Home Box OfficeThe Company anticipates Home Box Office's 2018 full-year subscription revenues to increase at a similar rate as in 2017. The Company expects content and other revenues to decline significantly in 2018 compared to the prior year due to the mix of home video releases and the comparison to international licensing deals completed in the prior year. In addition, the Company expects full-year 2018 total expense growth at Home Box Office to moderate compared to 2017. The Company anticipates Home Box Office's revenue growth will more than offset expense growth and, as a result, expects its Operating Income to increase at a healthy rate in 2018 compared to the prior year. The Company expects Home Box Office's subscription revenue growth in the first quarter of 2018 to increase at a rate similar to the expectation for the full year in 2018. The expected lower subscription revenue growth rate in the first quarter of 2018 compared to the fourth quarter of 2017 is primarily due to changes in the timing for recognizing certain revenue under new revenue recognition accounting guidance adopted in 2018. The Company expects Home Box Office's content and other revenues to decline significantly in the first quarter compared to the prior year quarter. In addition, the Company anticipates year-over-year growth in total expenses to be higher in the first half of 2018 compared to the second half of 2018. The Company expects Home Box Office's Operating Income to decline in the first quarter. Warner Bros. The Company expects Warner Bros.' full-year Operating Income to increase in 2018 compared to the prior year reflecting higher games profits primarily related to carryover from the 2017 releases and growth in television licensing revenues of theatrical product due to the licensing of the Harry Potter franchise. In the first quarter of 2018, the Company expects Warner Bros.' Operating Income to decline by a double-digit percentage compared to the prior year quarter due to the comparison to the television licensing of a library series in last year's first quarter and the mix and timing of film releases.
Tax RateBased on the Company's analysis of the impact of the U.S. tax reform legislation enacted at the end of 2017, the Company anticipates its 2018 full-year effective tax rate will be approximately 20%. This does not reflect the impact of any potential new provisions or other changes to the tax legislation that could occur during 2018. Use of Adjusted Operating Income (Loss) Measure Adjusted Operating Income (Loss) is defined as Operating Income (Loss) excluding the impact of noncash impairments of goodwill, intangible and fixed assets; gains and losses on operating assets (other than deferred gains on sale-leasebacks); gains and losses recognized in connection with pension and other postretirement benefit plan curtailments or settlements; costs related to the pending acquisition by AT&T Inc. (including retention, restructuring and severance costs associated with the transaction); external costs related to mergers, acquisitions or dispositions (including restructuring and severance costs associated with dispositions), as well as contingent consideration related to such transactions, to the extent such costs are expensed; and amounts related to securities litigation and government investigations. The Company utilizes Adjusted Operating Income (Loss), among other measures, to evaluate the performance of its businesses. Some limitations of Adjusted Operating Income (Loss) are that it does not reflect certain charges that affect the operating results of the Company's businesses and it involves judgment as to whether items affect fundamental operating performance. Also, a general limitation of Adjusted Operating Income (Loss) is that it is not prepared in accordance with U.S. generally accepted accounting principles and may not be comparable to similarly titled measures of other companies due to differences in methods of calculation and excluded items. Adjusted Operating Income (Loss) should be considered in addition to, not as a substitute for, the Company's Operating Income (Loss), as well as other measures of financial performance reported in accordance with U.S. generally accepted accounting principles.
A reconciliation of the Company's expected 2018 Adjusted Operating Income to its expected 2018 Operating Income, to the extent practicable, is included with this release. The reconciliation does not include the expected 2018 Operating Income because the Company is unable to forecast the timing and/or magnitude of some items that are included in Operating Income but excluded from Adjusted Operating Income, but it is likely there will be additional amounts during the remainder of 2018.About Time Warner Inc. Time Warner Inc., a global leader in media and entertainment with businesses in television networks and film and TV entertainment, uses its industry-leading operating scale and brands to create, package and deliver high-quality content worldwide on a multi-platform basis. Caution Concerning Forward-Looking Statements This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological, strategic and/or regulatory factors and other factors affecting the operation of Time Warner's businesses, including the pending merger with AT&T Inc. More detailed information about these factors may be found in filings by Time Warner with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Time Warner is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. Information on Earnings Release In a separate release issued today, Time Warner Inc. reported the financial results for its fourth quarter and full year ended December 31, 2017.
|TIME WARNER INC.|
|RECONCILIATION OF GUIDANCE|
|December 31, 2017||Reconciliation of 2018 Guidance|
|Reconciliation of Adjusted Operating Income to Operating Income|
|Adjusted Operating Income||$||8,165||Growth expected to be in the high-single digit range. (1)|
|Asset impairments||(16||)||Unable to estimate. (2)|
|Gains (losses) on operating assets, net||67||Unable to estimate. (2)|
|Costs related to the AT&T Merger||(279||)||Unable to estimate beyond the approximately ($190) million expected to be incurred for the period January 1, 2018 through December 31, 2018. (2) (3)|
|Other operating income items||(17||)||Unable to estimate. (2)|
|Operating Income||$||7,920||Unable to estimate. (1)|
|(1) Based on current exchange rates.|
|(2) Because of the nature of the items, the Company is unable to estimate the amounts of any adjustments for the items excluded from Operating Income for the period after December 31, 2017, other than the item noted in (3) below, due to its inability to forecast if or when any such items will occur. Based on the occurrence of small amounts of these items for the year ended December 31, 2017, it is likely that additional amounts will occur during the year ended December 31, 2018.|
|(3) In connection with entering into the Agreement and Plan of Merger with AT&T Inc., the Company awarded special retention restricted stock units ("Special Retention RSUs") and cash retention awards to certain employees. The Company expects to recognize approximately ($190) million of expenses for the period January 1, 2018 through December 31, 2018 principally related to such Special Retention RSUs and cash retention awards.|