SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the quarterly period ended June 30, 1999, or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the transition period from to .
----------- -----------

Commission file number 1-12259
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TIME WARNER INC.
(Exact name of registrant as specified in its charter)

Delaware 13-3527249
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000

(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive
offices)

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

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

Common Stock - $.01 par value 1,179,328,870
Series LMCN-V Common Stock - $.01 par value 114,123,884
------------------------------------------- ------------------
Description of Class Shares Outstanding
as of July 31, 1999

TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.

INDEX TO FORM 10-Q

Page
---------------
Time
Warner TWE
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PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of
operations and financial condition.................... 1 43

Consolidated balance sheet at June 30, 1999 and
December 31, 1998..................................... 20 54

Consolidated statement of operations for the three
and six months ended June 30, 1999 and 1998........... 21 55

Consolidated statement of cash flows for the six months
ended June 30, 1999 and 1998.......................... 22 56

Consolidated statement of shareholders' equity and
partnership capital................................... 23 57

Notes to consolidated financial statements............ 24 58

Supplementary information............................. 35

PART II. OTHER INFORMATION................................ 64

TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Description of Business

Time Warner Inc. ("Time Warner" or the "Company"), together with its
consolidated and unconsolidated subsidiaries, is the world's largest media and
entertainment company. Time Warner's principal business objective is to create
and distribute branded information and entertainment copyrights throughout the
world. Time Warner classifies its business interests into four fundamental
areas: Cable Networks, consisting principally of interests in cable television
programming; Publishing, consisting principally of interests in magazine
publishing, book publishing and direct marketing; Entertainment, consisting
principally of interests in recorded music and music publishing, filmed
entertainment, television production and television broadcasting; and Cable,
consisting principally of interests in cable television systems.

Investment in TWE

A majority of Time Warner's interests in filmed entertainment, television
production, television broadcasting and cable television systems, and a portion
of its interests in cable television programming, are held through Time Warner
Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited
partnership interests in TWE consisting of 74.49% of the pro rata priority
capital ("Series A Capital") and residual equity capital ("Residual Capital"),
and 100% of the junior priority capital ("Series B Capital"). The remaining
25.51% limited partnership interests in the Series A Capital and Residual
Capital of TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne").
Time Warner has not consolidated TWE and certain related companies (the
"Entertainment Group") for financial reporting purposes because of certain
limited partnership approval rights held by MediaOne related to TWE's cable
television business.

At the time of this filing, MediaOne had agreed to be acquired by AT&T
Corp. ("AT&T"). On August 3, 1999, TWE received a notice from MediaOne
concerning the termination of its covenant not to compete with TWE. As a result
of the termination notice and the operation of the partnership agreement
governing TWE, MediaOne's rights to participate in the management of TWE's
businesses have terminated immediately and irrevocably. MediaOne has retained
only certain protective governance rights pertaining to certain limited matters
affecting TWE as a whole. Because of this significant reduction in MediaOne's
rights, Time Warner will consolidate TWE's operating results, cash flows and
financial position for accounting purposes beginning no later than the filing of
the third quarter Form 10-Q.

In addition, in connection with the proposed acquisition of MediaOne by
AT&T, Time Warner and AT&T are engaged in discussions concerning the overall
relationship of the companies following that acquisition. Among the subjects
included in those discussions are the structure of TWE, the structure of
AT&T/MediaOne's investment in TWE, as well as potential changes to the proposed
cable telephony joint venture discussed on page F-17 of Time Warner's Annual
Report on Form 10-K for the year ended December 31, 1998.

The proposed acquisition of MediaOne by AT&T is subject to customary
closing conditions, including regulatory approvals. Accordingly, there is no
assurance that it will occur.

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

Columbia House-CDnow Merger

In July 1999, Time Warner announced an agreement with Sony Corporation
of America ("Sony") to merge their jointly owned Columbia House operations with
CDnow, Inc. ("CDnow"), a leading music and video e-commerce company. Time Warner
and Sony will each own 37% of the combined entity and the existing CDnow
shareholders will own 26% of the combined entity. This investment is expected to
be accounted for using the equity method of accounting.

With a combined reach of nearly 10% of all Internet users(1), the
combined entity is expected to create a significant platform for Time Warner's
music and video e-commerce initiatives and position the Company for incremental
growth opportunities relating to online sales of music and video product and the
digital distribution of music. In addition, management believes that the use of
Columbia House's existing active club members and the cross-promotional
opportunities to be offered by Time Warner and Sony will lower customer
acquisition costs and increase the combined entity's customer base.

As part of this transaction, Time Warner and Sony each have made
certain strategic and financial commitments to the combined entity. Among the
strategic commitments, which have a term of five years and are subject to
certain conditions and qualifications, Time Warner and Sony will provide the
combined entity with opportunities to purchase advertising and promotional
support from their diverse media properties. In addition, as part of their
commitment to make the combined entity their primary vehicle to pursue the
packaged music e-commerce business, Time Warner and Sony will link their own
music-controlled web sites in the U.S. and Canada to the combined entity's web
sites. This will enable consumers to sample content from their favorite artists
and genres and then immediately make a purchase. Time Warner and Sony have also
each agreed to guarantee, for a three-year period, one-half of the borrowings
under a new credit facility to be entered into by the combined entity upon the
closing of the merger. The credit facility is expected to provide for up to $450
million of borrowings, which will be used to support the ongoing growth and
capital needs of the business and to refinance approximately $300 million of
existing debt and liabilities of Columbia House.

The merger is expected to close by the end of 1999 and is subject to
customary closing conditions, including regulatory approvals and approval by
existing CDnow shareholders. There can be no assurance that such approvals will
be obtained.

Use of EBITA

Time Warner evaluates operating performance based on several factors,
including its primary financial measure of operating income before noncash
amortization of intangible assets ("EBITA"). Consistent with management's
financial focus on controlling capital spending, EBITA measures operating
performance after charges for depreciation. In addition, EBITA eliminates the
uneven effect across all business segments of considerable amounts of noncash
amortization of intangible assets recognized in business combinations accounted
for by the purchase method. These business combinations, including the $14
billion acquisition of Warner Communications Inc. in 1989, the $6.2 billion
acquisition of Turner Broadcasting System, Inc. ("TBS") in 1996 and the $2.3
billion of cable

(1) As measured by MediaMetrix as of June 1999.

acquisitions in 1996 and 1995, created over $25 billion of intangible assets
that generally are being amortized over a twenty to forty year period. The
exclusion of noncash amortization charges also is consistent with management's
belief that Time Warner's intangible assets, such as cable television and sports
franchises, music catalogues and copyrights, film and television libraries and
the goodwill associated with its brands, generally are increasing in value and
importance to Time Warner's business objective of creating, extending and
distributing recognizable brands and copyrights throughout the world. As such,
the following comparative discussion of the results of operations of Time Warner
and the Entertainment Group includes, among other factors, an analysis of
changes in business segment EBITA. However, EBITA should be considered in
addition to, not as a substitute for, operating income, net income and other
measures of financial performance reported in accordance with generally accepted
accounting principles.

Transactions Affecting Comparability of Results of Operations

As more fully described herein, the comparability of Time Warner's and
the Entertainment Group's operating results has been affected by certain
significant transactions and nonrecurring items in each period.

In 1999, these nonrecurring items consisted of (i) an approximate $215
million net pretax gain recognized by TWE in the first quarter of 1999 in
connection with the early termination and settlement of a long-term home video
distribution agreement, (ii) an approximate $115 million pretax gain recognized
by Time Warner in the second quarter of 1999 in connection with the initial
public offering of a 20% interest in Time Warner Telecom Inc. (the "Time Warner
Telecom IPO"), a competitive local exchange carrier that provides telephony
services to businesses and (iii) net pretax gains in the amount of $771 million
in the second quarter of 1999 relating to the sale or exchange of various cable
television systems and investments by Time Warner and TWE. This compares to net
pretax gains in the first half of 1998 of $84 million also relating to the sale
or exchange of cable television systems by Time Warner and TWE.

In order to meaningfully assess underlying operating trends, management
believes that the results of operations for each period should be analyzed after
excluding the effects of these significant nonrecurring gains. As such, the
following discussion and analysis focuses on amounts and trends adjusted to
exclude the impact of these unusual items. However, unusual items may occur in
any period. Accordingly, investors and other financial statement users
individually should consider the types of events and transactions for which
adjustments have been made.

In addition, the comparability of Time Warner's and the Entertainment
Group's Cable division results has been affected further by certain
cable-related transactions, as described more fully under the caption
"Summarized Financial Information of the Entertainment Group" in Note 2 to the
accompanying consolidated financial statements. While these transactions had a
significant effect on the comparability of the Cable division's EBITA and
operating income principally due to the deconsolidation of the related
operations, they did not have a significant effect on the comparability of Time
Warner's net income and per share results.

Finally, per common share amounts have been restated to give effect to
a two-for-one common stock split that occurred on December 15, 1998.

RESULTS OF OPERATIONS

EBITA and operating income are as follows:

Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
EBITA Operating Income EBITA Operating Income
----- ---------------- ----- ----------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
(millions)
Time Warner:

Publishing............................... $ 196 $176 $ 186 $168 $ 290 $261 $ 270 $244
Music.................................... 101 96 31 25 203 189 66 50
Cable Networks-TBS....................... 235 198 184 148 419 351 318 251
Filmed Entertainment-TBS................. 71 38 53 18 100 23 63 (17)
Cable(1)................................. 81 74 39 26 147 148 61 46
Intersegment elimination................. 2 (1) 2 (1) 12 (20) 12 (20)
----- ---- ----- --- ----- ---- ----- -----

Total.................................... $ 686 $581 $ 495 $384 $1,171 $952 $ 790 $554
===== ==== ===== ==== ====== ==== ===== ====

Entertainment Group:
Filmed Entertainment-Warner Bros.(2)..... $ 132 $122 $ 101 $ 89 $ 478 $ 241 $ 417 $175
Broadcasting-The WB Network.............. (30) (23) (31) (24) (71) (61) (73) (63)
Cable Networks-HBO....................... 131 113 131 113 256 222 256 222
Cable(3)................................. 1,099 374 1,011 278 1,436 681 1,263 491
------ ---- ------ ---- ------ ---- ------ ----

Total.................................... $1,332 $586 $1,212 $456 $2,099 $1,083 $1,863 $825
====== ==== ====== ==== ====== ====== ====== ====

- ---------------
(1) Includes net pretax gains relating to the sale or exchange of certain cable
television systems and investments of $11 million in the second quarter
of 1999.
(2) Includes a net pretax gain of approximately $215 million recognized in the
first quarter of 1999 in connection with the early termination
and settlement of a long-term home video distribution agreement.
(3) Includes net pretax gains relating to the sale or exchange of certain cable
television systems and investments of $760 million in the second quarter
of 1999 and $70 million in the second quarter of 1998. Similarly,
six-month results include net pretax gains of $760 million in
1999 and $84 million in 1998.

Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998

Time Warner had revenues of $3.574 billion and net income of $593
million for the three months ended June 30, 1999, compared to revenues of $3.672
billion and net income of $101 million for the three months ended June 30, 1998.
After preferred dividend requirements, Time Warner had basic net income per
common share of $.46 in 1999, compared to $.02 per common share in 1998. On a
diluted basis, net income per common share was $.43 in 1999, compared to $.02
per common share in 1998.

basic net income per common share of $.34 in 1999, compared to an increase of
$.03 in 1998. On a diluted basis, the net effect was an increase of $.31 per
common share in 1999, compared to an increase of $.03 in 1998.

Time Warner's net income increased to $593 million in 1999, compared to
$101 million in 1998. However, excluding the significant effect of the
nonrecurring items referred to earlier, net income increased by $94 million to
$163 million in 1999 from $69 million in 1998. As discussed more fully below,
this improvement principally resulted from an overall increase in Time Warner's
business segment operating income and higher income from Time Warner's equity in
the pretax income of the Entertainment Group, offset in part by higher equity
losses from certain investments accounted for under the equity method of
accounting and higher income taxes due to the increase in Time Warner's income.
Similarly, excluding the effect of these nonrecurring items, normalized basic
and diluted net income per common share increased to $.12 in 1999, compared to a
net loss of $.01 per common share in 1998. In addition to the factors discussed
above, the improvement in 1999 normalized per share results reflects a $60
million reduction in preferred dividend requirements principally relating to the
redemption of Time Warner's Series M exchangeable preferred stock ("Series M
Preferred Stock") in late 1998.

Time Warner's equity in the pretax income of the Entertainment Group
was $793 million for the three months ended June 30, 1999, compared to $166
million for the three months ended June 30, 1998. The Entertainment Group had
revenues of $3.060 billion and net income of $767 million in 1999, compared to
revenues of $2.853 billion and net income of $156 million in 1998. Similarly,
excluding the portion of the nonrecurring items referred to above that was
recognized by the Entertainment Group, net income increased by $64 million to
$165 million in 1999 from $101 million in 1998. As discussed more fully below,
this improvement principally resulted from an overall increase in operating
income generated by its business segments.

The relationship between income before income taxes and income tax
expense of Time Warner is principally affected by the amortization of goodwill
and certain other financial statement expenses that are not deductible for
income tax purposes. Income tax expense of Time Warner includes all income taxes
related to its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment Group.

Time Warner

Publishing. Revenues increased to $1.153 billion, compared to $1.136
billion in the second quarter of 1998. EBITA increased to $196 million from $176
million. Operating income increased to $186 million from $168 million. Revenues
in 1999 were affected negatively by the deconsolidation of a direct-marketing
operation, which is now being accounted for under the equity method of
accounting. Excluding this change, revenues increased primarily from significant
growth in magazine advertising revenues, offset in part by lower circulation
revenues. The increase in advertising revenues was principally due to a strong
overall advertising market for most of the division's magazines, primarily led
by Sports Illustrated, In Style, Teen People, Money and Entertainment Weekly.
The decline in circulation revenues was principally due to lower newsstand sales
and lower net subscription revenues generated by third-party agencies. EBITA and
operating income increased principally as a result of the revenue gains and
increased cost savings. These increases were offset in part by lower results
from direct-marketing activities, including Book-of-the-Month Club and American
Family Enterprises ("AFE"), a 50% owned equity investee.

Music. Revenues decreased to $828 million, compared to $905 million in
the second quarter of 1998. EBITA increased to $101 million from $96 million.
Operating income increased to $31 million from $25 million. Revenues decreased
primarily due to lower international recorded music sales and, to a lesser
extent, lower domestic recorded music sales. The revenue decline principally
related to lower sales of new releases in comparison to the prior year, which
benefited from popular releases by established artists, like Madonna and Eric
Clapton. Despite the revenue decrease, EBITA and operating income increased due
to higher results from domestic recorded music operations, which benefited from
increased cost savings, lower artist royalty costs and improved results from
joint ventures that had successful releases during the period. The improvements
in domestic recorded music operations were offset in part by lower results from
international recorded music operations relating to lower international sales.
Management expects that the revenue decline relating to lower worldwide sales
levels will continue into the third quarter of 1999, which could negatively
affect operating results.

Cable Networks-TBS. Revenues increased to $1.065 billion, compared to
$906 million in the second quarter of 1998. EBITA increased to $235 million from
$198 million. Operating income increased to $184 million from $148 million.
Revenues benefited from increases in advertising and subscription revenues. The
increase in advertising revenues was principally due to a strong overall
advertising market for most of the division's networks, including CNN, TBS
Superstation, TNT, Cartoon Network and Headline News. The increase in
subscription revenues principally related to an increase in subscriptions and
higher rates, primarily led by revenue increases at CNN, TBS Superstation, TNT
and Turner Classic Movies. EBITA and operating income increased principally as a
result of the revenue gains, offset in part by higher programming costs.

Filmed Entertainment-TBS. Revenues decreased to $337 million, compared
to $504 million in the second quarter of 1998. EBITA increased to $71 million
from $38 million. Operating income increased to $53 million from $18 million.
Revenues decreased principally as a result of fewer theatrical releases and the
absence of revenues from the sale of second-cycle broadcasting rights for
Seinfeld in 1998. Despite the decline in revenues, EBITA and operating income
increased principally due to the theatrical success of New Line Cinema's Austin
Powers-The Spy Who Shagged Me and the absence of film write-offs relating to
disappointing results for theatrical releases of Castle Rock Entertainment in
1998.

Cable. Revenues decreased to $216 million, compared to $242 million in
the second quarter of 1998. EBITA increased to $81 million from $74 million.
Operating income increased to $39 million from $26 million. The Cable division's
1999 operating results were affected by certain cable-related transactions that
occurred in 1998 (the "1998 Cable Transactions") and by net pretax gains of $11
million recognized in 1999 related to the sale or exchange of various cable
television systems and investments. The 1998 Cable Transactions principally
resulted in the deconsolidation of certain operations and are described more
fully in Note 2 to the accompanying consolidated financial statements. Excluding
the effect of the 1998 Cable Transactions, revenues increased due to growth in
basic cable subscribers, increases in basic cable rates and an increase in
advertising revenues. Similarly, excluding the effect of the 1998 Cable
Transactions and the one-time gains, EBITA and operating income increased
principally as a result of the revenue increases, offset in part by higher
programming costs.

Interest and Other, Net. Interest and other, net, decreased to an
expense of $202 million in the second quarter of 1999, compared to an expense of
$283 million in the second quarter of 1998. Interest expense increased to $236
million, compared to $222 million in the second quarter of 1998. Interest
expense increased principally

because of higher interest costs incurred in connection with the $2.1 billion of
borrowings used to redeem the Company's Series M Preferred Stock in December
1998, offset in part by interest savings associated with the Company's 1998 debt
reduction efforts. Other income, net, was $34 million in the second quarter of
1999, compared to other expense, net, of $61 million in the second quarter of
1998. The change principally related to the recognition of an approximate $115
million pretax gain in 1999 in connection with the Time Warner Telecom IPO,
offset in part by higher losses from certain investments accounted for under the
equity method of accounting.

Entertainment Group

Filmed Entertainment-Warner Bros. Revenues increased to $1.446 billion,
compared to $1.330 billion in the second quarter of 1998. EBITA increased to
$132 million from $122 million. Operating income increased to $101 million from
$89 million. Revenues benefited from increases in worldwide theatrical and
television distribution operations, offset in part by lower revenues from
consumer products operations. Also contributing to the revenue increase were
marginally higher revenues from worldwide home video operations, which benefited
from increased sales of DVDs. EBITA and operating income benefited principally
from improved results from worldwide theatrical and television distribution
operations, offset in part by lower gains on the sale of assets and lower
results from consumer products operations.

Broadcasting-The WB Network. Revenues increased to $83 million,
compared to $61 million in the second quarter of 1998. EBITA decreased to a loss
of $30 million from a loss of $23 million. Operating losses increased to $31
million from $24 million. Revenues increased as a result of improved television
ratings and the addition of a fifth night of prime-time programming in September
1998. Operating losses increased principally because the revenue gains were more
than offset by the combination of higher programming costs associated with the
expanded programming schedule and higher start-up costs associated with The WB
Network 100+ station group, a distribution alliance for The WB Network in
smaller markets.

Cable Networks-HBO. Revenues increased to $546 million, compared to
$509 million in the second quarter of 1998. EBITA and operating income increased
to $131 million from $113 million. Revenues benefited primarily from an increase
in subscriptions. EBITA and operating income increased principally as a result
of the revenue gains, increased cost savings and higher income from Comedy
Central, a 50%-owned equity investee.

Cable. Revenues increased to $1.114 billion, compared to $1.084 billion
in the second quarter of 1998. EBITA increased to $1.099 billion from $374
million. Operating income increased to $1.011 billion from $278 million. The
Cable division's 1999 operating results were affected by the 1998 Cable
Transactions and by net pretax gains of $760 million in 1999 and $70 million in
1998 relating to the sale or exchange of various cable television systems and
investments. The 1998 Cable Transactions principally resulted in the
deconsolidation or transfer of certain operations and are described more fully
in Note 2 to the accompanying consolidated financial statements. Excluding the
effect of the 1998 Cable Transactions, revenues increased due to growth in basic
cable subscribers, increases in basic cable rates, an increase in advertising
revenues and an increase in revenues from providing Road Runner-branded,
high-speed online services. Similarly, excluding the effect of the 1998 Cable
Transactions and the one-time gains, EBITA and operating income increased
principally as a result of the revenue increases, offset in part by higher
programming costs.

Interest and Other, Net. Interest and other, net, decreased to an
expense of $167 million in the second quarter of 1999, compared to an expense of
$183 million in the second quarter of 1998. Interest expense increased to $136
million, compared to $132 million in the second quarter of 1998, principally due
to higher average debt levels. Other expense, net, decreased to $31 million in
the second quarter of 1999, compared to $51 million in the second quarter of
1998. The decrease principally related to lower losses from certain investments
accounted for under the equity method of accounting and a gain on the sale of an
investment.

Minority Interest. Minority interest expense increased to $233 million,
compared to $82 million in the second quarter of 1998. Minority interest expense
increased primarily due to the allocation of a portion of the net pretax gains
relating to the sale or exchange of various cable television systems and
investments owned by the TWE-Advance/Newhouse Partnership ("TWE-A/N"), a
majority owned partnership of TWE, to the minority owners of that partnership.
Excluding the significant effect of the gains recognized in each period,
minority interest expense for 1999 and 1998 was comparable in amount and did not
have any significant effect on operating trends.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

Time Warner had revenues of $6.840 billion and net income of $731
million for the six months ended June 30, 1999, compared to revenues of $6.809
billion and net income of $39 million for the six months ended June 30, 1998.
After preferred dividend requirements, Time Warner had basic net income per
common share of $.56 in 1999, compared to a net loss of $.10 per common share in
1998. On a diluted basis, net income per common share was $.54 in 1999, compared
to a net loss of $.10 per common share in 1998.

As previously described, the comparability of Time Warner's and the
Entertainment Group's operating results for 1999 and 1998 has been affected by
certain significant, nonrecurring items recognized in each period. These
nonrecurring items consisted of approximately $1.1 billion of net pretax gains
in 1999, compared to $84 million of net pretax gains in 1998. The aggregate net
effect of these items was an increase in basic net income per common share of
$.44 in 1999, compared to an increase of $.03 in 1998. On a diluted basis, the
net effect was an increase of $.40 per common share in 1999, compared to an
increase of $.03 in 1998.

Time Warner's net income increased to $731 million in 1999, compared to
$39 million in 1998. However, excluding the significant effect of the
nonrecurring items referred to earlier, net income increased by $172 million to
$174 million in 1999 from $2 million in 1998. This improvement principally
resulted from an overall increase in Time Warner's business segment operating
income and higher income from Time Warner's equity in the pretax income of the
Entertainment Group, offset in part by higher equity losses from certain
investments accounted for under the equity method of accounting and higher
income taxes due to the increase in Time Warner's income. Similarly, excluding
the effect of these nonrecurring items, normalized basic net income per common
share increased to $.12 in 1999, compared to a net loss of $.13 per common share
in 1998. On a diluted basis, net income per common share increased to $.14 in
1999, compared to a net loss of $.13 per common share in 1998. In addition to
the factors discussed above, the improvement in 1999 normalized per share
results reflects a $124 million reduction in preferred dividend requirements
principally relating to the redemption of Time Warner's Series M Preferred Stock
in late 1998.

Time Warner's equity in the pretax income of the Entertainment Group
was $1.135 billion for the six months ended June 30, 1999, compared to $273
million for the six months ended June 30, 1998. The Entertainment Group had
revenues of $5.994 billion and net income of $1.079 billion in 1999, compared to
revenues of $5.765 billion and net income of $264 million in 1998. Similarly,
excluding the portion of the nonrecurring items referred to above that was
recognized by the Entertainment Group, net income increased by $62 million to
$262 million in 1999 from $200 million in 1998. As discussed more fully below,
this improvement principally resulted from an overall increase in operating
income generated by its business segments, offset in part by higher equity
losses from certain investments accounted for under the equity method of
accounting.

Time Warner

Publishing. Revenues increased to $2.127 billion, compared to $2.084
billion in the first six months of 1998. EBITA increased to $290 million from
$261 million. Operating income increased to $270 million from $244 million.
Revenues in 1999 were affected negatively by the deconsolidation of a
direct-marketing operation, which is now being accounted for under the equity
method of accounting. Excluding this change, revenues increased primarily from
significant growth in magazine advertising revenues, offset in part by lower
circulation revenues. The increase in advertising revenues was principally due
to a strong overall advertising market for most of the division's magazines,
primarily led by Time, People, In Style, Fortune, and Entertainment Weekly. The
decline in circulation revenues was principally due to lower newsstand sales and
lower net subscription revenues generated by third-party agencies. EBITA and
operating income increased principally as a result of the revenue gains,
increased cost savings and a one-time gain on the sale of an asset. These
increases were offset in part by lower results from direct-marketing activities,
including Book-of-the-Month Club and AFE.

Music. Revenues decreased to $1.764 billion, compared to $1.793 billion
in the first six months of 1998. EBITA increased to $203 million from $189
million. Operating income increased to $66 million from $50 million. Revenues
decreased primarily due to lower international recorded music sales and a
decline in music publishing revenues, offset in part by a marginal increase in
domestic recorded music revenues. The international revenue decline principally
related to lower sales of new releases in comparison to the prior year, which
benefited from popular releases by established artists, like Madonna and Eric
Clapton. Despite the revenue decrease, EBITA and operating income increased due
to higher results from domestic recorded music operations, which benefited from
increased cost savings, lower artist royalty costs and improved results from
joint ventures that had successful releases during the period. The improvements
in domestic recorded music operations were offset in part by lower results from
international recorded music operations relating to lower international sales
levels and less licensing income from direct-marketing activities. Management
expects that the revenue decline relating to lower worldwide sales levels will
continue into the third quarter of 1999, which could negatively affect operating
results.

Cable Networks-TBS. Revenues increased to $1.903 billion, compared to
$1.634 billion in the first six months of 1998. EBITA increased to $419 million
from $351 million. Operating income increased to $318 million

from $251 million. Revenues benefited from increases in advertising and
subscription revenues. The increase in advertising revenues was principally due
to a strong overall advertising market for most of the division's networks,
including, CNN, TBS Superstation, TNT, Cartoon Network and Headline News. The
increase in subscription revenues principally related to an increase in
subscriptions and higher rates, primarily led by revenue increases at CNN, TBS
Superstation, TNT and Turner Classic Movies. EBITA and operating income
increased principally as a result of the revenue gains, offset in part by higher
programming costs.

Filmed Entertainment-TBS. Revenues decreased to $654 million, compared
to $876 million in the first six months of 1998. EBITA increased to $100 million
from $23 million. Operating income increased to $63 million from a loss of $17
million. Revenues decreased principally as a result of fewer theatrical releases
and the absence of revenues from the sale of second-cycle broadcasting rights
for Seinfeld in 1998, offset in part by increased worldwide home video revenues.
Despite the decline in revenues, EBITA and operating income increased
principally due to the theatrical success of New Line Cinema's Austin Powers-The
Spy Who Shagged Me, improved results from worldwide home video operations and
the absence of film write-offs relating to disappointing results for theatrical
releases of Castle Rock Entertainment in 1998.

Cable. Revenues decreased to $438 million, compared to $490 million in
the first six months of 1998. EBITA decreased to $147 million from $148 million.
Operating income increased to $61 million from $46 million. The Cable division's
1999 operating results were affected by the 1998 Cable Transactions and by net
pretax gains of $11 million recognized in 1999 related to the sale or exchange
of various cable television systems and investments. The 1998 Cable Transactions
principally resulted in the deconsolidation of certain operations and are
described more fully in Note 2 to the accompanying consolidated financial
statements. Excluding the effect of the 1998 Cable Transactions, revenues
increased due to growth in basic cable subscribers, increases in basic cable
rates and an increase in advertising and pay-per-view revenues. Similarly,
excluding the effect of the 1998 Cable Transactions and the one-time gains,
EBITA and operating income increased principally as a result of the revenue
increases, offset in part by higher programming costs.

Interest and Other, Net. Interest and other, net, decreased to an
expense of $513 million in the first six months of 1999, compared to an expense
of $566 million in the first six months of 1998. Interest expense increased to
$469 million, compared to $455 million in the first six months of 1998. Interest
expense increased principally because of higher interest costs incurred in
connection with the $2.1 billion of borrowings used to redeem the Company's
Series M Preferred Stock in December 1998, offset in part by interest savings
associated with the Company's 1998 debt reduction efforts. Other expense, net,
decreased to $44 million in the first six months of 1999 from $111 million in
the first six months of 1998. The decrease principally related to the
recognition of an approximate $115 million pretax gain in 1999 in connection
with the Time Warner Telecom IPO, offset in part by higher losses from certain
investments accounted for under the equity method of accounting.

Entertainment Group

Filmed Entertainment-Warner Bros. Revenues increased to $2.826 billion,
compared to $2.642 billion in the first six months of 1998. EBITA increased to
$478 million from $241 million. Operating income increased to $417 million from
$175 million. Revenues benefited from increases in worldwide theatrical and
television distribution operations, offset in part by lower revenues from
consumer products operations. Also contributing to the revenue

increase were higher revenues from worldwide home video operations, which
benefited from increased sales of DVDs. EBITA and operating income increased
primarily from the inclusion of an approximate $215 million net pretax gain
recognized in the first quarter of 1999 in connection with the early termination
and settlement of a long-term home video distribution agreement. In addition,
EBITA and operating income benefited principally from improved results from
worldwide theatrical and home video operations and an increase in
investment-related income, offset in part by lower results from consumer
products operations.

Broadcasting-The WB Network. Revenues increased to $162 million,
compared to $106 million in the first six months of 1998. EBITA decreased to a
loss of $71 million from a loss of $61 million. Operating losses increased to
$73 million from $63 million. Revenues increased as a result of improved
television ratings and the addition of a fifth night of prime-time programming
in September 1998. Operating losses increased principally because the revenue
gains were more than offset by the combination of higher programming costs
associated with the expanded programming schedule, a lower allocation of losses
to a minority partner in the network and higher start-up costs associated with
The WB Network 100+ station group, a distribution alliance for The WB Network in
smaller markets.

Cable Networks-HBO. Revenues increased to $1.072 billion, compared to
$1.021 billion in the first six months of 1998. EBITA and operating income
increased to $256 million from $222 million. Revenues benefited primarily from
an increase in subscriptions. EBITA and operating income increased principally
as a result of the revenue gains, increased cost savings, one-time gains from
the sale of certain investments and higher income from Comedy Central, a
50%-owned equity investee. These increases were offset in part by higher
marketing expenses.

Cable. Revenues decreased to $2.188 billion, compared to $2.237 billion
in the first six months of 1998. EBITA increased to $1.436 billion from $681
million. Operating income increased to $1.263 billion from $491 million. The
Cable division's 1999 operating results were affected by the 1998 Cable
Transactions and by net pretax gains of $760 million in 1999 and $84 million in
1998 relating to the sale or exchange of various cable television systems and
investments. The 1998 Cable Transactions principally resulted in the
deconsolidation or transfer of certain operations and are described more fully
in Note 2 to the accompanying consolidated financial statements. Excluding the
effect of the 1998 Cable Transactions, revenues increased due to growth in basic
cable subscribers, increases in basic cable rates, increases in advertising and
pay-per-view revenues and an increase in revenues from providing Road
Runner-branded, high-speed online services. Similarly, excluding the effect of
the 1998 Cable Transactions and the one-time gains, EBITA and operating income
increased principally as a result of the revenue increases, offset in part by
higher programming costs.

Interest and Other, Net. Interest and other, net, increased to an
expense of $392 million in the first six months of 1999, compared to an expense
of $347 million in the first six months of 1998. Interest expense was $273
million in both periods. Other expense, net, increased to $119 million in the
first six months of 1999, compared to $74 million in the first six months of
1998. This increase principally related to higher losses from certain
investments accounted for under the equity method of accounting, offset in part
by a gain on the sale of an investment.

owned by TWE-A/N to the minority owners of that partnership. Excluding the
significant effect of the gains recognized in each period, minority interest
expense for 1999 and 1998 was comparable in amount and did not have any
significant effect on operating trends.

FINANCIAL CONDITION AND LIQUIDITY
June 30, 1999

Time Warner

Financial Condition

At June 30, 1999, Time Warner had $10.8 billion of debt, $304 million
of cash and equivalents (net debt of $10.5 billion), $1.2 billion of borrowings
against future stock option proceeds, $575 million of mandatorily redeemable
preferred securities of a subsidiary and $9.1 billion of shareholders' equity.
This compares to $10.9 billion of debt, $442 million of cash and equivalents
(net debt of $10.5 billion), $895 million of borrowings against future stock
option proceeds, $575 million of mandatorily redeemable preferred securities of
a subsidiary and $8.9 billion of shareholders' equity at December 31, 1998.

Debt Refinancings

In July 1999, Time Warner Companies, Inc., a wholly owned subsidiary of
Time Warner, redeemed all of its $600 million principal amount of Floating Rate
Reset Notes due July 29, 2009. The aggregate redemption cost of approximately
$620 million was funded with borrowings under Time Warner's bank credit
agreement. In connection with this redemption, an extraordinary loss of $12
million will be recognized in the third quarter of 1999.

Preferred Stock Conversion

In July 1999, Time Warner issued approximately 46 million shares of
common stock in connection with the conversion of all outstanding 11 million
shares of its Series D convertible preferred stock. Because holders of Series D
preferred stock were entitled to cash dividends at a preferential rate through
July 1999, Time Warner's historical cash dividend requirements will be reduced,
going forward, by approximately $30 million on an annualized basis.

Common Stock Repurchase Program

In January 1999, Time Warner's Board of Directors authorized a new
common stock repurchase program that allows the Company to repurchase, from time
to time, up to $5 billion of common stock. This program is expected to be
completed over a three-year period; however, actual repurchases in any period
will be subject to market conditions. Along with stock option exercise proceeds
and borrowings under Time Warner's $1.3 billion stock option proceeds credit
facility, additional funding for this program is expected to be provided by
future free cash flow and financial capacity.

During the first six months of 1999, Time Warner acquired 13.7 million
shares of its common stock at an aggregate cost of $926 million. These
repurchases increased the cumulative shares purchased under this and its
previous common stock repurchase program begun in 1996 to approximately 108.8
million shares at an aggregate cost of $3.97 billion.

Cash Flows

During the first six months of 1999, Time Warner's cash provided by
operations amounted to $595 million and reflected $1.171 billion of EBITA from
its Publishing, Music, Cable Networks-TBS, Filmed Entertainment-TBS and Cable
businesses, $179 million of noncash depreciation expense, $78 million of
proceeds from Time Warner's asset securitization program and $280 million of
distributions from TWE, less $446 million of interest payments, $145 million of
income taxes, $44 million of corporate expenses and $478 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items. Cash provided by operations of $889 million for the first six
months of 1998 reflected $952 million of EBITA from its Publishing, Music, Cable
Networks-TBS, Filmed Entertainment-TBS and Cable businesses, $191 million of
noncash depreciation expense, $132 million of proceeds from Time Warner's asset
securitization program and $298 million of distributions from TWE, less $404
million of interest payments, $79 million of income taxes, $38 million of
corporate expenses and $163 million related to an aggregate increase in working
capital requirements, other balance sheet accounts and noncash items.

Cash used by investing activities was $302 million in the first six
months of 1999, compared to cash provided by investing activities of $93 million
in the first six months of 1998. The increase in cash used by investing
activities principally resulted from higher capital expenditures and a decrease
in investment proceeds. Capital expenditures increased to $314 million in the
first six months of 1999, compared to $228 million in the first six months of
1998.

Cash used by financing activities was $431 million in the first six
months of 1999, compared to $1.283 billion in the first six months of 1998. The
use of cash in 1999 principally resulted from the repurchase of approximately
13.7 million shares of Time Warner common stock at an aggregate cost of $926
million and the payment of $149 million of dividends, offset in part by a $33
million increase in net borrowings, $324 million of borrowings against future
stock option proceeds and $287 million of proceeds received principally from the
exercise of employee stock options. During the first six months of 1998, Time
Warner had additional borrowings that offset the noncash reduction of $1.15
billion of debt relating to the conversion of its zero-coupon convertible notes
into common stock. Time Warner principally used the proceeds from such
borrowings, together with $460 million of proceeds received from the exercise of
employee stock options, to repurchase approximately 23.2 million shares of Time
Warner common stock at an aggregate cost of $1.661 billion. Time Warner also
paid $265 million of dividends in the first six months of 1998. The decrease in
dividends paid in 1999 reflects the effect of Time Warner's redemption of its
Series M Preferred Stock in December 1998 and the conversion of approximately 15
million shares of preferred stock into shares of common stock that also occurred
during 1998.

The assets and cash flows of TWE are restricted by certain borrowing
and partnership agreements and are unavailable to Time Warner except through the
payment of certain fees, reimbursements, cash distributions and loans, which are
subject to limitations. Under its bank credit agreement, TWE is permitted to
incur additional indebtedness

to make loans, advances, distributions and other cash payments to Time Warner,
subject to its individual compliance with the cash flow coverage and leverage
ratio covenants contained therein.

Management believes that Time Warner's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to fund its capital
and liquidity needs for the foreseeable future without distributions and loans
from TWE above those permitted by existing agreements.

Entertainment Group

Financial Condition

At June 30, 1999, the Entertainment Group had $6.5 billion of debt,
$117 million of cash and equivalents (net debt of $6.4 billion), $627 million of
Time Warner General Partners' senior priority capital and $5.7 billion of
partners' capital. This compares to $6.6 billion of debt, $87 million of
cash and equivalents (net debt of $6.5 billion), $217 million of preferred
stock of a subsidiary, $603 million of Time Warner General Partners' senior
priority capital and $5.2 billion of partners' capital at December 31, 1998.

Senior Capital Distributions

In July 1999, TWE paid a $627 million distribution to the Time Warner
General Partners to redeem the remaining portion of their senior priority
capital interests, including a priority capital return of $173 million. Time
Warner used a portion of the proceeds received from this distribution to repay
all $400 million of outstanding borrowings under its credit agreement with TWE.

Redemption of REIT Preferred Stock

In March 1999, a subsidiary of TWE (the "REIT") redeemed all of its
shares of preferred stock ("REIT Preferred Stock") at an aggregate cost of $217
million, which approximated net book value. The redemption was funded with
borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT
Preferred Stock was redeemed as a result of proposed changes to federal tax
regulations that substantially increased the likelihood that dividends paid by
the REIT or interest paid to the REIT under a mortgage note of TWE would not be
fully deductible for federal income tax purposes.

Cash Flows

During the first six months of 1999, the Entertainment Group's cash
provided by operations amounted to $1.519 billion and reflected $2.099 billion
of EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB
Network, Cable Networks-HBO and Cable businesses, $406 million of noncash
depreciation expense and $21 million of proceeds from TWE's asset securitization
program, less $242 million of interest payments, $49 million of income taxes,
$36 million of corporate expenses and $680 million related to an aggregate
increase in working capital requirements, other balance sheet accounts and
noncash items. Cash provided by operations of $586 million in the first six
months of 1998 reflected $1.083 billion of EBITA from its Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and
Cable businesses, $469 million of noncash depreciation

expense and $135 million of proceeds from TWE's asset securitization program,
less $260 million of interest payments, $39 million of income taxes, $36 million
of corporate expenses and $766 million related to an aggregate increase in
working capital requirements, other balance sheet accounts and noncash items.

Cash used by investing activities was $662 million in the first six
months of 1999, compared to $493 million in the first six months of 1998. The
increase principally resulted from a $296 million decrease in investment
proceeds relating to the 1998 sale of TWE's remaining interest in Six Flags
Entertainment Corporation. The decrease in investment proceeds was partially
offset by lower capital expenditures. Capital expenditures decreased to $649
million in the first six months of 1999, compared to $734 million in the first
six months of 1998.

Cash used by financing activities was $827 million in the first six
months of 1999, compared to $343 million in the first six months of 1998. The
use of cash in 1999 principally resulted from the redemption of REIT Preferred
Stock at an aggregate cost of $217 million, the payment of $280 million of
capital distributions to Time Warner and $229 million of debt reduction. The use
of cash in 1998 principally resulted from the payment of $298 million of capital
distributions to Time Warner, offset in part by an $11 million increase in net
borrowings.

Management believes that the Entertainment Group's operating cash flow,
cash and equivalents and additional borrowing capacity are sufficient to fund
its capital and liquidity needs for the foreseeable future.

Cable Capital Spending

Time Warner Cable has been engaged in a plan to upgrade the
technological capability and reliability of its cable television systems and
develop new services, which it believes will position the business for
sustained, long-term growth. Capital spending by Time Warner Cable, including
the cable operations of both Time Warner and TWE, amounted to $704 million in
the six months ended June 30, 1999, compared to $776 million in the six months
ended June 30, 1998. Cable capital spending is expected to approximate $900
million for the remainder of 1999. Capital spending by Time Warner Cable is
expected to continue to be funded by cable operating cash flow.

Filmed Entertainment Backlog

Backlog represents the amount of future revenue 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 of
TWE's Filmed Entertainment-Warner Bros. division amounted to $2.663 billion at
June 30, 1999, compared to $2.298 billion at December 31, 1998 (including
amounts relating to the licensing of film product to Time Warner's and TWE's
cable television networks of $1.014 billion at June 30, 1999 and $769 million at
December 31, 1998). In addition, backlog of Time Warner's Filmed
Entertainment-TBS division amounted to $587 million at June 30, 1999 and $636
million at December 31, 1998 (including amounts relating to the licensing of
film product to Time Warner's and TWE's cable television networks of $222
million at June 30, 1999 and $226 million at December 31, 1998).

Because backlog generally relates to contracts for the licensing of
theatrical and television product which have already been produced, the
recognition of revenue for such completed product principally is dependent only
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement.

Cash licensing fees are collected periodically over the term of the related
licensing agreements or on an accelerated basis using TWE's $500 million
securitization facility. The portion of backlog for which cash has not already
been received has significant off-balance sheet asset value as a source of
future funding. The backlog excludes advertising barter contracts, which are
also expected to result in the future realization of revenues and cash through
the sale of advertising spots received under such contracts.

Year 2000 Technology Preparedness

Time Warner, together with its Entertainment Group and like most large
companies, depends on many different computer systems and other chip-based
devices for the continuing conduct of its business. Older computer programs,
computer hardware and chip-based devices may fail to recognize dates beginning
on January 1, 2000 as being valid dates, and as a result may fail to operate or
may operate improperly when such dates are introduced.

Time Warner's exposure to potential Year 2000 problems arises both in
technological operations under the control of the Company and in those dependent
on one or more third parties. These technological operations include information
technology ("IT") systems and non-IT systems, including those with embedded
technology, hardware and software. Most of Time Warner's potential Year 2000
exposures are dependent to some degree on one or more third parties. Failure to
achieve high levels of Year 2000 compliance could have a material adverse impact
on Time Warner and its financial statements.

The Company's Year 2000 initiative is being conducted at the
operational level by divisional project managers and senior technology
executives overseen by senior divisional executives, with assistance internally
as well as from outside professionals. The progress of each division through the
different phases of remediation--inventorying, assessment, remediation planning,
implementation and final testing--is actively overseen and reviewed on a regular
basis by an executive oversight group that reports through the Company's Chief
Financial Officer to the Audit Committee of the Board of Directors.

The Company has generally completed the process of identifying,
assessing and planning the remediation of potential Year 2000 difficulties in
its technological operations, including IT applications, IT technology and
support, desktop hardware and software, non-IT systems and important third party
operations, and distinguishing those that are "mission critical" from those that
are not. An item is considered "mission critical" if its Year 2000-related
failure would significantly impair the ability of one of the Company's major
business units to (1) produce, market and distribute the products or services
that generate significant revenues for that business, (2) meet its obligations
to pay its employees, artists, vendors and others or (3) meet its obligations
under regulatory requirements and internal accounting controls. The Company and
its divisions, including the Entertainment Group, have identified approximately
1,000 worldwide, "mission critical" potential exposures. Of these, as of June
30, 1999, approximately 73% have been identified by the divisions as Year 2000
compliant and approximately 27% as in the remediation implementation or final
testing stages. The Company currently expects that remediation with respect to
well over 90% of all these identified operations will be substantially completed
in all material respects by the end of the third quarter of 1999. The Company,
however, could experience unexpected delays. The Company is currently planning
to impose a "quiet" period at some point during the fourth quarter of 1999
during which any remaining remediation involving installation or modification of
systems that interface with other systems will be minimized to permit the

Company to conduct testing in a stable environment and to focus on its
contingency and transition plans, as necessary.

As stated above, however, the Company's business is heavily dependent
on third parties and these parties are themselves heavily dependent on
technology. For example, in a situation endemic to the cable industry, much of
the Company's headend equipment that controls cable set-top boxes was not Year
2000 compliant. The box manufacturers and cable industry groups together
developed solutions that the Company has been installing and successfully
testing in its headend equipment at its various geographic locations. The few
remaining installations are currently scheduled during the third quarter of
1999. In addition, if a television broadcaster or cable programmer encounters
Year 2000 problems that impede its ability to deliver its programming, the
Company will be unable to provide that programming to its cable customers.
Because the Company is also a programming supplier, third-party signal delivery
problems would affect its ability to deliver its programming to its customers.
The Company has attempted to include in its "mission critical" inventory
significant service providers, vendors, suppliers, customers and governmental
entities that are believed to be critical to business operations and is in
various stages of completing its determination of their state of Year 2000
readiness through various means, including questionnaires, interviews, on-site
visits, system interface testing and industry group participation. The Company
continues to monitor these situations. Moreover, Time Warner is dependent, like
all large companies, on the continued functioning, domestically and
internationally, of basic, heavily computerized services such as banking,
telephony, water and power, and various distribution mechanisms ranging from the
mail, railroads and trucking to high-speed data transmission. Time Warner is
taking steps to attempt to satisfy itself that the third parties on which it is
heavily reliant are Year 2000 compliant, are developing satisfactory contingency
plans or that alternate means of meeting its requirements are available, but
cannot predict the likelihood of such compliance nor the direct or indirect
costs to the Company of non-compliance by those third parties or of securing
such services from alternate compliant third parties. In areas in which the
Company is uncertain about the anticipated Year 2000 readiness of a significant
third party, the Company is investigating available alternatives, if any.

The Company, including the Entertainment Group, currently estimates
that the aggregate cost of its Year 2000 remediation program, which started in
1996, will be approximately $125 to $175 million, of which an estimated 70% to
80% has been incurred through June 30, 1999. These costs include estimates of
the costs of assessment, replacement, repair and upgrade, both planned and
unplanned, of certain IT and non-IT systems and their implementation and
testing. The Company anticipates that its remediation program, and related
expenditures, may continue into 2001 as temporary solutions to Year 2000
problems are replaced with upgraded equipment. These expenditures have been and
are expected to continue to be funded from the Company's operating cash flow and
have not and are not expected to impact materially the Company's financial
statements.

Management believes that it has established an effective program to
resolve all significant Year 2000 issues in its control in a timely manner. As
noted above, however, the Company has not yet completed all phases of its
program and is dependent on third parties whose progress is not within its
control. In the event that the Company experiences unanticipated failures of the
systems within its control, management believes that the Company could
experience significant difficulty in producing and delivering its products and
services and conducting its business in the Year 2000 as it has in the past.
More importantly, disruptions experienced by third parties with which the
Company does business as well as by the economy generally could materially
adversely affect the Company. The amount of potential liability and lost revenue
cannot be reasonably estimated at this time.

The Company continues to focus its efforts on remediation of its Year
2000 exposures. Simultaneously, it is examining its existing standard business
interruption strategies to evaluate whether they would satisfactorily meet the
demands of failures arising from Year-2000 related problems. It is also
developing and refining specific transition schedules and contingency plans in
the event it does not successfully complete its remaining remediation as
anticipated or experiences unforeseen problems outside the scope of these
standard strategies. The Company intends to examine its status periodically to
determine the necessity of implementing such contingency plans or additional
strategies, which could involve, among other things, manual workarounds,
adjusting staffing strategies and sharing resources across divisions.

Caution Concerning Forward-Looking Statements

The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This document, together
with management's public commentary related thereto, contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, EBITA and cash flow. Words such as "anticipate", "estimate",
"expects", "projects", "intends", "plans", "believes" and words and terms of
similar substance used in connection with any discussion of future operating or
financial performance identify such forward-looking statements. Those
forward-looking statements are management's present expectations of future
events. As with any projection or forecast, they are inherently susceptible to
uncertainty and changes in circumstances, and the Company is under no obligation
to (and expressly disclaims any such obligation to) update or alter its
forward-looking statements whether as a result of such changes, new information,
future events or otherwise.

Time Warner operates in highly competitive, consumer driven and rapidly
changing media and entertainment businesses that are dependent on government
regulation and economic, political and social conditions in the countries in
which they operate, consumer demand for their products and services,
technological developments and (particularly in view of technological changes)
protection of their intellectual property rights. Time Warner's actual results
could differ materially from management's expectations because of changes in
such factors. Some of the other factors that also could cause actual results to
differ from those contained in the forward-looking statements include those
identified in Time Warner's other filings and:

o For Time Warner's cable business, more aggressive than expected competition
from new technologies and other types of video programming distributors,
including DBS; increases in government regulation of cable or equipment
rates or other terms of service (such as "digital must-carry" or
"unbundling" requirements); increased difficulty in obtaining franchise
renewals; the failure of new equipment (such as digital set-top boxes) or
services (such as high-speed on-line services or telephony over cable or
video on demand) to function properly, to appeal to enough consumers or to
be available at reasonable prices and to be delivered in a timely fashion;
and greater than expected increases in programming or other costs.

o For Time Warner's cable programming and television businesses, greater than
expected programming or production costs; public and cable operator
resistance to price increases (and the negative impact on premium
programmers of increases in basic cable rates); increased regulation of
distribution agreements; the sensitivity of advertising to economic
cyclicality; and greater than expected fragmentation of consumer viewership
due to

an increased number of programming services or the increased popularity
of alternatives to television.

o For Time Warner's film and television businesses, their ability to continue
to attract and select desirable talent and scripts at manageable costs;
increases in production costs generally; fragmentation of consumer leisure
and entertainment time (and its possible negative effects on the broadcast
and cable networks, which are significant customers of these businesses);
continued popularity of merchandising; and the uncertain impact of
technological developments such as DVD and the Internet.

o For Time Warner's music business, its ability to continue to attract and
select desirable talent at manageable costs; the timely completion of
albums by major artists; the popular demand for particular artists and
albums; its ability to continue to enforce and capitalize on its
intellectual property rights in digital environments; and the overall
strength of global music sales.

o For Time Warner's print media and publishing businesses, increases in paper
and distribution costs; the introduction and increased popularity of
alternative technologies for the provision of news and information, such as
the Internet; and fluctuations in advertiser and consumer spending.

o For Time Warner's digital media businesses, their ability to develop
products and services that are attractive, accessible and commercially
viable in terms of content, technology and cost, their ability to manage
costs and generate revenues, aggressive competition from existing and
developing technologies and products, the resolution of issues concerning
commercial activities via the Internet, including security, reliability,
cost, ease of use and access, and the possibility of increased government
regulation of new media services.

o The ability of the Company and its key service providers, vendors,
suppliers, customers and governmental entities to replace, modify or
upgrade computer systems in ways that adequately address the Year 2000
issue, including their ability to identify and correct all relevant
computer codes and embedded chips, unanticipated difficulties or delays in
the implementation of the Company's remediation plans and the ability of
third parties to address adequately their own Year 2000 issues.

In addition, Time Warner's overall financial strategy, including growth
in operations, maintaining its financial ratios and strengthened balance sheet,
could be adversely affected by increased interest rates, failure to meet
earnings expectations, significant acquisitions or other transactions,
consequences of the euro conversion and changes in Time Warner's plans,
strategies and intentions.

TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)

June 30, December 31,
1999 1998
-------- --------
(millions, except
per share amounts)
ASSETS
Current assets

Cash and equivalents.................................................................. $ 304 $ 442
Receivables, less allowances of $875 million and $1.007 billion....................... 2,397 2,885
Inventories........................................................................... 923 946
Prepaid expenses...................................................................... 1,279 1,176
------ ------

Total current assets.................................................................. 4,903 5,449

Noncurrent inventories................................................................ 1,838 1,900
Investments in and amounts due to and from Entertainment Group........................ 6,252 4,980
Other investments..................................................................... 924 794
Property, plant and equipment......................................................... 2,027 1,991
Music catalogues, contracts and copyrights............................................ 824 876
Cable television and sports franchises................................................ 2,662 2,868
Goodwill.............................................................................. 11,647 11,919
Other assets.......................................................................... 816 863
------ ------

Total assets.......................................................................... $31,893 $31,640
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...................................................................... $ 823 $ 996
Participations, royalties and programming costs payable............................... 1,172 1,199
Debt due within one year.............................................................. 20 19
Other current liabilities............................................................. 2,121 2,404
------ ------

Total current liabilities............................................................. 4,136 4,618

Long-term debt ....................................................................... 10,765 10,925
Borrowings against future stock option proceeds....................................... 1,219 895
Deferred income taxes................................................................. 3,704 3,491
Unearned portion of paid subscriptions................................................ 755 741
Other liabilities..................................................................... 1,647 1,543
Company-obligated mandatorily redeemable preferred securities of a subsidiary
holding solely subordinated debentures of a subsidiary of the Company.............. 575 575

Shareholders' equity
Preferred stock, $.10 par value, 19.4 and 22.6 million shares outstanding,
$1.940 and $2.260 billion liquidation preference................................... 2 2
Series LMCN-V common stock, $.01 par value, 114.1 million shares outstanding.......... 1 1
Common stock, $.01 par value, 1.133 and 1.118 billion shares outstanding.............. 11 11
Paid-in capital....................................................................... 13,289 13,134
Accumulated deficit................................................................... (4,211) (4,296)
------- -------

Total shareholders' equity............................................................ 9,092 8,852
------- ------

Total liabilities and shareholders' equity............................................ $31,893 $31,640
======= =======

See accompanying notes.

TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
------ ------ ------ ------
(millions, except per share amounts)

Revenues (a)....................................................... $3,574 $3,672 $6,840 $6,809
------ ------ ------ ------

Cost of revenues (a)(b)............................................ 1,899 2,077 3,685 3,964
Selling, general and administrative (a)(b)......................... 1,180 1,211 2,365 2,291
------ ------ ------ ------

Operating expenses................................................. 3,079 3,288 6,050 6,255
------ ------ ------ ------

Business segment operating income.................................. 495 384 790 554
Equity in pretax income of Entertainment Group (a)................. 793 166 1,135 273
Interest and other, net (a)(c)..................................... (202) (283) (513) (566)
Corporate expenses (a)............................................. (22) (19) (44) (38)
------ ------ ------ -----

Income before income taxes......................................... 1,064 248 1,368 223
Income tax provision............................................... (471) (147) (637) (184)
------ ----- ----- ----

Net income......................................................... 593 101 731 39
Preferred dividend requirements.................................... (18) (78) (36) (160)
------ ----- ------ ----

Net income (loss) applicable to common shares...................... $ 575 $ 23 $ 695 $(121)
===== ==== ===== =====

Net income (loss) per common share:
Basic........................................................... $ 0.46 $ 0.02 $ 0.56 $(0.10)
====== ====== ====== ======
Diluted......................................................... $ 0.43 $ 0.02 $ 0.54 $(0.10)
====== ====== ====== ======

Average common shares
Basic........................................................... 1,249.3 1,192.6 1,246.2 1,174.6
======= ======= ======= =======
Diluted......................................................... 1,403.7 1,192.6 1,401.6 1,174.6
======= ======= ======= =======

- --------------
(a)Includes the following income (expenses) resulting from transactions with the
Entertainment Group and other related companies for the three and six months
ended June 30, 1999, respectively, and for the corresponding periods in the
prior year: revenues-$105 million and $239 million in 1999, $102 million and
$214 million in 1998; cost of revenues-$(104) million and $(190) million in
1999, $(70) million and $(137) million in 1998; selling, general and
administrative-$(17) million and $(26) million in 1999, $(11) million and
$(20) million in 1998; equity in pretax income of Entertainment Group-$34
million and $18 million in 1999, $(15) million and $(20) million in 1998;
interest and other, net-$(10) million and $(20) million in 1999, $(3) million
and $(6) million in 1998; and corporate expenses-$(18) million and $(36)
million in each of 1999 and 1998.

(b)Includes depreciation and amortization expense of: $283 $293 $560 $589
==== ==== ==== ====

(c)Includes an approximate $115 million pretax gain recognized in the second
quarter of 1999 in connection with the initial public offering of a 20%
interest in Time Warner Telecom Inc.

See accompanying notes.

TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Six Months
Ended June 30,
--------------
1999 1998
---- ----
(millions)
OPERATIONS

Net income...................................................................... $731 $ 39
Adjustments for noncash and nonoperating items:
Depreciation and amortization................................................... 560 589
Noncash interest expense........................................................ 2 29
Excess (deficiency) of distributions over equity in pretax income of
Entertainment Group.......................................................... (855) 25
Changes in operating assets and liabilities..................................... 157 207
---- -----

Cash provided by operations..................................................... 595 889
---- -----

INVESTING ACTIVITIES
Investments and acquisitions.................................................... (101) (74)
Capital expenditures............................................................ (314) (228)
Investment proceeds............................................................. 113 395
---- -----

Cash provided (used) by investing activities.................................... (302) 93
------ -----

FINANCING ACTIVITIES
Borrowings...................................................................... 341 1,603
Debt repayments................................................................. (308) (1,377)
Borrowings against future stock option proceeds................................. 324 525
Repayments of borrowings against future stock option proceeds................... - (533)
Repurchases of Time Warner common stock......................................... (926) (1,661)
Dividends paid.................................................................. (149) (265)
Proceeds received from stock option and dividend reinvestment plans............. 287 460
Other, principally financing costs.............................................. - (35)
----- ------

Cash used by financing activities............................................... (431) (1,283)
----- ------

DECREASE IN CASH AND EQUIVALENTS................................................ (138) (301)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD..................................... 442 645
---- ----

CASH AND EQUIVALENTS AT END OF PERIOD........................................... $304 $344
==== ====

See accompanying notes.

TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)

Six Months
Ended June 30,
--------------
1999 1998
---- ----
(millions)

BALANCE AT BEGINNING OF PERIOD.............................................. $8,852 $9,356

Net income.................................................................. 731 39
Other comprehensive income (loss)........................................... (10) (22)
------ -----
Comprehensive income(a)..................................................... 721 17

Common stock dividends...................................................... (113) (106)
Preferred stock dividends................................................... (36) (160)
Repurchases of Time Warner common stock..................................... (926) (1,661)
Issuance of common stock in connection with the conversion of the
zero-coupon convertible notes due 2013................................... - 1,150
Other, principally shares issued pursuant to stock option, dividend
reinvestment and benefit plans........................................... 594 724
----- -----

BALANCE AT END OF PERIOD.................................................... $9,092 $9,320
====== ======

- ---------------
(a)Comprehensive income for the three months ended June 30, 1999 and 1998 was
$580 million and $103 million, respectively.

See accompanying notes.

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Time Warner Inc. ("Time Warner" or the "Company"), together with its
consolidated and unconsolidated subsidiaries, is the world's leading media and
entertainment company. Time Warner's principal business objective is to create
and distribute branded information and entertainment copyrights throughout the
world. Time Warner classifies its business interests into four fundamental
areas: Cable Networks, consisting principally of interests in cable television
programming; Publishing, consisting principally of interests in magazine
publishing, book publishing and direct marketing; Entertainment, consisting
principally of interests in recorded music and music publishing, filmed
entertainment, television production and television broadcasting; and Cable,
consisting principally of interests in cable television systems.

A majority of Time Warner's interests in filmed entertainment,
television production, television broadcasting and cable television systems, and
a portion of its interests in cable television programming are held through
Time Warner Entertainment Company, L.P. ("TWE"). Time Warner owns general
and limited partnership interests in TWE consisting of 74.49% of the pro rata
priority capital ("Series A Capital") and residual equity capital ("Residual
Capital"), and 100% of the junior priority capital ("Series B Capital"). The
remaining 25.51% limited partnership interests in the Series A Capital and
Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc.
("MediaOne"). Time Warner has not consolidated TWE and certain related
companies (the "Entertainment Group") for financial reporting purposes because
of certain limited partnership approval rights held by MediaOne related to
TWE's cable television business.

Each of the business interests within Cable Networks, Publishing,
Entertainment and Cable is important to management's objective of increasing
shareholder value through the creation, extension and distribution of
recognizable brands and copyrights throughout the world. Such brands and
copyrights include (1) leading cable television networks, such as HBO, Cinemax,
CNN, TNT and TBS Superstation, (2) magazine franchises such as Time, People and
Sports Illustrated and direct marketing brands such as Time Life Inc. and
Book-of-the-Month Club, (3) copyrighted music from many of the world's leading
recording artists that is produced and distributed by a family of established
record labels such as Warner Bros. Records, Atlantic Records, Elektra
Entertainment and Warner Music International, (4) the unique and extensive film,
television and animation libraries of Warner Bros. and Turner Broadcasting
System, Inc. ("TBS"), and trademarks such as the Looney Tunes characters, Batman
and The Flintstones, (5) The WB Network, a national broadcasting network
launched in 1995 as an extension of the Warner Bros. brand and as an additional
distribution outlet for the Company's collection of children's cartoons and
television programming, and (6) Time Warner Cable, currently the largest
operator of cable television systems in the U.S.

The operating results of Time Warner's various business interests are
presented herein as an indication of financial performance (Note 7). Except for
start-up losses incurred in connection with The WB Network, Time Warner's
principal business interests generate significant operating income and cash flow
from operations. The cash flow from operations generated by such business
interests is considerably greater than their operating income due to significant
amounts of noncash amortization of intangible assets recognized in various
acquisitions accounted for by the purchase method of accounting. Noncash
amortization of intangible assets recorded by Time Warner's business interests,
including the unconsolidated business interests of the Entertainment Group,
amounted to $311 million and

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

$327 million for the three months ended June 30, 1999 and 1998,
respectively, and $617 million and $656 million in the six months ended June 30,
1999 and 1998, respectively.

Basis of Presentation

The accompanying consolidated financial statements are unaudited but,
in the opinion of management, contain all the adjustments (consisting of those
of a normal recurring nature) considered necessary to present fairly the
financial position and the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods. The accompanying consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of Time
Warner included in its Annual Report on Form 10-K for the year ended December
31, 1998, as amended on June 28, 1999 (the "1998 Form 10-K"). Certain
reclassifications have been made to the prior year's financial statements to
conform to the 1999 presentation.

Per common share and average common share amounts for all prior periods
have been restated to give effect to a two-for-one common stock split that
occurred on December 15, 1998.

2. ENTERTAINMENT GROUP

Time Warner's investment in and amounts due to and from the Entertainment
Group at June 30, 1999 and December 31, 1998 consists of the following:

June 30, December 31,
1999 1998
------ --------
(millions)

Investment in TWE............................................................... $4,497 $3,850
Stock option related distributions due from TWE................................. 1,347 1,130
Credit agreement debt due to TWE................................................ (400) (400)
Other net amounts due to TWE, principally related to home video distribution.... (104) (395)
----- -----
Investment in and amounts due to and from TWE................................... 5,340 4,185
Investment in TWE-A/N and other Entertainment Group companies................... 912 795
----- -----

Total........................................................................... $6,252 $4,980
====== ======

Partnership Structure and Allocation of Income

TWE is a Delaware limited partnership that was capitalized on June 30,
1992 to own and operate substantially all of the Filmed Entertainment-Warner
Bros., Cable Networks-HBO and Cable businesses previously owned by subsidiaries
of Time Warner. Time Warner, through its wholly owned subsidiaries, collectively
owns general and limited partnership interests in TWE consisting of 74.49% of
the Series A Capital and Residual Capital, and 100% of the Series B Capital. The
remaining 25.51% limited partnership interests in the Series A Capital and
Residual Capital of TWE are owned by MediaOne. Certain Time Warner subsidiaries
are the general partners of TWE (the "Time Warner General Partners").

The TWE partnership agreement provides for special allocations of
income, loss and distributions of partnership capital, including priority
distributions in the event of liquidation. TWE reported net income of $1.079

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

billion and $263 million for the six months ended June 30, 1999 and 1998,
respectively, no portion of which was allocated to the limited partnership
interests.

Summarized Financial Information of the Entertainment Group

Set forth below is summarized financial information of the
Entertainment Group. This information reflects (i) the transfer of Time Warner
Cable's direct broadcast satellite operations to Primestar, Inc. ("Primestar"),
a separate holding company, effective as of April 1, 1998, (ii) the formation of
the Road Runner joint venture to operate and expand Time Warner Cable's and
MediaOne's existing high-speed online businesses, effective as of June 30, 1998,
(iii) the reorganization of Time Warner Cable's business telephony operations
into a separate entity now named Time Warner Telecom Inc. ("Time Warner
Telecom"), effective as of July 1, 1998 and (iv) the formation of a joint
venture in Texas that owns cable television systems serving approximately 1.1
million subscribers, effective as of December 31, 1998 (collectively, the "1998
Cable Transactions"). These transactions are described more fully in Time
Warner's 1998 Form 10-K.

Three Months Six Months
Ended June 30, Ended June 30,
-------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Operating Statement Information

Revenues...................................... $3,060 $2,853 $5,994 $5,765
Depreciation and amortization................. (334) (356) (642) (727)
Business segment operating income(1)(2)....... 1,212 456 1,863 825
Interest and other, net....................... (167) (183) (392) (347)
Minority interest............................. (233) (82) (301) (146)
Income before income taxes ................... 794 173 1,134 296
Net income.................................... 767 156 1,079 264

- ------------------
(1) Includes net pretax gains relating to the sale or exchange of certain cable
television systems and investments of $760 million in the second quarter of
1999 and $70 million in the second quarter of 1998. Similarly, six-month
results include net pretax gains of $760 million in 1999 and $84 million in
1998.
(2) Includes a net pretax gain of approximately $215 million recognized in the
first quarter of 1999 in connection with the early termination
and settlement of a long-term home video distribution agreement.

Six Months
Ended June 30,
---------------
1999 1998
-------- ---------
(millions)
Cash Flow Information
Cash provided by operations.......................... $1,519 $ 586
Capital expenditures................................. (649) (734)
Investments and acquisitions......................... (223) (265)
Investment proceeds.................................. 210 506
Borrowings........................................... 1,310 503
Debt repayments...................................... (1,539) (492)
Redemption of preferred stock of subsidiary.......... (217) -
Capital distributions................................ (280) (298)
Other financing activities, net...................... (101) (56)
Increase (decrease) in cash and equivalents.......... 30 (250)

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

June 30, December 31,
1999 1998
------ ------
(millions)
Balance Sheet Information
Cash and equivalents................................ $ 117 $ 87
Total current assets................................ 4,223 4,187
Total assets........................................ 22,889 22,241
Total current liabilities........................... 4,745 4,940
Long-term debt...................................... 6,535 6,578
Minority interests.................................. 1,744 1,522
Preferred stock of subsidiary....................... - 217
Time Warner General Partners' Senior Capital........ 627 603
Partners' capital .................................. 5,711 5,210

Capital Distributions

The assets and cash flows of TWE are restricted by the TWE partnership
and credit agreements and are unavailable for use by the partners except through
the payment of certain fees, reimbursements, cash distributions and loans, which
are subject to limitations. At June 30, 1999 and December 31, 1998, the Time
Warner General Partners had recorded $1.347 billion and $1.130 billion,
respectively, of stock option related distributions due from TWE, based on
closing prices of Time Warner common stock of $72.63 and $62.06, respectively.
Time Warner is paid when the options are exercised. The Time Warner General
Partners also receive tax-related distributions from TWE on a current basis.
During the six months ended June 30, 1999, the Time Warner General Partners
received distributions from TWE in the amount of $280 million, consisting of
$138 million of tax-related distributions and $142 million of stock option
related distributions. During the six months ended June 30, 1998, the Time
Warner General Partners received distributions from TWE in the amount of $298
million, consisting of $138 million of tax-related distributions and $160
million of stock option related distributions.

Gain on Termination of MGM Video Distribution Agreement

In March 1999, Warner Bros. and Metro-Goldwyn-Mayer, Inc. ("MGM")
terminated a long-term distribution agreement under which Warner Bros. had
exclusive worldwide distribution rights for MGM/United Artists home video
product. In connection with the early termination and settlement of this
distribution agreement, Warner Bros. recognized a net pretax gain of
approximately $215 million ($0.10 per basic common share), which has been
included in Time Warner's equity in the pretax income of the Entertainment Group
in the accompanying consolidated statement of operations.

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

Gain on Sale or Exchange of Cable Television Systems and Investments

In 1999 and 1998, largely in an effort to enhance their geographic
clustering of cable television properties, Time Warner and TWE sold or exchanged
various cable television systems and investments. The 1999 transactions included
a large exchange of cable television systems serving approximately 575,000
subscribers for other cable television systems of comparable size owned by TCI
Communications, Inc., a subsidiary of AT&T Corp. As a result of these
transactions, the operating results of Time Warner's and TWE's Cable division
include net pretax gains for the second quarter of $771 million in 1999 and $70
million in 1998. Net pretax gains for the first half of the year amounted to
$771 million in 1999 and $84 million in 1998. Of such amounts, $11 million of
net pretax gains recognized in the second quarter of 1999 relate to Time
Warner's wholly owned Cable division.

Primestar

TWE owns an approximate 24% equity interest in Primestar. In January
1999, Primestar, an indirect wholly owned subsidiary of Primestar and the
stockholders of Primestar entered into an agreement to sell Primestar's
medium-power direct broadcast satellite business and assets to DirecTV, a
competitor of Primestar owned by Hughes Electronics Corp. In addition, a second
agreement was entered into with DirecTV, pursuant to which DirecTV agreed to
purchase Primestar's rights with respect to the use or acquisition of certain
high-power satellites from a wholly owned subsidiary of one of the stockholders
of Primestar. In April 1999, Primestar closed on the sale of its medium-power
direct broadcast satellite business to DirecTV. Then, in June 1999, Primestar
completed the sale of its high-power satellite rights to DirecTV.

As a result of those transactions, Primestar began to substantially
wind down its operations during the first quarter of 1999. TWE recognized its
share of Primestar's 1999 losses under the equity method of accounting. Such
losses are included in interest and other, net, in TWE's consolidated statement
of operations. Future wind-down losses are not expected to be material to Time
Warner's or TWE's operating results.

3. GAIN ON TIME WARNER TELECOM'S INITIAL PUBLIC OFFERING

In May 1999, Time Warner Telecom, a competitive local exchange carrier
that provides telephony services to businesses, completed an initial public
offering of 20% of its common stock (the "Time Warner Telecom IPO"). Time Warner
Telecom raised net proceeds of approximately $270 million, of which $180 million
was paid to Time Warner and TWE in satisfaction of certain obligations. In turn,
Time Warner and TWE used those proceeds principally to reduce bank debt. In
connection with the Time Warner Telecom IPO and certain related transactions,
Time Warner's ownership interest in Time Warner Telecom was diluted from 61.98%
to 48.21%. As a result, Time Warner recognized a pretax gain of approximately
$115 million ($.05 per basic common share after taxes). This gain has been
included in interest and other, net, in Time Warner's 1999 consolidated
statement of operations.

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

4. INVENTORIES

Inventories consist of:

June 30, 1999 December 31, 1998
------------- -----------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
(millions)
Film costs:

Released, less amortization................. $ 74 $ 226 $ 51 $ 308
Completed and not released.................. 28 5 20 -
In process and other........................ - 246 2 240
Library, less amortization.................. - 979 - 1,007
Programming costs, less amortization........... 403 382 457 345
Magazines, books and recorded music............ 418 - 416 -
---- ------- ---- ------

Total ........................................ $923 $1,838 $946 $1,900
==== ====== ==== ======

5. MANDATORILY REDEEMABLE PREFERRED SECURITIES

In December 1995, Time Warner Companies, Inc. ("TW Companies"), a
wholly owned subsidiary of Time Warner, issued approximately 23 million
Company-obligated mandatorily redeemable preferred securities of a wholly owned
subsidiary ("Preferred Trust Securities") for aggregate gross proceeds of $575
million. The sole assets of the subsidiary that is the obligor on the Preferred
Trust Securities are $592 million principal amount of 8-7/8% subordinated
debentures of TW Companies due December 31, 2025. Cumulative cash distributions
are payable on the Preferred Trust Securities at an annual rate of 8-7/8%. The
Preferred Trust Securities are mandatorily redeemable for cash on December 31,
2025, and TW Companies has the right to redeem the Preferred Trust Securities,
in whole or in part, on or after December 31, 2000, or in other certain
circumstances. If TW Companies elects to redeem these securities, the redemption
amount would be in each case at an amount per Preferred Trust Security equal to
$25 per security, plus accrued and unpaid distributions thereon.

Time Warner has certain obligations relating to the Preferred Trust
Securities which amount to a full and unconditional guaranty (on a subordinated
basis) of its subsidiary's obligations with respect thereto.

6. SHAREHOLDERS' EQUITY

Preferred Stock Conversion

Series LMCN-V Stock Split

In May 1999, Time Warner amended the terms of its Series LMCN-V common
stock, which effectively resulted in a two-for-one stock split and the issuance
of approximately 57 million shares of Series LMCN-V common

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

stock. As a result, each share of Series LMCN-V common stock now is equivalent
effectively to one share of common stock instead of two. Because the equivalent
number of shares of common stock did not change, the split did not have any
effect on Time Warner's consolidated financial statements. Shares of Series
LMCN-V common stock continue to have limited voting rights.

Common Stock Repurchase Program

Net Income (Loss) Per Common Share

Set forth below is a reconciliation of basic and diluted net income
(loss) per common share for each period.

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998(1) 1999 1998(1)
---- ------ ---- ------
(millions, except per share amounts)

Net income (loss) applicable to common shares - basic.......... $ 575 $ 23 $ 695 $ (121)
Interest savings, net of tax(2)................................ 10 - 19 -
Preferred dividends............................................ 18 - 36 -
----- ----- ----- -------
Net income (loss) applicable to common shares - diluted........ $ 603 $ 23 $ 750 $ (121)
===== ==== ===== =======

Average number of common shares outstanding - basic............ 1,249.3 1,192.6 1,246.2 1,174.6
Dilutive effect of stock options............................... 73.3 - 74.0 -
Dilutive effect of convertible preferred shares................ 81.1 - 81.4 -
-------- ------- -------- -------
Average number of common shares outstanding - diluted.......... 1,403.7 1,192.6 1,401.6 1,174.6
======= ======= ======= =======

Net income (loss) per common share:
Basic..................................................... $ 0.46 $ 0.02 $ 0.56 $ (0.10)
====== ====== ====== =======
Diluted................................................... $ 0.43 $ 0.02 $ 0.54 $ (0.10)
====== ====== ====== =======

- ---------------
(1) 1998 basic and diluted net income (loss) per common share are the same
because the effect of Time Warner's stock options and convertible preferred
stock was antidilutive.
(2) Reflects the required use of a portion of the proceeds from the future
exercise of employee stock options to repay all outstanding borrowings
under Time Warner's stock option proceeds credit facility.

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

7. SEGMENT INFORMATION

Time Warner classifies its business interests into four fundamental
areas: Cable Networks, consisting principally of interests in cable television
programming; Publishing, consisting principally of interests in magazine
publishing, book publishing and direct marketing; Entertainment, consisting
principally of interests in recorded music and music publishing, filmed
entertainment, television production and television broadcasting; and Cable,
consisting principally of interests in cable television systems. A majority of
Time Warner's interests in filmed entertainment, television production,
television broadcasting and cable television systems, and a portion of its
interests in cable television programming are held by the Entertainment Group.
The Entertainment Group is not consolidated for financial reporting purposes.

Information as to the operations of Time Warner and the Entertainment
Group in different business segments is set forth below based on the nature of
the products and services offered. Time Warner evaluates performance based on
several factors, of which the primary financial measure is business segment
operating income before noncash amortization of intangible assets ("EBITA"). The
operating results of Time Warner's and the Entertainment Group's cable segments
reflect the 1998 Cable Transactions.

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Revenues
Time Warner:

Publishing............................... $1,153 $1,136 $2,127 $2,084
Music.................................... 828 905 1,764 1,793
Cable Networks-TBS....................... 1,065 906 1,903 1,634
Filmed Entertainment-TBS................. 337 504 654 876
Cable.................................... 216 242 438 490
Intersegment elimination................. (25) (21) (46) (68)
------ ---- ------ -----

Total.................................... $3,574 $3,672 $6,840 $6,809
====== ====== ====== ======

Entertainment Group:
Filmed Entertainment-Warner Bros......... $1,446 $1,330 $2,826 $2,642
Broadcasting-The WB Network.............. 83 61 162 106
Cable Networks-HBO....................... 546 509 1,072 1,021
Cable.................................... 1,114 1,084 2,188 2,237
Intersegment elimination................. (129) (131) (254) (241)
----- ------ ----- ------

Total.................................... $3,060 $2,853 $5,994 $5,765
====== ====== ====== ======

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

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
EBITA(1)
Time Warner:

Publishing.................................. $ 196 $ 176 $ 290 $ 261
Music....................................... 101 96 203 189
Cable Networks-TBS.......................... 235 198 419 351
Filmed Entertainment-TBS.................... 71 38 100 23
Cable(2).................................... 81 74 147 148
Intersegment elimination.................... 2 (1) 12 (20)
----- ----- ----- -----
Total....................................... $ 686 $ 581 $1,171 $ 952
===== ====== ====== ======

Entertainment Group:
Filmed Entertainment-Warner Bros.(3)........ $ 132 $ 122 $ 478 $ 241
Broadcasting-The WB Network................. (30) (23) (71) (61)
Cable Networks-HBO.......................... 131 113 256 222
Cable(2).................................... 1,099 374 1,436 681
------ ----- ------ ------
Total....................................... $1,332 $ 586 $2,099 $1,083
====== ====== ====== ======

- ---------------
(1)EBITA represents business segment operating income before noncash
amortization of intangible assets. After deducting amortization of intangible
assets, Time Warner's business segment operating income for the three and six
months ended June 30, 1999, respectively, and for the corresponding periods
in the prior year was $495 million and $790 million in 1999, $384 million and
$554 million in 1998. Similarly, business segment operating income of the
Entertainment Group for the three and six months ended June 30, 1999,
respectively, and for the corresponding periods in the prior year was $1.212
billion and $1.863 billion in 1999, $456 million and $825 million in 1998.
(2)Includes net pretax gains relating to the sale or exchange of certain cable
television systems and investments of $771 million in the second quarter of
1999 and $70 million in the second quarter of 1998. Similarly, six-month
results include net pretax gains of $771 million in 1999 and $84 million in
1998. Of such amounts, $11 million of net pretax gains recognized in the
second quarter of 1999 relate to Time Warner's wholly owned Cable division.
(3)Includes a net pretax gain of approximately $215 million recognized in the
first quarter of 1999 in connection with the early termination and settlement
of a long-term home video distribution agreement.

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Depreciation of Property, Plant and Equipment
Time Warner:

Publishing........................................ $ 19 $ 19 $ 38 $ 38
Music............................................. 18 19 35 38
Cable Networks-TBS................................ 26 25 50 47
Filmed Entertainment-TBS.......................... 2 1 3 3
Cable............................................. 27 32 53 65
--- ---- --- ----
Total............................................. $ 92 $ 96 $179 $191
==== ==== ==== ====

Entertainment Group:
Filmed Entertainment-Warner Bros.................. $ 36 $ 38 $ 65 $ 78
Broadcasting-The WB Network....................... 1 - 1 -
Cable Networks-HBO................................ 6 5 13 10
Cable............................................. 171 183 327 381
---- ---- ---- ----
Total............................................. $214 $226 $406 $469
==== ==== ==== ====

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

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Amortization of Intangible Assets(1)
Time Warner:

Publishing........................................ $ 10 $ 8 $ 20 $ 17
Music............................................. 70 71 137 139
Cable Networks-TBS................................ 51 50 101 100
Filmed Entertainment-TBS.......................... 18 20 37 40
Cable............................................. 42 48 86 102
--- --- --- ----
Total............................................. $191 $197 $381 $398
==== ==== ==== ====

Entertainment Group:
Filmed Entertainment-Warner Bros.................. $ 31 $ 33 $ 61 $ 66
Broadcasting-The WB Network....................... 1 1 2 2
Cable Networks-HBO................................ - - - -
Cable............................................. 88 96 173 190
--- ---- ---- ----
Total............................................. $120 $130 $236 $258
==== ==== ==== ====

(1) Amortization includes amortization relating to all business combinations
accounted for by the purchase method, including the $14 billion acquisition
of Warner Communications Inc. in 1989, the $6.2 billion acquisition of
Turner Broadcasting System, Inc. in 1996 and the $2.3 billion of cable
acquisitions in 1996 and 1995.

8. COMMITMENTS AND CONTINGENCIES

Time Warner is subject to numerous legal proceedings. In management's
opinion and considering established reserves, the resolution of these matters
will not have a material effect, individually and in the aggregate, on Time
Warner's consolidated financial statements.

9. ADDITIONAL FINANCIAL INFORMATION

Additional financial information with respect to cash flows is as
follows:
Six Months
Ended June 30,
--------------
1999 1998
---- ----
(millions)
Interest expense.................................. $469 $455
Cash payments made for interest................... 446 404
Cash payments made for income taxes............... 159 122
Tax-related distributions received from TWE....... 138 138
Income tax refunds received....................... 14 43

Noncash investing activities include the exchange of certain cable
television systems in 1999 and 1998 (see Note 2). Noncash investing activities
in the first six months of 1998 also included the transfer of cable television
systems (or interests therein) serving approximately 650,000 subscribers that
were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse
Partnership, subject to approximately $1 billion of debt, in

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

exchange for common and preferred partnership interests therein, as well as
certain related transactions (collectively, the "TWE-A/N Transfers"). For a more
comprehensive description of the TWE-A/N Transfers, see Time Warner's 1998 Form
10-K.

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(unaudited)

Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting
System, Inc. ("TBS" and, together with TW Companies, the "Guarantor
Subsidiaries") are wholly owned subsidiaries of Time Warner Inc. ("Time
Warner"). Time Warner, TW Companies and TBS have fully and unconditionally
guaranteed all of the outstanding publicly traded indebtedness of each other.
Set forth below are condensed consolidating financial statements of Time Warner,
including each of the Guarantor Subsidiaries, presented for the information of
each company's public debtholders. Separate financial statements and other
disclosures relating to the Guarantor Subsidiaries have not been presented
because management has determined that this information would not be material to
such debtholders. The following condensed consolidating financial statements
present the results of operations, financial position and cash flows of (i) Time
Warner, TW Companies and TBS (in each case, reflecting investments in its
consolidated subsidiaries under the equity method of accounting), (ii) the
direct and indirect non-guarantor subsidiaries of Time Warner and (iii) the
eliminations necessary to arrive at the information for Time Warner on a
consolidated basis. These condensed consolidating financial statements should be
read in conjunction with the accompanying consolidated financial statements of
Time Warner.

Consolidating Statement of Operations
For The Three Months Ended June 30, 1999

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)

Revenues ................................... $ - $ - $ 242 $3,333 $ (1) $3,574
----- ------ ------ ------ ------- ------

Cost of revenues (1)........................ - - 132 1,768 (1) 1,899
Selling, general and administrative (1)..... - - 48 1,132 - 1,180
----- ------ ------ ------ ------- ------

Operating expenses.......................... - - 180 2,900 (1) 3,079
----- ------ ------ ------ ------- ------

Business segment operating income........... - - 62 433 - 495
Equity in pretax income of consolidated
subsidiaries............................. 1,156 1,162 158 - (2,476) -
Equity in pretax income of Entertainment
Group ................................... - - - 794 (1) 793
Interest and other, net..................... (70) (163) (35) 94 (28) (202)
Corporate expenses.......................... (22) (14) (4) (16) 34 (22)
----- ------ ------ ------ ------- ------

Income before income taxes.................. 1,064 985 181 1,305 (2,471) 1,064
Income tax provision........................ (471) (436) (89) (581) 1,106 (471)
----- ------ ------ ------ ------- ------

Net income.................................. $ 593 $ 549 $ 92 $ 724 $(1,365) $ 593
===== ====== ====== ====== ======= ======

(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 3 $ 280 $ - $ 283
===== ====== ====== ====== ======= ======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Statement of Operations
For The Three Months Ended June 30, 1998

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ ------- ------------
(millions)

Revenues ................................... $ - $ - $ 198 $3,474 $ - $3,672
----- ------ ------ ------ ------- ------

Cost of revenues (1)........................ - - 100 1,977 - 2,077
Selling, general and administrative (1)..... - - 47 1,164 - 1,211
----- ------ ------ ------ ------- ------

Operating expenses.......................... - - 147 3,141 - 3,288
----- ------ ------ ------ ------- ------

Business segment operating income........... - - 51 333 - 384
Equity in pretax income of consolidated
subsidiaries............................. 279 397 99 - (775) -
Equity in pretax income of Entertainment
Group ................................... - - - 173 (7) 166
Interest and other, net..................... (12) (202) (40) (11) (18) (283)
Corporate expenses.......................... (19) (13) (4) (15) 32 (19)
----- ------ ------ ------ ------- ------

Income before income taxes.................. 248 182 106 480 (768) 248
Income tax provision........................ (147) (117) (60) (261) 438 (147)
----- ------ ------ ------ ------- ------

Net income.................................. $ 101 $ 65 $ 46 $ 219 $ (330) $ 101
===== ====== ====== ====== ======= ======

(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 2 $ 291 $ - $ 293
===== ====== ====== ====== ======= ======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Statement of Operations
For The Six Months Ended June 30, 1999

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ ------- ------------
(millions)

Revenues ................................... $ - $ - $ 426 $6,417 $ (3) $6,840
----- ------ ------ ------ ------- ------

Cost of revenues (1)........................ - - 200 3,488 (3) 3,685
Selling, general and administrative (1)..... - - 104 2,261 - 2,365
----- ------ ------ ------ ------- ------

Operating expenses.......................... - - 304 5,749 (3) 6,050
----- ------ ------ ------ ------- ------

Business segment operating income........... - - 122 668 - 790
Equity in pretax income of consolidated
subsidiaries............................. 1,534 1,636 234 - (3,404) -
Equity in pretax income of Entertainment
Group ................................... - - - 1,134 1 1,135
Interest and other, net..................... (122) (346) (69) 69 (45) (513)
Corporate expenses.......................... (44) (28) (8) (32) 68 (44)
----- ------ ------ ------ ------- ------

Income before income taxes.................. 1,368 1,262 279 1,839 (3,380) 1,368
Income tax provision........................ (637) (587) (145) (845) 1,577 (637)
----- ------ ------ ------ ------- ------

Net income.................................. $ 731 $ 675 $ 134 $ 994 $(1,803) $ 731
===== ====== ====== ====== ======= ======

(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 5 $ 555 $ - $ 560
====== ====== ====== ====== ======= ======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Statement of Operations
For The Six Months Ended June 30, 1998

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)

Revenues ................................... $ - $ - $ 366 $6,443 $ - $6,809
----- ------ ------ ------ ------- ------

Cost of revenues (1)........................ - - 161 3,803 - 3,964
Selling, general and administrative (1)..... - - 97 2,194 - 2,291
----- ----- ------ ------ ------- ------

Operating expenses.......................... - - 258 5,997 - 6,255
----- ----- ------ ------ ------- ------

Business segment operating income........... - - 108 446 - 554
Equity in pretax income of consolidated
subsidiaries............................. 283 614 78 - (975) -
Equity in pretax income of Entertainment
Group ................................... - - - 296 (23) 273
Interest and other, net..................... (22) (387) (84) (51) (22) (566)
Corporate expenses.......................... (38) (26) (8) (31) 65 (38)
----- ------ ------ ------ ------- ------

Income before income taxes.................. 223 201 94 660 (955) 223
Income tax provision........................ (184) (135) (73) (367) 575 (184)
----- ----- ------ ------ ------- ------

Net income.................................. $ 39 $ 66 $ 21 $ 293 $ (380) $ 39
===== ====== ====== ====== ======= ======

(1) Includes depreciation and amortization
expense of:......................... $ - $ - $ 4 $ 585 $ - $ 589
===== ====== ====== ====== ======= ======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Balance Sheet
June 30, 1999

T
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------- --------- --- ------------ ------- -----------
(millions)
ASSETS
Current assets

Cash and equivalents..........................$ - $ - $ 8 $ 296 $ - $ 304
Receivables, net.............................. 10 28 89 2,270 - 2,397
Inventories................................... - - 134 789 - 923
Prepaid expenses.............................. 52 - - 1,227 - 1,279
------- ------- ------- ------- ------- ------

Total current assets.......................... 62 28 231 4,582 - 4,903

Noncurrent inventories........................ - - 141 1,697 - 1,838
Investments in and amounts due to and from
consolidated subsidiaries.................. 15,928 14,425 9,455 - (39,808) -
Investments in and amounts due to and
from Entertainment Group................... - 899 - 5,460 (107) 6,252
Other investments............................. 230 27 24 1,333 (690) 924
Property, plant and equipment................. 41 - 45 1,941 - 2,027
Music catalogues, contracts and copyrights.... - - - 824 - 824
Cable television and sports franchises........ - - - 2,662 - 2,662
Goodwill...................................... - - - 11,647 - 11,647
Other assets.................................. 65 105 66 580 - 816
------- ------- ------- ------- ------- ------

Total assets................................. $16,326 $15,484 $ 9,962 $30,726 $(40,605) $31,893
======= ======= ======= ======= ======== ======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable..............................$ 12 $ 37 $ 2 $ 772 $ - $ 823
Participations, royalties and programming
costs payable.............................. - - 34 1,138 - 1,172
Debt due within one year...................... - - - 20 - 20
Other current liabilities..................... 248 187 145 1,584 (43) 2,121
------- ------- ------- ------- ------- ------

Total current liabilities..................... 260 224 181 3,514 (43) 4,136

Long-term debt ............................... 1,585 7,391 747 1,042 - 10,765
Debt due to affiliates........................ - - 1,647 158 (1,805) -
Borrowings against future stock
option proceeds............................ 1,219 - - - - 1,219
Deferred income taxes......................... 3,704 3,499 285 3,784 (7,568) 3,704
Unearned portion of paid subscriptions........ - - - 755 - 755
Other liabilities............................. 466 - 121 1,060 - 1,647
TW Companies-obligated mandatorily
redeemable preferred securities of
a subsidiary holding solely
subordinated debentures of
TW Companies............................... - - - 575 - 575

Shareholders' equity
Due from Time Warner and subsidiaries......... - (2,623) (642) (2,692) 5,957 -
Other shareholders' equity.................... 9,092 6,993 7,623 22,530 (37,146) 9,092
------ ------ ------ ------- ------- ------

Total shareholders' equity.................... 9,092 4,370 6,981 19,838 (31,189) 9,092
------ ------ ------ ------- ------- ------

Total liabilities and shareholders' equity....$16,326 $15,484 $ 9,962 $30,726 $(40,605) $31,893
======= ======= ======= ======= ======== =======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Balance Sheet
December 31, 1998

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ ------- ------------
(millions)
ASSETS
Current assets

Cash and equivalents..........................$ - $ 66 $ 25 $ 351 $ - $ 442
Receivables, net.............................. 10 56 78 2,750 (9) 2,885
Inventories................................... - - 131 815 - 946
Prepaid expenses.............................. 17 5 - 1,166 (12) 1,176
------- ------- ------- ------- ------- -----

Total current assets.......................... 27 127 234 5,082 (21) 5,449

Noncurrent inventories........................ - - 156 1,744 - 1,900
Investments in and amounts due to and from
consolidated subsidiaries.................. 15,222 13,745 9,465 - (38,432) -
Investments in and amounts due to and
from Entertainment Group................... - 919 - 4,169 (108) 4,980
Other investments............................. 211 15 24 1,194 (650) 794
Property, plant and equipment................. 55 - 44 1,892 - 1,991
Music catalogues, contracts and copyrights.... - - - 876 - 876
Cable television and sports franchises........ - - - 2,868 - 2,868
Goodwill...................................... - - - 11,919 - 11,919
Other assets.................................. 65 116 59 631 (8) 863
------- ----- ------ ------- ------- ------

Total assets..................................$15,580 $14,922 $ 9,982 $30,375 $(39,219) $31,640
======= ======= ======= ======= ======== =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable..............................$ 20 $ - $ 11 $ 965 $ - $ 996
Participations, royalties and programming
costs payable.............................. - - 31 1,168 - 1,199
Debt due within one year...................... - - - 19 - 19
Other current liabilities..................... 308 229 176 1,705 (14) 2,404
------ ------ ------ ------- ------- ------

Total current liabilities..................... 328 229 218 3,857 (14) 4,618

Long-term debt ............................... 1,584 7,346 747 1,248 - 10,925
Debt due to affiliates........................ - - 1,647 158 (1,805) -
Borrowings against future stock
option proceeds........................... 895 - - - - 895
Deferred income taxes......................... 3,491 3,324 246 3,570 (7,140) 3,491
Unearned portion of paid subscriptions........ - - - 741 - 741
Other liabilities............................. 430 - 116 997 - 1,543
TW Companies-obligated mandatorily
redeemable preferred securities of a
subsidiary holding solely subordinated
debentures of TW Companies................. - - - 575 - 575

Shareholders' equity
Due from Time Warner and subsidiaries......... - (2,313) (479) (2,317) 5,109 -
Other shareholders' equity.................... 8,852 6,336 7,487 21,546 (35,369) 8,852
------ ------- ------ ------- ------- ------

Total shareholders' equity.................... 8,852 4,023 7,008 19,229 (30,260) 8,852
------- ------- ------- ------- ------- ------

Total liabilities and shareholders' equity....$15,580 $14,922 $ 9,982 $30,375 $(39,219) $31,640
======= ======= ======= ======= ======== =======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1999

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ ------ -----------
(millions)
OPERATIONS

Net income................................................. $ 731 $ 675 $ 134 $ 994 $(1,803) $ 731
Adjustments for noncash and nonoperating items:
Depreciation and amortization.............................. - - 5 555 - 560
Noncash interest expense................................... - 2 - - - 2
Excess (deficiency) of distributions over equity in
pretax income of consolidated subsidiaries.............. (174) (502) 147 - 529 -
Deficiency of distributions over equity in pretax
income of Entertainment Group........................... - - - (854) (1) (855)
Changes in operating assets and liabilities................ (89) (53) (134) 452 (19) 157
------ ------ ------ ----- ------ ------

Cash provided by operations................................ 468 122 152 1,147 (1,294) 595
------ ------ ------ ----- ------ ------

INVESTING ACTIVITIES
Investments and acquisitions............................... - - - (101) - (101)
Advances to parents and consolidated subsidiaries.......... - - - (228) 228 -
Repayments of advances from consolidated subsidiaries...... - 71 - 232 (303) -
Capital expenditures....................................... - - (6) (308) - (314)
Investment proceeds........................................ - - - 113 - 113
------ ----- ------ ------ ------ ------

Cash provided (used) by investing activities............... - 71 (6) (292) (75) (302)
------ ------ ------ ------ ------ ------

FINANCING ACTIVITIES
Borrowings................................................. - 115 - 226 - 341
Debt repayments............................................ - (65) - (243) - (308)
Change in due to/from parent............................... (4) (309) (163) (893) 1,369 -
Borrowings against future stock option proceeds............ 324 - - - - 324
Repurchases of Time Warner common stock.................... (926) - - - - (926)
Dividends paid............................................. (149) - - - - (149)
Proceeds received from stock option and
dividend reinvestment plans............................. 287 - - - - 287
------ ------ ------ ------ ------ ------

Cash used by financing activities.......................... (468) (259) (163) (910) 1,369 (431)
------ ------ ------ ------ ------ ------

DECREASE IN CASH AND EQUIVALENTS............ .............. - (66) (17) (55) - (138)
------ ------ ------ ------ ------ ------

CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... - 66 25 351 - 442
------ ------ ------ ------ ------ ------

CASH AND EQUIVALENTS AT END OF PERIOD...................... $ - $ - $ 8 $ 296 $ - $ 304
======= ======= ======= ======= ======= =======

TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)

Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1998

Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
----- --------- --- ----------- ------- ------------
(millions)
OPERATIONS

Net income................................................. $ 39 $ 66 $ 21 $ 293 $ (380) $ 39
Adjustments for noncash and nonoperating items:
Depreciation and amortization.............................. - - 4 585 - 589
Noncash interest expense................................... - 29 - - - 29
Excess (deficiency) of distributions over equity in
pretax income of consolidated subsidiaries.............. 838 (313) 145 - (670) -
Excess of distributions over equity in pretax
income of Entertainment Group........................... - - - 2 23 25
Changes in operating assets and liabilities................ 160 91 (81) 81 (44) 207
----- ----- ----- ------ ------ -----

Cash provided (used) by operations......................... 1,037 (127) 89 961 (1,071) 889
----- ----- ----- ------ ------ -----

INVESTING ACTIVITIES
Investments and acquisitions............................... (213) - - 139 - (74)
Advances to parents and consolidated subsidiaries.......... - (187) - (26) 213 -
Repayments of advances from consolidated subsidiaries...... 75 - - - (75) -
Capital expenditures....................................... - - (7) (221) - (228)
Investment proceeds........................................ - - - 395 - 395
----- ----- ----- ------ ----- -----

Cash provided (used) by investing activities............... (138) (187) (7) 287 138 93
----- ----- ----- ------ ----- -----

FINANCING ACTIVITIES
Borrowings................................................. 597 496 - 514 (4) 1,603
Debt repayments............................................ - (500) (75) (877) 75 (1,377)
Change in due to/from parent............................... - 21 - (883) 862 -
Borrowings against future stock option proceeds............ 525 - - - - 525
Repayments of borrowings against future stock
option proceeds......................................... (533) - - - - (533)
Repurchases of Time Warner common stock.................... (1,661) - - - - (1,661)
Dividends paid............................................. (265) - - - - (265)
Proceeds received from stock option and
dividend reinvestment plans............................. 460 - - - - 460
Other, principally financing costs......................... (22) (13) - - - (35)
------ ------ ------ ------- ------ -----

Cash provided (used) by financing activities............... (899) 4 (75) (1,246) 933 (1,283)
------ ------ ------ ------- ------ ------

INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................................. - (310) 7 2 - (301)
------ ------ ------ ------- ------ -----

CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... - 372 9 264 - 645
------ ------ ----- ------- ------ -----

CASH AND EQUIVALENTS AT END OF PERIOD...................... $ - $ 62 $ 16 $ 266 $ - $344
====== ====== ====== ======= ====== ====

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Description of Business

Time Warner Entertainment Company, L.P. ("TWE" or the "Company")
classifies its business interests into three fundamental areas: Cable Networks,
consisting principally of interests in cable television programming;
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; and Cable, consisting
principally of interests in cable television systems. TWE also manages the cable
properties owned by Time Warner and the combined cable television operations are
conducted under the name of Time Warner Cable.

Use of EBITA

TWE evaluates operating performance based on several factors, including
its primary financial measure of operating income before noncash amortization of
intangible assets ("EBITA"). Consistent with management's financial focus on
controlling capital spending, EBITA measures operating performance after charges
for depreciation. In addition, EBITA eliminates the uneven effect across all
business segments of considerable amounts of noncash amortization of intangible
assets recognized in business combinations accounted for by the purchase method.
These business combinations, including Time Warner's $14 billion acquisition of
Warner Communications Inc. in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications Corporation in 1992, created
over $10 billion of intangible assets that generally are being amortized over a
twenty to forty year period. The exclusion of noncash amortization charges also
is consistent with management's belief that TWE's intangible assets, such as
cable television franchises, film and television libraries and the goodwill
associated with its brands, generally are increasing in value and importance to
TWE's business objective of creating, extending and distributing recognizable
brands and copyrights throughout the world. As such, the following comparative
discussion of the results of operations of TWE includes, among other factors, an
analysis of changes in business segment EBITA. However, EBITA should be
considered in addition to, not as a substitute for, operating income, net income
and other measures of financial performance reported in accordance with
generally accepted accounting principles.

AT&T/MediaOne Acquisition

At the time of this filing, MediaOne Group, Inc. ("MediaOne"), a
limited partner in TWE, had agreed to be acquired by AT&T Corp. ("AT&T"). On
August 3, 1999, TWE received a notice from MediaOne concerning the termination
of its covenant not to compete with TWE. As a result of the termination notice
and the operation of the partnership agreement governing TWE, MediaOne's rights
to participate in the management of TWE's businesses have terminated immediately
and irrevocably. MediaOne has retained only certain protective governance rights
pertaining to certain limited matters affecting TWE as a whole.

In addition, in connection with the proposed acquisition of MediaOne
by AT&T, Time Warner and AT&T are engaged in discussions concerning the overall
relationship of the companies following that acquisition. Among the subjects
included in those discussions are the structure of TWE, the structure of
AT&T/MediaOne's investment in TWE, as well as potential changes to the proposed
cable telephony joint venture discussed on page F-8 of TWE's Annual Report on
Form 10-K for the year ended December 31, 1998.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

The proposed acquisition of MediaOne by AT&T is subject to customary
closing conditions, including regulatory approvals. Accordingly, there is no
assurance that it will occur.

Transactions Affecting Comparability of Results of Operations

As more fully described herein, the comparability of TWE's operating
results has been affected by certain significant transactions and nonrecurring
items in each period.

In 1999, these nonrecurring items consisted of (i) an approximate $215
million net pretax gain recognized in the first quarter of 1999 in connection
with the early termination and settlement of a long-term home video distribution
agreement and (ii) net pretax gains in the amount of $760 million in the second
quarter of 1999 relating to the sale or exchange of various cable television
systems and investments. This compares to net pretax gains in the first half of
1998 of $84 million also relating to the sale or exchange of cable television
systems.

In addition, the comparability of TWE's Cable division results has been
affected further by certain cable-related transactions, as described more fully
in Note 8 to the accompanying consolidated financial statements. While these
transactions had a significant effect on the comparability of the Cable
division's EBITA and operating income principally due to the deconsolidation of
the related operations, they did not have a significant effect on the
comparability of TWE's net income.

RESULTS OF OPERATIONS

EBITA and operating income are as follows:

Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
Operating Operating
EBITA Income EBITA Income
----- --------- ----- ---------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
(millions)

Filmed Entertainment-Warner Bros.(1). $ 132 $121 $ 101 $ 88 $ 478 $ 240 $ 417 $174
Broadcasting-The WB Network.......... (30) (23) (31) (24) (71) (61) (73) (63)
Cable Networks-HBO................... 131 113 131 113 256 222 256 222
Cable(2)............................. 1,099 374 1,011 278 1,436 681 1,263 491
------ ---- ------ ---- ------ ---- ------ ----

Total................................ $1,332 $585 $1,212 $455 $2,099 $1,082 $1,863 $824
====== ==== ====== ==== ====== ====== ====== ====

(1) Includes a net pretax gain of approximately $215 million recognized
in the first quarter of 1999 in connection with the early termination
and settlement of a long-term home video distribution agreement.

(2) Includes net pretax gains relating to the sale or exchange of certain
cable television systems and investments of $760 million in the second
quarter of 1999 and $70 million in the second quarter of 1998.
Similarly, six-month results include net pretax gains of $760
million in 1999 and $84 million in 1998.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998

TWE had revenues of $3.060 billion and net income of $767 million for
the three months ended June 30, 1999, compared to revenues of $2.850 billion and
net income of $155 million for the three months ended June 30, 1998.

As previously described, the comparability of TWE's operating results
for 1999 and 1998 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items consisted of $760 million of
net pretax gains in 1999, compared to $70 million of net pretax gains in 1998.

TWE's net income increased to $767 million in 1999, compared to $155
million in 1998. However, excluding the effect of the nonrecurring items
referred to earlier, net income increased by $65 million to $165 million in 1999
from $100 million in 1998. As discussed more fully below, this improvement
principally resulted from an overall increase in TWE's business segment
operating income.

As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $27 million and $17 million for
the three months ended June 30, 1999 and 1998, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.

Filmed Entertainment-Warner Bros. Revenues increased to $1.446 billion,
compared to $1.327 billion in the second quarter of 1998. EBITA increased to
$132 million from $121 million. Operating income increased to $101 million from
$88 million. Revenues benefited from increases in worldwide theatrical and
television distribution operations, offset in part by lower revenues from
consumer products operations. Also contributing to the revenue increase were
marginally higher revenues from worldwide home video operations, which benefited
from increased sales of DVDs. EBITA and operating income benefited principally
from improved results from worldwide theatrical and television distribution
operations, offset in part by lower gains on the sale of assets and lower
results from consumer products operations.

Broadcasting - The WB Network. Revenues increased to $83 million,
compared to $61 million in the second quarter of 1998. EBITA decreased to a loss
of $30 million from a loss of $23 million. Operating losses increased to $31
million from $24 million. Revenues increased as a result of improved television
ratings and the addition of a fifth night of prime-time programming in September
1998. Operating losses increased principally because the revenue gains were more
than offset by the combination of higher programming costs associated with the
expanded programming schedule and higher start-up costs associated with The WB
Network 100+ station group, a distribution alliance for The WB Network in
smaller markets.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

million. The Cable division's 1999 operating results were affected by certain
cable-related transactions that occurred in 1998 (the "1998 Cable Transactions")
and by net pretax gains of $760 million in 1999 and $70 million in 1998 relating
to the sale or exchange of various cable television systems and investments. The
1998 Cable Transactions principally resulted in the deconsolidation or transfer
of certain operations and are described more fully in Note 8 to the accompanying
consolidated financial statements. Excluding the effect of the 1998 Cable
Transactions, revenues increased due to growth in basic cable subscribers,
increases in basic cable rates, an increase in advertising revenues and an
increase in revenues from providing Road Runner-branded, high-speed online
services. Similarly, excluding the effect of the 1998 Cable Transactions and the
one-time gains, EBITA and operating income increased principally as a result of
the revenue increases, offset in part by higher programming costs.

Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998

TWE had revenues of $5.994 billion and net income of $1.079 billion for
the six months ended June 30, 1999, compared to revenues of $5.760 billion and
net income of $263 million for the six months ended June 30, 1998.

As previously described, the comparability of TWE's operating results
for 1999 and 1998 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items consisted of approximately
$1 billion of net pretax gains in 1999, compared to $84 million of net pretax
gains in 1998.

TWE's net income increased to $1.079 billion in 1999, compared to $263
million in 1998. However, excluding the significant effect of the nonrecurring
items referred to earlier, net income increased by $63 million to $262 million
in 1999 from $199 million in 1998. This improvement principally resulted from an
overall increase in TWE's business segment operating income, offset in part by
higher equity losses from certain investments accounted for under the equity
method of accounting.

As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $55 million and $32 million
for the six months ended June 30, 1999 and 1998, respectively,

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

have been provided for the operations of TWE's domestic and foreign subsidiary
corporations.

Filmed Entertainment-Warner Bros. Revenues increased to $2.826 billion,
compared to $2.637 billion in the first six months of 1998. EBITA increased to
$478 million from $240 million. Operating income increased to $417 million from
$174 million. Revenues benefited from increases in worldwide theatrical and
television distribution operations, offset in part by lower revenues from
consumer products operations. Also contributing to the revenue increase were
higher revenues from worldwide home video operations, which benefited from
increased sales of DVDs. EBITA and operating income increased primarily from the
inclusion of an approximate $215 million net pretax gain recognized in the first
quarter of 1999 in connection with the early termination and settlement of a
long-term home video distribution agreement. In addition, EBITA and operating
income benefited principally from improved results from worldwide theatrical and
home video operations and an increase in investment-related income, offset in
part by lower results from consumer products operations.

Broadcasting - The WB Network. Revenues increased to $162 million,
compared to $106 million in the first six months of 1998. EBITA decreased to a
loss of $71 million from a loss of $61 million. Operating losses increased to
$73 million from $63 million. Revenues increased as a result of improved
television ratings and the addition of a fifth night of prime-time programming
in September 1998. Operating losses increased principally because the revenue
gains were more than offset by the combination of higher programming costs
associated with the expanded programming schedule, a lower allocation of losses
to a minority partner in the network and higher start-up costs associated with
The WB Network 100+ station group, a distribution alliance for The WB Network in
smaller markets.

Cable. Revenues decreased to $2.188 billion, compared to $2.237 billion
in the first six months of 1998. EBITA increased to $1.436 billion from $681
million. Operating income increased to $1.263 billion from $491 million. The
Cable division's 1999 operating results were affected by the 1998 Cable
Transactions and by net pretax gains of $760 million in 1999 and $84 million in
1998 relating to the sale or exchange of various cable television systems and
investments. The 1998 Cable Transactions principally resulted in the
deconsolidation or transfer of certain operations and are described more fully
in Note 8 to the accompanying consolidated financial statements. Excluding the
effect of the 1998 Cable Transactions, revenues increased due to growth in basic
cable subscribers, increases in basic cable rates, increases in advertising and
pay-per-view revenues and an increase in revenues from providing Road
Runner-branded, high-speed online services. Similarly, excluding the effect of
the 1998 Cable Transactions and the one-time gains, EBITA and operating income
increased principally as a result of the revenue increases, offset in part by
higher programming costs.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

compared to $74 million in the first six months of 1998. This increase
principally related to higher losses from certain investments accounted for
under the equity method of accounting, offset in part by a gain on the sale of
an investment.

Minority Interest. Minority interest expense was $301 million in the
first six months of 1999, compared to $146 million in the first six months of
1998. Minority interest expense increased primarily due to the allocation of a
portion of the net pretax gains relating to the sale or exchange of various
cable television systems and investments owned by TWE-A/N to the minority owners
of that partnership. Excluding the significant effect of the gains recognized in
each period, minority interest expense for 1999 and 1998 was comparable in
amount and did not have any significant effect on operating trends.

FINANCIAL CONDITION AND LIQUIDITY
June 30, 1999

Financial Condition

At June 30, 1999, TWE had $6.5 billion of debt, $117 million of cash and
equivalents (net debt of $6.4 billion), $627 million of Time Warner General
Partners' senior priority capital and $5.7 billion of partners' capital. This
compares to $6.6 billion of debt, $87 million of cash and equivalents (net debt
of $6.5 billion), $217 million of preferred stock of a subsidiary, $603 million
of Time Warner General Partners' senior priority capital and $5.1 billion of
partners' capital at December 31, 1998.

Senior Capital Distributions

Redemption of REIT Preferred Stock

Cash Flows

During the first six months of 1999, TWE's cash provided by operations
amounted to $1.519 billion and reflected $2.099 billion of EBITA from its Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and
Cable businesses, $406 million of noncash depreciation expense and $21 million
of proceeds from TWE's asset securitization program, less $242 million of
interest payments, $49 million of income taxes, $36 million of corporate
expenses, and $680 million related to an aggregate increase in working capital

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

requirements, other balance sheet accounts and noncash items. Cash provided by
operations of $586 million in the first six months of 1998 reflected $1.082
billion of EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB
Network, Cable Networks-HBO and Cable businesses, $469 million of noncash
depreciation expense and $135 million of proceeds from TWE's asset
securitization program, less $260 million of interest payments, $39 million of
income taxes, $36 million of corporate expenses and $765 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items.

Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to fund its capital
and liquidity needs for the foreseeable future.

Cable Capital Spending

Time Warner Cable has been engaged in a plan to upgrade the
technological capability and reliability of its cable television systems and
develop new services, which it believes will position the business for
sustained, long-term growth. Capital spending by TWE's Cable division amounted
to $587 million in the six months ended June 30, 1999, compared to $666 million
in the six months ended June 30, 1998. Cable capital spending is expected to
approximate $700 million for the remainder of 1999. Capital spending by TWE's
Cable division is expected to continue to be funded by cable operating cash
flow.

Filmed Entertainment

Backlog represents the amount of future revenue 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 of
TWE's Filmed Entertainment-Warner Bros. division amounted to $2.663 billion at
June 30, 1999 (including amounts relating to the licensing of film product to
TWE's cable television networks of $359 million and to Time Warner's cable
television networks of $655 million). This compares to $2.298 billion at
December 31, 1998 (including amounts relating to the licensing of film product
to TWE's cable television networks of $199 million and to Time Warner's cable
television networks of $570 million).

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

upon the commencement of the availability period for telecast under the terms of
the related licensing agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements or on an accelerated basis
using TWE's $500 million securitization facility. The portion of backlog for
which cash has not already been received has significant off-balance sheet asset
value as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of
revenues and cash through the sale of advertising spots received under such
contracts.

Year 2000 Technology Preparedness

TWE, like most large companies, depends on many different computer
systems and other chip-based devices for the continuing conduct of its business.
Older computer programs, computer hardware and chip-based devices may fail to
recognize dates beginning on January 1, 2000 as being valid dates, and as a
result may fail to operate or may operate improperly when such dates are
introduced.

TWE's exposure to potential Year 2000 problems arises both in
technological operations under the control of the Company and in those dependent
on one or more third parties. These technological operations include information
technology ("IT") systems and non-IT systems, including those with embedded
technology, hardware and software. Most of TWE's potential Year 2000 exposures
are dependent to some degree on one or more third parties. Failure to achieve
high levels of Year 2000 compliance could have a material adverse impact on TWE
and its financial statements.

The Company has generally completed the process of identifying,
assessing and planning the remediation of potential Year 2000 difficulties in
its technological operations, including IT applications, IT technology and
support, desktop hardware and software, non-IT systems and important third party
operations, and distinguishing those that are "mission critical" from those that
are not. An item is considered "mission critical" if its Year 2000-related
failure would significantly impair the ability of one of the Company's major
business units to (1) produce, market and distribute the products or services
that generate significant revenues for that business, (2) meet its obligations
to pay its employees, artists, vendors and others or (3) meet its obligations
under regulatory requirements and internal accounting controls. The Company and
its divisions have identified approximately 600 worldwide, "mission critical"
potential exposures. Of these, as of June 30, 1999, approximately 72% have been
identified by the divisions as Year 2000 compliant and approximately 28% as in
the remediation implementation or final testing stages. The Company currently
expects that remediation with respect to well over 90% of all these identified
operations will be substantially completed in all material respects by the end
of the third quarter of 1999. The Company, however, could experience unexpected
delays. The Company is currently planning to impose a "quiet" period at some
point during the fourth quarter of 1999 during which any remaining remediation
involving installation or modification of systems that interface with other
systems will be minimized to permit the Company to conduct testing in a stable
environment and to focus on its contingency and transition plans, as necessary.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued)

As stated above, however, the Company's business is heavily dependent on
third parties and these parties are themselves heavily dependent on technology.
For example, in a situation endemic to the cable industry, much of the Company's
headend equipment that controls cable set-top boxes was not Year 2000 compliant.
The box manufacturers and cable industry groups together developed solutions
that the Company has been installing in its headend equipment at its various
geographic locations. The few remaining installations are currently scheduled
during the third quarter of 1999. In addition, if a television broadcaster or
cable programmer encounters Year 2000 problems that impede its ability to
deliver its programming, the Company will be unable to provide that programming
to its cable customers. Because the Company is also a programming supplier,
third-party signal delivery problems would affect its ability to deliver its
programming to its customers. The Company has attempted to include in its
"mission critical" inventory significant service providers, vendors, suppliers,
customers and governmental entities that are believed to be critical to business
operations and is in various stages of completing its determination of their
state of Year 2000 readiness through various means, including questionnaires,
interviews, on-site visits, system interface testing and industry group
participation. The Company continues to monitor these situations. Moreover, TWE
is dependent, like all large companies, on the continued functioning,
domestically and internationally, of basic, heavily computerized services such
as banking, telephony, water and power, and various distribution mechanisms
ranging from the mail, railroads and trucking to high-speed data transmission.
TWE is taking steps to attempt to satisfy itself that the third parties on which
it is heavily reliant are Year 2000 compliant, are developing satisfactory
contingency plans or that alternate means of meeting its requirements are
available, but cannot predict the likelihood of such compliance nor the direct
or indirect costs to the Company of non-compliance by those third parties or of
securing such services from alternate compliant third parties. In areas in which
the Company is uncertain about the anticipated Year 2000 readiness of a
significant third party, the Company is investigating available alternatives, if
any.

The Company currently estimates that the aggregate cost of its Year
2000 remediation program, which started in 1996, will be approximately $50 to
$85 million, of which an estimated 65% to 75% has been incurred through June 30,
1999. These costs include estimates of the costs of assessment, replacement,
repair and upgrade, both planned and unplanned, of certain IT and non-IT systems
and their implementation and testing. The Company anticipates that its
remediation program, and related expenditures, may continue into 2001 as
temporary solutions to Year 2000 problems are replaced with upgraded equipment.
These expenditures have been and are expected to continue to be funded from the
Company's operating cash flow and have not and are not expected to impact
materially the Company's financial statements.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONA(Continued)

schedules and contingency plans in the event it does not successfully complete
its remaining remediation as anticipated or experiences unforeseen problems
outside the scope of these standard strategies. The Company intends to examine
its status periodically to determine the necessity of implementing such
contingency plans or additional strategies, which could involve, among other
things, manual workarounds, adjusting staffing strategies and sharing resources
across divisions.

Caution Concerning Forward-Looking Statements

The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This document, together
with management's public commentary related thereto, contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, EBITA and cash flow. Words such as "anticipate", "estimate",
"expects", "projects", "intends", "plans", "believes" and words and terms of
similar substance used in connection with any discussion of future operating or
financial performance identify such forward-looking statements. Those
forward-looking statements are management's present expectations of future
events. As with any projection or forecast, they are inherently susceptible to
changes in circumstances, and TWE is under no obligation to (and expressly
disclaims any such obligation to) update or alter its forward-looking
statements, whether as a result of such changes, new information, future events
or otherwise.

TWE operates in highly competitive, consumer driven and rapidly
changing media and entertainment businesses that are dependent on government
regulation and economic, political, social conditions in the countries in which
they operate, consumer demand for their products and services, technological
developments and (particularly in view of technological changes) protection of
their intellectual property rights. TWE's actual results could differ materially
from management's expectations because of changes in such factors. Some of the
other factors that also could cause actual results to differ from those
contained in the forward-looking statements include those identified in TWE's
other filings and:

o For TWE's cable business, more aggressive than expected competition from
new technologies and other types of video programming distributors,
including DBS; increases in government regulation of cable or equipment
rates or other terms of service (such as "digital must-carry" or
"unbundling" requirements); increased difficulty in obtaining franchise
renewals; the failure of new equipment (such as digital set-top boxes) or
services (such as high-speed on-line services or telephony over cable or
video on demand) to function properly, to appeal to enough consumers or to
be available at reasonable prices and to be delivered in a timely fashion;
and greater than expected increases in programming or other costs.

o For TWE's cable programming and television businesses, greater than
expected programming or production costs; public and cable operator
resistance to price increases (and the negative impact on premium
programmers of increases in basic cable rates); increased regulation of
distribution agreements; the sensitivity of advertising to economic
cyclicality; and greater than expected fragmentation of consumer viewership
due to an increased number of programming services or the increased
popularity of alternatives to television.

o For TWE's film and television businesses, their ability to continue to
attract and select desirable talent and scripts at manageable costs;
increases in production costs generally; fragmentation of consumer leisure
and

TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONA(Continued)

entertainment time (and its possible negative effects on the broadcast and
cable networks, which are significant customers of these businesses);
continued popularity of merchandising; and the uncertain impact of
technological developments such as DVD and the Internet.

o For TWE's digital media businesses, their ability to develop products and
services that are attractive, accessible and commercially viable in terms
of content, technology and cost, their ability to manage costs and generate
revenues, aggressive competition from existing and developing technologies
and products, the resolution of issues concerning commercial activities via
the Internet, including security, reliability, cost, ease of use and
access, and the possibility of increased government regulation of new media
services.

In addition, TWE's overall financial strategy, including growth in
operations, maintaining its financial ratios and strengthened balance sheet,
could be adversely affected by increased interest rates, failure to meet
earnings expectations, significant acquisitions or other transactions,
consequences of the euro conversion and changes in TWE's plans, strategies and
intentions.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)

June 30, December 31,
1999 1998
---- -----
(millions)
ASSETS
Current assets

Cash and equivalents........................................................................ $ 117 $ 87
Receivables, including $469 and $765 million due from Time Warner,
less allowances of $476 and $506 million................................................ 2,639 2,618
Inventories................................................................................. 1,247 1,312
Prepaid expenses............................................................................ 220 166
------ ------

Total current assets........................................................................ 4,223 4,183

Noncurrent inventories...................................................................... 2,114 2,327
Loan receivable from Time Warner............................................................ 400 400
Investments................................................................................. 903 886
Property, plant and equipment............................................................... 6,302 6,041
Cable television franchises................................................................. 4,527 3,773
Goodwill.................................................................................... 3,795 3,854
Other assets................................................................................ 625 766
------ ------

Total assets................................................................................ $22,889 $22,230
======= =======

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable............................................................................ $ 1,400 $ 1,473
Participations and programming costs payable................................................ 1,494 1,515
Debt due within one year.................................................................... 6 6
Other current liabilities, including $365 and $370 million due to Time Warner............... 1,845 1,942
------ ------

Total current liabilities................................................................... 4,745 4,936

Long-term debt.............................................................................. 6,535 6,578
Other long-term liabilities, including $1.347 and $1.130 billion due to Time Warner......... 3,527 3,267
Minority interests.......................................................................... 1,744 1,522
Preferred stock of subsidiary holding solely a mortgage note of its parent.................. - 217
Time Warner General Partners' Senior Capital................................................ 627 603

Partners' capital
Contributed capital......................................................................... 7,341 7,341
Undistributed partnership deficit........................................................... (1,630) (2,234)
------ ------

Total partners' capital..................................................................... 5,711 5,107
------ ------

Total liabilities and partners' capital..................................................... $22,889 $22,230
======= =======

See accompanying notes.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)

Revenues (a)....................................................... $3,060 $2,850 $5,994 $5,760
------ ------ ------ ------

Cost of revenues (a)(b)............................................ (1,985) (1,876) (3,904) (3,836)
Selling, general and administrative (a)(b)......................... (623) (589) (1,202) (1,184)
Gain on sale or exchange of cable systems and investments.......... 760 70 760 84
Gain on early termination of video distribution agreement.......... - - 215 -
------ ------- ------ ------

Business segment operating income.................................. 1,212 455 1,863 824
Interest and other, net (a)........................................ (167) (183) (392) (347)
Minority interest.................................................. (233) (82) (301) (146)
Corporate services (a)............................................. (18) (18) (36) (36)
------ ------ ------ ------

Income before income taxes......................................... 794 172 1,134 295
Income taxes....................................................... (27) (17) (55) (32)
------ ------ ------ ------

Net income......................................................... $ 767 $ 155 $1,079 $ 263
===== ====== ====== ======

- ---------------
(a) Includes the following income (expenses) resulting from transactions with
the partners of TWE and other related companies for the three and six
months ended June 30, 1999, respectively, and for the corresponding periods
in the prior year: revenues-$152 million and $272 million in 1999, $118
million and $247 million in 1998; cost of revenues-$(58) million and $(136)
million in 1999, $(55) million and $(93) million in 1998; selling, general
and administrative-$(12) million and $(16) million in 1999, $(3) million
and $(2) million in 1998; interest and other, net-$8 million and $28
million in 1999, $3 million and $5 million in 1998; and corporate
services-$(18) million and $(36) million in each of 1999 and 1998.

(b) Includes depreciation and amortization expense of:............. $334 $356 $642 $727
==== ==== ==== ====

See accompanying notes.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Six Months
Ended June 30,
---------------
1999 1998
---- ----
(millions)
OPERATIONS

Net income................................................................... $1,079 $263
Adjustments for noncash and nonoperating items:
Depreciation and amortization................................................ 642 727
Changes in operating assets and liabilities.................................. (202) (404)
----- ----

Cash provided by operations.................................................. 1,519 586
------ ----

INVESTING ACTIVITIES
Investments and acquisitions................................................. (223) (265)
Capital expenditures......................................................... (649) (734)
Investment proceeds.......................................................... 210 506
----- ----

Cash used by investing activities............................................ (662) (493)
----- ----

FINANCING ACTIVITIES
Borrowings................................................................... 1,310 503
Debt repayments.............................................................. (1,539) (492)
Redemption of preferred stock of subsidiary.................................. (217) -
Capital distributions........................................................ (280) (298)
Other........................................................................ (101) (56)
----- -----

Cash used by financing activities............................................ (827) (343)
----- ----

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................................. 30 (250)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................. 87 322
----- ----

CASH AND EQUIVALENTS AT END OF PERIOD........................................ $ 117 $ 72
===== ====

See accompanying notes.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(Unaudited)

Six Months
Ended June 30,
---------------
1999 1998
---- ----
(millions)

BALANCE AT BEGINNING OF PERIOD............................................. $5,107 $6,333

Net income................................................................. 1,079 263
Other comprehensive income (loss).......................................... 47 (16)
----- -----
Comprehensive income(a).................................................... 1,126 247

Distributions.............................................................. (497) (552)
Allocation of income to Time Warner General Partners' Senior Capital....... (24) (45)
Other...................................................................... (1) -
----- ------

BALANCE AT END OF PERIOD................................................... $5,711 $5,983
====== ======

- ---------------
(a)Comprehensive income for the three months ended June 30, 1999 and 1998 was
$773 million and $153 million, respectively.

See accompanying notes.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Time Warner Entertainment Company, L.P., a Delaware limited partnership
("TWE"), classifies its business interests into three fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; and Cable, consisting
principally of interests in cable television systems.

Each of the business interests within Cable Networks, Entertainment and
Cable is important to TWE's objective of increasing partner value through the
creation, extension and distribution of recognizable brands and copyrights
throughout the world. Such brands and copyrights include (1) HBO and Cinemax,
the leading pay television services, (2) the unique and extensive film,
television and animation libraries of Warner Bros. and trademarks such as the
Looney Tunes characters and Batman, (3) The WB Network, a national broadcasting
network launched in 1995 as an extension of the Warner Bros. brand and as an
additional distribution outlet for Warner Bros.' collection of children's
cartoons and television programming, and (4) Time Warner Cable, currently the
largest operator of cable television systems in the U.S.

The operating results of TWE's various business interests are presented
herein as an indication of financial performance (Note 8). Except for start-up
losses incurred in connection with The WB Network, TWE's principal business
interests generate significant operating income and cash flow from operations.
The cash flow from operations generated by such business interests is
considerably greater than their operating income due to significant amounts of
noncash amortization of intangible assets recognized principally in Time Warner
Companies, Inc.'s ("Time Warner") $14 billion acquisition of Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications Corporation ("ATC") in 1992,
a portion of which cost was allocated to TWE upon the capitalization of the
partnership. Noncash amortization of intangible assets recorded by TWE's
businesses amounted to $120 million and $130 million in the three months ended
June 30, 1999 and 1998, respectively and $236 million and $258 million for the
six months ended June 30, 1999 and 1998, respectively.

Time Warner and certain of its wholly owned subsidiaries collectively
own general and limited partnership interests in TWE consisting of 74.49% of the
pro rata priority capital ("Series A Capital") and residual equity capital
("Residual Capital"), and 100% of the junior priority capital ("Series B
Capital"). The remaining 25.51% limited partnership interests in the Series A
Capital and Residual Capital of TWE are held by a subsidiary of MediaOne Group,
Inc. ("MediaOne"). Certain of Time Warner's subsidiaries are the general
partners of TWE ("Time Warner General Partners").

Basis of Presentation

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSA(Continued)
(Unaudited)

Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form
10-K"). Certain reclassifications have been made to the prior year's financial
statements to conform to the 1999 presentation.

2. GAIN ON TERMINATION OF MGM VIDEO DISTRIBUTION AGREEMENT

In March 1999, Warner Bros. and Metro-Goldwyn-Mayer, Inc. ("MGM")
terminated a long-term distribution agreement under which Warner Bros. had
exclusive worldwide distribution rights for MGM/United Artists home video
product. In connection with the early termination and settlement of this
distribution agreement, Warner Bros. recognized a net pretax gain of
approximately $215 million, which has been included in operating income in the
accompanying consolidated statement of operations.

3. GAIN ON SALE OR EXCHANGE OF CABLE TELEVISION SYSTEMS AND INVESTMENTS

In 1999 and 1998, largely in an effort to enhance their geographic
clustering of cable television properties, TWE sold or exchanged various cable
television systems and investments. The 1999 transactions included a large
exchange of cable television systems serving approximately 450,000 subscribers
for other cable television systems of comparable size owned by TCI
Communications, Inc., a subsidiary of AT&T Corp. As a result of these
transactions, the operating results of TWE's Cable division include net pretax
gains for the second quarter of $760 million in 1999 and $70 million in 1998.
Net pretax gains for the first half of the year amounted to $760 million in 1999
and $84 million in 1998.

4. INVESTMENT IN PRIMESTAR

TWE owns an approximate 24% equity interest in Primestar, Inc.
("Primestar"). In January 1999, Primestar, an indirect wholly owned subsidiary
of Primestar and the stockholders of Primestar entered into an agreement to sell
Primestar's medium-power direct broadcast satellite business and assets to
DirecTV, a competitor of Primestar owned by Hughes Electronics Corp. In
addition, a second agreement was entered into with DirecTV, pursuant to which
DirecTV agreed to purchase Primestar's rights with respect to the use or
acquisition of certain high-power satellites from a wholly owned subsidiary of
one of the stockholders of Primestar. In April 1999, Primestar closed on the
sale of its medium-power direct broadcast satellite business to DirecTV. Then,
in June 1999, Primestar completed the sale of its high-power satellite rights to
DirecTV.

As a result of those transactions, Primestar began to substantially
wind down its operations during the first quarter of 1999. TWE recognized its
share of Primestar's 1999 losses under the equity method of accounting. Such
losses are included in interest and other, net, in the accompanying consolidated
statement of operations. Future wind-down losses are not expected to be material
to TWE's operating results.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSA(Continued)
(Unaudited)

5. INVENTORIES

TWE's inventories consist of:

June 30, 1999 December 31, 1998
-------------------- --------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
(millions)
Film costs:

Released, less amortization................ $ 529 $ 778 $ 614 $ 744
Completed and not released................. 224 64 179 76
In process and other....................... 54 367 23 572
Library, less amortization................. - 534 - 560
Programming costs, less amortization.......... 361 371 426 375
Merchandise................................... 79 - 70 -
----- ------ ------ ------
Total......................................... $1,247 $2,114 $1,312 $2,327
====== ====== ====== ======

6. PREFERRED STOCK OF SUBSIDIARY

In February 1997, a newly formed, substantially owned subsidiary of TWE
(the "REIT") issued 250,000 shares of preferred stock ("REIT Preferred Stock").
The REIT was intended to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended.

In March 1999, the REIT redeemed all of its shares of REIT Preferred
Stock at an aggregate cost of $217 million, which approximated net book value.
The redemption was funded with borrowings under TWE's bank credit agreement.
Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of
proposed changes to federal tax regulations that substantially increased the
likelihood that dividends paid by the REIT or interest paid to the REIT under a
mortgage note of TWE would not be fully deductible for federal income tax
purposes.

7. PARTNERS' CAPITAL

TWE is required to make distributions to reimburse the partners for
income taxes at statutory rates based on their allocable share of taxable
income, and to reimburse Time Warner for stock options granted to employees of
TWE based on the amount by which the market price of Time Warner Inc. common
stock exceeds the option exercise price on the exercise date or, with respect to
options granted prior to the TWE capitalization on June 30, 1992, the greater of
the exercise price or the $13.88 market price of Time Warner Inc. common stock
at the time of the TWE capitalization. TWE accrues a stock option distribution
and a corresponding liability with respect to unexercised options when the
market price of Time Warner Inc. common stock increases during the accounting
period, and reverses previously accrued stock option distributions and the
corresponding liability when the market price of Time Warner Inc.
common stock declines.

During the six months ended June 30, 1999, TWE accrued $138 million of
tax-related distributions and $359 million of stock option distributions, based
on closing prices of Time Warner Inc. common stock of $72.63 at June 30, 1999
and $62.06 at December 31, 1998. During the six months ended June 30, 1998, TWE
accrued $138 million of tax-related distributions and $414 million of stock
option distributions as a result of an increase at that time in the market price
of Time Warner Inc. common stock. During the six months ended June 30, 1999, TWE
paid distributions to the Time Warner General Partners in the amount of $280
million, consisting of $138 million of tax-related distributions and $142
million of stock option related distributions. During the six months ended June
30, 1998, TWE paid the Time Warner General Partners distributions in the amount
of $298 million, consisting of $138

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

million of tax-related distributions and $160 million of stock option related
distributions.

In July 1999, TWE borrowed $627 million under its bank credit agreement
and paid a distribution to the Time Warner General Partners to redeem the
remaining portion of their senior priority capital interests, including a
priority capital return of $173 million. Time Warner used a portion of the
proceeds received from this distribution to repay all $400 million of
outstanding borrowings under its credit agreement with TWE.

8. SEGMENT INFORMATION

TWE classifies its business interests into three fundamental areas:
Cable Networks, consisting principally of interests in cable television
programming; Entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting; and Cable,
consisting principally of interests in cable television systems.

Information as to the operations of TWE in different business segments
is set forth below based on the nature of the products and services offered. TWE
evaluates performance based on several factors, of which the primary financial
measure is business segment operating income before noncash amortization of
intangible assets ("EBITA"). The operating results of TWE's cable segment
reflect: (i) the transfer of Time Warner Cable's direct broadcast satellite
operations to Primestar, a separate holding company, effective as of April 1,
1998, (ii) the formation of the Road Runner joint venture to operate and expand
Time Warner Cable's and MediaOne's existing high-speed online businesses,
effective as of June 30, 1998, (iii) the reorganization of Time Warner Cable's
business telephony operations into a separate entity now named Time Warner
Telecom Inc., effective as of July 1, 1998 and (iv) the formation of a joint
venture in Texas that owns cable television systems serving approximately 1.1
million subscribers, effective as of December 31, 1998 (collectively, the "1998
Cable Transactions"). These transactions are described more fully in TWE's 1998
Form 10-K.

Three Months Six Months
Ended June 30, Ended June 30,
---------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Revenues

Filmed Entertainment-Warner Bros............... $1,446 $1,327 $2,826 $2,637
Broadcasting-The WB Network.................... 83 61 162 106
Cable Networks-HBO............................. 546 509 1,072 1,021
Cable.......................................... 1,114 1,084 2,188 2,237
Intersegment elimination....................... (129) (131) (254) (241)
----- ------ ----- ------

Total.......................................... $3,060 $2,850 $5,994 $5,760
====== ====== ====== ======

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
EBITA(1)

Filmed Entertainment-Warner Bros.(2)........... $ 132 $121 $ 478 $ 240
Broadcasting-The WB Network.................... (30) (23) (71) (61)
Cable Networks-HBO............................. 131 113 256 222
Cable(3)....................................... 1,099 374 1,436 681
------ ---- ------ ----

Total.......................................... $1,332 $585 $2,099 $1,082
====== ==== ====== ======

(2)Includes a net pretax gain of approximately $215 million recognized in
the first quarter of 1999 in connection with the early termination and
settlement of a long-term home video distribution agreement.

(3)Includes net pretax gains relating to the sale or exchange of certain cable
television systems of $760 million in the second quarter of 1999 and $70
million in the second quarter of 1998. Similarly, six-month results include
net pretax gains of $760 million in 1999 and $84 million in 1998.

Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Depreciation of Property, Plant and Equipment

Filmed Entertainment-Warner Bros............... $ 36 $ 38 $ 65 $ 78
Broadcasting-The WB Network.................... 1 - 1 -
Cable Networks-HBO............................. 6 5 13 10
Cable.......................................... 171 183 327 381
---- ---- ---- ----

Total.......................................... $214 $226 $406 $469
==== ==== ==== ====

Three Months Six Months
Ended June 30, Ended June 30,
-------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Amortization of Intangible Assets (1)
Filmed Entertainment-Warner Bros............... $ 31 $ 33 $ 61 $ 66
Broadcasting-The WB Network.................... 1 1 2 2
Cable Networks-HBO............................. - - - -
Cable.......................................... 88 96 173 190
---- ---- ---- ----

Total.......................................... $120 $130 $236 $258
==== ==== ==== ====

(1)Amortization includes amortization relating to all business combinations
accounted for by the purchase method, including Time Warner's $14 billion
acquisition of WCI in 1989 and $1.3 billion acquisition of the minority
interest in ATC in 1992.

9. COMMITMENTS AND CONTINGENCIES

TWE is subject to numerous legal proceedings. In management's opinion
and considering established reserves, the resolution of these matters will not
have a material effect, individually and in the aggregate, on TWE's consolidated
financial statements.

TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

10. ADDITIONAL FINANCIAL INFORMATION

Six Months
Ended June 30,
--------------
1999 1998
---- ----
(millions)
Interest expense.............................. $273 $273
Cash payments made for interest............... 242 260
Cash payments made for income taxes, net...... 49 39
Noncash capital distributions................. 359 414

Noncash investing activities included the exchange of certain cable
television systems in 1999 and 1998 (see Note 3). Noncash investing activities
in the first six months of 1998 also included the transfer of cable television
systems (or interests therein) serving approximately 650,000 subscribers that
were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse
Partnership, subject to approximately $1 billion of debt, in exchange for common
and preferred partnership interests therein, as well as certain related
transactions (collectively, the "TWE-A/N Transfers"). For a more comprehensive
description of the TWE-A/N Transfers, see TWE's 1998 Form 10-K.

Part II. Other Information

Item 1. Legal Proceedings.

On July 4, 1999, the former President of Indonesia, H.M. Suharto, filed
a lawsuit in an Indonesian court against Time Inc. Asia and certain individuals,
alleging that the May 24, 1999 issue of the Asian edition of TIME Magazine
defamed him in violation of Indonesian law. The complaint seeks a public
retraction and apology, as well as $27 billion in compensatory damages for
alleged harm to Suharto's reputation.

Reference is made to the various actions filed against American Family
Publishers ("AFP"), a company engaged in magazine sweepstakes solicitations
which is 50%-owned by a subsidiary of Time Inc., described on page I-42 of Time
Warner's Annual Report on Form 10-K for the year ended December 31, 1998. On May
28, 1999, AFP settled the claims made by the states of Florida, West Virginia,
South Carolina and Indiana. Among other things, AFP has agreed to make certain
changes in its sweepstakes mailings. The settlement has been approved by the
court overseeing these actions.

Item 4. Submission of Matters to a Vote of Security-Holders.

(a) The Annual Meeting of Stockholders of Time Warner was held on
May 20, 1999 (the "1999 Annual Meeting").

(b), (c) The following matters were voted upon at the 1999 Annual
Meeting:

(i) The following were elected directors of Time Warner for
terms expiring in 2000:

Broker
For Withheld Non-Votes
--- -------- ---------
Merv Adelson 968,885,565 6,101,683 0
J. Carter Bacot 969,557,822 5,429,426 0
Stephen F. Bollenbach 969,576,601 5,410,647 0
John C. Danforth 969,212,651 5,774,597 0
Beverly Sills Greenough 964,297,681 10,689,567 0
Gerald Greenwald 969,611,182 5,376,066 0
Carla A. Hills 969,494,154 5,493,094 0
Gerald M. Levin 969,158,519 5,828,729 0
Reuben Mark 969,631,970 5,355,278 0
Michael A. Miles 969,259,942 5,729,306 0
Richard D. Parsons 969,584,922 5,402,326 0
R. E. Turner 969,443,185 5,544,063 0
Francis T. Vincent, Jr. 964,637,841 10,349,407 0

(ii) Approval of an amendment to Time Warner's Restated
Certificate of Incorporation to increase the number of authorized
shares:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
882,935,815 87,719,723 3,141,296 49,176

(iii) Approval of the Time Warner Inc. 1999 Restricted Stock
Plan:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
752,070,974 217,311,954 4,413,761 49,321

(iv) Approval of amendments to the Time Warner Inc. 1988
Restricted Stock Plan for Non-Employee Directors:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
757,870,744 211,388,070 4,536,789 50,399

(v) Approval of the appointment of Ernst & Young LLP as
independent auditors of Time Warner for 1999:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
965,728,075 1,598,459 6,470,343 49,133

(d) Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.
---------

The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as a part of this report and such Exhibit Index is
incorporated herein by reference.

(b) Reports on Form 8-K.
--------------------

(i) Time Warner filed a Current Report on Form 8-K dated July
12, 1999 in which it reported in Item 5 that Time Warner had entered
into an agreement with CDnow, Inc. and Sony Corporation of America to
combine the businesses of CDnow and Columbia House.

TIME WARNER INC.

SIGNATURE

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

TIME WARNER INC.
(Registrant)

By: /s/ Joseph A. Ripp
----------------------------
Name: Joseph A. Ripp
Title: Executive Vice President and
Chief Financial Officer

Dated: August 13, 1999

EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K

Exhibit No. Description of Exhibit

3.(i)(a) Restated Certificate of Incorporation of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.3 to the Registrant's Post-Effective Amendment No. 1
on Form S-8 to the Registrant's Registration Statement on Form
S-4 filed with the Commission on October 11, 1996
(Registration No. 333-11471) (the "S-8 Registration
Statement")).

3.(i)(b) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant as filed with the Secretary of
State of the State of Delaware on May 26, 1999.

3.(i)(c) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant as filed with the Secretary of
State of the State of Delaware on May 19, 1997 (which is
incorporated herein by reference to Exhibit 3.(i)(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).

3.(i)(d) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant as filed with the Secretary of
State of the State of Delaware on October 10, 1996 (which is
incorporated herein by reference to Exhibit 4.4 to the
Registrant's S-8 Registration Statement).

3.(i)(e) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series LMC Common Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit 4.5
to the Registrant's S-8 Registration Statement).

3.(i)(f) Certificate of Amendment of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series LMC Common
Stock of the Registrant as filed with the Secretary of State
of the State of Delaware on May 26, 1999.

3.(i)(g) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series LMCN-V Common Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit 4.6
to the Registrant's S-8 Registration Statement).

3.(i)(h) Certificate of Increase of the Number of Shares of Series
Common Stock of the Registrant Designated as Series LMCN-V
Common Stock as filed with the Secretary of State of the State
of Delaware on August 13, 1997 (which is incorporated herein
by reference to Exhibit 3.(i)(b) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).

3.(i)(i) Certificate of Amendment of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series LMCN-V Common
Stock of the Registrant as filed with the Secretary of State
of the State of Delaware on May 26, 1999.

3.(i)(j) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series A Participating Cumulative Preferred Stock of the
Registrant as filed with the Secretary of State of the State
of Delaware on October 10, 1996 (which is incorporated herein
by reference to Exhibit 4.7 to the Registrant's S-8
Registration Statement).

3.(i)(k) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series D Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.8 to the Registrant's S-8 Registration Statement).

3.(i)(l) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series E Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.9 to the Registrant's S-8 Registration Statement).

3.(i)(m) Certificate of Correction of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series E Convertible
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on November 13, 1996 (which
is incorporated herein by reference to Exhibit 3.(i)(h) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).

3.(i)(n) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series F Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.10 to the Registrant's S-8 Registration Statement).

3.(i)(o) Certificate of Correction of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series F Convertible
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on November 13, 1996 (which
is incorporated herein by reference to Exhibit 3.(i)(j) of the
Registrant's 1996 Form 10-K).

3.(i)(p) Certificate of Elimination of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights and Qualifications,
Limitations or Restrictions Thereof, of Series G Convertible
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on March 18, 1999 (which is
incorporated herein by reference to Exhibit 3.(i)(m) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 (the "1998 Form 10-K")).

3.(i)(q) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series G Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.11 to the Registrant's S-8 Registration Statement).

3.(i)(r) Certificate of Elimination of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights and Qualifications,
Limitations or Restrictions Thereof, of Series H Convertible
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on March 18, 1999 (which is
incorporated herein by reference to Exhibit 3.i(o) to the
Registrant's 1998 Form 10-K).

3.(i)(s) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series H Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.12 to the Registrant's S-8 Registration Statement).

3.(i)(t) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of

Series H Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.12 to the Registrant's S-8 Registration Statement).

3.(i)(u) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of
Series J Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on
October 10, 1996 (which is incorporated herein by reference to
Exhibit 4.14 to the Registrant's S-8 Registration Statement).

3.(i)(v) Certificate of Elimination of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights, and Qualifications, Limitations or
Restrictions Thereof, of 10 1/4% Series M Exchangeable
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on March 18, 1999 (which is
incorporated herein by reference to Exhibit 3.(i)(s) to the
Registrant's 1998 Form 10-K).

3.(i)(w) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights,
and Qualifications, Limitations or Restrictions Thereof, of 10
1/4% Series M Exchangeable Preferred Stock of the Registrant
as filed with the Secretary of State of the State of Delaware
on October 10, 1996 (which is incorporated herein by reference
to Exhibit 4.15 to the Registrant's S-8 Registration
Statement).

10 Time Warner Inc. 1988 Restricted Stock Plan for Non-Employee
Directors, as amended through May 20, 1999.

27 Financial Data Schedule.