UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

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

for the quarterly period ended September 30, 2010 or

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

for the transition period from                                           to                                          

TIME WARNER INC.

Delaware		13-4099534
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

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 þ No o

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 þ No o

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

Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

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

		Shares Outstanding
Description of Class		as of October 26, 2010
Common Stock – $.01 par value			1,109,296,981

 

 

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		22
Consolidated Balance Sheet at September 30, 2010 and December 31, 2009		23
Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2010 and 2009		24
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		25
Consolidated Statement of Equity for the Nine Months Ended September 30, 2010 and 2009		26
Notes to Consolidated Financial Statements		27
Supplementary Information		44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		53
Item 1A. Risk Factors		53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		54
Item 5. Other Information		54
Item 6. Exhibits		54
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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 30, 2010. This analysis is presented on both a consolidated and a business segment basis. In addition, a brief description of significant transactions and events 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 30, 2010 and cash flows for the nine months ended September 30, 2010.
	•		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.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

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 HBO, TNT, TBS, CNN, Warner Bros., New Line Cinema, People, Sports Illustrated and Time. During the nine months ended September 30, 2010, the Company generated revenues of $19.076 billion (up 5% from $18.178 billion in 2009), Operating Income of $4.004 billion (up 23% from $3.265 billion in 2009), Net Income attributable to Time Warner shareholders of $1.809 billion (down 2% from $1.846 billion in 2009) and Cash Provided by Operations from Continuing Operations of $2.319 billion (down 16% from $2.755 billion in 2009).

Time Warner Businesses

     Time Warner classifies its operations into three reportable segments: Networks, Filmed Entertainment and Publishing. For additional information regarding Time Warner’s business segments, refer to Note 12, “Segment Information,” in the accompanying consolidated financial statements.

     Networks.  Time Warner’s Networks segment consists of Turner Broadcasting System, Inc. (“Turner”) and Home Box Office, Inc. (“HBO”). During the nine months ended September 30, 2010, the Networks segment generated revenues of $9.132 billion (47% of the Company’s overall revenues) and $3.320 billion in Operating Income.

     Turner operates domestic and international networks, including such recognized brands as TNT, TBS, CNN, Cartoon Network, truTV and HLN, which are among the leaders in advertising-supported cable television networks. The Turner networks generate revenues principally from providing programming to cable system operators, satellite distribution services, telephone companies and other distributors (known as affiliates) that have contracted to receive and distribute this programming and from the sale of advertising. Turner also operates various websites, including CNN.com, NASCAR.com and CartoonNetwork.com, which generate revenues principally from the sale of advertising. Key contributors to Turner’s success are its strong brands and continued investments in high-quality, popular programming focused on sports, original and syndicated series, news, network movie premieres and animation to drive audience delivery and revenue growth. During the first nine months of 2010, Turner’s Advertising revenue increased, reflecting the benefit of an improved advertising environment domestically and internationally, partially offset by the impact of lower audience delivery at Turner’s domestic news networks.

     HBO operates the HBO and Cinemax multichannel premium pay television programming services, with the HBO service ranking as the nation’s most widely distributed premium pay television service. HBO generates revenues principally from providing programming to affiliates that have contracted to receive and distribute such programming to subscribers who choose to receive the HBO or Cinemax services. HBO’s domestic subscribers are expected to decline by approximately 1.5 million during 2010 due primarily to a decrease in subscribers who generate very little or no revenue and, as such, this decline has not had, and is not expected to have, a material negative impact on Subscription revenues. An additional source of revenues for HBO is the sale and licensing of its original programming, including True Blood, Entourage, The Pacific, The Sopranos and Rome.

     The Company’s Networks segment has been pursuing international expansion in select areas. For example, in October 2010, Turner acquired Chilevisión, a television broadcaster in Chile. In addition, in the first quarter of 2010, HBO acquired the remainder of its partners’ interests in HBO Central Europe (“HBO CE”) and purchased an additional 21% equity interest in HBO Latin America Group, consisting of HBO Brasil, HBO Olé and HBO Latin America Production Services (collectively, “HBO LAG”), and Turner acquired a majority stake in NDTV Imagine Limited, which owns a Hindi general entertainment channel in India. In recent years, Turner has also expanded its presence in Germany, Japan, Korea, Latin America, Sweden, Turkey and the United Arab Emirates, and HBO has acquired additional equity interests in HBO Asia, HBO South Asia and HBO LAG. The Company anticipates that international expansion will continue to be an area of focus at the Networks segment for the foreseeable future.

     Filmed Entertainment.  Time Warner’s Filmed Entertainment segment consists of businesses managed by the Warner Bros. Entertainment Group (“Warner Bros.”) that principally produce and distribute theatrical motion pictures, including

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Inception, Clash of the Titans, Sex and the City 2, The Blind Side, Sherlock Holmes and the Harry Potter films, as well as television shows and videogames. During the nine months ended September 30, 2010, the Filmed Entertainment segment generated revenues of $7.986 billion (39% of the Company’s overall revenues) and $680 million in Operating Income.

     The Filmed Entertainment segment’s diversified sources of revenues within its film and television businesses, including its extensive film library and global distribution infrastructure, have helped it to deliver consistent long-term operating performance. Theatrical product revenues principally are generated domestically and internationally through rentals from theatrical exhibition and subsequently through licensing fees received for the distribution of films on television networks and pay television programming services. Television product revenues principally are generated domestically and internationally from the licensing of the Filmed Entertainment segment’s programs on television networks and pay television programming services. The Filmed Entertainment segment also generates revenues for both its theatrical and television product through home video distribution on DVD and Blu-ray Discs and in various digital formats.

     Warner Bros. continues to be an industry leader in the television content business. During the 2010-2011 broadcast season, Warner Bros. expects to produce more than 30 scripted primetime series, with at least one series airing on each of the five broadcast networks (including Two and a Half Men, The Mentalist, The Big Bang Theory, Gossip Girl, Fringe and Chuck) and original series for several cable networks (including The Closer and Rizzoli & Isles).

     Home video distribution, in particular revenues from the distribution of DVDs, has been one of the largest drivers of the segment’s profits over the last several years. The industry and the Company experienced a decline in home video sales in recent years as a result of several factors, including the general economic downturn in the U.S. and many regions around the world, increasing competition for consumer discretionary time and spending, piracy and the maturation of the standard definition DVD format. Beginning in 2009, the decline in home video revenues was also affected by consumers shifting to subscription rental services and discount rental kiosks, which generate significantly less revenue per transaction than DVD sales. Partially offsetting the softening consumer demand for standard definition DVDs and the shift to subscription services and kiosks were growing sales of high definition Blu-ray Discs and increased sales through electronic delivery (particularly video-on-demand), which have higher gross margins than standard definition DVDs.

     To increase operational efficiencies, over the past several years the Filmed Entertainment segment has undertaken restructuring activities to reduce its cost structure and streamline operations, including combining certain operations of its studios and outsourcing certain functions.

     Publishing.  Time Warner’s Publishing segment consists principally of magazine publishing and related websites as well as direct-marketing businesses. During the nine months ended September 30, 2010, the Publishing segment generated revenues of $2.619 billion (14% of the Company’s overall revenues) and $344 million in Operating Income.

     As of September 30, 2010, Time Inc. published 22 magazines in the U.S., including People, Sports Illustrated, Time, InStyle, Real Simple, Southern Living, Entertainment Weekly and Fortune, and over 90 magazines outside the U.S., primarily through IPC Media (“IPC”) in the U.K. and Grupo Expansión (“GEX”) in Mexico. Time Inc. develops digital content for its magazine websites and also publishes magazine content on digital devices. The Publishing segment generates revenues primarily from the sale of advertising (including advertising on digital properties), magazine subscriptions and newsstand sales. Time Inc. also owns the magazine subscription marketer, Synapse Group, Inc. (“Synapse”), and the school and youth group fundraising business, QSP. Advertising sales at the Publishing segment, particularly print advertising sales, were significantly adversely affected by the economic environment during 2009. In contrast, during the first nine months of 2010, the Publishing segment experienced an improvement in Advertising revenues driven by increases in domestic print advertising pages sold, partially offset by lower average advertising rates per page, and increases in digital advertising. Digital Advertising revenues were 13% and 14% of Time Inc.’s total Advertising revenues for the three and nine months ended September 30, 2010, respectively, compared to 11% and 12% for the three and nine months ended September 30, 2009, respectively.

     In July, Time Inc. and Turner announced the formation of a strategic digital partnership between Turner Sports and Sports Illustrated. The partnership will combine Sports Illustrated’s and Golf’s content with Turner’s digital media and sales expertise. Under the agreement, beginning in the fourth quarter of 2010, Turner will manage the SI.com and Golf.com websites, including selling all advertising for the websites. Accordingly, Turner will now receive all advertising revenues

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

generated from the websites and Time Inc. will now receive a license fee from Turner and reimbursement for certain website editorial and other costs.

     In its ongoing effort to improve efficiency and reduce its cost structure, the Publishing segment executed a restructuring initiative, primarily relating to headcount reductions, in the fourth quarter of 2009, which has benefitted the segment’s performance in 2010 and is expected to continue to benefit the segment’s performance during the remainder of 2010.

Recent Developments

2010 Debt Transactions

     As discussed more fully in “Financial Condition and Liquidity – Outstanding Debt and Other Financing Arrangements,” during the first nine months of 2010, the Company entered into a series of transactions to capitalize on the historically low interest rate environment and extend the average maturity of its public debt. Specifically, Time Warner issued $5.0 billion aggregate principal amount of 5, 10, and 30-year debt securities in two public offerings and used the net proceeds from the debt offerings to repurchase and redeem approximately $3.930 billion aggregate principal amount of debt securities of Time Warner and Historic TW Inc. (“Historic TW”) that were scheduled to mature within the next three years (collectively, the “2010 Debt Redemptions”) and to repay $805 million outstanding under the Company’s two accounts receivable securitization facilities. For the three and nine months ended September 30, 2010, the Company incurred $295 million and $364 million, respectively, of premiums paid and transaction costs incurred in connection with the 2010 Debt Redemptions.

Shed Media

     On October 13, 2010, Warner Bros. acquired an approximate 55% interest in Shed Media plc (“Shed Media”), a leading television producer in the U.K., for approximately $118 million in cash. Warner Bros. has a call right that enables it to purchase a portion of the interests held by the other owners of Shed Media in 2014 and the remaining interests held by the other owners in 2018. The other owners have a reciprocal put right that enables them to require Warner Bros. to purchase a portion of their interests in Shed Media in 2014 and the remaining interests held by them in 2018.

Chilevisión

     On October 6, 2010, Turner acquired Chilevisión, a television broadcaster in Chile, for $155 million in cash.

HBO LAG

     On March 9, 2010, HBO purchased additional interests in HBO LAG for $217 million in cash, which resulted in HBO owning 80% of the equity interests of HBO LAG. HBO accounts for this investment under the equity method of accounting. See Notes 1 and 2 to the accompanying consolidated financial statements.

HBO Central Europe Acquisition

     On January 27, 2010, HBO purchased the remainder of its partners’ interests in HBO CE for $136 million in cash, net of cash acquired. HBO CE operates the HBO and Cinemax premium pay television programming services serving 11 territories in Central Europe. The Company has consolidated the results of operations and financial condition of HBO CE effective January 27, 2010. Upon the acquisition of the controlling interest in HBO CE, a gain of $59 million was recognized reflecting the excess of the fair value over the Company’s carrying cost of its original investment in HBO CE. See Note 2 to the accompanying consolidated financial statements.

Benefit Plan Amendments

     In March 2010, the Company’s Board of Directors approved amendments to its domestic defined benefit pension plans. Pursuant to the amendments, (i) effective June 30, 2010, benefits provided under the plans stopped accruing for additional years of service and the plans were closed to new hires and employees with less than one year of service and (ii) after

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

December 31, 2013, pay increases will no longer be taken into consideration when determining a participating employee’s benefits under the plans.

     In addition, effective July 1, 2010, the Company increased its matching contributions for eligible participants in the Time Warner Savings Plan. Effective January 1, 2011, the Company will also implement a supplemental savings plan that will provide for similar Company matching for eligible participant deferrals above the Internal Revenue Service compensation limits that apply to the Time Warner Savings Plan up to $500,000 of eligible compensation.

     The net effect of these changes is expected to result in a net annual decrease to employee benefit plan expense of approximately $50 million.

NCAA Basketball Programming Agreement

     On April 22, 2010, Turner, together with CBS Broadcasting, Inc. (“CBS”), entered into a 14-year agreement with The National Collegiate Athletic Association (the “NCAA”), which provides Turner and CBS with exclusive television, Internet, and wireless rights to the NCAA Division I Men’s Basketball Championship events (the “NCAA Tournament Games”) in the United States and its territories and possessions.

     Under the terms of the arrangement, Turner and CBS will work together to produce and distribute the NCAA Tournament Games and related programming commencing in 2011. The games will be televised on Turner’s TNT, TBS and truTV networks and on the CBS network, and advertising will be sold on a joint basis.

     The aggregate programming rights fee of approximately $10.8 billion, which will be shared by Turner and CBS, will be paid by Turner to the NCAA over the 14-year term of the agreement. Further, Turner and CBS have agreed to share advertising and sponsorship revenues and production costs. In the event, however, that the programming rights fee and production costs exceed advertising and sponsorship revenues, CBS’s share of such shortfall is limited to specified annual amounts (the “Loss Cap Amounts”), ranging from approximately $90 million to $30 million (totaling approximately $670 million over the term of the agreement). Beginning in 2011, Turner’s share of the programming rights fee will be amortized based on the ratio of current period advertising revenue to total estimated advertising revenue over the term of the agreement. Any costs recognized and payable by Turner due to the Loss Cap Amounts will be expensed by the Company as incurred.

RESULTS OF OPERATIONS

Recent Accounting Guidance

     As discussed more fully in Note 1 to the accompanying consolidated financial statements, on January 1, 2010, the Company adopted on a retrospective basis amendments to accounting guidance pertaining to the accounting for transfers of financial assets and variable interest entities.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Significant 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 significant transactions and certain other items in each period as follows (millions):

		Three Months Ended								Nine Months Ended
		9/30/10				9/30/09				9/30/10				9/30/09
Amounts related to securities litigation and government investigations, net		$	(2	)		$	(7	)		$	(21	)		$	(21	)
Asset impairments			(9	)			(52	)			(9	)			(52	)
Gain (loss) on operating assets			-				-				59				(33	)
Impact on Operating Income			(11	)			(59	)			29				(106	)
Investment gains (losses), net			2				(25	)			2				(1	)
Amounts related to the separation of Time Warner Cable Inc.			2				4				(5	)			6
Costs related to the separation of AOL Inc.			-				-				-				(15	)
Premiums paid and transaction costs incurred in connection with debt redemptions			(295	)			-				(364	)			-
Pretax impact			(302	)			(80	)			(338	)			(116	)
Income tax impact of above items			116				25				144				28
Tax items related to Time Warner Cable Inc.			-				-				-				24
After-tax impact			(186	)			(55	)			(194	)			(64	)
Noncontrolling interest impact			-				-				-				5
Impact of items on income from continuing operations attributable to Time Warner Inc. shareholders		$	(186	)		$	(55	)		$	(194	)		$	(59	)

     In addition to the items affecting comparability described above, the Company incurred restructuring costs of $29 million and $44 million for the three and nine months ended September 30, 2010, respectively, and $29 million and $92 million for the three and nine months ended September 30, 2009, respectively. During the three and nine months ended September 30, 2010, the Company also recognized a $58 million reserve reversal in connection with the resolution of litigation relating to the sale of the Atlanta Hawks and Thrashers sports franchises and certain operating rights to the Philips Arena (the “Winter Sports Teams”). For further discussion of restructuring costs and the $58 million reserve reversal, refer to “Business Segment Results.”

Amounts Related to Securities Litigation

     The Company recognized legal and other professional fees related to the defense of securities litigation matters by former employees totaling $2 million and $21 million for the three and nine months ended September 30, 2010, respectively, and $7 million and $21 million for the three and nine months ended September 30, 2009, respectively.

Asset Impairments

     During the three and nine months ended September 30, 2010, the Company recorded a $9 million noncash impairment of intangible assets related to the termination of a games licensing relationship at the Filmed Entertainment segment.

     During the three and nine months ended September 30, 2009, the Company recorded a $52 million noncash impairment of intangible assets at the Networks segment related to Turner’s interest in a general entertainment network in India.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Gain (Loss) on Operating Assets

     For the nine months ended September 30, 2010, the Company, upon the acquisition of the controlling interest in HBO CE, recognized a $59 million gain reflecting the recognition of the excess of the fair value over the Company’s carrying costs of its original investment in HBO CE.

     For the nine months ended September 30, 2009, the Company recognized a $33 million loss on the sale of Warner Bros.’ Italian cinema assets.

Investment Gains (Losses), Net

     For both the three and nine months ended September 30, 2010, the Company recognized $2 million of miscellaneous investment gains, net.

     For the three and nine months ended September 30, 2009, the Company recognized $2 million and $23 million, respectively, of miscellaneous investment losses. In addition, for the three and nine months ended September 30, 2009, the Company recognized a $23 million impairment of the Company’s investment in Miditech Pvt. Limited, a programming production company in India, and, for the nine months ended September 30, 2009, a $28 million gain on the sale of the Company’s investment in TiVo Inc. and a $17 million gain on the sale of the Company’s investment in Eidos plc.

Amounts Related to the Separation of TWC

     For the three and nine months ended September 30, 2010, the Company recognized $2 million of other income and $5 million of other loss, respectively, related to the expiration, exercise and net change in the estimated fair value of Time Warner equity awards held by Time Warner Cable Inc. (“TWC”) employees.

     For the three and nine months ended September 30, 2009, the Company recognized $4 million and $12 million, respectively, of other income related to the increase in the estimated fair value of Time Warner equity awards held by TWC employees. In addition, for the nine months ended September 30, 2009, the Company incurred pretax direct transaction costs, primarily legal and professional fees related to the separation of TWC, of $6 million, which have been reflected in other income (loss), net in the accompanying consolidated statement of operations.

Costs Related to the Separation of AOL

     During the nine months ended September 30, 2009, the Company incurred $15 million of costs related to the separation of AOL Inc. (“AOL”), which have been recorded in other income (loss), net in the accompanying consolidated statement of operations. These costs were related to the solicitation of consents from debt holders to amend the indentures governing certain of the Company’s debt securities.

Premiums Paid and Transaction Costs Incurred in Connection with Debt Redemptions

     For the three and nine months ended September 30, 2010, the Company recognized $295 million and $364 million, respectively, of premiums paid and transaction costs incurred in connection with the 2010 Debt Redemptions, which were recorded in other income (loss), net in the accompanying consolidated statement of operations. See “Financial Condition and Liquidity – Outstanding Debt and Other Financing Arrangements” for more information.

Income Tax Impact and Tax Items Related to TWC

     The income tax impact reflects the estimated tax provision or tax benefit associated with each item affecting comparability. Such estimated tax provisions or tax benefits vary based on certain factors, including the taxability or deductibility of the items and foreign tax on certain transactions. For the nine months ended September 30, 2009, the Company also recognized approximately $24 million of tax benefits attributable to the impact of certain state tax law changes on TWC net deferred liabilities.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Noncontrolling Interest Impact

     For the nine months ended September 30, 2009, the noncontrolling interest impact of $5 million reflects the minority owner’s share of the tax provision related to changes in certain state tax laws on TWC net deferred liabilities.

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.

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

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Subscription		$	2,263			$	2,119				7%			$	6,725			$	6,284				7%
Advertising			1,330				1,225				9%				4,027				3,690				9%
Content			2,636				2,769				(5%)				7,914				7,722				2%
Other			148				149				(1%)				410				482				(15%)
Total revenues		$	6,377			$	6,262				2%			$	19,076			$	18,178				5%

     The increase in Subscription revenues for the three and nine months ended September 30, 2010 was primarily related to an increase at the Networks segment. Advertising revenues increased for the three and nine months ended September 30, 2010, primarily reflecting growth at the Networks and Publishing segments. The decrease in Content revenues for the three months ended September 30, 2010 was due primarily to lower third-party revenues at the Filmed Entertainment segment. The increase in Content revenues for the nine months ended September 30, 2010 was due primarily to increases at the Filmed Entertainment and Networks segments.

     Each of the revenue categories is discussed in greater detail by segment in “Business Segment Results.”

     Costs of Revenues.  For the three months ended September 30, 2010 and 2009, costs of revenues totaled $3.529 billion and $3.419 billion, respectively, and, as a percentage of revenues, were 55% for both periods. For the nine months ended September 30, 2010 and 2009, costs of revenues totaled $10.481 billion and $10.111 billion, respectively, and, as a percentage of revenues, were 55% and 56%, respectively. The segment variations are discussed in detail in “Business Segment Results.”

     Selling, General and Administrative Expenses.  For the three months ended September 30, 2010 and 2009, selling, general and administrative expenses decreased 3% to $1.409 billion in 2010 from $1.451 billion in 2009, primarily due to decreases at the Publishing and Filmed Entertainment segments. For the nine months ended September 30, 2010 and 2009, selling, general and administrative expenses were essentially flat at $4.409 billion in 2010 compared to $4.411 billion in 2009, due to a decrease at the Publishing segment largely offset by increases at the Networks and Corporate segments. In addition, selling, general and administrative expenses for the three and nine months ended September 30, 2010 included a $58 million reserve reversal at the Networks segment in connection with the resolution of litigation relating to the Winter Sports Teams. The segment variations are discussed in detail in “Business Segment Results.”

     Included in costs of revenues and selling, general and administrative expenses is depreciation expense, which was essentially flat at $168 million and $502 million for the three and nine months ended September 30, 2010, respectively, compared to $169 million and $499 million for the three and nine months ended September 30, 2009, respectively.

     Amortization Expense.  Amortization expense decreased to $54 million and $188 million for the three and nine months ended September 30, 2010, respectively, from $71 million and $214 million for the three and nine months ended September 30, 2009, respectively.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     Restructuring Costs.  For the three and nine months ended September 30, 2010, the Company incurred restructuring costs of $29 million and $44 million, respectively, primarily related to various employee terminations and other exit activities, consisting of $5 million at the Networks segment for both the three and nine months ended September 30, 2010, $10 million and $17 million, respectively, at the Filmed Entertainment segment for the three and nine months ended September 30, 2010 and $14 million and $22 million, respectively, at the Publishing segment for the three and nine months ended September 30, 2010.

     For the three and nine months ended September 30, 2009, the Company incurred restructuring costs of $29 million and $92 million, respectively, primarily related to various employee terminations and other exit activities, consisting of $17 million and $85 million, respectively, at the Filmed Entertainment segment for the three and nine months ended September 30, 2009 and $12 million and $7 million, respectively, at the Publishing segment for the three and nine months ended September 30, 2009.

     Operating Income.  Operating Income increased to $1.347 billion for the three months ended September 30, 2010 from $1.240 billion for the three months ended September 30, 2009. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $11 million and $59 million of expense for the three months ended September 30, 2010 and 2009, respectively, Operating Income increased $59 million, primarily reflecting increases at the Networks and Publishing segments, partially offset by a decrease at the Filmed Entertainment segment.

     Operating Income increased to $4.004 billion for the nine months ended September 30, 2010 from $3.265 billion for the nine months ended September 30, 2009. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $29 million of income and $106 million of expense for the nine months ended September 30, 2010 and 2009, respectively, Operating Income increased $604 million, primarily reflecting increases at the Networks and Publishing segments.

     The segment variations are discussed under “Business Segment Results.”

     Interest Expense, Net.  For the three months ended September 30, 2010, interest expense, net, was flat at $299 million as higher average net debt was offset by lower rates. For the nine months ended September 30, 2010, interest expense, net decreased to $895 million from $909 million for the nine months ended September 30, 2009, primarily due to lower rates.

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

		Three Months Ended								Nine Months Ended
		9/30/10				9/30/09				9/30/10				9/30/09
Investment gains (losses), net		$	2			$	(25	)		$	2			$	(1	)
Amounts related to the separation of TWC			2				4				(5	)			6
Costs related to the separation of AOL			-				-				-				(15	)
Premiums paid and transaction costs incurred in connection with debt redemptions			(295	)			-				(364	)			-
Loss from equity method investees			(19	)			(14	)			(22	)			(26	)
Other			3				(4	)			12				(1	)
Other income (loss), net		$	(307	)		$	(39	)		$	(377	)		$	(37	)

     The changes in other income (loss), net related to investment gains (losses), net, amounts related to the separation of TWC, costs related to the separation of AOL and premiums paid and transaction costs incurred in connection with debt redemptions are discussed under “Significant Transactions and Other Items Affecting Comparability.”

     Income Tax Provision.  Income tax expense from continuing operations decreased to $221 million for the three months ended September 30, 2010 from $320 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, income tax expense from continuing operations increased to $927 million from $846 million for the nine months ended September 30, 2009. The Company’s effective tax rate for continuing operations was 30% and 34% for the three and nine months ended September 30, 2010, respectively, compared to 35% and 36% for the three and nine

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

months ended September 30, 2009, respectively. The decreases in the effective tax rate for the three and nine months ended September 30, 2010 were primarily due to the benefit of valuation allowance releases on tax attributes.

     Income from Continuing Operations.  Income from continuing operations decreased to $520 million for the three months ended September 30, 2010 from $582 million for the three months ended September 30, 2009. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $186 million and $55 million of expense, net for the three months ended September 30, 2010 and 2009, respectively, income from continuing operations increased by $69 million, primarily reflecting higher Operating Income. Basic and diluted income per common share from continuing operations attributable to Time Warner Inc. common shareholders were $0.46 for both for the three months ended September 30, 2010 compared to $0.49 for both for the three months ended September 30, 2009.

     Income from continuing operations increased to $1.805 billion for the nine months ended September 30, 2010 from $1.473 billion for the nine months ended September 30, 2009. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $194 million and $64 million of expense, net for the nine months ended September 30, 2010 and 2009, respectively, income from continuing operations increased by $462 million, primarily reflecting higher Operating Income, partially offset by higher income tax expense. Basic and diluted income per common share from continuing operations attributable to Time Warner Inc. common shareholders were $1.58 and $1.57, respectively, for the nine months ended September 30, 2010 compared to $1.24 and $1.23, respectively, for the nine months ended September 30, 2009.

     Discontinued Operations, Net of Tax. The financial results for the three and nine months ended September 30, 2009 included the impact of treating the results of operations and financial condition of AOL as discontinued operations, and for the nine months ended September 30, 2009 included the impact of treating the results of operations and financial condition of TWC as discontinued operations. Discontinued operations, net of tax was income of $81 million and $407 million for the three and nine months ended September 30, 2009, respectively. Discontinued operations, net of tax for the nine months ended September 30, 2009 included AOL’s results for the period January 1, 2009 through September 30, 2009 and TWC’s results for the period from January 1, 2009 through March 12, 2009. For additional information, see Note 2 to the accompanying consolidated financial statements.

     Net Income (Loss) Attributable to Noncontrolling Interests.  For the three and nine months ended September 30, 2010, net loss attributable to noncontrolling interests was $2 million and $4 million, respectively. For the three and nine months ended September 30, 2009, net income attributable to noncontrolling interests was $1 million and $34 million, respectively.

     Net Income Attributable to Time Warner Inc. Shareholders.  Net income attributable to Time Warner Inc. shareholders was $522 million and $662 million for the three months ended September 30, 2010 and 2009, respectively. Basic and diluted net income per common share attributable to Time Warner Inc. common shareholders were $0.46 for both for the three months ended September 30, 2010 compared to $0.56 and $0.55, respectively, for the three months ended September 30, 2009.

     Net income attributable to Time Warner Inc. shareholders was $1.809 billion and $1.846 billion for the nine months ended September 30, 2010 and 2009, respectively. Basic and diluted net income per common share attributable to Time Warner Inc. common shareholders were $1.58 and $1.57, respectively, for the nine months ended September 30, 2010 compared to $1.54 for both for the nine months ended September 30, 2009.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

Business Segment Results

     Networks.  Revenues and Operating Income of the Networks segment for the three and nine months ended September 30, 2010 and 2009 are as follows (millions):

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Revenues:
Subscription		$	1,926			$	1,774				9%			$	5,730			$	5,294				8%
Advertising			848				768				10%				2,640				2,367				12%
Content			203				199				2%				673				603				12%
Other			27				14				93%				89				52				71%
Total revenues			3,004				2,755				9%				9,132				8,316				10%
Costs of revenues(a)			(1,285	)			(1,208	)			6%				(4,053	)			(3,846	)			5%
Selling, general and administrative(a)			(483	)			(477	)			1%				(1,530	)			(1,420	)			8%
Gain on operating assets			-				-				-				59				-				NM
Asset impairments			-				(52	)			(100%)				-				(52	)			(100%)
Restructuring costs			(5	)			-				NM				(5	)			-				NM
Depreciation			(86	)			(85	)			1%				(258	)			(252	)			2%
Amortization			(7	)			(9	)			(22%)				(25	)			(28	)			(11%)
Operating Income		$	1,138			$	924				23%			$	3,320			$	2,718				22%

     The increase in Subscription revenues for the three and nine months ended September 30, 2010 was comprised of increases in domestic subscription revenues of $107 million and $298 million, respectively, mainly due to higher domestic subscription rates, and increases in international subscription revenues of $45 million and $138 million, respectively, primarily due to international growth, including the consolidation of HBO CE, and, for the nine months ended September 30, 2010, the favorable impact of foreign exchange rates.

     The increase in Advertising revenues for the three and nine months ended September 30, 2010 was due to expansion and growth at Turner’s international networks of $47 million and $136 million, respectively, and growth at Turner’s domestic networks of $33 million and $137 million, respectively, mainly as a result of strong domestic scatter demand and yield management, which was partially offset by the impact of lower audience delivery at Turner’s domestic news networks.

     The increase in Content revenues for the three and nine months ended September 30, 2010 was due primarily to higher sales of HBO’s original programming of $20 million and $55 million, respectively, which for the nine months ended September 30, 2010 included the domestic cable television sale of Entourage, partially offset by the absence in 2010 of a benefit of approximately $25 million in the third quarter of 2009 associated with lower than anticipated home video returns. In addition, the increase in Content revenues for the nine months ended September 30, 2010 reflected higher international licensing revenues at Turner.

     For the three and nine months ended September 30, 2010, Costs of revenues increased 6% and 5%, respectively, and as a percentage of revenues were 43% and 44% for the three and nine months ended September 30, 2010, respectively, compared to 44% and 46% for the three and nine months ended September 30, 2009, respectively. For the three months ended September 30, 2010, programming costs increased 5% to $998 million from $950 million for the three months ended September 30, 2009 and, for the nine months ended September 30, 2010, increased 4% to $3.184 billion from $3.066 billion for the nine months ended September 30, 2009. The increases in programming costs for the three and nine months ended September 30, 2010 were due primarily to higher original programming costs. The increases in Costs of revenues for

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

the three and nine months ended September 30, 2010 also reflected higher operating costs of $29 million and $89 million, respectively, primarily related to international expansion.

     For the three and nine months ended September 30, 2010, selling, general and administrative expenses increased due primarily to higher marketing expenses, merit-based increases in compensation and higher overhead expenses, partially offset by a $58 million reserve reversal in connection with the resolution of litigation relating to the sale of the Winter Sports Teams.

     As previously noted under “Significant Transactions and Other Items Affecting Comparability,” the results for the nine months ended September 30, 2010 included a $59 million gain that was recognized upon the acquisition of the controlling interest in HBO CE, reflecting the excess of the fair value over the Company’s carrying costs of its original investment in HBO CE. The results for the three and nine months ended September 30, 2009 included a $52 million noncash impairment of intangible assets related to Turner’s interest in a general entertainment network in India. In addition, the results for the three and nine months ended September 30, 2010 included $5 million of restructuring costs, primarily related to headcount reductions.

     Operating Income for the three and nine months ended September 30, 2010 increased primarily due to the increase in revenues, the $58 million reserve reversal in connection with the resolution of litigation related to the sale of the Winter Sports Teams and the absence in 2010 of the $52 million noncash impairment of intangible assets, partially offset by higher costs of revenues and higher selling, general and administrative expenses. Operating Income for the nine months ended September 30, 2010 also benefited from the $59 million gain relating to HBO CE.

     Filmed Entertainment.  Revenues and Operating Income of the Filmed Entertainment segment for three and nine months ended September 30, 2010 and 2009 are as follows (millions):

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Revenues:
Subscription		$	19			$	12				58%			$	44			$	31				42%
Advertising			21				18				17%				51				52				(2%)
Content			2,704				2,716				-				7,804				7,526				4%
Other			32				34				(6%)				87				137				(36%)
Total revenues			2,776				2,780				-				7,986				7,746				3%
Costs of revenues(a)			(2,079	)			(1,963	)			6%				(5,787	)			(5,480	)			6%
Selling, general and administrative(a)			(394	)			(415	)			(5%)				(1,228	)			(1,225	)			-
Loss on operating assets			-				-				-				-				(33	)			(100%)
Asset impairments			(9	)			-				NM				(9	)			-				NM
Restructuring costs			(10	)			(17	)			(41%)				(17	)			(85	)			(80%)
Depreciation			(47	)			(43	)			9%				(134	)			(124	)			8%
Amortization			(37	)			(51	)			(27%)				(131	)			(151	)			(13%)
Operating Income		$	200			$	291				(31%)			$	680			$	648				5%

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     Content 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). The components of Content revenues for the three and nine months ended September 30, 2010 and 2009 are as follows (millions):

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Theatrical product:
Theatrical film		$	518			$	774				(33%)			$	1,485			$	1,645				(10%)
Home video and electronic delivery			534				549				(3%)				1,780				1,607				11%
Television licensing			424				353				20%				1,223				1,084				13%
Consumer products and other			26				32				(19%)				74				79				(6%)
Total theatrical product			1,502				1,708				(12%)				4,562				4,415				3%
Television product:
Television licensing			780				543				44%				2,147				1,954				10%
Home video and electronic delivery			215				196				10%				501				514				(3%)
Consumer products and other			42				40				5%				145				151				(4%)
Total television product			1,037				779				33%				2,793				2,619				7%
Other			165				229				(28%)				449				492				(9%)
Total Content revenues		$	2,704			$	2,716				(0%)			$	7,804			$	7,526				4%

     Content revenues for the three months ended September 30, 2010 included the negative impact of foreign exchange rates on many of the segment’s international operations. For the nine months ended September 30, 2010, Content revenues included the positive impact of foreign exchange rates on many of the segment’s international operations.

     Theatrical film revenues for the three months ended September 30, 2010, which included the releases of Inception and Cats & Dogs: The Revenge of Kitty Galore, decreased compared to revenues for the three months ended September 30, 2009, which included the releases of Harry Potter and the Half-Blood Prince and The Final Destination as well as carryover revenues from The Hangover. Theatrical film revenues for the nine months ended September 30, 2010, which also included revenues from Clash of the Titans, Sex and the City 2 and Valentine’s Day and carryover revenues from Sherlock Holmes and The Blind Side, decreased compared to revenues for the nine months ended September 30, 2009, which also included revenues from Terminator Salvation, Watchmen and He’s Just Not That Into You and carryover revenues from Gran Torino and The Curious Case of Benjamin Button.

     Theatrical product revenues from home video and electronic delivery decreased for the three months ended September 30, 2010 due primarily to lower catalog sales. For the nine months ended September 30, 2010, theatrical product revenues from home video and electronic delivery increased due primarily to the quantity and performance of first quarter 2010 releases, partially offset by lower home video catalog sales due primarily to the effect of improved home video catalog returns in the second quarter of 2009. Significant titles in 2010 included The Blind Side, Sherlock Holmes, Clash of the Titans and The Book of Eli, compared to 2009, which included Gran Torino, Yes Man, Body of Lies and Watchmen. Theatrical product revenues from television licensing increased for the three and nine months ended September 30, 2010 due primarily to the quantity and mix of availabilities.

     The increase in television product licensing fees for the three months ended September 30, 2010 was due primarily to the off-network availabilities of Two and a Half Men and The New Adventures of Old Christine and increased revenues from new series. For the nine months ended September 30, 2010, the increase in television product licensing fees also reflected the initial off-network availability of The Closer, partially offset by the 2009 conclusion of several series with high licensing fees, including Without a Trace and ER. The increase in television product revenues from home video and

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

electronic delivery for the three months ended September 30, 2010 primarily resulted from a distribution agreement that the Company entered into in the third quarter of 2010 relating to a slate of catalog TV shows, including Nip/Tuck and several series with a limited number of episodes. For the nine months ended September 30, 2010, the decrease in television product revenues from home video and electronic delivery primarily resulted from lower sales of older series, partially offset by the effect of the distribution agreement that the Company entered into in the third quarter of 2010.

     Other content revenues for the three and nine months ended September 30, 2010, which included revenues from the second quarter 2010 interactive video game release of LEGO Harry Potter: Years 1-4, decreased compared to revenues for the three and nine months ended September 30, 2009, which included revenues from the third quarter 2009 interactive video game release of Batman: Arkham Asylum.

     The increase in costs of revenues for the three and nine months ended September 30, 2010 resulted primarily from higher film costs due mainly to higher television product costs and higher advertising and print costs due mainly to the quantity and mix of films released, including a higher number of films released internationally. Film costs increased to $1.264 billion and $3.568 billion for the three and nine months ended September 30, 2010, respectively, from $1.192 billion and $3.473 billion for the three and nine months ended September 30, 2009, respectively. Included in film costs are net theatrical film valuation adjustments, which were $29 million for both the three and nine months ended September 30, 2010 compared to a reversal of $12 million and net theatrical film valuation adjustments of $39 million for the three and nine months ended September 30, 2009, respectively. Costs of revenues as a percentage of revenues were 75% and 72% for the three and nine months ended September 30, 2010, respectively, compared to 71% for both the three and nine months ended September 30, 2009. This percentage varies from period to period based on the quantity, mix and timing of theatrical releases and television availabilities.

     The decrease in selling, general and administrative expenses for the three months ended September 30, 2010 was primarily due to lower distribution expenses and lower bad debt expenses. For the nine months ended September 30, 2010, selling, general and administrative expenses were essentially flat as merit-based increases in compensation were largely offset by lower bad debt expenses and lower distribution expenses.

     As previously noted under “Significant Transactions and Other Items Affecting Comparability,” the results for the three and nine months ended September 30, 2010 included a $9 million noncash impairment of intangible assets related to the termination of a games licensing relationship. The results for the nine months ended September 30, 2009 included a $33 million loss on the sale of Warner Bros.’ Italian cinema assets. In addition, the results for the three and nine months ended September 30, 2010 included $10 million and $17 million of restructuring costs, respectively, and the results for the three and nine months ended September 30, 2009 included $17 million and $85 million, respectively, of restructuring costs, primarily relating to headcount reductions and the outsourcing of certain functions.

     The decrease in Operating Income for the three months ended September 30, 2010 was primarily due to higher costs of revenues. The increase in Operating Income for the nine months ended September 30, 2010, was primarily due to higher revenues, lower restructuring costs and the absence in 2010 of the $33 million loss on the sale of Warner Bros.’ Italian cinema assets, partially offset by higher costs of revenues and the effect of improved home video catalog returns in 2009 of approximately $30 million.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     Publishing.  Revenues and Operating Income of the Publishing segment for the three and nine months ended September 30, 2010 and 2009 are as follows (millions):

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Revenues:
Subscription		$	318			$	333				(5%)			$	951			$	959				(1%)
Advertising			478				456				5%				1,382				1,321				5%
Content			14				22				(36%)				44				53				(17%)
Other			91				103				(12%)				242				302				(20%)
Total revenues			901				914				(1%)				2,619				2,635				(1%)
Costs of revenues(a)			(340	)			(363	)			(6%)				(990	)			(1,045	)			(5%)
Selling, general and administrative(a)			(370	)			(400	)			(8%)				(1,149	)			(1,288	)			(11%)
Restructuring costs			(14	)			(12	)			17%				(22	)			(7	)			214%
Depreciation			(26	)			(31	)			(16%)				(82	)			(93	)			(12%)
Amortization			(10	)			(11	)			(9%)				(32	)			(35	)			(9%)
Operating Income		$	141			$	97				45%			$	344			$	167				106%

     Subscription revenues decreased for the three and nine months ended September 30, 2010 primarily due to declines in domestic subscription revenues of $7 million and $12 million, respectively, and, for the three months ended September 30, 2010, a $6 million decrease in international revenues mainly at IPC, resulting primarily from the negative impact of foreign exchange rates, as well as lower domestic newsstand revenues.

     Advertising revenues increased for the three and nine months ended September 30, 2010 primarily due to increases in domestic print advertising revenues of $9 million and $35 million, respectively, due to improvements in domestic print advertising pages sold, partially offset by lower average advertising rates per page, and increases in digital advertising revenues of $12 million and $33 million, respectively.

     The decrease in Other revenues for the three and nine months ended September 30, 2010 is due primarily to the sale of Southern Living At Home in the third quarter of 2009 and declines at other non-magazine businesses, including Synapse and, for the nine months ended September 30, 2010, QSP.

     Costs of revenues decreased 6% and 5% for the three and nine months ended September 30, 2010, respectively, and as a percentage of revenues, were 38% for both the three and nine months ended September 30, 2010 compared to 40% for both the three and nine months ended September 30, 2009. Costs of revenues for the magazine and digital businesses include manufacturing costs (paper, printing and distribution) and editorial-related costs, which together decreased 3% to $298 million for the three months ended September 30, 2010 from $308 million for the three months ended September 30, 2009 and decreased 3% to $879 million for the nine months ended September 30, 2010 from $903 million for the nine months ended September 30, 2009, primarily due to lower paper costs associated with a decline in paper prices and cost savings initiatives. In addition, for the three and nine months ended September 30, 2010, costs of revenues declined at the non-magazine businesses primarily as a result of lower revenues and the sale of Southern Living At Home.

     Selling, general and administrative expenses for the three and nine months ended September 30, 2010 decreased due primarily to lower marketing expenses, lower pension expenses, the sale of Southern Living At Home and cost savings resulting from Time Inc.’s fourth quarter 2009 restructuring activities. In addition, for the nine months ended September 30, 2010, selling, general and administrative expenses decreased due to the absence of an $18 million prior year bad debt reserve related to a newsstand wholesaler.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     The results for the three and nine months ended September 30, 2010 included restructuring costs of $14 million and $22 million, respectively, as compared to restructuring costs for the three and nine months ended September 30, 2009 of $12 million and $7 million, respectively.

     Operating Income for the three and nine months ended September 30, 2010 increased due primarily to decreases in selling, general and administrative expenses and costs of revenues.

     Corporate.  Operating Loss of the Corporate segment for the three and nine months ended September 30, 2010 and 2009 is as follows (millions):

		Three Months Ended												Nine Months Ended
		9/30/10				9/30/09				% Change				9/30/10				9/30/09				% Change
Selling, general and administrative(a)		$	(77	)		$	(76	)			1%			$	(256	)		$	(238	)			8%
Depreciation			(9	)			(10	)			(10%)				(28	)			(30	)			(7%)
Operating Loss		$	(86	)		$	(86	)			-			$	(284	)		$	(268	)			6%

     For the three months ended September 30, 2010, Operating Loss was flat compared to the prior year, mainly reflecting an adjustment to a lease exit accrual, merit-based increases in compensation and severance charges, offset by lower pension expenses and lower legal and other professional fees related to the defense of former employees in various lawsuits. For the nine months ended September 30, 2010, Operating Loss increased compared to the prior year, due primarily to merit-based increases in compensation, severance charges and the adjustment to the lease exit accrual, partially offset by lower pension expenses.

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 quarterly dividend payments, the remainder of the $3 billion common stock repurchase program and scheduled debt repayments. 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, 2010 was $10.980 billion, which includes $4.009 billion of cash and equivalents.

Current Financial Condition

     At September 30, 2010, Time Warner had $16.557 billion of debt, $4.009 billion of cash and equivalents (net debt, defined as total debt less cash and equivalents, of $12.548 billion) and $33.009 billion of shareholders’ equity, compared to $16.208 billion of debt, $4.733 billion of cash and equivalents (net debt of $11.475 billion) and $33.396 billion of shareholders’ equity at December 31, 2009.

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     The following table shows the significant items contributing to the increase in consolidated net debt from December 31, 2009 to September 30, 2010 (millions):

Balance at December 31, 2009		$	11,475
Cash provided by operations from continuing operations			(2,319	)
Cash used by discontinued operations			23
Capital expenditures			337
Dividends paid to common stockholders			733
Investments and acquisitions, net(a)			605
Proceeds from the sale of investments			(116	)
Repurchases of common stock(b)			1,516
All other, net(c)			294
Balance at September 30, 2010		$	12,548

     On January 28, 2010, Time Warner’s Board of Directors increased the amount remaining on its common stock repurchase program to $3.0 billion for purchases beginning January 1, 2010. Purchases under the stock repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including price and business and market conditions. From January 1, 2010 through October 29, 2010, the Company repurchased approximately 54 million shares of common stock for approximately $1.7 billion pursuant to trading programs under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

Cash Flows

     Cash and equivalents decreased by $724 million, including $23 million of cash used by discontinued operations, for the nine months ended September 30, 2010 and increased by $5.891 billion, including $623 million of cash provided by discontinued operations, for the nine months ended September 30, 2009. Components of these changes are discussed below in more detail.

Operating Activities from Continuing Operations

     Details of cash provided by operations from continuing operations are as follows (millions):

		Nine Months Ended
		9/30/10				9/30/09
Operating Income		$	4,004			$	3,265
Depreciation and amortization			690				713
(Gain) loss on operating assets			(59	)			33
Noncash asset impairments			9				52
Net interest payments(a)			(743	)			(680	)
Net income taxes paid(b)			(851	)			(594	)
Noncash equity-based compensation			163				140
Restructuring payments, net of accruals			(84	)			(77	)
Amounts paid to settle litigation			(250	)			-
All other, net, including working capital changes			(560	)			(97	)
Cash provided by operations from continuing operations		$	2,319			$	2,755

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

     Cash provided by operations from continuing operations decreased to $2.319 billion for the nine months ended September 30, 2010 from $2.755 billion for the nine months ended September 30, 2009. The decrease in cash provided by operations from continuing operations was related primarily to cash used by working capital, higher income taxes paid, amounts paid to settle litigation, higher interest payments and losses on operating assets, partially offset by an increase in Operating Income. Working capital is subject to wide fluctuations based on the timing of cash transactions related to production schedules, the acquisition of programming, collection of accounts receivable and similar items.

Investing Activities from Continuing Operations

     Details of cash provided (used) by investing activities from continuing operations are as follows (millions):

		Nine Months Ended
		9/30/10				9/30/09
Investments in available-for-sale securities		$	(13	)		$	(4	)
Investments and acquisitions, net of cash acquired:
HBO LAG			(217	)			-
HBO CE			(136	)			-
Repurchase of Google Inc.’s 5% Interest in AOL			-				(283	)
Central European Media Enterprises Ltd.			-				(244	)
All other			(239	)			(173	)
Capital expenditures			(337	)			(351	)
Proceeds from the TWC Special Dividend			-				9,253
Proceeds from the sale of available-for-sale securities			-				50
All other investment and sale proceeds			116				174
Cash provided (used) by investing activities from continuing operations		$	(826	)		$	8,422

     Cash used by investing activities from continuing operations was $826 million for the nine months ended September 30, 2010 compared to cash provided by investing activities from continuing operations of $8.422 billion for the nine months ended September 30, 2009. The change in cash provided (used) by investing activities from continuing operations was primarily due to the Company’s receipt of $9.253 billion on March 12, 2009 as its portion of the payment by TWC of the special cash dividend of $10.27 per share to all holders of TWC Class A Common Stock and TWC Class B Common Stock as of the close of business on March 11, 2009 (the “Special Dividend”) in connection with the separation of TWC from the Company.

Financing Activities from Continuing Operations

     Details of cash used by financing activities from continuing operations are as follows (millions):

		Nine Months Ended
		9/30/10				9/30/09
Borrowings(a)		$	5,220			$	3,542
Debt repayments(a)			(4,856	)			(8,046	)
Proceeds from the exercise of stock options			85				23
Excess tax benefit on stock options			5				-
Principal payments on capital leases			(11	)			(14	)
Repurchases of common stock			(1,516	)			(676	)
Dividends paid			(733	)			(676	)
Other financing activities			(388	)			(62	)
Cash used by financing activities from continuing operations		$	(2,194	)		$	(5,909	)

     Cash used by financing activities from continuing operations decreased to $2.194 billion for the nine months ended September 30, 2010 from $5.909 billion for the nine months ended September 30, 2009. The decrease in cash used by

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

financing activities from continuing operations was primarily due to a decrease in debt repayments and an increase in borrowings, partially offset by an increase in repurchases of common stock made in connection with the Company’s common stock repurchase program. Other financing activities include the premiums and transaction costs paid in connection with the 2010 Debt Redemptions.

Cash Flows from Discontinued Operations

     Cash used by discontinued operations was $23 million for the nine months ended September 30, 2010 as compared to cash provided by discontinued operations of $623 million for the nine months ended September 30, 2009, which primarily reflected the cash activity of AOL.

Outstanding Debt and Other Financing Arrangements

Outstanding Debt and Committed Financial Capacity

     At September 30, 2010, Time Warner had total committed capacity, defined as maximum available borrowings under various existing debt arrangements and cash and short-term investments, of $27.607 billion. Of this committed capacity, $10.980 billion was unused and $16.557 billion was outstanding as debt. At September 30, 2010, total committed capacity, outstanding letters of credit, outstanding debt and total unused committed capacity were as follows (millions):

														Unused
		Committed				Letters of				Outstanding				committed
		Capacity(a)				Credit(b)				Debt(c)				capacity
Cash and equivalents		$	4,009			$	-			$	-			$	4,009
Revolving bank credit agreement and commercial paper program			6,900				57				-				6,843
Fixed-rate public debt			16,274				-				16,274				-
Other obligations(d)(e)			424				13				283				128
Total		$	27,607			$	70			$	16,557			$	10,980

2010 Debt Transactions

     On March 3, 2010, Time Warner filed a shelf registration statement with the Securities and Exchange Commission that allows it to offer and sell from time to time debt securities, preferred stock, common stock and warrants to purchase debt and equity securities. As summarized below, during 2010, the Company entered into a series of transactions to capitalize on the historically low interest rate environment and extend the maturities of its public debt.

     On March 11, 2010, Time Warner issued $2.0 billion aggregate principal amount of debt securities from the shelf registration statement, consisting of $1.4 billion aggregate principal amount of 4.875% Notes due 2020 and $600 million aggregate principal amount of 6.200% Debentures due 2040 (the “March 2010 Debt Offering”). On July 14, 2010, Time Warner issued $3.0 billion aggregate principal amount of debt securities from the shelf registration statement, consisting of $1.0 billion aggregate principal amount of 3.15% Notes due 2015, $1.0 billion aggregate principal amount of 4.70% Notes due 2021 and $1.0 billion aggregate principal amount of 6.10% Debentures due 2040 (the “July 2010 Debt Offering” and, together with the March 2010 Debt Offering, the “2010 Debt Offerings”). The securities issued pursuant to the 2010 Debt Offerings are guaranteed, on an unsecured basis, by Historic TW. In addition, Turner and HBO have guaranteed, on an

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

unsecured basis, Historic TW’s guarantee of the securities. The net proceeds to the Company from the 2010 Debt Offerings were $4.963 billion, after deducting underwriting discounts, and the net proceeds were used in connection with the 2010 Debt Redemptions and the Securitization Repayment, as defined below.

     During the three months ended September 30, 2010, the Company repurchased and redeemed all $1.0 billion aggregate principal amount of the 5.50% Notes due 2011 of Time Warner, $1.362 billion aggregate principal amount of the outstanding 6.875% Notes due 2012 of Time Warner and $568 million aggregate principal amount of the outstanding 9.125% Debentures due 2013 of Historic TW (as successor by merger to Time Warner Companies, Inc.). In addition, during the nine months ended September 30, 2010, the Company repurchased and redeemed all $1.0 billion aggregate principal amount of the 6.75% Notes due 2011 of Time Warner. The premiums paid and transaction costs incurred in connection with the 2010 Debt Redemptions were $295 million and $364 million for the three and nine months ended September 30, 2010, respectively, and were reflected in other income (loss), net in the Company’s consolidated statement of operations and were included in significant transactions and other items affecting comparability.

     During the first quarter of 2010, the Company repaid the $805 million outstanding under the Company’s two accounts receivable securitization facilities (the “Securitization Repayment”). The Company terminated the two accounts receivable securitization facilities on March 19, 2010 and March 24, 2010, respectively.

Programming Licensing Backlog

     Programming licensing backlog represents the amount of future revenues not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog was approximately $5.1 billion and $4.5 billion at September 30, 2010 and December 31, 2009, respectively. Included in these amounts is licensing of film product from the Filmed Entertainment segment to the Networks segment in the amount of $1.2 billion and $1.1 billion at September 30, 2010 and December 31, 2009, respectively.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

     This document 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 forward-looking statements in this document include, but are not limited to, statements regarding the adequacy of the Company’s liquidity to meet its needs for the foreseeable future, the expected decline in the number of HBO’s domestic subscribers, the impact of plan amendments on employee benefit plan expenses, the impact of restructuring activities in 2010 and the Company’s international expansion plans.

     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 differ materially from those set forth 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:

	•		recent and future changes in technology, services and standards, including, but not limited to, alternative methods for the delivery and storage of digital media and the maturation of the standard definition DVD format;
	•		changes in consumer behavior, including changes in spending or saving behavior and changes in when, where and how digital media is consumed;
	•		changes in the Company’s plans, initiatives and strategies, and consumer acceptance thereof;
	•		changes in advertising expenditures due to, among other things, the shift of advertising expenditures from traditional to digital media, pressure from public interest groups, changes in laws and regulations and other societal, political, technological and regulatory developments;

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION – (Continued)

	•		competitive pressures, including as a result of audience fragmentation and changes in technology;
	•		the popularity of the Company’s content;
	•		piracy and the Company’s ability to protect its content and intellectual property rights;
	•		lower than expected valuations associated with the cash flows and revenues at Time Warner’s segments, which could result in Time Warner’s inability to realize the value of recorded intangible assets and goodwill at those segments;
	•		the Company’s ability to deal effectively with an economic slowdown or other economic or market difficulty;
	•		decreased liquidity in the capital markets, including any reduction in the Company’s ability to access the capital markets for debt securities or obtain bank financings on acceptable terms;
	•		the effects of any significant acquisitions, dispositions and other similar transactions by the Company;
	•		the failure to meet earnings expectations;
	•		the adequacy of the Company’s risk management framework;
	•		changes in applicable accounting policies;
	•		the impact of terrorist acts, hostilities, natural disasters and pandemic viruses;
	•		changes in federal communication laws and regulations;
	•		changes in tax laws; 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, 2009.

     Any forward-looking statements made by the Company in this document speak only as of the date on which they are 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.

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 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 30, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

TIME WARNER INC.

CONSOLIDATED BALANCE SHEET

(Unaudited; millions, except share amounts)

		September 30,				December 31,
		2010				2009
ASSETS
Current assets
Cash and equivalents		$	4,009			$	4,733
Receivables, less allowances of $1,739 and $2,247			5,309				5,070
Securitized receivables			-				805
Inventories			1,945				1,769
Deferred income taxes			541				670
Prepaid expenses and other current assets			530				645
Total current assets			12,334				13,692
Noncurrent inventories and film costs			5,938				5,754
Investments, including available-for-sale securities			1,656				1,542
Property, plant and equipment, net			3,760				3,922
Intangible assets subject to amortization, net			2,500				2,676
Intangible assets not subject to amortization			7,775				7,734
Goodwill			29,826				29,639
Other assets			1,431				1,100
Total assets		$	65,220			$	66,059
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	6,934			$	7,807
Deferred revenue			815				781
Debt due within one year			34				57
Non-recourse debt			-				805
Current liabilities of discontinued operations			-				23
Total current liabilities			7,783				9,473
Long-term debt			16,523				15,346
Deferred income taxes			1,659				1,607
Deferred revenue			294				269
Other noncurrent liabilities			5,947				5,967
Commitments and Contingencies (Note 13)
Equity
Common stock, $0.01 par value, 1.640 billion and 1.634 billion shares issued and 1.114 billion and 1.157 billion shares outstanding			16				16
Paid-in-capital			157,473				158,129
Treasury stock, at cost (526 million and 477 million shares)			(28,534	)			(27,034	)
Accumulated other comprehensive loss, net			(620	)			(580	)
Accumulated deficit			(95,326	)			(97,135	)
Total Time Warner Inc. shareholders’ equity			33,009				33,396
Noncontrolling interests			5				1
Total equity			33,014				33,397
Total liabilities and equity		$	65,220			$	66,059

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited; millions, except per share amounts)

		Three Months Ended								Nine Months Ended
		9/30/10				9/30/09				9/30/10				9/30/09
Revenues		$	6,377			$	6,262			$	19,076			$	18,178
Costs of revenues			(3,529	)			(3,419	)			(10,481	)			(10,111	)
Selling, general and administrative			(1,409	)			(1,451	)			(4,409	)			(4,411	)
Amortization of intangible assets			(54	)			(71	)			(188	)			(214	)
Restructuring costs			(29	)			(29	)			(44	)			(92	)
Asset impairments			(9	)			(52	)			(9	)			(52	)
Gain (loss) on operating assets			-				-				59				(33	)
Operating income			1,347				1,240				4,004				3,265
Interest expense, net			(299	)			(299	)			(895	)			(909	)
Other income (loss), net			(307	)			(39	)			(377	)			(37	)
Income from continuing operations before income taxes			741				902				2,732				2,319
Income tax provision			(221	)			(320	)			(927	)			(846	)
Income from continuing operations			520				582				1,805				1,473
Discontinued operations, net of tax			-				81				-				407
Net income			520				663				1,805				1,880
Less Net (income) loss attributable to noncontrolling interests			2				(1	)			4				(34	)
Net income attributable to Time Warner Inc. shareholders		$	522			$	662			$	1,809			$	1,846
Amounts attributable to Time Warner Inc. shareholders:
Income from continuing operations		$	522			$	581			$	1,809			$	1,478
Discontinued operations, net of tax			-				81				-				368
Net income		$	522			$	662			$	1,809			$	1,846
Per share information attributable to Time Warner Inc. common shareholders:
Basic income per common share from continuing operations		$	0.46			$	0.49			$	1.58			$	1.24
Discontinued operations			-				0.07				-				0.30
Basic net income per common share		$	0.46			$	0.56			$	1.58			$	1.54
Average basic common shares outstanding			1,121.0				1,179.9				1,135.8				1,190.4
Diluted income per common share from continuing operations		$	0.46			$	0.49			$	1.57			$	1.23
Discontinued operations			-				0.06				-				0.31
Diluted net income per common share		$	0.46			$	0.55			$	1.57			$	1.54
Average diluted common shares outstanding			1,138.0				1,193.3				1,152.4				1,199.7
Cash dividends declared per share of common stock		$	0.2125			$	0.1875			$	0.6375			$	0.5625

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

(Unaudited; millions)

		2010				2009
OPERATIONS
Net income		$	1,805			$	1,880
Less Discontinued operations, net of tax			-				407
Net income from continuing operations			1,805				1,473
Adjustments for noncash and nonoperating items:
Depreciation and amortization			690				713
Amortization of film and television costs			4,670				4,652
Asset impairments			9				52
(Gain) loss on investments and other assets, net			(1	)			25
Equity in losses of investee companies, net of cash distributions			62				55
Equity-based compensation			163				140
Deferred income taxes			(31	)			156
Changes in operating assets and liabilities, net of acquisitions			(5,048	)			(4,511	)
Cash provided by operations from continuing operations			2,319				2,755
INVESTING ACTIVITIES
Investments in available-for-sale securities			(13	)			(4	)
Investments and acquisitions, net of cash acquired			(592	)			(700	)
Capital expenditures			(337	)			(351	)
Investment proceeds from available-for-sale securities			-				50
Proceeds from the Special Dividend paid by Time Warner Cable Inc.			-				9,253
Other investment proceeds			116				174
Cash provided (used) by investing activities from continuing operations			(826	)			8,422
FINANCING ACTIVITIES
Borrowings			5,220				3,542
Debt repayments			(4,856	)			(8,046	)
Proceeds from exercise of stock options			85				23
Excess tax benefit on stock options			5				-
Principal payments on capital leases			(11	)			(14	)
Repurchases of common stock			(1,516	)			(676	)
Dividends paid			(733	)			(676	)
Other financing activities			(388	)			(62	)
Cash used by financing activities from continuing operations			(2,194	)			(5,909	)
Cash provided (used) by continuing operations			(701	)			5,268
Cash provided (used) by operations from discontinued operations			(23	)			1,291
Cash used by investing activities from discontinued operations			-				(741	)
Cash used by financing activities from discontinued operations			-				(5,247	)
Effect of change in cash and equivalents of discontinued operations			-				5,320
Cash provided (used) by discontinued operations			(23	)			623
INCREASE (DECREASE) IN CASH AND EQUIVALENTS			(724	)			5,891
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			4,733				1,082
CASH AND EQUIVALENTS AT END OF PERIOD		$	4,009			$	6,973

TIME WARNER INC.

CONSOLIDATED STATEMENT OF EQUITY

Nine Months Ended September 30,

(Unaudited; millions)

		2010												2009
		Time Warner				Noncontrolling								Time Warner				Noncontrolling
		Shareholders				Interests				Total Equity				Shareholders				Interests				Total Equity
BALANCE AT BEGINNING OF PERIOD		$	33,396			$	1			$	33,397			$	42,292			$	3,035			$	45,327
Net income			1,809				(4	)			1,805				1,846				34				1,880
Other comprehensive income			(40	)			-				(40	)			239				-				239
Comprehensive income			1,769				(4	)			1,765				2,085				34				2,119
Cash dividends			(733	)			-				(733	)			(676	)			-				(676	)
Common stock repurchases			(1,500	)			-				(1,500	)			(699	)			-				(699	)
Time Warner Cable Inc. Special Dividend			-				-				-				-				(1,603	)			(1,603	)
Time Warner Cable Inc. Spin-off			-				-				-				(6,822	)			(1,167	)			(7,989	)
Repurchase of Google’s interest in AOL			-				-				-				9				(292	)			(283	)
Other			77				8				85				(38	)			(5	)			(43	)
BALANCE AT END OF PERIOD		$	33,009			$	5			$	33,014			$	36,151			$	2			$	36,153

See accompanying notes.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

     Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and entertainment company, whose businesses include television networks, filmed entertainment and publishing. Time Warner classifies its operations into three reportable segments: Networks: consisting principally of cable television networks that provide programming; Filmed Entertainment: consisting principally of feature film, television and home video production and distribution; and Publishing: consisting principally of magazine publishing. Financial information for Time Warner’s various reportable segments is presented in Note 12.

Basis of Presentation

Interim Financial Statements

     The consolidated financial statements are unaudited; however, in the opinion of management, they contain all of the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, the 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 recast consolidated financial statements of Time Warner as of December 31, 2009 and 2008 and for each year in the three-year period ended December 31, 2009, including the accompanying supplementary information and schedule, and the related Management’s Discussion and Analysis of Results of Operations and Financial Condition filed as an exhibit to the Company’s Current Report on Form 8-K dated May 14, 2010 and filed with the Securities and Exchange Commission (the “SEC”) on July 7, 2010 (the “July 2010 8-K”). The recast financial information included in the July 2010 8-K reflects the retrospective adoption of amendments to accounting guidance pertaining to the accounting for transfers of financial assets and variable interest entities (“VIEs”) as described below.

Basis of Consolidation

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

     The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Translation gains or losses of assets and liabilities are included in the consolidated statement of shareholders’ equity as a component of accumulated other comprehensive income, net.

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, allowances for doubtful accounts, depreciation and amortization, film costs amortization, home video and magazine returns, business combinations, pension and other postretirement benefits, equity-based compensation, income taxes, contingencies, litigation matters, certain programming arrangements and the determination of whether the Company is the primary beneficiary of entities in which it holds variable interests.

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Guidance Adopted in 2010

Amendments to Accounting for Transfers of Financial Assets and VIEs

     On January 1, 2010, the Company adopted guidance on a retrospective basis that (i) eliminated the concept of a qualifying special-purpose entity (“SPE”), (ii) eliminated the exception from applying existing accounting guidance related to VIEs that were previously considered qualifying SPEs, (iii) changed the approach for determining the primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model based on control and (iv) requires the Company to assess each reporting period whether any of the Company’s variable interests give it a controlling financial interest in the applicable VIE.

     The Company’s investments in entities determined to be VIEs principally consist of certain investments at its Networks segment, primarily HBO Asia, HBO South Asia and HBO Latin America Group (“HBO LAG”), which operate multi channel pay-television programming services. As of September 30, 2010, the Company held an 80% economic interest in HBO Asia, a 75% economic interest in HBO South Asia and an approximate 80% economic interest in HBO LAG. The Company previously consolidated these entities; however, as a result of adopting this guidance, because voting control is shared with the other partners in each of the three entities, the Company determined that it is no longer the primary beneficiary of these entities and effective January 1, 2010 accounts for these investments using the equity method. As of September 30, 2010 and December 31, 2009, the Company’s aggregate investment in these three entities was $589 million and $362 million, respectively, and recorded in investments, including available-for-sale securities, in the consolidated balance sheet.

     The Company provides programming as well as certain services, including distribution, licensing, technological and administrative support, to HBO Asia, HBO South Asia and HBO LAG. These investments are intended to enable the Company to more broadly leverage its programming and digital strategy in the territories served and to capitalize on the growing multi channel television market in such territories. These entities are financed substantially through cash flows from their operations, and the Company is not obligated to provide them with any additional financial support. In addition, the assets of these entities are not available to settle obligations of the Company.

     The adoption of this guidance with respect to these entities resulted in an increase (decrease) to revenues, operating income and net income attributable to Time Warner Inc. shareholders of $(104) million, $(14) million and $1 million, respectively, for the three months ended September 30, 2009 and $(287) million, $(55) million and $5 million, respectively, for the nine months ended September 30, 2009. The impact on the consolidated balance sheet as of December 31, 2009 and consolidated statement of cash flows for the nine months ended September 30, 2009 was not material.

     The Company also held variable interests in two wholly owned SPEs through which the activities of its accounts receivable securitization facilities were conducted. The Company determined it was the primary beneficiary of these entities because of its ability to direct the key activities of the SPEs that most significantly impact their economic performance. Accordingly, as a result of adopting this guidance, the Company consolidated these SPEs, which resulted in an increase to securitized receivables and non-recourse debt of $805 million as of December 31, 2009. In addition, for the nine months ended September 30, 2009, cash provided by operations increased by $33 million, with an offsetting decrease to cash used by financing activities. The impact on the consolidated statement of operations was not material. During the first quarter of 2010, the Company repaid the $805 million outstanding under these facilities and terminated the two facilities on March 19, 2010 and on March 24, 2010, respectively.

Accounting for Collaborative Arrangements

     The Company’s collaborative arrangements primarily relate to arrangements entered into with third parties to jointly finance and distribute theatrical productions. For the three months ended September 30, 2010 and 2009, net participation costs of $138 million and $43 million, respectively, were recorded in costs of revenues and net amounts received from collaborators for which capitalized film costs were reduced was $76 million and $2 million, respectively. For the nine months ended September 30, 2010 and 2009, net participation costs of $348 million and $220 million, respectively, were recorded in costs of revenues, and net amounts received from collaborators for which capitalized film costs were reduced were $304 million and $144 million, respectively. As of September 30, 2010 and December 31, 2009, the net amounts due

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

to collaborators for their respective shares of participations were $300 million and $332 million, respectively, and were recorded in participations payable in the consolidated balance sheet.

2.  BUSINESS ACQUISITIONS AND DISPOSITIONS

HBO LAG

     On March 9, 2010, Home Box Office, Inc. (“HBO”) purchased additional interests in HBO LAG for $217 million in cash, which resulted in HBO owning 80% of the equity interests of HBO LAG. HBO LAG is considered a VIE and, because voting control of the entity is shared equally with another investor, the Company has determined it is not the primary beneficiary of this entity. Accordingly, HBO accounts for this investment under the equity method of accounting.

HBO Central Europe Acquisition

     On January 27, 2010, HBO purchased the remainder of its partners’ interests in HBO Central Europe (“HBO CE”) for $136 million in cash, net of cash acquired. HBO CE operates the HBO and Cinemax premium pay television programming services serving various territories in Central Europe. This transaction resulted in HBO owning all of HBO CE, and the Company has consolidated the results of operations and financial condition of HBO CE effective January 27, 2010. Prior to this transaction, HBO held a 33% interest in HBO CE, which was accounted for under the equity method of accounting. Upon the acquisition of the controlling interest in HBO CE, a gain of $59 million was recognized reflecting the excess of the fair value over the Company’s carrying cost of its original investment in HBO CE. The fair value of HBO’s original investment in HBO CE of $78 million was determined using the consideration paid in the January 27, 2010 purchase, which was primarily derived using a combination of market and income valuation techniques.

Summary of Discontinued Operations

     During 2009, the Company completed the legal and structural separations of Time Warner Cable Inc. (“TWC”) and AOL Inc. (“AOL”). With the completion of these separations, the Company disposed of its Cable and AOL segments in their entirety and ceased to consolidate their financial condition and results of operations in its consolidated financial statements. Discontinued operations include TWC’s results for the period from January 1, 2009 through March 12, 2009 and AOL’s results for the period from January 1, 2009 through September 30, 2009.

     Financial data for the discontinued operations is as follows (millions, except per share amounts):

		Three Months				Nine Months
		Ended				Ended
		9/30/09				9/30/09
Total revenues		$	777			$	5,891
Pretax income			157				734
Income tax provision			(76	)			(327	)
Net income		$	81			$	407
Net income attributable to Time Warner Inc. shareholders		$	81			$	368
Per share information attributable to Time Warner Inc. common shareholders:
Basic net income per common share		$	0.07			$	0.30
Diluted net income per common share		$	0.06			$	0.31

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3.  INVENTORIES AND FILM COSTS