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

		for the quarterly period ended March 31, 2011 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.
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		15
Consolidated Balance Sheet at March 31, 2011 and December 31, 2010		16
Consolidated Statement of Operations for the Three Months Ended March 31, 2011 and 2010		17
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2011 and 2010		18
Consolidated Statement of Equity for the Three Months Ended March 31, 2011 and 2010		19
Notes to Consolidated Financial Statements		20
Supplementary Information		33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		40
Item 1A. Risk Factors		40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 6. Exhibits		40
EX-31.1
EX-31.2
EX-32
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EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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 months ended March 31, 2011. 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 March 31, 2011 and cash flows for the three months ended March 31, 2011.
	•		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 TNT, TBS, CNN, HBO, Cinemax, Warner Bros., New Line Cinema, People, Sports Illustrated and Time. During the three months ended March 31, 2011, the Company generated revenues of $6.683 billion (up 6% from $6.322 billion in 2010), Operating Income of $1.270 billion (down 13% from $1.463 billion in 2010), Net Income attributable to Time Warner shareholders of $653 million (down 10% from $725 million in 2010) and Cash Provided by Operations from Continuing Operations of $825 million (down 39% from $1.356 billion in 2010).

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 11, “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. (“Home Box Office”). During the three months ended March 31, 2011, the Networks segment generated revenues of $3.496 billion (52% of the Company’s overall revenues) and $1.162 billion in Operating Income.

     Turner operates domestic and international networks, including such recognized brands as TNT, TBS, and CNN, which are among the leaders in advertising-supported cable television networks. The Turner networks generate revenues principally from providing programming to affiliates that have contracted to receive and distribute this programming and from the sale of advertising. Turner also operates various websites, including CartoonNetwork.com, CNN.com, Golf.com NASCAR.com, NCAA.com and SI.com that generate revenues principally from the sale of advertising. During the first quarter of 2011, as part of a 14-year arrangement with CBS Broadcasting, Inc. (“CBS”) and The National Collegiate Athletic Association, Turner and CBS began jointly producing and distributing the NCAA Division I Men’s Basketball Championship events (the “NCAA Tournament”) and related programming across television, Internet and wireless platforms. The events were televised on Turner’s TNT, TBS and truTV networks and on the CBS network.

     Home Box Office operates the HBO and Cinemax multi-channel premium pay television services, with the HBO service ranking as the most widely distributed domestic premium pay television service. Home Box Office generates revenues principally from providing programming to affiliates that have contracted to receive and distribute such programming to their customers who choose to subscribe to the HBO or Cinemax services. An additional source of revenues for Home Box Office is the sale and licensing of its original programming, including The Pacific, Sex and the City, True Blood and Boardwalk Empire. On May 2, 2011, Home Box Office launched HBO GO, its authenticated online video service, on mobile devices including the iPad, iPhone and Android smart phones. HBO GO was available to approximately 80% of HBO’s domestic subscriber base as of May 2, 2011.

     The Company’s Networks segment has been pursuing international expansion in select areas for the past several years. During the first quarter of 2011, Home Box Office purchased an additional 8% equity interest in HBO Latin America Group, consisting of HBO Brazil, HBO Olé and HBO Latin America Production Services (collectively, “HBO LAG”), resulting in Home Box Office owning 88% of the equity interests in HBO LAG. The investment in HBO LAG is accounted for under the equity method of accounting, because control of the entity is shared with the remaining minority partner. 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 the Harry Potter franchise, Inception and Clash of the Titans, as well as television shows and videogames. During the three months ended March 31, 2011, the Filmed Entertainment segment generated revenues of $2.604 billion (36% of the Company’s overall revenues) and $158 million in Operating Income.

     The Filmed Entertainment segment’s theatrical product revenues are generated principally through rentals from theatrical exhibition and subsequently through licensing fees received for the distribution of films on television networks

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

and pay television programming services. Television product revenues are generated principally 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. In addition, the Filmed Entertainment segment generates revenues through the distribution of interactive videogames.

     Warner Bros. continues to be an industry leader in the television content business. At the beginning of the 2010-2011 broadcast season, Warner Bros. produced more than 30 scripted primetime series, with at least two series for each of the five broadcast networks (including Two and a Half Men, The Mentalist, The Big Bang Theory, Mike & Molly, Gossip Girl, Fringe, The Middle and Chuck) and original series for several cable networks (including The Closer, Rizzoli & Isles and Pretty Little Liars). Internationally, Warner Bros. is forming a group of local television production companies in major territories with a focus on non-scripted programs and formats that can be sold internationally and adapted for sale in the U.S. Warner Bros. is also creating locally produced versions of programs owned by the studio and is developing original local television programming.

     The distribution of DVDs has been one of the largest drivers of the segment’s revenues and profits over the last several years. However, in recent years, home video revenues have declined as a result of several factors, including consumers shifting to subscription rental services and discount rental kiosks, which generate significantly less revenue per transaction for the Company than DVD sales, 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. Partially offsetting the softening consumer demand for standard definition DVDs and the shift to subscription services and kiosks are 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.

     Publishing. Time Warner’s Publishing segment consists principally of magazine publishing and related websites as well as marketing services and direct-marketing businesses that are all primarily conducted by Time Inc. During the three months ended March 31, 2011, the Publishing segment generated revenues of $798 million (12% of the Company’s overall revenues) and $63 million in Operating Income.

     As of March 31, 2011, Time Inc. published 22 magazines in the U.S., including People, Sports Illustrated and Time, and over 70 magazines outside the U.S. The Publishing segment generates revenues primarily from the sale of print advertising, magazine subscriptions and newsstand sales. For the three months ended March 31, 2011, digital Advertising revenues were 13% of Time Inc.’s total Advertising revenues.

     In its ongoing effort to improve efficiency and reduce its cost structure, the Publishing segment executed restructuring initiatives, primarily relating to headcount reductions, in the fourth quarter of 2010, which benefitted the segment’s performance during the three months ended March 31, 2011 and are expected to benefit the segment’s performance during the remainder of 2011.

Recent Developments

2011 Debt Offering

     On April 1, 2011, Time Warner issued $2.0 billion aggregate principal amount of debt securities from its shelf registration statement. The net proceeds of the offering will be used for general corporate purposes. See “Financial Condition and Liquidity – Outstanding Debt and Other Financing Arrangements” for more information.

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

RESULTS OF OPERATIONS

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 has been affected by significant transactions and certain other items in each period as follows (millions):

		Three Months Ended March 31,
		2011				2010
Gain on operating assets		$	3			$	59
Other			(8	)			(11	)
Impact on Operating Income			(5	)			48
Investment gains (losses), net			4				(3	)
Amounts related to the separation of Time Warner Cable Inc.			4				(3	)
Premiums paid and transaction costs incurred in connection with debt redemptions			-				(55	)
Pretax impact(a)			3				(13	)
Income tax impact of above items			3				23
Impact of items on net income attributable to Time Warner Inc. shareholders		$	6			$	10

     In addition to the items affecting comparability described above, the Company incurred restructuring and severance costs of $30 million and $9 million for the three months ended March 31, 2011 and 2010, respectively. For further discussion of restructuring and severance costs, refer to “Consolidated Results” and “Business Segment Results.”

Gain on Operating Assets

     For the three months ended March 31, 2011, the Company recognized a $3 million gain related to contingent consideration at the Filmed Entertainment segment.

     For the three months ended March 31, 2010, the Company recognized a $59 million gain at the Networks segment upon the acquisition of its controlling interest in HBO Central Europe (“HBO CE”), reflecting the recognition of the excess of the fair value over the Company’s carrying costs of its original investment in HBO CE.

Other

     Other reflects legal and other professional fees related to the defense of securities litigation matters by former employees totaling $2 million and $11 million for the three months ended March 31, 2011 and 2010, respectively. Other also reflects external costs related to mergers, acquisitions or dispositions of $6 million for the three months ended March 31, 2011 at the Networks segment.

Investment Gains (Losses), Net

     For the three months ended March 31, 2011 and 2010, the Company recognized $4 million of miscellaneous investment gains and $3 million of miscellaneous investment losses, respectively.

Amounts Related to the Separation of Time Warner Cable Inc.

     For the three months ended March 31, 2011 and 2010, the Company recognized $4 million of other income and $3 million of other loss, respectively, related to the expiration, exercise and net change in the estimated fair value of Time

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

Warner equity awards held by Time Warner Cable Inc. employees, which has been reflected in other loss, net in the accompanying consolidated statement of operations.

Premiums Paid and Transaction Costs Incurred in Connection with Debt Redemptions

     For the three months ended March 31, 2010, the Company recognized $55 million of premiums paid and transaction costs incurred on the repurchase of $773 million of the Company’s outstanding 6.75% Notes due 2011, which was recorded in other loss, net in the accompanying consolidated statement of operations.

Income Tax Impact

     The income tax impact reflects the estimated tax provision or tax benefit associated with each item affecting comparability. 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.

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 March 31,
		2011				2010				% Change
Subscription		$	2,368			$	2,212			7%
Advertising			1,431				1,192			20%
Content			2,733				2,793			(2%)
Other			151				125			21%
Total revenues		$	6,683			$	6,322			6%

     The increase in Subscription revenues for the three months ended March 31, 2011 was primarily related to an increase at the Networks segment. Advertising revenues increased for the three months ended March 31, 2011 primarily reflecting growth at the Networks segment. The decrease in Content revenues for the three months ended March 31, 2011 was due primarily to a decrease at the Filmed Entertainment segment and higher intercompany eliminations, partially offset by an increase at the Networks segment.

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

     Costs of Revenues. For the three months ended March 31, 2011 and 2010, costs of revenues totaled $3.727 billion and $3.353 billion, respectively, and, as a percentage of revenues, were 56% and 53%, respectively. The segment variations are discussed in “Business Segment Results.”

     Selling, General and Administrative Expenses. For the three months ended March 31, 2011, selling, general and administrative expenses increased 7% to $1.591 billion from $1.488 billion for the three months ended March 31, 2010 primarily due to an increase at the Networks segment. The segment variations are discussed in “Business Segment Results.”

     Included in costs of revenues and selling, general and administrative expenses is depreciation expense of $163 million and $164 million for the three months ended March 31, 2011 and 2010, respectively.

     Amortization Expense. Amortization expense was $68 million for both the three months ended March 31, 2011 and 2010.

     Restructuring and Severance Costs. For the three months ended March 31, 2011, the Company incurred restructuring and severance costs of $30 million primarily related to employee terminations and other exit activities, consisting of $12

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

million at the Networks segment, $6 million at the Filmed Entertainment segment and $12 million at the Publishing segment.

     For the three months ended March 31, 2010, the Company incurred restructuring and severance costs of $9 million primarily related to employee terminations and other exit activities, consisting of $4 million at the Filmed Entertainment segment and $5 million at the Publishing segment.

     Operating Income. Operating Income decreased to $1.270 billion for the three months ended March 31, 2011 from $1.463 billion for the three months ended March 31, 2010. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $5 million of expense and $48 million of income for the three months ended March 31, 2011 and 2010, respectively, Operating Income decreased $140 million, primarily reflecting a decrease at the Filmed Entertainment segment, partially offset by increases at the Networks and Publishing segments. The segment variations are discussed under “Business Segment Results.”

     Interest Expense, Net. For the three months ended March 31, 2011, interest expense, net, decreased to $274 million from $296 million for the three months ended March 31, 2010 primarily due to lower rates on fixed rate debt and to interest income recognized on amounts held in escrow in connection with a dispute that has been resolved.

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

		Three Months Ended March 31,
		2011				2010
Investment gains (losses), net		$	4			$	(3	)
Amounts related to the separation of TWC			4				(3	)
Premiums paid and transaction costs incurred in connection with debt redemption			-				(55	)
Loss from equity method investees			(18	)			-
Other			(4	)			8
Other loss, net		$	(14	)		$	(53	)

     The changes in other loss, net related to investment gains (losses), net, amounts related to the separation of TWC and premiums paid and transaction costs incurred in connection with debt redemptions are discussed under “Significant Transactions and Other Items Affecting Comparability.” The remaining change was due primarily to losses from equity method investees for the three months ended March 31, 2011.

     Income Tax Provision. Income tax expense decreased to $331 million for the three months ended March 31, 2011 from $389 million for the three months ended March 31, 2010. The Company’s effective tax rate for continuing operations was 34% for the three months ended March 31, 2011 compared to 35% for three months ended March 31, 2010. This decrease was primarily due to lower state taxes.

     Net Income. Net income decreased to $651 million for the three months ended March 31, 2011 from $725 million for the three months ended March 31, 2010. Excluding the items previously noted under “Significant Transactions and Other Items Affecting Comparability” totaling $6 million and $10 million of income, net for the three months ended March 31, 2011 and 2010, respectively, net income decreased by $70 million, primarily reflecting lower Operating Income, partially offset by decreases in income tax and interest expense.

     Net Loss Attributable to Noncontrolling Interests. For the three months ended March 31, 2011 net loss attributable to noncontrolling interests was $2 million.

     Net Income Attributable to Time Warner Inc. Shareholders. Net income attributable to Time Warner Inc. shareholders was $653 million and $725 million for the three months ended March 31, 2011 and 2010, respectively. Basic and diluted net income per common share attributable to Time Warner Inc. common shareholders were both $0.59 for the three months ended March 31, 2011 compared to $0.63 and $0.62, respectively, for the three months ended March 31, 2010.

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 months ended March 31, 2011 and 2010 are as follows (millions):

		Three Months Ended March 31,
		2011				2010				% Change
Revenues:
Subscription		$	2,055			$	1,888			9%
Advertising			1,032				790			31%
Content			372				252			48%
Other			37				28			32%
Total revenues			3,496				2,958			18%
Costs of revenues(a)			(1,647	)			(1,234	)		33%
Selling, general and administrative(a)			(582	)			(491	)		19%
Gain on operating assets			-				59			NM
Restructuring and severance costs			(12	)			-			NM
Depreciation			(83	)			(84	)		(1%)
Amortization			(10	)			(7	)		43%
Operating Income		$	1,162			$	1,201			(3%)

     The increase in Subscription revenues consisted of an increase in domestic subscription revenues of $121 million, mainly due to higher domestic subscription rates, and an increase in international subscription revenues of $46 million due to international expansion and growth.

     The increase in Advertising revenues reflected domestic growth of $191 million mainly as a result of Turner airing the NCAA Tournament as well as higher pricing. International advertising revenues increased $51 million primarily due to international expansion.

     The increase in Content revenues was due primarily to higher sales of Home Box Office’s original programming of $92 million, which included licensing and home video sales of The Pacific, Sex and the City and Boardwalk Empire, partially offset by the prior year domestic basic cable television sale of Entourage.

     Costs of revenues increased 33% and, as a percentage of revenues, were 47% for the three months ended March 31, 2011 compared to 42% for the three months ended March 31, 2010. Programming costs increased 37% to $1.282 billion for the three months ended March 31, 2011 from $933 million for the three months ended March 31, 2010, primarily due to higher sports programming costs related to the NCAA Tournament and, to a lesser extent, higher original programming and licensed programming costs. The increases in Costs of revenues also reflected higher operating costs of $64 million primarily related to both higher distribution costs associated with the increase in sales of Home Box Office’s original programming and higher costs related to international expansion and growth.

     Selling, general and administrative expenses increased due primarily to higher marketing expenses and higher costs associated with international expansion and growth.

     As previously noted under “Significant Transactions and Other Items Affecting Comparability,” the 2010 results included a $59 million gain that was recognized upon the Company’s 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.

     Operating Income decreased primarily due to higher costs of revenues and selling, general and administrative expenses as well as the absence in 2011 of the $59 million gain relating to HBO CE, partially offset by higher revenues.

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

     Filmed Entertainment. Revenues and Operating Income of the Filmed Entertainment segment for the three months ended March 31, 2011 and 2010 are as follows (millions):

		Three Months Ended March 31,
		2011				2010				% Change
Revenues:
Subscription		$	18			$	12			50%
Advertising			11				13			(15%)
Content			2,535				2,641			(4%)
Other			40				28			43%
Total revenues			2,604				2,694			(3%)
Costs of revenues(a)			(1,880	)			(1,869	)		1%
Selling, general and administrative(a)			(468	)			(423	)		11%
Gain (loss) on operating assets			3				-			NM
Restructuring and severance costs			(6	)			(4	)		50%
Depreciation			(48	)			(42	)		14%
Amortization			(47	)			(49	)		(4%)
Operating Income		$	158			$	307			(49%)

     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 months ended March 31, 2011 and 2010 are as follows (millions):

		Three Months Ended March 31,
		2011				2010				% Change
Theatrical product:
Theatrical film		$	335			$	497			(33%)
Home video and electronic delivery			541				696			(22%)
Television licensing			394				410			(4%)
Consumer products and other			31				17			82%
Total theatrical product			1,301				1,620			(20%)
Television product:
Television licensing			878				676			30%
Home video and electronic delivery			135				156			(13%)
Consumer products and other			58				56			4%
Total television product			1,071				888			21%
Other			163				133			23%
Total Content revenues		$	2,535			$	2,641			(4%)

     Theatrical film revenues for the three months ended March 31, 2011, which included the releases of Unknown, The Rite and Hall Pass and carryover revenues from Yogi Bear, Harry Potter and the Deathly Hallows: Part I and Hereafter, decreased compared to revenues for the three months ended March 31, 2010, which included the releases of Valentine’s Day and The Book of Eli and carryover revenues from Sherlock Holmes and The Blind Side.

     Theatrical product revenues from home video and electronic delivery decreased due primarily to a significant decrease in the quantity and mix of new releases in 2011. There were five releases in the first quarter of 2011 and eleven in the first quarter of 2010. Significant titles for the first quarter of 2011 included Due Date, Life As We Know It and Yogi Bear, while titles for the first quarter of 2010 included The Blind Side, Sherlock Holmes, Where the Wild Things Are, The Final Destination and The Time Traveler’s Wife.

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

     Theatrical product revenues from television licensing decreased due primarily to the quantity and mix of availabilities in the first quarter of 2011 compared to the first quarter of 2010, which included Harry Potter and the Order of the Phoenix.

     The increase in television product licensing fees for the three months ended March 31, 2011 was due primarily to higher revenues from network deliveries of new series, the domestic off-network syndication sale of Two and a Half Men and the timing and number of international availabilities.

     Television product revenues from home video and electronic delivery decreased due to the timing and mix of product.

     Other content revenues for the three months ended March 31, 2011 increased primarily due to the interactive videogame release of LEGO Star Wars III: The Clone Wars, partially offset by lower interactive videogame carryover revenues.

     The increase in costs of revenues resulted primarily from higher film costs due mainly to the quantity and mix of product released. Film costs increased to $1.147 billion for the three months ended March 31, 2011 from $1.133 billion for the three months ended March 31, 2010. Costs of revenues as a percentage of revenues were 72% for the three months ended March 31, 2011 compared to 69% for the three months ended March 31, 2010. This percentage varies from period to period based on the quantity, mix and timing of theatrical and television product.

     The increase in selling, general and administrative expenses was primarily due to merit-based increases in compensation and higher employee-related costs as a result of international expansion.

     The Filmed Entertainment segment incurred $6 million of restructuring and severance costs for the three months ended March 31, 2011 and expects to incur additional restructuring and severance costs of approximately $50 million in the remainder of the year, the majority of which is expected to be incurred in the second and third quarters of 2011.

     The decrease in Operating Income was primarily due to lower revenues and higher selling, general and administrative expenses and costs of revenues.

     Publishing. Revenues and Operating Income of the Publishing segment for the three months ended March 31, 2011 and 2010 are as follows (millions):

		Three Months Ended March 31,
		2011				2010				% Change
Revenues:
Subscription		$	295			$	312			(5%)
Advertising			402				401			-
Content			16				14			14%
Other			85				72			18%
Total revenues			798				799			-
Costs of revenues(a)			(312	)			(307	)		2%
Selling, general and administrative(a)			(375	)			(396	)		(5%)
Restructuring and severance costs			(12	)			(5	)		140%
Depreciation			(25	)			(29	)		(14%)
Amortization			(11	)			(12	)		(8%)
Operating Income		$	63			$	50			26%

     For the three months ended March 31, 2011, subscription revenues decreased primarily due to lower international revenues of $9 million due in part to the disposal by sale of certain magazines at IPC in the fourth quarter of 2010 (the “IPC Sales”) and lower domestic subscription and newsstand revenues.

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

     Advertising revenues for the three months ended March 31, 2011 were essentially flat primarily due to a $10 million increase in domestic print advertising revenues offset by the negative impact on digital advertising revenues related to the transfer of management of SI.com and Golf.com to Turner in the fourth quarter of 2010 and the IPC Sales. Excluding the impact of the transfer of SI.com and Golf.com, digital advertising revenues at the Publishing segment increased compared to the prior year quarter. This transfer had a commensurate increase in digital advertising revenues at the Networks segment.

     The increase in Other revenues was due primarily to a license fee for SI.com and Golf.com received from Turner following the transfer of the websites’ management to Turner.

     Costs of revenues increased 2% and, as a percentage of revenues, were 39% for the three months ended March 31, 2011 compared to 38% for the three months ended March 31, 2010. Costs of revenues for the magazine and digital businesses include manufacturing costs (paper, printing and distribution) and editorial-related costs, which together were $275 million for the three months ended March 31, 2011 and $274 million for the three months ended March 31, 2010.

     Selling, general and administrative expenses for the three months ended March 31, 2011 decreased due primarily to lower pension expenses and lower costs due to the restructuring initiatives in the fourth quarter of 2010.

     Operating Income increased due primarily to the decrease in selling, general and administrative expenses, partially offset by higher restructuring and severance costs.

     Corporate. Operating Loss of the Corporate segment for the three months ended March 31, 2011 and 2010 was as follows (millions):

		Three Months Ended March 31,
		2011				2010				% Change
Selling, general and administrative(a)		$	(86	)		$	(99	)		(13%)
Depreciation			(7	)			(9	)		(22%)
Operating Loss		$	(93	)		$	(108	)		(14%)

     Operating Loss decreased compared to the prior year due primarily to lower legal and other professional fees related to the defense of former employees in various lawsuits and the absence of prior year severance charges.

FINANCIAL CONDITION AND LIQUIDITY

     Management believes that cash generated by or available to the Company should be sufficient to fund its capital and liquidity needs for the foreseeable future, including quarterly dividend payments, the purchase of common stock under the Company’s 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 March 31, 2011 was $8.080 billion, which included $3.029 billion of cash and equivalents. The Company anticipates its consolidated leverage ratio will move closer to its stated target during 2011.

Current Financial Condition

     At March 31, 2011, Time Warner had $16.563 billion of debt, $3.029 billion of cash and equivalents (net debt, defined as total debt less cash and equivalents, of $13.534 billion) and $32.237 billion of shareholders’ equity, compared to $16.549 billion of debt, $3.663 billion of cash and equivalents (net debt of $12.886 billion) and $32.940 billion of shareholders’ equity at December 31, 2010.

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 net debt from December 31, 2010 to March 31, 2011 (millions):

Balance at December 31, 2010		$	12,886
Cash provided by operations from continuing operations			(825	)
Capital expenditures			152
Dividends paid to common stockholders			261
Investments and acquisitions, net			160
Proceeds from the sale of investments			(5	)
Repurchases of common stock			959
All other, net			(54	)
Balance at March 31, 2011		$	13,534

     On January 25, 2011, Time Warner’s Board of Directors increased the amount remaining on the Company’s common stock repurchase program to $5.0 billion for share repurchases beginning January 1, 2011. 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, 2011 through April 29, 2011, the Company repurchased approximately 37 million shares of common stock for approximately $1.317 billion pursuant to trading programs under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Cash Flows

     Cash and equivalents decreased by $634 million for the three months ended March 31, 2011 and increased by $434 million, including $23 million of cash used by discontinued operations, for the three months ended March 31, 2010. 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):

		Three Months Ended
		3/31/11				3/31/10
Operating Income		$	1,270			$	1,463
Depreciation and amortization			231				232
Gain on operating assets			(3	)			(59	)
Net interest payments(a)			(213	)			(148	)
Net income taxes paid(b)			(137	)			(80	)
Noncash equity-based compensation			102				90
Restructuring and severance payments, net of accruals			(7	)			(52	)
All other, net, including working capital changes			(418	)			(90	)
Cash provided by operations from continuing operations		$	825			$	1,356

(a)		Includes cash interest received of $5 million for both the three months ended March 31, 2011 and 2010.
(b)		Includes income tax refunds received of $4 million and $8 million for the three months ended March 31, 2011 and 2010, respectively.

     Cash provided by operations from continuing operations decreased to $825 million for the three months ended March 31, 2011 from $1.356 billion for the three months ended March 31, 2010. The decrease in cash provided by operations from continuing operations was related primarily to cash used by working capital, lower Operating Income, higher net interest payments and higher net income taxes paid. 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. The Company anticipates that cash used by working capital in 2011 will increase over 2010 primarily due to higher investments in television programming and film production.

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

Investing Activities from Continuing Operations

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

		Three Months Ended
		3/31/11				3/31/10
Investments in available-for-sale securities		$	-			$	(1	)
Investments and acquisitions, net of cash acquired:
HBO LAG			(65	)			(217	)
HBO CE			-				(136	)
All other			(95	)			(121	)
Capital expenditures			(152	)			(89	)
All other investment and sale proceeds			5				29
Cash used by investing activities from continuing operations		$	(307	)		$	(535	)

     Cash used by investing activities from continuing operations was $307 million for the three months ended March 31, 2011 and $535 million for the three months ended March 31, 2010. The decrease was primarily the result of fewer investments and acquisitions, partially offset by higher capital expenditures.

Financing Activities from Continuing Operations

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

		Three Months Ended
		3/31/11				3/31/10
Borrowings		$	22			$	2,092
Debt repayments			(21	)			(1,669	)
Proceeds from the exercise of stock options			118				42
Excess tax benefit on stock options			14				1
Principal payments on capital leases			(2	)			(4	)
Repurchases of common stock			(959	)			(514	)
Dividends paid			(261	)			(248	)
Other financing activities			(63	)			(64	)
Cash used by financing activities from continuing operations		$	(1,152	)		$	(364	)

     Cash used by financing activities from continuing operations was $1.152 billion for the three months ended March 31, 2011 and $364 million for the three months ended March 31, 2010. The increase in cash used by financing activities from continuing operations was primarily due to a decrease in net borrowings and an increase in repurchases of common stock made in connection with the Company’s common stock repurchase program, partially offset by higher proceeds from the exercise of stock options.

Cash Flows from Discontinued Operations

     Cash used by discontinued operations was $23 million for the three months ended March 31, 2010.

Outstanding Debt and Other Financing Arrangements

Outstanding Debt and Committed Financial Capacity

     At March 31, 2011, Time Warner had total committed capacity, defined as maximum available borrowings under various existing debt arrangements and cash and short-term investments, of $24.710 billion. Of this committed capacity,

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

$8.080 billion was unused and $16.563 billion was outstanding as debt. At March 31, 2011, 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		$	3,029			$	-			$	-			$	3,029
Revolving bank credit agreement and commercial paper program			5,000				25				-				4,975
Fixed-rate public debt			16,278				-				16,278				-
Other obligations(d)			403				42				285				76
Total		$	24,710			$	67			$	16,563			$	8,080

2011 Debt Offering

     On April 1, 2011, Time Warner issued $2.0 billion aggregate principal amount of debt securities from its shelf registration statement, consisting of $1.0 billion aggregate principal amount of 4.75% Notes due 2021 and $1.0 billion aggregate principal amount of 6.25% Debentures due 2041 (the “April 2011 Debt Offering”). The net proceeds of the offering will be used for general corporate purposes.

Revolving Bank Credit Facilities

     The Company has two senior unsecured revolving bank credit facilities totaling $5.0 billion (the “Revolving Credit Facilities”), consisting of a $2.5 billion three-year revolving credit facility that matures on January 19, 2014 and a $2.5 billion five-year revolving credit facility that matures on January 19, 2016 pursuant to a credit agreement dated as of January 19, 2011.

     The funding commitments under the Revolving Credit Facilities are provided by a geographically diverse group of over 20 major financial institutions based in countries including Canada, France, Germany, Japan, Spain, Sweden, Switzerland, the United Kingdom and the U.S. No institution accounts for more than 7% of the aggregate undrawn loan commitments.

Commercial Paper Program

     The Company has a commercial paper program, which was established on February 16, 2011 on a private placement basis, under which Time Warner may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $5.0 billion.

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 $4.7 billion and $5.2 billion at March 31, 2011 and December 31, 2010, respectively. Included in these amounts is licensing of film product from the Filmed Entertainment segment to the Networks segment in the amount of $1.3 billion at both March 31, 2011 and December 31, 2010.

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

     This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. Examples of forward-looking statements in this report include, but are not limited to, statements regarding the adequacy of the Company’s liquidity to meet its needs for the foreseeable future, the Company’s international expansion plans, the movement of the Company’s consolidated leverage ratio closer to its stated target during 2011, the restructuring and severance costs expected to be incurred at the Filmed Entertainment segment in the remainder of 2011 and increases in cash used by working capital.

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

	•		recent and future changes in technology, services and standards, including, but not limited to, alternative methods for the delivery, storage and consumption of digital media and evolving DVD formats;
	•		changes in consumer behavior, including changes in spending 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;
	•		competitive pressures, including as a result of audience fragmentation and changes in technology;
	•		the popularity of the Company’s content;
	•		the Company’s ability to deal effectively with an economic slowdown or other economic or market difficulty;
	•		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;
	•		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;
	•		decreased liquidity in the capital markets, including any limitation on 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 U.S. GAAP or other applicable accounting policies;
	•		the impact of terrorist acts, hostilities, natural disasters and pandemic viruses;
	•		changes in tax, federal communication and other laws and regulations; 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, 2010.

     Any forward-looking statements made by the Company in this report 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 March 31, 2011 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)

		March 31,				December 31,
		2011				2010
ASSETS
Current assets
Cash and equivalents		$	3,029			$	3,663
Receivables, less allowances of $1,677 and $2,161			5,854				6,413
Inventories			1,948				1,920
Deferred income taxes			571				581
Prepaid expenses and other current assets			501				561
Total current assets			11,903				13,138
Noncurrent inventories and film costs			6,100				5,985
Investments, including available-for-sale securities			1,983				1,796
Property, plant and equipment, net			3,891				3,874
Intangible assets subject to amortization, net			2,420				2,492
Intangible assets not subject to amortization			7,833				7,827
Goodwill			30,012				29,994
Other assets			1,600				1,418
Total assets		$	65,742			$	66,524
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	7,198			$	7,733
Deferred revenue			923				884
Debt due within one year			28				26
Total current liabilities			8,149				8,643
Long-term debt			16,535				16,523
Deferred income taxes			2,374				1,950
Deferred revenue			305				296
Other noncurrent liabilities			6,138				6,167
Commitments and Contingencies (Note 12)
Equity
Common stock, $0.01 par value, 1.648 billion and 1.641 billion shares issued and 1.078 billion and 1.099 billion shares outstanding			16				16
Paid-in-capital			156,697				157,146
Treasury stock, at cost (570 million and 542 million shares)			(30,033	)			(29,033	)
Accumulated other comprehensive loss, net			(539	)			(632	)
Accumulated deficit			(93,904	)			(94,557	)
Total Time Warner Inc. shareholders’ equity			32,237				32,940
Noncontrolling interests			4				5
Total equity			32,241				32,945
Total liabilities and equity		$	65,742			$	66,524

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
(Unaudited; millions, except per share amounts)

		2011				2010
Revenues		$	6,683			$	6,322
Costs of revenues			(3,727	)			(3,353	)
Selling, general and administrative			(1,591	)			(1,488	)
Amortization of intangible assets			(68	)			(68	)
Restructuring and severance costs			(30	)			(9	)
Gain on operating assets			3				59
Operating income			1,270				1,463
Interest expense, net			(274	)			(296	)
Other loss, net			(14	)			(53	)
Income before income taxes			982				1,114
Income tax provision			(331	)			(389	)
Net income			651				725
Less Net loss attributable to noncontrolling interests			2				-
Net income attributable to Time Warner Inc. shareholders		$	653			$	725
Per share information attributable to Time Warner Inc. common shareholders:
Basic net income per common share		$	0.59			$	0.63
Average basic common shares outstanding			1,090.8				1,149.8
Diluted net income per common share		$	0.59			$	0.62
Average diluted common shares outstanding			1,110.1				1,165.4
Cash dividends declared per share of common stock		$	0.2350			$	0.2125

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
(Unaudited; millions)

		2011				2010
OPERATIONS
Net income		$	651			$	725
Adjustments for noncash and nonoperating items:
Depreciation and amortization			231				232
Amortization of film and television costs			1,804				1,384
(Gain) loss on investments and other assets, net			(4	)			4
Equity in losses of investee companies, net of cash distributions			32				12
Equity-based compensation			102				90
Deferred income taxes			51				10
Changes in operating assets and liabilities, net of acquisitions			(2,042	)			(1,101	)
Cash provided by operations from continuing operations			825				1,356
INVESTING ACTIVITIES
Investments in available-for-sale securities			-				(1	)
Investments and acquisitions, net of cash acquired			(160	)			(474	)
Capital expenditures			(152	)			(89	)
Other investment proceeds			5				29
Cash used by investing activities from continuing operations			(307	)			(535	)
FINANCING ACTIVITIES
Borrowings			22				2,092
Debt repayments			(21	)			(1,669	)
Proceeds from exercise of stock options			118				42
Excess tax benefit on stock options			14				1
Principal payments on capital leases			(2	)			(4	)
Repurchases of common stock			(959	)			(514	)
Dividends paid			(261	)			(248	)
Other financing activities			(63	)			(64	)
Cash used by financing activities from continuing operations			(1,152	)			(364	)
Cash provided (used) by continuing operations			(634	)			457
Cash used by operations from discontinued operations			-				(23	)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS			(634	)			434
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			3,663				4,733
CASH AND EQUIVALENTS AT END OF PERIOD		$	3,029			$	5,167

See accompanying notes.

TIME WARNER INC.

CONSOLIDATED STATEMENT OF EQUITY
Three Months Ended March 31,
(Unaudited; millions)

		2011												2010
		Time Warner				Noncontrolling								Time Warner				Noncontrolling
		Shareholders				Interests				Total Equity				Shareholders				Interests				Total Equity
BALANCE AT BEGINNING OF PERIOD		$	32,940			$	5			$	32,945			$	33,396			$	1			$	33,397
Net income			653				(2	)			651				725				-				725
Other comprehensive income			93				-				93				(137	)			-				(137	)
Comprehensive income			746				(2	)			744				588				-				588
Cash dividends			(261	)			-				(261	)			(248	)			-				(248	)
Common stock repurchases			(1,000	)			-				(1,000	)			(500	)			-				(500	)
Other(a)			(188	)			1				(187	)			75				3				78
BALANCE AT END OF PERIOD		$	32,237			$	4			$	32,241			$	33,311			$	4			$	33,315

See accompanying notes.

TIME WARNER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

     Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and entertainment company, whose businesses include television networks, 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, home video and interactive game production and distribution; and Publishing: consisting principally of magazine publishing. Financial information for Time Warner’s various reportable segments is presented in Note 11.

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 consolidated financial statements of Time Warner included in the Company’s Annual report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”).

Basis of Consolidation

     The consolidated financial statements include all of the assets, liabilities, revenues, expenses and cash flows of entities in which Time Warner has a controlling interest (“subsidiaries”). Intercompany accounts and transactions between consolidated 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, the determination of ultimate revenues as it relates to amortized capitalized film and programming costs and participations and residuals, home video and interactive games product and magazine returns, business combinations, pension and other postretirement benefits, equity-based compensation, income taxes, contingencies, litigation matters and the determination of whether the Company is the primary beneficiary of entities in which it holds variable interests.

2.   FAIR VALUE MEASUREMENTS

     A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following tables present

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

information about assets and liabilities required to be carried at fair value on a recurring basis as of March 31, 2011 and December 31, 2010, respectively (millions):

		Fair Value Measurements
		March 31, 2011																December 31, 2010
Description		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets:
Trading securities:
Diversified equity securities		$	276			$	5			$	-			$	281			$	261			$	4			$	-			$	265
Available-for-sale securities:
Equity securities			14				-				-				14				12				-				-				12
Debt securities			-				36				-				36				-				41				-				41
Derivatives:
Foreign exchange contracts			-				4				-				4				-				17				-				17
Other			5				-				22				27				4				-				19				23
Liabilities:
Derivatives:
Foreign exchange contracts			-				(47	)			-				(47	)			-				(20	)			-				(20	)
Other			-				-				(22	)			(22	)			-				-				(28	)			(28	)
Total		$	295			$	(2	)		$	-			$	293			$	277			$	42			$	(9	)		$	310

     Assets and liabilities valued using significant unobservable inputs primarily consist of an asset related to equity instruments held by employees of a former subsidiary of the Company and liabilities for contingent consideration and options to redeem securities.

     The Company primarily applies the market approach for valuing recurring fair value measurements.

     The following table reconciles the beginning and ending balances of net assets and liabilities classified as Level 3 and identifies the total gains (losses) the Company recognized during the three months ended March 31, 2011 and 2010, respectively, on such assets and liabilities that were included in the balance as of March 31, 2011 and 2010, respectively (millions):

		Derivatives
		March 31, 2011				March 31, 2010
Balance as of the beginning of the period		$	(9	)		$	20
Total gains (losses):
Included in operating income			3				-
Included in other income (loss), net			4				(1	)
Included in other comprehensive income			-				-
Settlements			2				(7	)
Issuances			-				(21	)
Transfers in and/or out of Level 3			-				-
Balance as of the end of the period		$	-			$	(9	)
Total gain (loss) for the period included in net income related to assets and liabilities still held as of the end of the period		$	7			$	(1	)

Other Financial Instruments

     The Company’s other financial instruments, including debt, are not required to be carried at fair value. Based on the interest rates prevailing at March 31, 2011, the fair value of Time Warner’s debt exceeded its carrying value by approximately $1.600 billion and, based on interest rates prevailing at December 31, 2010, the fair value of Time Warner’s debt exceeded its carrying value by approximately $2.269 billion. Unrealized gains or losses on debt do not result in the realization or expenditure of cash and generally are not recognized in the consolidated financial statements unless the debt

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

is retired prior to its maturity. The carrying value for the majority of the Company’s other financial instruments approximates fair value due to the short-term nature of the financial instruments or because the financial instruments are of a longer-term nature and are recorded on a discounted basis. For the remainder of the Company’s other financial instruments, differences between the carrying value and fair value are not significant at March 31, 2011. The fair value of financial instruments is generally determined by reference to the market value of the instrument as quoted on a national securities exchange or an over-the-counter market. In cases where a quoted market value is not available, fair value is based on an estimate using present value or other valuation techniques.

Non-Financial Instruments

     The majority of the Company’s non-financial instruments, which include goodwill, intangible assets, inventories and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill and indefinite-lived intangible assets) such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of cost or its fair value.

     In determining the fair value of its films, the Company employs a discounted cash flow (“DCF”) methodology with assumptions for cash flows for periods not exceeding 10 years. Key inputs employed in the DCF methodology include estimates of a film’s ultimate revenue and costs as well as a discount rate. The discount rate utilized in the DCF analysis is based on the weighted average cost of capital of the respective business (e.g., Warner Bros.) plus a risk premium representing the risk associated with producing a particular film. The fair value of any film costs associated with a film that management plans to abandon is zero. As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement. During the three months ended March 31, 2011, certain film costs, which were recorded as inventory in the consolidated balance sheet, were completely written off from their carrying value of $5 million. During the three months ended March 31, 2010, there were no film production costs that were required to be written down.

3.   INVENTORIES AND FILM COSTS

     Inventories and film costs consist of (millions):

						December 31,
		March 31, 2011				2010
Inventories:
Programming costs, less amortization		$	3,414			$	3,441
DVDs, books, paper and other merchandise			401				360
Total inventories			3,815				3,801
Less: current portion of inventory			(1,948	)			(1,920	)
Total noncurrent inventories			1,867				1,881
Film costs — Theatrical:(a)
Released, less amortization			625				655
Completed and not released			175				166
In production			1,596				1,379
Development and pre-production			85				98
Film costs — Television:(a)
Released, less amortization			946				929
Completed and not released			432				300
In production			364				571
Development and pre-production			10				6
Total film costs			4,233				4,104
Total noncurrent inventories and film costs		$	6,100			$	5,985

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4.   DERIVATIVE INSTRUMENTS

     Time Warner uses derivative instruments, principally forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates. The principal currencies being hedged include the British Pound, Euro, Australian Dollar and Canadian Dollar. Time Warner uses foreign exchange contracts that generally have maturities of three to 18 months to hedge various foreign exchange exposures, including the following: (i) variability in foreign-currency-denominated cash flows, such as the hedges of unremitted or forecasted royalty and license fees owed to Time Warner domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency (i.e., cash flow hedges) and (ii) currency risk associated with foreign-currency-denominated operating assets and liabilities (i.e., fair value hedges). For these qualifying hedge relationships, the Company excludes the impact of forward points from its assessment of hedge effectiveness. As a result, changes in the fair value of forward points are recorded in other loss, net in the consolidated statement of operations each quarter.

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

     Gains and losses from hedging activities recognized in the consolidated statement of operations, including hedge ineffectiveness, were not material for the three months ended March 31, 2011 and 2010. In addition, such gains and losses were largely offset by corresponding economic gains or losses from the respective transactions that were hedged.

     The following is a summary of amounts recorded in the consolidated balance sheet pertaining to Time Warner’s use of foreign currency derivatives at March 31, 2011 and December 31, 2010 (millions):

						December 31,
		March 31, 2011				2010
Qualifying Hedges
Assets		$	106			$	86
Liabilities			(110	)			(79	)
Economic Hedges
Assets		$	8			$	17
Liabilities			(47	)			(27	)

     The Company monitors its positions with, and the credit quality of, the financial institutions that are party to its financial transactions. Additionally, netting provisions are included in existing agreements in situations where the Company executes multiple contracts with the same counterparty. As a result, net assets or liabilities resulting from foreign exchange derivatives subject to these netting agreements are classified within prepaid expenses and other current assets or accounts payable and accrued liabilities in the Company’s consolidated balance sheet. At March 31, 2011 and December 31, 2010, $14 million and $21 million, respectively, of losses related to cash flow hedges are recorded in accumulated other comprehensive income and are expected to be recognized in earnings at the same time the hedged items affect earnings. Included in accumulated other comprehensive income are deferred net gains of $24 million and $17 million at March 31, 2011 and December 31, 2010, respectively, related to hedges of cash flows associated with films that are not expected to be released within the next twelve months.

5.   LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Debt Offering

     On April 1, 2011, Time Warner issued $1.0 billion aggregate principal amount of 4.75% Notes due 2021 and $1.0 billion aggregate principal amount of 6.25% Debentures due 2041 (the “April 2011 Debt Offering”) from its shelf registration statement. The securities issued pursuant to the April 2011 Debt Offering are directly or indirectly guaranteed,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

on an unsecured basis, by Historic TW Inc. (“Historic TW”), Home Box Office, Inc. (“Home Box Office”) and Turner Broadcasting System, Inc. (“Turner”).

Revolving Bank Credit Facilities

     The Company has two senior unsecured revolving bank credit facilities totaling $5.0 billion, consisting of a $2.5 billion three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) that matures on January 19, 2014 and a $2.5 billion five-year revolving credit facility (the “Five-Year Revolving Credit Facility” and, together with the Three-Year Revolving Credit Facility, the “Revolving Credit Facilities”) that matures on January 19, 2016 pursuant to a credit agreement dated as of January 19, 2011 (the “Credit Agreement”). The permitted borrowers under the Credit Agreement are Time Warner and Time Warner International Finance Limited (“TWIFL” and together with Time Warner, the “Borrowers”).

     Borrowings under the Revolving Credit Facilities bear interest at a rate determined by the debt rating for Time Warner’s senior unsecured long-term debt and the percentage of commitments used under the facility. Based on the debt rating as of March 31, 2011, borrowings under each of the Revolving Credit Facilities would bear interest at a rate equal to LIBOR (TIBOR in the case of yen borrowings) plus 1.25% per annum if the percentage of commitments used under the facility does not exceed 25% or LIBOR (TIBOR in the case of yen borrowings) plus 1.50% per annum if the percentage of commitments used under the facility exceeds 25%. In addition, the Borrowers are required to pay a facility fee on the aggregate commitments under the Revolving Credit Facilities at a rate based on the debt rating for Time Warner’s senior unsecured long-term debt. Based on the debt rating as of March 31, 2011, the facility fee was 0.225% per annum on the aggregate amount of commitments under the Three-Year Revolving Credit Facility and 0.300% per annum on the aggregate amount of commitments under the Five-Year Revolving Credit Facility.

     The Credit Agreement provides same-day funding and multi-currency capability, and a portion of the commitment, not to exceed $500 million at any time, may be used for the issuance of letters of credit. The covenants for the Credit Agreement include a maximum consolidated leverage ratio covenant of 4.5 times the consolidated EBITDA of Time Warner, but excluding any credit ratings-based defaults or covenants or any ongoing covenant or representations specifically relating to a material adverse change in Time Warner’s financial condition or results of operations. The terms and related financial metrics associated with the leverage ratio are defined in the credit agreements. Borrowings under the Revolving Credit Facilities may be used for general corporate purposes, and unused credit is available to support borrowings by Time Warner under its commercial paper program. The Credit Agreement also contains certain events of default customary for credit facilities of this type (with customary grace periods, as applicable). The Borrowers may from time to time, so long as no default or event of default has occurred and is continuing, increase the commitments under either or both of the Revolving Credit Facilities by up to $500 million per facility by adding new commitments or increasing the commitments of willing lenders. The obligations of each of the Borrowers under the Credit Agreement are directly or indirectly guaranteed, on an unsecured basis by Historic TW, Home Box Office and Turner. The obligations of TWIFL under the New Credit Agreement are also guaranteed by Time Warner.

Commercial Paper Program

     The Company has a commercial paper program, which was established on February 16, 2011 on a private placement basis, under which Time Warner may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $5.0 billion (the “CP Program”). Proceeds from the CP Program may be used for general corporate purposes. Commercial paper issued by Time Warner is supported by, and the amount of commercial paper issued may not exceed, the unused committed capacity under the Revolving Credit Facilities. The obligations of the Company under the CP Program are directly or indirectly guaranteed, on an unsecured basis by Historic TW, Home Box Office and Turner.

6.   SHAREHOLDERS’ EQUITY

Common Stock Repurchase Program

     On January 25, 2011, Time Warner’s Board of Directors increased the amount remaining on the Company’s common stock repurchase program to $5.0 billion for share repurchases beginning January 1, 2011. Purchases under the stock repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and timing of these purchases are based on a number of factors, including price and business and market conditions. From January 1, 2011 through March 31, 2011, the Company repurchased approximately 28 million shares of common stock for approximately $1.000 billion pursuant to trading programs under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

7.   INCOME PER COMMON SHARE

     Set forth below is a reconciliation of basic and diluted income per common share (millions, except per share amounts):

		Three Months Ended March 31,
		2011				2010
Income attributable to Time Warner Inc. shareholders		$	653			$	725
Income allocated to participating securities			(4	)			(3	)
Income attributable to Time Warner Inc. common shareholders — basic		$	649			$	722
Average number of common shares outstanding — basic			1,090.8				1,149.8
Dilutive effect of equity awards			19.3				15.6
Average number of common shares outstanding — diluted			1,110.1				1,165.4
Income per common share attributable to Time Warner Inc. common shareholders:
Basic		$	0.59			$	0.63
Diluted		$	0.59			$	0.62

     Diluted income per common share for the three months ended March 31, 2011 and 2010 excludes approximately 80 million and 146 million, respectively, common shares that may be issued under the Company’s stock compensation plans because they do not have a dilutive effect.

8.   EQUITY-BASED COMPENSATION

     Compensation expense recognized for equity-based plans is as follows (millions):

		Three Months Ended March 31,
		2011				2010
Restricted stock and performance stock units		$	69			$	57
Stock options			33				33
Total impact on operating income		$	102			$	90
Tax benefit recognized		$	38			$	34

     For each of the three months ended March 31, 2011 and 2010, the Company granted approximately 5 million restricted stock units (“RSUs”) at a weighted-average grant date fair value per RSU of $36.10 and $26.95, respectively. For the three months ended March 31, 2011 and 2010, the Company granted approximately 0.1 million and 0.2 million target performance stock units (“PSUs”), respectively, at a weighted-average grant date fair value per target PSU of $45.89 and $30.40, respectively. Total unrecognized compensation cost related to unvested RSUs and target PSUs as of March 31, 2011, without taking into account expected forfeitures, is $261 million and is expected to be recognized over a weighted-average period between one and two years.

     For the three months ended March 31, 2011 and 2010, the Company granted approximately 8 million and 9 million stock options, respectively, at a weighted-average grant date fair value per option of $9.03 and $6.33, respectively. Total unrecognized compensation cost related to unvested stock options as of March 31, 2011, without taking into account

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

expected forfeitures, is $103 million and is expected to be recognized over a weighted-average period between one and two years. The table below presents the weighted-average values of the assumptions used to value the stock options at their grant date.

		Three Months Ended March 31,
		2011				2010
Expected volatility			29.5	%			29.5	%
Expected term to exercise from grant date		6.31 years				6.52 years
Risk-free rate			2.8	%			2.9	%
Expected dividend yield			2.6	%			3.2	%

9.   BENEFIT PLANS

     The net periodic benefit costs reflect the Company’s amendments to its domestic and international defined benefit pension plans that were effective June 30, 2010 and March 31, 2011, respectively. A summary of the components of the net periodic benefit costs recognized for substantially all of Time Warner’s defined benefit pension plans for the three months ended March 31, 2011 and 2010 is as follows (millions):

Components of Net Periodic Benefit Costs

		Three Months Ended March 31,
		2011				2010
Service cost		$	6			$	23
Interest cost			47				49
Expected return on plan assets			(49	)			(57	)
Amounts amortized			5				21
Curtailment			-				3
Net periodic benefit costs		$	9			$	39
Contributions		$	12			$	41

10.   RESTRUCTURING AND SEVERANCE COSTS

     The Company’s restructuring and severance costs primarily related to employee termination costs, ranging from senior executives to line personnel, and other exit costs, including lease terminations. Restructuring and severance costs expensed as incurred by segment for the three months ended March 31, 2011 and 2010 are as follows (millions):

		Three Months Ended March 31,
		2011				2010
Networks		$	12			$	-
Filmed Entertainment			6				4
Publishing			12				5
Total restructuring and severance costs		$	30			$	9

		Three Months Ended March 31,
		2011				2010
2011 activity		$	27			$	-
2010 and prior activity			3				9
Total restructuring and severance costs		$	30			$	9

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

		Employee
		Terminations				Other Exit Costs				Total
Remaining liability as of December 31, 2010		$	107			$	84			$	191
Net accruals			27				3				30
Noncash reductions(a)			(5)				—				(5)
Cash paid			(27)				(10)				(37)
Remaining liability as of March 31, 2011		$	102			$	77			$	179

     As of March 31, 2011, of the remaining liability of $179 million, $90 million was classified as a current liability in the consolidated balance sheet, with the remaining $89 million classified as a long-term liability. Amounts classified as long-term are expected to be paid through 2017.

11. SEGMENT INFORMATION

     Time Warner classifies its operations into three reportable segments: Networks, consisting principally of cable television networks and multi-channel premium pay television services that provide programming; Filmed Entertainment, consisting principally of feature film, television, home video and interactive videogame production and distribution; and Publishing, consisting principally of magazine publishing.

     Information as to the revenues, intersegment revenues, operating income (loss) and assets of Time Warner in each of its reportable segments is set forth below (millions).

		Three Months Ended March 31,
		2011				2010
Revenues
Networks		$	3,496			$	2,958
Filmed Entertainment			2,604				2,694
Publishing			798				799
Intersegment eliminations			(215)				(129)
Total revenues		$	6,683			$	6,322

		Three Months Ended March 31,
		2011				2010
Intersegment Revenues
Networks		$	21			$	17
Filmed Entertainment			183				109
Publishing			11				3
Total intersegment revenues		$	215			$	129

		Three Months Ended March 31,
		2011				2010
Operating Income (Loss)
Networks		$	1,162			$	1,201
Filmed Entertainment			158				307
Publishing			63				50
Corporate			(93)				(108)
Intersegment eliminations			(20)				13
Total operating income (loss)		$	1,270			$	1,463

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

						December 31,
		March 31, 2011				2010
Assets
Networks		$	37,931			$	37,596
Filmed Entertainment			17,560				18,019
Publishing			6,157				6,209
Corporate			4,094				4,700
Total assets		$	65,742			$	66,524

12. COMMITMENTS AND CONTINGENCIES

Commitments

Six Flags

     In connection with the Company’s former investment in the Six Flags theme parks located in Georgia and Texas (collectively, the “Parks”), in 1997, certain subsidiaries of the Company (including Historic TW and, in connection with the separation of TWC in 2009, Warner Bros. Entertainment Inc.) agreed to guarantee (the “Six Flags Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships, including: annual payments made at the Parks or to the limited partners and additional obligations at the end of the respective terms for the Partnerships in 2027 and 2028 (the “Guaranteed Obligations”). The aggregate undiscounted estimated future cash flow requirements covered by the Six Flags Guarantee over the remaining term (through 2028) are approximately $1.0 billion (for a net present value of approximately $410 million). To date, no payments have been made by the Company pursuant to the Six Flags Guarantee.

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

     In connection with Six Flags’ emergence from bankruptcy, on April 30, 2010, a Time Warner subsidiary (TW-SF LLC), as lender, entered into a 5-year $150 million multiple draw term facility with certain affiliates of the Partnerships, as borrowers, which can be used only to fund such affiliates’ annual obligations to purchase certain limited partnership units of the Partnerships. Any loan made under the facility will mature 5 years from its respective funding date. No loan was made under the facility in 2010 and none will be made in 2011. The facility will expire on April 30, 2015, unless it terminates earlier upon election by the borrowers or due to the acceleration or certain refinancings of Six Flags’ secured credit facility.

     Because the Six Flags Guarantee existed prior to December 31, 2002 and no modifications to the arrangements have been made since the date the guarantee came into existence, the Company is required to continue to account for the Guaranteed Obligations as a contingent liability. Based on its evaluation of the current facts and circumstances surrounding the Guaranteed Obligations and the Subordinated Indemnity Agreement, the Company is unable to predict the loss, if any, that may be incurred under these Guaranteed Obligations and no liability for the arrangements has been recognized at March 31, 2011. Because of the specific circumstances surrounding the arrangements and the fact that no active or observable market exists for this type of financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and related Subordinated Indemnity Agreement.

Contingencies

     On October 8, 2004, certain heirs of Jerome Siegel, one of the creators of the “Superman” character, filed suit against the Company, DC Comics and Warner Bros. Entertainment Inc. in the U.S. District Court for the Central District of California. Plaintiffs’ complaint seeks an accounting and demands up to one-half of the profits made on Superman since the alleged April 16, 1999 termination by plaintiffs of Siegel’s grants of one-half of the rights to the Superman character to DC Comics’ predecessor-in-interest. Plaintiffs have also asserted various Lanham Act and unfair competition claims, alleging

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

“wasting” of the Superman property by DC Comics, and the Company has filed counterclaims. On March 26, 2008, the court entered an order of summary judgment finding, among other things, that plaintiffs’ notices of termination were valid and that plaintiffs had thereby recaptured, as of April 16, 1999, their rights to a one-half interest in the Superman story material, as first published, but that the accounting for profits would not include profits attributable to foreign exploitation, republication of pre-termination works and trademark exploitation. On October 6, 2008, the court dismissed plaintiffs’ Lanham Act and “wasting” claims with prejudice, and subsequently determined that the remaining claims in the case will be subject to phased non-jury trials. On July 8, 2009, the court issued a decision in the first phase trial in favor of the defendants on the issue of whether the terms of various license agreements between DC Comics and Warner Bros. Entertainment Inc. were at fair market value or constituted “sweetheart deals.”

     On October 22, 2004, the same Siegel heirs filed a related lawsuit against the same defendants, as well as Warner Communications Inc. and Warner Bros. Television Production Inc. in the U.S. District Court for the Central District of California. Plaintiffs claim that Siegel was the sole creator of the character Superboy and, as such, DC Comics has had no right to create new Superboy works since the alleged October 17, 2004 termination by plaintiffs of Siegel’s grants of rights to the Superboy character to DC Comics’ predecessor-in-interest. This lawsuit seeks a declaration regarding the validity of the alleged termination and an injunction against future use of the Superboy character. On March 23, 2006, the court granted plaintiffs’ motion for partial summary judgment on termination, denied the Company’s motion for summary judgment and held that further proceedings are necessary to determine whether the Company’s Smallville television series may infringe on plaintiffs’ rights to the Superboy character. On July 27, 2007, upon the Company’s motion for reconsideration, the court reversed the bulk of its March 23, 2006 ruling, and requested additional briefing on certain issues, on which a decision remains pending.

     On May 14, 2010, DC Comics filed a related lawsuit in the U.S. District Court for the Central District of California against the heirs of Superman co-creator Joseph Shuster, the Siegel heirs, their attorney Marc Toberoff and certain companies that Mr. Toberoff controls. The lawsuit asserts a claim for declaratory relief concerning the validity and scope of the copyright termination notice served by the Shuster heirs, which, together with the termination notices served by the Siegel heirs described above, purports to preclude DC Comics from creating new Superman and/or Superboy works for distribution and sale in the United States after October 26, 2013. The lawsuit also seeks declaratory relief with respect to, inter alia, the validity of various agreements between Mr. Toberoff, his companies and the Shuster and Siegel heirs, and asserts claims for intentional interference by Mr. Toberoff with DC Comics’ contracts and prospective economic advantage with the Shuster and Siegel heirs, for which DC Comics seeks monetary damages. On September 3, 2010, DC Comics filed an amended complaint and on September 20, 2010, defendants filed motions to strike certain causes of action and dismiss the amended complaint under California and federal laws.

     On April 4, 2007, the National Labor Relations Board (“NLRB”) issued a complaint against CNN America Inc. (“CNN America”) and Team Video Services, LLC (“Team Video”). This administrative proceeding relates to CNN America’s December 2003 and January 2004 terminations of its contractual relationships with Team Video, under which Team Video had provided electronic newsgathering services in Washington, DC and New York, NY. The National Association of Broadcast Employees and Technicians, under which Team Video’s employees were unionized, initially filed charges of unfair labor practices with the NLRB in February 2004, alleging that CNN America and Team Video were joint employers, that CNN America was a successor employer to Team Video, and/or that CNN America discriminated in its hiring practices to avoid becoming a successor employer or due to specific individuals’ union affiliation or activities. The NLRB complaint seeks, among other things, the reinstatement of certain union members and monetary damages. On November 19, 2008, the presiding NLRB Administrative Law Judge issued a non-binding recommended decision, finding CNN America liable. On February 17, 2009, CNN America filed exceptions to this decision with the NLRB.

     On September 20, 2007, Brantley, et al. v. NBC Universal, Inc., et al. was filed in the U.S. District Court for the Central District of California against the Company and several other programming content providers (collectively, the “programmer defendants”) as well as cable and satellite providers (collectively, the “distributor defendants”), alleging violations of the federal antitrust laws. Among other things, the complaint alleged coordination between and among the programmer defendants to sell and/or license programming on a “bundled” basis to the distributor defendants, who in turn purportedly offer that programming to subscribers in packaged tiers, rather than on a per channel (or “à la carte”) basis. In an order dated October 15, 2009, the court dismissed the third amended complaint with prejudice. On October 30, 2009, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit.

     On March 10, 2009, Anderson News L.L.C. and Anderson Services L.L.C. (collectively, “Anderson News”) filed an antitrust lawsuit in the U.S. District Court for the Southern District of New York against several magazine publishers, distributors and wholesalers, including Time Inc. and one of its subsidiaries, Time/Warner Retail Sales & Marketing, Inc. Plaintiffs allege that defendants violated Section 1 of the Sherman Antitrust Act by engaging in an antitrust conspiracy

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

against Anderson News, as well as other related state law claims. Plaintiffs are seeking unspecified monetary damages. On August 2, 2010, the court granted defendants’ motions to dismiss the complaint with prejudice, and on October 25, 2010, the court denied Anderson News’ motion for reconsideration of that dismissal. On November 8, 2010, Anderson News filed a notice of appeal with the U.S. Court of Appeals for the Second Circuit.

     On March 10, 2011, Charlie Sheen and 9^th Step Productions (collectively, “Sheen”) filed a lawsuit in the Superior Court for the County of Los Angeles against WB Studio Enterprises, Inc. (“WB Studios”), a subsidiary of Warner Bros. Entertainment Inc., and Chuck Lorre and Chuck Lorre Productions, the co-creator and co-executive producer of the television series Two and a Half Men. Plaintiffs’ complaint asserts several causes of action in connection with WB Studios’ termination of Sheen’s contract for the Two and a Half Men series, including breach of contract claims and intentional interference tort claims. Plaintiffs’ complaint seeks monetary damages of $100 million, among other damages in unspecified amounts. WB Studios, through its division Warner Bros. Television, is seeking to arbitrate both the plaintiffs’ claims and WB Studios’ claims before JAMS, Inc. (“JAMS”), and on March 7, 2011 JAMS commenced arbitration.

     The Company intends to defend against or prosecute, as applicable, the lawsuits and proceedings described above vigorously, but is unable to predict the outcome of these matters or to reasonably estimate the possible loss or range of loss arising from the claims against the Company.

     From time to time, the Company receives notices from third parties claiming that it infringes their intellectual property rights. Claims of intellectual property infringement could require Time Warner to enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question. In addition, certain agreements entered into by the Company may require the Company to indemnify the other party for certain third-party intellectual property infringement claims, which could increase the Company’s damages and its costs of defending against such claims. Even if the claims are without merit, defending against the claims can be time-consuming and costly.

     The costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company’s business, financial condition and operating results.

Income Tax Uncertainties

     During the three months ended March 31, 2011, the Company recorded net incremental income tax reserves of approximately $33 million. Of the $33 million additional income tax reserves, approximately $25 million would affect the Company’s effective tax rate if reversed. During the three months ended March 31, 2011, the Company recorded interest reserves related to the income tax reserves of approximately $12 million.

13. RELATED PARTY TRANSACTIONS

     The Company has entered into certain transactions in the ordinary course of business with unconsolidated investees accounted for under the equity method of accounting. These transactions have been executed on terms comparable to the terms of transactions with unrelated third parties and primarily include the licensing of broadcast rights to The CW broadcast network for film and television product, by the Filmed Entertainment segment and the licensing of rights to carry cable television programming provided by the Networks segment. Revenues from transactions with related parties were $107 million and $87 million for the three months ended March 31, 2011 and 2010, respectively, and expenses from transactions with related parties were $14 million and $17 million for the three months ended March 31, 2011 and 2010, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. ADDITIONAL FINANCIAL INFORMATION

Cash Flows

     Additional financial information with respect to cash (payments) and receipts is as follows (millions):

		Three Months Ended March 31,
		2011				2010
Cash payments made for interest		$	(218)			$	(153)
Cash interest received			5				5
Cash interest payments, net		$	(213)			$	(148)
Cash payments made for income taxes		$	(141)			$	(88)
Income tax refunds received			4				8
Cash tax payments, net		$	(137)			$	(80)

Interest Expense, Net

     Interest expense, net, consists of (millions):

		Three Months Ended March 31,
		2011				2010
Interest income		$	37			$	25
Interest expense			(311)				(321)
Total interest expense, net		$	(274)			$	(296)