, arbitration or adjudication, and involve a variety of areas of law.

On ~~April~~November 420, ~~2007~~2017, the ~~National~~U.S. ~~Labor~~Department ~~Relations~~of ~~Board~~Justice (the “~~NLRB~~DOJ”) ~~issued~~filed a ~~complaint~~lawsuit ~~against~~in ~~CNN~~the ~~America~~United ~~Inc.~~States ~~(“CNN~~District ~~America”)~~Court ~~and~~for ~~Team~~the ~~Video~~District ~~Services,~~of ~~LLC~~Columbia (~~“Team~~the ~~Video~~“Court”) ~~related~~against tothe ~~CNN~~Company ~~America’s December 2003~~ and ~~January~~AT&T ~~2004~~Inc. ~~terminations~~to ofenjoin ~~its~~the ~~contractual~~companies’ ~~relationships~~merger ~~with Team Video,~~ under ~~which~~a ~~Team~~federal ~~Video~~antitrust ~~had provided electronic news gathering services in Washington, D~~statute.C. ~~and~~The ~~New~~trial ~~York,~~began ~~NY.~~the ~~The~~week ~~National Association~~ of March 19, ~~Broadcast~~2018 ~~Employees~~ and ~~Technicians,~~the ~~under which Team Video~~parties’s ~~employees~~presentation ~~were unionized, initially filed charges~~ of ~~unfair~~their ~~labor~~cases ~~practices~~is ~~with~~expected ~~the~~to ~~NLRB~~conclude in ~~February~~early ~~2004,~~May ~~alleging~~2018. ~~that~~The ~~CNN~~Company ~~America~~believes ~~and~~its ~~Team~~case ~~Video~~is ~~were~~strong ~~joint~~under ~~employers,~~the ~~that~~law ~~CNN America was a successor employer to Team Video,~~ and~~/or~~ that ~~CNN America discriminated in its hiring practices to avoid becoming a successor employer or due to specific individuals’ union affiliation or activities. In~~ the ~~complaint~~Court, ~~the~~after ~~NLRB~~hearing ~~sought, among other things,~~ the ~~reinstatement~~evidence ofpresented ~~certain~~by ~~union~~both ~~members~~sides and ~~monetary damages. On November 19,~~ ~~2008,~~considering the ~~presiding NLRB Administrative Law Judge (“ALJ”) issued a non-binding recommended decision and order finding CNN America liable. On September 15~~law, ~~2014,~~will areject ~~three-member panel of~~ the ~~NLRB affirmed the ALJ~~DOJ’s ~~decision and adopted the ALJ’s order with certain modifications~~challenge. ~~Following the NLRB’s decision on motions for reconsideration~~However, onthere ~~July 9,~~can ~~2015,~~be ~~CNN~~no ~~America~~assurance ~~filed~~that ~~a notice of appeal with~~ the ~~U.S.~~Company ~~Court~~and ~~of Appeals~~AT&T ~~for~~will ~~the~~prevail ~~D.C. Circuit regarding the panel’s decision. On August 4, 2017, the U.S. Court of Appeals for the D.C. Circuit ruled, granting CNN America’s appeal~~ in ~~part and denying it in part, and remanded~~ the ~~case to the NLRB for further proceedings~~action.

~~The~~41 Company establishes an accrued liability for legal claims when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On April 4, 2007, the National Labor Relations Board (“NLRB”) issued a complaint against CNN America Inc. (“CNN America”) and Team Video Services, LLC (“Team Video”) related to CNN America’s December 2003 and January 2004 terminations of ~~additional~~its ~~information~~contractual relationships with Team Video, under which Team Video had provided electronic news gathering services in Washington, D.C. and New York, NY. The ~~amount~~National Association of ~~any~~Broadcast ~~loss~~Employees ~~ultimately~~and ~~incurred~~Technicians, under which Team Video’s employees were unionized, initially filed charges of unfair labor practices with the NLRB in ~~relation~~February 2004, alleging that CNN America and Team Video were joint employers, that CNN America was a successor employer to ~~matters~~Team ~~for~~Video, ~~which~~and/or anthat ~~accrual~~CNN ~~has~~America ~~been~~discriminated ~~established~~in ~~may~~its behiring ~~higher~~practices to avoid becoming a successor employer or ~~lower~~due ~~than~~to specific individuals’ union affiliation or activities. In the ~~amounts~~complaint, ~~accrued~~the NLRB sought, among other things, the reinstatement of certain union members and monetary damages. On November 19, 2008, the presiding NLRB Administrative Law Judge (“ALJ”) issued a non-binding recommended decision and order finding CNN America liable. On September 15, 2014, a three-member panel of the NLRB affirmed the ALJ’s decision and adopted the ALJ’s order with certain modifications. Following the NLRB’s decision on motions for ~~such~~reconsideration, on July 9, 2015, CNN America filed a notice of appeal with the U.S. Court of ~~matters~~Appeals for the D.C. Circuit regarding the panel’s decision. During 2017, the U.S. Court of Appeals for the D.C. Circuit granted CNN America’s appeal in part and denied it in part and remanded the case to the NLRB for further proceedings.

The Company ~~has~~establishes ~~estimated~~an aaccrued ~~range~~liability ~~of possible loss~~ for legal claims ~~for~~when ~~which~~ the Company ~~has~~determines ~~determined~~that a loss is both probable and orthe ~~reasonably~~amount ~~possible,~~of ~~including~~ the ~~matter~~loss ~~disclosed~~can ~~above.~~be ~~The~~reasonably ~~Company~~estimated. ~~believes~~Once ~~the~~established, ~~estimate~~accruals ofare ~~the~~adjusted ~~aggregate~~from ~~range~~time ofto ~~possible~~time, ~~loss~~as ~~for~~appropriate, ~~such matters~~ in ~~excess~~light of ~~accrued~~additional ~~liabilities is between $0 and $100 million at September 30, 2017~~information. The ~~estimated~~amount ~~aggregate range~~ of ~~possible~~any loss isultimately ~~subject~~incurred toin ~~significant~~relation ~~judgment~~to ~~and a variety of assumptions. The~~ matters ~~represented~~for inwhich ~~the~~an accrual ~~estimated~~has ~~aggregate~~been ~~range~~established ofmay ~~possible~~be ~~loss~~higher ~~will~~or ~~change~~lower ~~from~~than ~~time~~the toamounts ~~time~~accrued ~~and actual~~for ~~results~~such ~~may vary significantly from the current estimate~~matters.

The Company has estimated a range of possible loss for legal claims for which the Company has determined a loss is probable or reasonably possible, including the matter disclosed above. The Company believes the estimate of the aggregate range of possible loss for such matters in excess of accrued liabilities is between $0 and $100 million at March 31, 2018. The estimated aggregate range of possible loss is subject to significant judgment and a variety of assumptions. The matters represented in the estimated aggregate range of possible loss will change from time to time and actual results may vary significantly from the current estimate.

In view of the inherent difficulty of predicting the outcome of litigation and claims, the Company often cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be. An adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.

Income Tax Uncertainties

During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Company recorded net ~~increases~~decreases to income tax reserves of approximately $87415 million. ~~Increases~~Net decreases to income tax reserves of approximately $26150 million impacted the Company’s effective tax rate. During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Company recorded net ~~increases~~decreases to ~~interest~~ interest reserves related to the income tax reserves of approximately $45135 million.

InDuring the ~~Company’s~~first ~~judgment,~~quarter of ~~uncertainties~~2018, ~~related~~the toCompany ~~certain~~reached ~~tax~~a ~~matters~~settlement ~~are~~with ~~reasonably~~the ~~possible~~Internal ofRevenue ~~being~~Service ~~resolved~~Appeals ~~during~~Office ~~the~~with ~~next~~regard ~~twelve~~to ~~months. The~~its ~~effect~~review of ~~such~~certain ~~resolution,~~open ~~which~~matters ~~could~~included ~~vary~~in ~~based on~~ the ~~final~~Company’s ~~terms~~2005-2007 ~~and~~tax ~~timing~~returns. ofThese ~~actual~~matters ~~settlements~~involved ~~with~~the ~~taxing~~Company’s historical ~~authorities,~~capital islosses ~~estimated~~and toresearch beand adevelopment ~~reduction~~tax ofcredits. ~~recorded~~The ~~unrecognized~~Company ~~tax~~recognized ~~benefits~~a ~~ranging~~tax ~~from~~benefit $0of to $~~270~~266 million, ~~which~~as ~~would~~a ~~decrease~~result of the ~~Company’s~~settlement, ~~effective~~including ~~tax~~related ~~rate~~interest accruals.

15In the Company’s judgment, uncertainties related to certain tax matters are reasonably possible of being resolved during the next twelve months. The ~~RELATED~~effect ~~PARTY~~of ~~TRANSACTIONS~~such resolution, which could vary based on the final terms and timing of actual settlements with taxing authorities, is estimated to be a reduction of recorded unrecognized tax benefits ranging from $0 to $240 million, which would decrease the Company’s effective tax rate.

~~The~~42 Company has entered into certain transactions in the ordinary course of business with unconsolidated investees accounted for under the equity method of accounting. The transactions that generate revenue and expenses primarily relate to the licensing by the Warner Bros. segment of content to The CW broadcast network, Hulu and certain international networks, including networks owned by CME. Transactions that generate interest income and other income primarily relate to financing transactions with CME. Receivables due from related parties were $606 million and $265 million at September 30, 2017 and December 31, 2016, respectively. Payables due to related parties were immaterial at September 30, 2017 and December 31, 2016, respectively. Amounts included in the Consolidated Statement of Operations resulting from transactions with related parties consist of (millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues	$	201	$	112	$	593	$	351
Expenses		(1)		(1)		(3)		(2)
Interest income		18		26		63		94
Other income		2		2		7		11

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14.

RELATED PARTY TRANSACTIONS

The Company has entered into certain transactions in the ordinary course of business with unconsolidated investees accounted for under the equity method of accounting. The transactions that generate revenue and expenses primarily relate to the licensing by the Warner Bros. segment of content to The CW broadcast network, Hulu LLC and certain international networks, including networks owned by CME. Transactions that generate interest income and other income primarily relate to financing transactions with CME. Amounts due from related parties were $796 million and $617 million at March 31, 2018 and December 31, 2017, respectively. Amounts due to related parties were immaterial at March 31, 2018 and December 31, 2017. Amounts included in the Consolidated Statement of Operations resulting from transactions with related parties consist of (millions):


	Three Months Ended March 31,
	2018		2017
Revenues	$	347	$	237
Expenses		(1)		(1)
Interest income		14		23
Other income		2		2

15.

ADDITIONAL FINANCIAL INFORMATION

Information as to the Operating Income (Loss) and Assets of Time Warner’s reportable segments is set forth below (millions):


	Three Months Ended March 31,
	2018		2017
Operating Income (Loss)
Turner	$	1,092	$	1,170
Home Box Office		516		585
Warner Bros.		322		490
Corporate		(133)		(114)
Intersegment eliminations		14		(51)

Total operating income	$	1,811	$	2,080


	March 31, 2018		December 31, 2017
Assets
Turner	$	27,313	$	27,111
Home Box Office		14,914		14,777
Warner Bros.		22,320		22,193
Corporate		4,450		5,128

Total assets	$	68,997	$	69,209

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16. ADDITIONAL FINANCIAL INFORMATION

Additional financial information with respect to cash payments and receipts, Interest expense, net, Other income (loss), net, Accounts payable and accrued liabilities and Other noncurrent liabilities is as follows (millions):

					Nine Months Ended September 30,
	Three Months Ended March 31,
					2017		2016
	2018		2017
Cash Flows
Cash payments made for interest	$	(277)	$	(313)	$	~~(902)~~	$	~~(1,013)~~
Interest income received		10		10		49		~~110~~
Cash interest payments, net	$	(267)	$	(303)	$	~~(853)~~	$	~~(903)~~
Cash payments made for income taxes	$	(74)	$	(122)	$	~~(1,115)~~	$	~~(819)~~
Income tax refunds received		302		4		23		~~124~~
Cash tax payments, net					$	(1,092)	$	(695)
Cash tax refunds (payments), net	$	228	$	(118)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Interest Expense, Net
Interest income	$	51	$	52	$	157	$	171
Interest expense		(305)		(350)		(919)		(1,045)
Total interest expense, net	$	(254)	$	(298)	$	(762)	$	(874)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Other Income (Loss), Net
Investment gains, net	$	—	$	57	$	255	$	93
Loss on equity method investees		(65)		(59)		(160)		(261)
Other		(5)		(25)		(18)		(30)
Total other income (loss), net	$	(70)	$	(27)	$	77	$	(198)
					September 30,2017		December 31,2016
Accounts Payable and Accrued Liabilities
Accounts payable					$	505	$	527
Other accrued expenses						1,981		1,878
Participations payable						2,712		2,525
Programming costs payable						818		776
Accrued compensation						1,088		1,004
Accrued interest						277		320
Accrued dividends						318		—
Accrued income taxes						270		162
Total accounts payable and accrued liabilities					$	7,969	$	7,192


	Three Months Ended March 31,
	2018		2017
Interest Expense, Net
Interest income	$	48	$	49
Interest expense		(255)		(308)

Total interest expense, net	$	(207)	$	(259)


	Three Months Ended March 31,
	2018		2017
Other Income (Loss), Net
Investment gains (losses), net	$	(47)	$	159
Loss on equity method investees		(20)		(76)
Other		(27)		(11)

Total other income (loss), net	$	(94)	$	72


	March 31, 2018		December 31, 2017
Accounts Payable and Accrued Liabilities
Accounts payable	$	425	$	777
Other accrued expenses		1,992		1,778
Participations payable		2,698		2,737
Programming costs payable		762		728
Accrued compensation		828		1,192
Accrued interest		209		251
Accrued dividends		320		319
Accrued income taxes		194		134
Accrued sales incentives and allowances		593		—

Total accounts payable and accrued liabilities	$	8,021	$	7,916

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 30,2017		December 31,2016
	March 31, 2018		December 31, 2017
Other Noncurrent Liabilities
Noncurrent tax and interest reserves	$	1,~~749~~155	$	1,~~567~~703
Participations payable		1,~~773~~634		1,~~780~~748
Programming costs payable		~~697~~701		~~827~~728
Noncurrent pension and post-retirement liabilities		~~997~~1,046		~~954~~1,058
Deferred compensation		~~513~~558		~~491~~548
Other noncurrent liabilities		~~591~~505		~~722~~590
Total other noncurrent liabilities	$	65,~~320~~599	$	6,~~341~~375

Accounting for Collaborative Arrangements

The Company’s collaborative arrangements primarily relate to arrangements entered into with third parties to jointly finance and distribute certain theatrical and television productions and an arrangement entered into with CBS Broadcasting, Inc. (“CBS”) and The National Collegiate Athletic Association (the “NCAA”).

For the Company’s collaborative arrangements entered into with third parties to jointly finance and distribute ~~theatrical~~certain theatrical and television productions, net participation costs of $7491 million ~~were recorded in Costs of revenues for both the three months ended September 30, 2017~~ and ~~2016, and~~ $~~210~~93 million ~~and $192 million~~ were recorded in Costs of revenues for the ~~nine~~ three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, respectively.

The arrangement among Turner, CBS and the NCAA provides Turner and CBS with rights to the NCAA Division I Men’s Basketball Championship Tournament (the “NCAA Tournament”) in the United States and its territories and possessions through 2032. The aggregate rights fee, production costs, advertising revenues and sponsorship revenues related to the NCAA Tournament and related programming are shared by Turner and CBS. However, if the amount paid for the rights fee and production costs, in any given year, exceeds advertising and sponsorship revenues for that year, CBS’ share of such shortfall is limited to specified annual amounts, ranging from approximately $30 million to $45 million.

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Overview

Set forth below are condensed consolidating financial statements presenting the financial position, results of operations and cash flows of (i) Time Warner Inc. (the “Parent Company”), (ii) Historic TW Inc. (in its own capacity and as successor by merger to Time Warner Companies, Inc.), Home Box Office, Inc., and Turner Broadcasting System, Inc., each a wholly owned subsidiary of the Parent Company (collectively, the “Guarantor Subsidiaries”), on a combined basis, (iii) the direct and indirect non-guarantor subsidiaries of the Parent Company (the “Non-Guarantor Subsidiaries”), on a combined basis, and (iv) the eliminations necessary to arrive at the information for Time Warner Inc. on a consolidated basis. The Guarantor Subsidiaries fully and unconditionally, jointly and severally guarantee securities issued under certain of the Company’s indentures on an unsecured basis.

There are no legal or regulatory restrictions on the Parent Company’s ability to obtain funds from any of its wholly owned subsidiaries through dividends, loans or advances.

Basis of Presentation

In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i) the Parent Company’s interests in the Guarantor Subsidiaries and (ii) the Guarantor Subsidiaries’ interests in the Non-Guarantor Subsidiaries, where applicable, even though all such subsidiaries meet the requirements to be consolidated under U.S. generally accepted accounting principles. All intercompany balances and transactions between the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries have been eliminated, as shown in the column “Eliminations.”

The Parent Company’s accounting bases in all subsidiaries, including goodwill and identified intangible assets, have been “pushed down” to the applicable subsidiaries. Corporate overhead expenses have been reflected as expenses of the Parent Company and have not been allocated to the Guarantor Subsidiaries or the Non-Guarantor Subsidiaries. Interest income (expense) is determined based on outstanding debt and the relevant intercompany amounts at the respective subsidiary.

All direct and indirect domestic subsidiaries are included in Time Warner Inc.’s consolidated U.S. tax return. In the condensed consolidating financial statements, tax provision has been allocated based on each such subsidiary’s relative pretax income to the consolidated pretax income. With respect to the use of certain consolidated tax attributes (principally operating and capital loss carryforwards), such benefits have been allocated to the respective subsidiary that generated the taxable income permitting such use (i.e., pro-rata based on where the income was generated). For example, to the extent a Non-Guarantor Subsidiary generated a gain on the sale of a business for which the Parent Company utilized tax attributes to offset such gain, the tax attribute benefit would be allocated to that Non-Guarantor Subsidiary. Deferred taxes of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries have been determined based on the temporary differences between the book and tax basis of the respective assets and liabilities of the applicable entities.

Certain transfers of cash between subsidiaries and their parent companies and intercompany dividends are reflected as cash flows from investing and financing activities in the accompanying Condensed Consolidating Statements of Cash Flows. All other intercompany activity is reflected in cash flows from operations.

Management believes that the allocations and adjustments noted above are reasonable. However, such allocations and adjustments may not be indicative of the actual amounts that would have been incurred had the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries operated independently.

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Balance Sheet

~~September~~March 3031, ~~2017~~2018

(Unaudited; millions)

Parent Company

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

TimeWarner Consolidated

ParentCompany

GuarantorSubsidiaries

Non-GuarantorSubsidiaries

Eliminations

TimeWarnerConsolidated

ASSETS

Current assets

Cash and equivalents

~~1,194~~208

70163

1,~~357~~320

—

21,~~621~~691

Receivables, net

~~150~~170

1,~~295~~336

78,~~583~~807

(3134)

810,~~997~~279

Inventories

—

~~584~~539

1,~~656~~577

(4245)

2,~~198~~071

Prepaid expenses and other current assets

~~320~~574

8169

~~391~~454

—

~~792~~1,097

Total current assets

~~1,664~~952

2,~~030~~107

1012,~~987~~158

(7379)

1415,~~608~~138

Noncurrent inventories and theatrical film and television production costs

—

21,~~034~~985

6,~~399~~562

(66)

8,~~367~~481

Investments in amounts due to and from consolidated subsidiaries

4952,~~916~~876

1011,~~601~~201

13,~~184~~289

(7377,~~701~~366)

—

Investments, including available-for-sale securities

~~322~~307

~~464~~474

23,~~952~~205

(6)

3,~~732~~980

Property, plant and equipment, net

4844

~~437~~456

2,~~070~~253

—

2,~~555~~753

Intangible assets subject to amortization, net

—

~~647~~543

—

~~647~~543

Intangible assets not subject to amortization

—

2,007

45,~~999~~000

—

7,~~006~~007

Goodwill

—

9,880

17,~~904~~920

—

27,~~784~~800

Other assets

~~613~~570

~~523~~402

2,~~768~~552

(~~260~~229)

3,~~644~~295

Total assets

5254,~~563~~749

2728,~~976~~512

6163,~~910~~482

(7477,~~106~~746)

68,~~343~~997

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

1,~~144~~020

~~860~~759

6,~~024~~313

(5971)

78,~~969~~021

Deferred revenue

—

6380

~~695~~970

(3348)

~~725~~1,002

Debt due within one year

453,305

~~1,110~~612

—

13,~~157~~922

Total current liabilities

14,~~189~~325

21,~~033~~451

67,~~721~~288

(92119)

912,~~851~~945

Long-term debt

1917,~~431~~142

21,~~459~~182

—

2118,~~898~~331

Deferred income taxes

21,~~490~~812

21,~~828~~769

21,~~064~~296

(43,~~892~~065)

21,~~490~~812

Deferred revenue

—

29122

~~451~~346

—

~~480~~468

Other noncurrent liabilities

21,~~186~~665

12,~~968~~026

3,~~590~~387

(1,~~424~~479)

65,~~320~~599

Redeemable noncontrolling interest

—

Equity

Due to (from) Time Warner Inc. and subsidiaries

—

(~~759~~1,032)

2826,~~190~~354

(2725,~~431~~322)

—

Other shareholders’ equity

2729,~~267~~805

1922,~~418~~994

2024,~~849~~767

(4047,~~267~~761)

2729,~~267~~805

Total Time Warner Inc. shareholders’ equity

2729,~~267~~805

1821,~~659~~962

4951,~~039~~121

(6773,~~698~~083)

2729,~~267~~805

Noncontrolling interest

—

Total equity

2729,~~267~~805

1821,~~659~~962

4951,~~040~~122

(6773,~~698~~083)

2729,~~268~~806

Total liabilities and equity

5254,~~563~~749

2728,~~976~~512

6163,~~910~~482

(7477,~~106~~746)

68,~~343~~997

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Balance Sheet

December 31, ~~2016~~2017

(Unaudited; millions)

Parent Company

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Eliminations

TimeWarner Consolidated

ParentCompany

GuarantorSubsidiaries

Non-GuarantorSubsidiaries

Eliminations

TimeWarnerConsolidated

ASSETS

Current assets

Cash and equivalents

~~617~~798

91243

~~831~~1,580

—

12,~~539~~621

Receivables, net

~~118~~463

1,~~294~~208

7,~~329~~762

(4232)

89,~~699~~401

Inventories

—

~~528~~581

1,~~564~~860

(3040)

2,~~062~~401

Prepaid expenses and other current assets

~~639~~286

9178

~~455~~432

—

~~1,185~~796

Total current assets

1,~~374~~547

2,~~004~~110

1011,~~179~~634

(72)

1315,~~485~~219

Noncurrent inventories and theatrical film and television production costs

—

1,~~929~~924

6,~~028~~423

(4172)

78,~~916~~275

Investments in amounts due to and from consolidated subsidiaries

4852,~~212~~541

1110,~~319~~872

13,~~155~~330

(7276,~~686~~743)

—

Investments, including available-for-sale securities

~~274~~307

~~441~~474

23,~~628~~148

(65)

3,~~337~~924

Property, plant and equipment, net

4846

~~423~~460

2,~~039~~201

—

2,~~510~~707

Intangible assets subject to amortization, net

—

~~783~~585

—

~~783~~585

Intangible assets not subject to amortization

—

2,007

4,~~998~~999

—

7,~~005~~006

Goodwill

—

9,880

17,~~872~~896

—

27,~~752~~776

Other assets

~~520~~604

~~385~~496

2,~~522~~841

(~~249~~224)

3,~~178~~717

Total assets

5055,~~428~~045

28,~~388~~223

6063,~~204~~057

(7377,~~054~~116)

6569,~~966~~209

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

~~687~~947

~~854~~1,069

5,~~760~~957

(~~109~~57)

7,~~192~~916

Deferred revenue

—

67117

~~511~~644

(1450)

~~564~~711

Debt due within one year

14,~~434~~837

~~511~~611

—

15,~~947~~450

Total current liabilities

25,~~121~~784

1,~~432~~797

6,~~273~~603

(~~123~~107)

914,~~703~~077

Long-term debt

1917,~~318~~101

31,~~065~~185

—

2218,~~392~~294

Deferred income taxes

21,~~678~~584

31,~~011~~650

21,~~133~~226

(52,~~144~~876)

21,~~678~~584

Deferred revenue

—

2627

~~460~~441

—

~~486~~468

Other noncurrent liabilities

12,~~976~~201

12,~~886~~019

3,~~815~~558

(1,~~336~~403)

6,~~341~~375

Redeemable noncontrolling interest

—

2935

—

2935

Equity

Due to (from) Time Warner Inc. and subsidiaries

—

(521,~~869~~551)

~~(366)~~27,891

53(26,~~235~~340)

—

Other shareholders’ equity

2428,~~335~~375

7123,~~837~~096

4723,~~849~~294

(~~119~~46,~~686~~390)

2428,~~335~~375

Total Time Warner Inc. shareholders’ equity

2428,~~335~~375

1821,~~968~~545

4751,~~483~~185

(6672,~~451~~730)

2428,~~335~~375

Noncontrolling interest

—

Total equity

2428,~~335~~375

1821,~~968~~545

4751,~~485~~186

(6672,~~451~~730)

2428,~~337~~376

Total liabilities and equity

5055,~~428~~045

28,~~388~~223

6063,~~204~~057

(7377,~~054~~116)

6569,~~966~~209

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of Operations

For The Three Months Ended ~~September~~March 3031, ~~2017~~2018

(Unaudited; millions)

	ParentCompany		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Eliminations		TimeWarnerConsolidated
Revenues	$	—	$	12,~~928~~117	$	56,~~902~~164	$	(~~235~~285)	$	7,~~595~~996
Costs of revenues		—		(~~842~~1,107)		(3,~~270~~869)		~~184~~259		(34,~~928~~717)
Selling, general and administrative		(95134)		(~~365~~331)		(~~969~~964)		5127		(1,~~378~~402)
Amortization of intangible assets		—		—		(4543)		—		(4543)
Restructuring and severance costs		(21)		(211)		112		—		~~(3)~~—
Asset impairments		—		—		(9)		—		(9)
Gain (loss) on operating assets, net		—		—		(23)		—		(23)
Gain (loss) on operating assets, net		—		—		13		—		13
Operating income		(135)		668		1,277		1		1,811
Operating income		(97)		719		1,623		—		2,245
Equity in pretax income (loss) of consolidated subsidiaries		1,860		1,273		474		(3,607)		—
Equity in pretax income (loss) of consolidated subsidiaries		2,240		1,583		508		(4,331)		—
Interest expense, net		(204)		(35)		30		2		(207)
Interest expense, net		(208)		(69)		21		2		(254)
Other income (loss), net		(11)		(1)		(80)		(2)		(94)
Other income (loss), net		(14)		6		(63)		1		(70)
Income before income taxes		1,510		1,905		1,701		(3,606)		1,510
Income from continuing operations before income taxes		1,921		2,239		2,089		(4,328)		1,921
Income tax benefit (provision)		132		(225)		(236)		461		132
Income tax provision		(550)		(668)		(621)		1,289		(550)
Net income		1,642		1,680		1,465		(3,145)		1,642
Net income		1,371		1,571		1,468		(3,039)		1,371
Less Net loss attributable to noncontrolling interests		1		1		1		(2)		1
Net income attributable to Time Warner Inc. shareholders	$	1,~~372~~643	$	1,~~572~~681	$	1,~~469~~466	$	(3,~~041~~147)	$	1,~~372~~643
Comprehensive income	$	1,~~489~~729	$	1,~~692~~786	$	1,~~615~~576	$	(3,~~307~~362)	$	1,~~489~~729
Less Comprehensive loss attributable to noncontrolling interests		1		1		1		(2)		1
Comprehensive income attributable to Time Warner Inc. shareholders	$	1,~~490~~730	$	1,~~693~~787	$	1,~~616~~577	$	(3,~~309~~364)	$	1,~~490~~730

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of Operations

For The Three Months Ended ~~September~~March 3031, ~~2016~~2017

(Unaudited; millions)

	ParentCompany		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Eliminations		TimeWarnerConsolidated
Revenues	$	—	$	12,~~767~~020	$	5,~~612~~936	$	(~~212~~221)	$	7,~~167~~735
Costs of revenues		—		(~~754~~922)		(3,~~303~~601)		~~184~~191		(34,~~873~~332)
Selling, general and administrative		(74105)		(~~264~~310)		(~~865~~884)		2427		(1,~~179~~272)
Amortization of intangible assets		—		—		(4845)		—		(4845)
Restructuring and severance costs		~~(1)~~—		(42)		(610)		—		(1112)
Asset impairments		—		—		(301)		—		(301)
Gain (loss) on operating assets, net		—		—		~~(12)~~7		—		~~(12)~~7
Operating income		(75105)		~~745~~786		1,~~348~~402		(43)		2,~~014~~080
Equity in pretax income (loss) of consolidated subsidiaries		2,~~018~~203		1,~~354~~453		~~503~~557		(34,~~875~~213)		—
Interest expense, net		(~~241~~208)		(7668)		1716		21		(~~298~~259)
Other income (loss), net		~~(13)~~3		3(2)		~~(14)~~70		~~(3)~~1		~~(27)~~72
Income from continuing operations before income taxes		1,689		2,026		1,854		(3,880)		1,689
Income before income taxes		1,893		2,169		2,045		(4,214)		1,893
Income tax provision		(217)		(349)		(259)		608		(217)
Income tax benefit (provision)		(470)		(613)		(588)		1,201		(470)
Income from continuing operations		1,472		1,677		1,595		(3,272)		1,472
Net income		1,423		1,556		1,457		(3,013)		1,423
Discontinued operations, net of tax		(5)		—		—		—		(5)
Less Net loss attributable to noncontrolling interests		1		1		1		(2)		1
Net income attributable to Time Warner Inc. shareholders	$	1,~~467~~424	$	1,~~677~~557	$	1,~~595~~458	$	(3,~~272~~015)	$	1,~~467~~424
Comprehensive income attributable to Time Warner Inc. shareholders	$	1,300	$	1,520	$	1,555	$	(3,075)	$	1,300
Comprehensive income	$	1,406	$	1,562	$	1,446	$	(3,008)	$	1,406
Less Comprehensive loss attributable to noncontrolling interests		1		1		1		(2)		1
Comprehensive income attributable to Time Warner Inc. shareholders	$	1,407	$	1,563	$	1,447	$	(3,010)	$	1,407

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of ~~Operations~~Cash Flows

For The ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2017~~2018

(Unaudited; millions)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		TimeWarner Consolidated
	ParentCompany		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Eliminations		TimeWarnerConsolidated
Revenues	$	—	$	5,824	$	17,544	$	(708)	$	22,660
OPERATIONS
Costs of revenues		—		(2,527)		(10,528)		589		(12,466)
Net income	$	1,642	$	1,680	$	1,465	$	(3,145)	$	1,642
Selling, general and administrative		(329)		(1,020)		(2,844)		113		(4,080)
Adjustments for noncash and nonoperating items:
Amortization of intangible assets		—		—		(136)		—		(136)
Depreciation and amortization		2		33		136		—		171
Restructuring and severance costs		(2)		(9)		(12)		—		(23)
Amortization of film and television costs		—		841		1,657		(8)		2,490
Asset impairments		—		—		(11)		—		(11)
(Gain) loss on investments and other assets, net		11		—		35		—		46
Gain (loss) on operating assets, net		—		49		20		—		69
Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries, net of cash distributions		(1,860)		(1,273)		(474)		3,607		—
Operating income		(331)		2,317		4,033		(6)		6,013
Equity in losses of investee companies, net of cash distributions		(15)		—		52		1		38
Equity in pretax income (loss) of consolidated subsidiaries		6,285		4,026		1,567		(11,878)		—
Equity-based compensation		12		19		16		—		47
Interest expense, net		(624)		(206)		63		5		(762)
Deferred income taxes		279		158		92		(250)		279
Other income (loss), net		(2)		11		68		—		77
Changes in operating assets and liabilities, net of acquisitions		(241)		(1,275)		(1,680)		(196)		(3,392)
Income from continuing operations before income taxes		5,328		6,148		5,731		(11,879)		5,328
Intercompany		—		1,114		(1,114)		—		—
Income tax provision		(1,472)		(1,839)		(1,692)		3,531		(1,472)
Cash provided by operations from continuing operations		(170)		1,297		185		9		1,321
Net income		3,856		4,309		4,039		(8,348)		3,856
Cash used by operations from discontinued operations		—		—		(5)		—		(5)
Less Net loss attributable to noncontrolling interests		2		2		2		(4)		2
Cash provided by operations		(170)		1,297		180		9		1,316
Net income attributable to Time Warner Inc. shareholders	$	3,858	$	4,311	$	4,041	$	(8,352)	$	3,858
INVESTING ACTIVITIES
Comprehensive income	$	3,977	$	4,475	$	4,253	$	(8,728)	$	3,977
Investments and acquisitions, net of cash acquired		(6)		(1)		(158)		—		(165)
Less Comprehensive loss attributable to noncontrolling interests		2		2		2		(4)		2
Capital expenditures		—		(22)		(125)		—		(147)
Comprehensive income attributable to Time Warner Inc. shareholders	$	3,979	$	4,477	$	4,255	$	(8,732)	$	3,979
Advances to (from) parent and consolidated subsidiaries		1,362		(173)		—		(1,189)		—
Other investment proceeds		5		—		(1)		—		4
Cash used by investing activities		1,361		(196)		(284)		(1,189)		(308)
FINANCING ACTIVITIES
Borrowings		—		—		4		—		4
Debt repayments		(1,535)		—		—		—		(1,535)
Proceeds from exercise of stock options		20		—		—		—		20
Principal payments on capital leases		—		(3)		(8)		—		(11)
Dividends paid		(317)		—		—		—		(317)
Other financing activities		51		(27)		(124)		1		(99)
Change in due to/from parent and investment in segment		—		(1,151)		(28)		1,179		—
Cash used by financing activities		(1,781)		(1,181)		(156)		1,180		(1,938)
DECREASE IN CASH AND EQUIVALENTS		(590)		(80)		(260)		—		(930)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		798		243		1,580		—		2,621
CASH AND EQUIVALENTS AT END OF PERIOD	$	208	$	163	$	1,320	$	—	$	1,691

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of ~~Operations~~Cash Flows

For The ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2016~~2017

(Unaudited; millions)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		TimeWarner Consolidated
	ParentCompany		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Eliminations		TimeWarnerConsolidated
Revenues	$	—	$	5,655	$	16,396	$	(624)	$	21,427
OPERATIONS
Costs of revenues		—		(2,562)		(9,651)		495		(11,718)
Net income	$	1,423	$	1,556	$	1,457	$	(3,013)	$	1,423
Selling, general and administrative		(274)		(875)		(2,658)		119		(3,688)
Adjustments for noncash and nonoperating items:
Amortization of intangible assets		—		—		(143)		—		(143)
Depreciation and amortization		3		27		135		—		165
Restructuring and severance costs		(1)		(44)		(19)		—		(64)
Amortization of film and television costs		—		735		1,480		(12)		2,203
Asset impairments		~~(4)~~—		—		~~(31)~~1		—		~~(35)~~1
Gain (loss) on operating assets, net		—		—		77		—		77
(Gain) loss on investments and other assets, net		(22)		5		(149)		—		(166)
Operating income		(279)		2,174		3,971		(10)		5,856
Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries, net of cash distributions		(2,203)		(1,453)		(557)		4,213		—
Equity in pretax income (loss) of consolidated subsidiaries		5,939		3,996		1,432		(11,367)		—
Equity in losses of investee companies, net of cash distributions		6		—		87		—		93
Interest expense, net		(725)		(227)		73		5		(874)
Equity-based compensation		11		23		23		—		57
Other income (loss), net		(151)		3		(47)		(3)		(198)
Deferred income taxes		(44)		(127)		(95)		222		(44)
Income from continuing operations before income taxes		4,784		5,946		5,429		(11,375)		4,784
Changes in operating assets and liabilities, net of acquisitions		342		(12)		(1,181)		(1,415)		(2,266)
Income tax provision		(1,187)		(1,521)		(1,409)		2,930		(1,187)
Intercompany		—		605		(605)		—		—
Income from continuing operations		3,597		4,425		4,020		(8,445)		3,597
Cash provided by operations from continuing operations		(484)		1,359		596		(5)		1,466
Discontinued operations, net of tax		35		40		40		(80)		35
Cash used by operations from discontinued operations		—		—		(5)		—		(5)
Net income		3,632		4,465		4,060		(8,525)		3,632
Cash provided by operations		(484)		1,359		591		(5)		1,461
Less Net loss attributable to noncontrolling interests		1		1		1		(2)		1
INVESTING ACTIVITIES
Net income attributable to Time Warner Inc. shareholders	$	3,633	$	4,466	$	4,061	$	(8,527)	$	3,633
Investments and acquisitions, net of cash acquired		(21)		(9)		(138)		—		(168)
Comprehensive income	$	3,464	$	4,315	$	4,008	$	(8,323)	$	3,464
Capital expenditures		—		(32)		(66)		—		(98)
Less Comprehensive loss attributable to noncontrolling interests		1		1		1		(2)		1
Advances to (from) parent and consolidated subsidiaries		1,543		429		1		(1,973)		—
Comprehensive income attributable to Time Warner Inc. shareholders	$	3,465	$	4,316	$	4,009	$	(8,325)	$	3,465
Other investment proceeds		20		—		220		—		240
Cash used by investing activities		1,542		388		17		(1,973)		(26)
FINANCING ACTIVITIES
Debt repayments		(1,144)		—		—		—		(1,144)
Proceeds from exercise of stock options		56		—		—		—		56
Principal payments on capital leases		—		(3)		—		—		(3)
Dividends paid		(316)		—		—		—		(316)
Other financing activities		29		(16)		(131)		1		(117)
Change in due to/from parent and investment in segment		—		(1,721)		(256)		1,977		—
Cash used by financing activities		(1,375)		(1,740)		(387)		1,978		(1,524)
DECREASE IN CASH AND EQUIVALENTS		(317)		7		221		—		(89)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		617		91		831		—		1,539
CASH AND EQUIVALENTS AT END OF PERIOD	$	300	$	98	$	1,052	$	—	$	1,450

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of Cash Flows

For The Nine Months Ended September 30, 2017

(Unaudited; millions)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		TimeWarner Consolidated
OPERATIONS
Net income	$	3,856	$	4,309	$	4,039	$	(8,348)	$	3,856
Less Discontinued operations, net of tax		—		—		—		—		—
Net income from continuing operations		3,856		4,309		4,039		(8,348)		3,856
Adjustments for noncash and nonoperating items:
Depreciation and amortization		8		84		411		—		503
Amortization of film and television costs		—		1,997		4,418		(34)		6,381
Asset impairments		—		—		11		—		11
Gain on investments and other assets, net		(37)		(45)		(242)		—		(324)
Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries, net of cash distributions		(6,285)		(4,026)		(1,567)		11,878		—
Equity in losses of investee companies, net of cash distributions		11		—		177		—		188
Equity-based compensation		48		65		65		—		178
Deferred income taxes		(120)		(160)		(61)		221		(120)
Changes in operating assets and liabilities, net of acquisitions		710		2,022		(5,725)		(3,722)		(6,715)
Intercompany		—		(34)		34		—		—
Cash provided by operations from continuing operations		(1,809)		4,212		1,560		(5)		3,958
Cash used by operations from discontinued operations		(1)		—		(10)		—		(11)
Cash provided by operations		(1,810)		4,212		1,550		(5)		3,947
INVESTING ACTIVITIES
Investments in available-for-sale securities		(1)		—		—		—		(1)
Investments and acquisitions, net of cash acquired		(42)		(24)		(444)		—		(510)
Capital expenditures		(1)		(82)		(279)		—		(362)
Advances to (from) parent and consolidated subsidiaries		4,543		716		—		(5,259)		—
Other investment proceeds		28		69		244		—		341
Cash used by investing activities		4,527		679		(479)		(5,259)		(532)
FINANCING ACTIVITIES
Debt repayments		(1,396)		—		—		—		(1,396)
Proceeds from exercise of stock options		167		—		—		—		167
Principal payments on capital leases		—		(22)		(10)		—		(32)
Dividends paid		(948)		—		—		—		(948)
Other financing activities		37		(21)		(141)		1		(124)
Change in due to/from parent and investment in segment		—		(4,869)		(394)		5,263		—
Cash used by financing activities		(2,140)		(4,912)		(545)		5,264		(2,333)
INCREASE IN CASH AND EQUIVALENTS		577		(21)		526		—		1,082
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		617		91		831		—		1,539
CASH AND EQUIVALENTS AT END OF PERIOD	$	1,194	$	70	$	1,357	$	—	$	2,621

TIME WARNER INC.

SUPPLEMENTARY INFORMATION

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS – (Continued)

Consolidating Statement of Cash Flows

For The Nine Months Ended September 30, 2016

(Unaudited; millions)

	Parent Company		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		TimeWarner Consolidated
OPERATIONS
Net income	$	3,632	$	4,465	$	4,060	$	(8,525)	$	3,632
Less Discontinued operations, net of tax		(35)		(40)		(40)		80		(35)
Net income from continuing operations		3,597		4,425		4,020		(8,445)		3,597
Adjustments for noncash and nonoperating items:
Depreciation and amortization		8		78		416		—		502
Amortization of film and television costs		—		2,018		3,889		(23)		5,884
Asset impairments		4		—		31		—		35
Gain on investments and other assets, net		8		1		(83)		(1)		(75)
Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries, net of cash distributions		(5,939)		(3,996)		(1,432)		11,367		—
Equity in losses of investee companies, net of cash distributions		2		—		289		2		293
Equity-based compensation		68		60		73		—		201
Deferred income taxes		267		223		202		(425)		267
Changes in operating assets and liabilities, net of acquisitions		170		(1,330)		(3,532)		(2,468)		(7,160)
Intercompany		—		2,582		(2,582)		—		—
Cash provided by operations from continuing operations		(1,815)		4,061		1,291		7		3,544
Cash used by operations from discontinued operations		—		—		(10)		—		(10)
Cash provided by operations		(1,815)		4,061		1,281		7		3,534
INVESTING ACTIVITIES
Investments in available-for-sale securities		(2)		—		(5)		—		(7)
Investments and acquisitions, net of cash acquired		(23)		(54)		(898)		—		(975)
Capital expenditures		(8)		(55)		(207)		—		(270)
Advances to (from) parent and consolidated subsidiaries		4,317		(263)		—		(4,054)		—
Other investment proceeds		16		17		220		—		253
Cash used by investing activities		4,300		(355)		(890)		(4,054)		(999)
FINANCING ACTIVITIES
Borrowings		940		—		2		—		942
Debt repayments		(150)		(150)		(4)		—		(304)
Proceeds from exercise of stock options		127		—		—		—		127
Excess tax benefit from equity instruments		59		—		—		—		59
Principal payments on capital leases		—		(10)		(1)		—		(11)
Repurchases of common stock		(2,119)		—		—		—		(2,119)
Dividends paid		(954)		—		—		—		(954)
Other financing activities		128		(36)		(207)		(7)		(122)
Change in due to/from parent and investment in segment		—		(3,779)		(275)		4,054		—
Cash used by financing activities		(1,969)		(3,975)		(485)		4,047		(2,382)
INCREASE IN CASH AND EQUIVALENTS		516		(269)		(94)		—		153
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		976		288		891		—		2,155
CASH AND EQUIVALENTS AT END OF PERIOD	$	1,492	$	19	$	797	$	—	$	2,308

Part II. Other Information

Item 1. Legal Proceedings.

The following information supplements and amends the disclosure set forth in Part I, Item 3. Legal Proceedings, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016 (the “2016 Form 10-K”) and in Part II, Item 1. Legal Proceedings, in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2017 (the “~~March~~ 2017 Form 10-QK”).

Reference is made to the ~~complaint~~lawsuit ~~issued~~filed by the ~~National~~U.S. ~~Labor~~Department ~~Relations~~of ~~Board~~Justice (the “~~NLRB~~DOJ”) against ~~CNN~~the ~~America~~Company and AT&T Inc. ~~(“CNN~~ ~~America”)~~to ~~and~~enjoin ~~Team~~the ~~Video~~companies’ ~~Services,~~merger ~~LLC~~ described on page 3133 of the ~~2016~~2017 Form 10-K. ~~and~~The ~~page~~trial 50began of the ~~March~~week ~~2017~~of ~~Form 10-Q. On August~~March 419, ~~2017,~~2018 ~~the U.S.~~and ~~Court of Appeals for~~ the ~~D.C. Circuit ruled, granting CNN America~~parties’s ~~appeal~~presentation inof ~~part~~their ~~and~~cases ~~denying~~is itexpected ~~in part, and remanded the case~~ to conclude ~~the~~in ~~NLRB~~early ~~for~~May ~~further proceedings~~2018.

Item 1A. Risk Factors.

There have been no material changes in the Company’s risk factors as previously disclosed in Part I, Item 1A. Risk Factors, of the ~~Company’s~~2017 ~~Annual Report on~~ Form 10-K ~~for the year ended December 31, 2016~~.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Company Purchases of Equity Securities

The Company did not purchase any equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended September 30, 2017.

Issuer Purchases of Equity Securities

Period	Total Number ofShares Purchased		Average PricePaid Per Share		Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms		Approximate DollarValue of Shares thatMay Yet BePurchased Under thePlans orPrograms(1)(2)
July 1, 2017 -July 31, 2017		0	$	—		0	$	2,693,315,245
January 1, 2018 - January 31, 2018		0	$	—		0	$	2,693,315,245
August 1, 2017 -August 31, 2017		0	$	—		0	$	2,693,315,245
February 1, 2018 - February 28, 2018		237,265	$	94.32		0	$	2,693,315,245
September 1, 2017 -September 30, 2017		0	$	—		0	$	2,693,315,245
March 1, 2018 - March 31, 2018		0	$	—		0	$	2,693,315,245
Total		0237,265	$	—94.32		0	$	2,693,315,245

(1) ~~These~~The ~~amounts~~total donumber ~~not~~of ~~give~~shares ~~effect~~purchased toconstitutes ~~any~~shares ~~fees~~of the Company’s common stock, ~~commissions~~par orvalue ~~other~~$0.01 ~~costs~~per ~~associated~~share (the “Common Stock”), purchased in February 2018 by the Company from the Company’s Chairman and Chief Executive Officer in connection with ~~share~~his ~~repurchases~~exercise of stock options that were scheduled to expire in ~~prior~~early ~~periods~~March 2018, with the purchase price equal to the fair market value of the Common Stock on the exercise date.

(2) These amounts do not give effect to any fees, commissions or other costs associated with share repurchases in prior periods. On February 10, 2016, the Company announced that its Board of Directors had authorized a total of $5.0 billion in share repurchases beginning January 1, 2016, including the approximately $902 million remaining at December 31, 2015 from the prior $5.0 billion authorization. Purchases under the stock repurchase program may be made, from time to time, on the open market or in privately negotiated transactions, with the size and timing of these purchases based on a number of factors, including price and business and market conditions. The Company has repurchased shares of its common stock pursuant to trading plans under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended. In connection with entering into the Merger Agreement, the Company discontinued share repurchases under the stock repurchase program in October 2016.

Limitations on the Payment of Dividends

As disclosed in the ~~Company’s~~2017 ~~Annual Report on~~ Form 10-K ~~for the year ended December 31~~, ~~2016,~~ the Merger Agreement restricts the Company, without AT&T’s consent, from increasing the Company’s quarterly dividends above $0.4025 per share.

Item 6. Exhibits.

The exhibits listed in the Exhibit Index below are submitted with or incorporated by reference as a part of this report.

5553

EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

Exhibit No.		Description of Exhibit
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2017~~2018.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2017~~2018.
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2017~~2018. †
101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2017~~2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheet at ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, (ii) Consolidated Statement of Operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, (iii) Consolidated Statement of Comprehensive Income for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, (iv) Consolidated Statement of Cash Flows for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, (v) Consolidated Statement of Equity for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, (vi) Notes to Consolidated Financial Statements and (vii) Supplementary Information-Condensed Consolidating Financial Statements.

†

This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

5654

TIME WARNER INC.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		~~TIME WARNER INC. (Registrant)~~	TIME WARNER INC. (Registrant)
	~~By :~~	~~/s/~~By ~~Howard M. Averill~~:	/s/ Howard M. Averill
Date: October 26, 2017		Name: Title:	Howard M. Averill Executive Vice President and Chief Financial Officer
Date: April 26, 2018			Name: Howard M. Averill Title: Executive Vice President and Chief Financial Officer

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