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 September 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


                                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                            1,172,397,199
  Series LMCN-V Common Stock - $.01 par value                114,123,884
---------------------------------------------            ------------------
  Description of Class                                   Shares Outstanding
                                                        as of October 31, 1999


<PAGE>

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


                               INDEX TO FORM 10-Q


                                                                      Page
                                                                --------------
                                                                Time
                                                                Warner    TWE
                                                                ------    ---

PART I.  FINANCIAL INFORMATION
     Management's discussion and analysis of results of
     operations and financial condition....................       1        38

     Consolidated balance sheet at September 30, 1999
     and December 31, 1998.................................      17        48

     Consolidated statement of operations for the three
     and nine months ended September 30, 1999 and 1998.....      18        49

     Consolidated statement of cash flows for the nine
     months ended September 30, 1999 and 1998..............      19        50

     Consolidated statement of shareholders' equity and
     partnership capital...................................      20        51

     Notes to consolidated financial statements............      21        52

     Supplementary information.............................      30


PART II.  OTHER INFORMATION................................      58


<PAGE>

                                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")  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 five 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; Music, consisting
principally  of  interests  in  recorded  music  and  music  publishing;  Filmed
Entertainment,  consisting  principally  of interests  in 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. 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").

         Since  1993,  Time Warner  historically  had not  consolidated  TWE and
certain related companies (the  "Entertainment  Group") for financial  reporting
purposes  because  MediaOne  had rights that  allowed it to  participate  in the
management of TWE's businesses.  However,  in August 1999, TWE received a notice
from MediaOne  concerning  the  termination  of its covenant not to compete with
TWE. The  termination of that covenant is necessary for MediaOne to complete its
proposed merger with AT&T Corp. ("AT&T").  As a result of the termination notice
and the  operation  of the  TWE  partnership  agreement,  MediaOne's  rights  to
participate in the management of TWE's  businesses  terminated  immediately  and
irrevocably.   MediaOne  retains  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 has  consolidated the
Entertainment Group, which substantially  consists of TWE, in its 1999 financial
statements, retroactive to the beginning of 1999.

        The proposed merger of MediaOne and AT&T is subject to customary closing
conditions,  including regulatory approvals.  Accordingly, there is no assurance
that it will occur. Also, there are no assurances that AT&T and Time Warner will
reach final agreement on the terms of a cable telephony joint venture, either on
the terms discussed on page F-17 of Time Warner's Annual Report on Form 10-K for
the year ended December 31, 1998, as amended, or any alternative terms.


                                       1

<PAGE>

                                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  approximately  10% of all domestic  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.  Further,  Time Warner and Sony
have each agreed to guarantee,  for up to 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 in late  1999 or early  2000 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  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 is also 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 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.

----------------------
(1)  As measured by Media Metrix, Inc. as of September 1999.


                                       2

<PAGE>

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


Transactions Affecting Comparability of Results of Operations and
Financial Condition

Consolidation of the Entertainment Group

         As  previously  described,  Time Warner's  1999  operating  results and
financial condition reflect the consolidation of the Entertainment  Group, which
substantially  consists  of TWE,  retroactive  to the  beginning  of 1999.  Time
Warner's 1998 historical operating results and financial condition have not been
changed,  but are no longer comparable to 1999 because the  Entertainment  Group
was reflected on an unconsolidated  basis using the equity method of accounting.
Accordingly,  in order to enhance comparability and make an analysis of 1999 and
1998 more  meaningful,  the following  discussion  of results of operations  and
changes in financial  condition and liquidity is based upon pro forma  financial
information  for 1998 as if the  consolidation  of the  Entertainment  Group had
occurred at the beginning of that period.  Historical  financial  information of
Time  Warner for 1998 is  included in the  accompanying  consolidated  financial
statements.

Other Significant Transactions and Nonrecurring Items

         As more fully  described  herein,  the  comparability  of Time Warner's
operating  results has been affected by certain other  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, (ii) 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. (the "Time Warner Telecom IPO"), a competitive local
exchange  carrier that  provides  telephony  services to  businesses,  (iii) net
pretax gains in the amount of $1.248 billion recognized in the first nine months
of 1999 relating to the sale or exchange of various cable television systems and
investments  and (iv) an  extraordinary  loss of $12 million  recognized  in the
third quarter of 1999 relating to the  retirement of debt.  This compares to net
pretax gains recognized in the first nine months of 1998 of $90 million relating
to the sale or exchange of cable television systems.

         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  items.  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 Cable division results
has been  affected  further  by  certain  1998  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 Time  Warner's  net income and per
share results.

1998 Stock Split

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


                                       3

<PAGE>

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

RESULTS OF OPERATIONS

         EBITA and operating income are as follows:
<TABLE>
<CAPTION>
                                       Three Months Ended September 30,                 Nine Months Ended September 30
                                     ------------------------------------             ----------------------------------
                                           EBITA             Operating Income              EBITA               Operating Income
                                           -----             ----------------              -----               ----------------
                                       1999      1998         1999       1998         1999       1998          1999       1998
                                    Historical Pro Forma(a) Historical Pro Forma(a) Historical Pro Forma(a) Historical Pro Forma(a)
                                    ---------- ---------    ---------- ---------    ---------- ---------    ---------- ---------
                                                                               (millions)
<S>                                    <C>      <C>         <C>       <C>            <C>      <C>            <C>      <C>
   Cable Networks...................   $  328   $  271      $  277    $221           $1,003   $  844         $  851   $ 694
   Publishing.......................      129      112         118     102              419      373            388     346
   Music............................       76       99          11      30              279      288             77      80
   Filmed Entertainment(b)..........      228      233         177     175              806      497            655     331
   Broadcasting-The WB Network......      (24)     (17)        (25)    (17)             (95)     (78)           (98)    (80)
   Cable(c).........................      894      417         752     269            2,477    1,246          2,068     798
   Intersegment elimination.........      (23)     (33)        (23)    (33)             (10)     (76)           (10)    (76)
                                       ------    -----      ------    ----           ------   ------         ------  ------

   Total............................   $1,608   $1,082      $1,287    $747           $4,879   $3,094         $3,931  $2,093
                                       ======   ======      ======    ====           ======   ======         ======  ======
</TABLE>
-----------------
(a)       Time Warner's 1999 operating  results reflect the consolidation of the
          Entertainment Group, which substantially  consists of TWE, retroactive
          to the beginning of the year.  Pro forma  operating  results for 1998,
          reflecting only the consolidation of the  Entertainment  Group and not
          adjusting for the effects of other transactions and nonrecurring items
          discussed  separately  herein,  are  presented  in  order  to  enhance
          comparability. Time Warner's historical EBITA and operating income for
          1998,  which  exclude  the  unconsolidated  operating  results  of the
          Entertainment Group, were $516 million and $315 million, respectively,
          for  the  third   quarter  and  $1.468   billion  and  $869   million,
          respectively, for the first nine months of the year.
(b)       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.
(c)       Includes net pretax  gains  related to the sale or exchange of certain
          cable television  systems and investments of $477 million in the third
          quarter of 1999 and $6 million in 1998. Similarly,  nine-month results
          include net pretax gains of $1.248  billion in 1999 and $90 million in
          1998.

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

Consolidated Results

         Time Warner had  revenues  of $6.723  billion,  income of $381  million
before an  extraordinary  loss on the  retirement of debt and net income of $369
million for the three months ended September 30, 1999, compared to revenues on a
pro forma  basis of $6.593  billion  and net income of $39 million for the three
months ended September 30, 1998.  After preferred  dividend  requirements,  Time
Warner had basic income per common share before the  extraordinary  item of $.29
in 1999,  and $.28  after,  compared  to a net loss of $.03 per common  share in
1998. On a diluted basis,  income per common share before the extraordinary item
was $.28 in 1999,  and $.27  after,  compared  to a net loss of $.03 per  common
share in 1998.

         As  previously  described,  in  addition  to the  consolidation  of the
Entertainment  Group  retroactive to the beginning of 1999, the comparability of
Time Warner's  operating  results for 1999 and 1998 has been further affected by
certain  significant,  nonrecurring  items  recognized  in  each  period.  These
nonrecurring  items consisted of approximately  $477 million of net pretax gains
in 1999,  compared to $6 million of net pretax gains in 1998.  In addition,  net
income in 1999 included an  extraordinary  loss on the retirement of debt of $12
million.  The  aggregate  net effect of these  items in 1999 was an  increase in
basic net income per common share of $.20. On a diluted basis, the aggregate net
effect of these  items in 1999 was an  increase  in basic net  income per common
share of $.19.  The 1998 gains had no significant impact on per share results.

         Time Warner's net income increased to $369 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 $75 million to
$110 million in 1999 from $35 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 lower losses from  certain  investments
accounted  for under the equity method of  accounting,  offset in part by higher
interest  expense  principally in connection with borrowings used to redeem Time
Warner's Series M exchangeable  preferred stock ("Series M Preferred  Stock") in

                                       4

<PAGE>

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


December  1998 and higher  income  taxes due to the  increase  in Time  Warner's
income.  Similarly,  excluding the aggregate effect of these nonrecurring items,
normalized  basic and diluted  net income per common  share  increased  to $.08,
compared to a normalized  net loss of $.03 per common share in 1998. In addition
to the factors  discussed  above,  the  improvement in 1999 normalized per share
results  reflects a $67 million  reduction  in preferred  dividend  requirements
principally relating to the redemption of Series M Preferred Stock in late 1998.

         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.

Business Segment Results

         Cable Networks.  Revenues increased to $1.450 billion in 1999, compared
to $1.330 billion on a pro forma basis in 1998.  EBITA increased to $328 million
in 1999  from  $271  million  on a pro  forma  basis in 1998.  Operating  income
increased  to $277  million in 1999 from $221  million  on a pro forma  basis in
1998. Revenues grew due to increases at the Turner cable networks group and HBO.
For the Turner  cable  networks  group,  revenues  benefited  from  increases in
advertising and subscription revenues, offset in part by the absence of revenues
from the  Goodwill  Games  sponsored  in the  summer of 1998.  The  increase  in
advertising  revenues was principally due to a strong overall advertising market
for most of the group's  networks,  including  CNN,  TBS  Superstation,  TNT and
Cartoon Network. The increase in subscription revenues was principally due to an
increase in subscriptions  and higher rates,  primarily led by revenue increases
at CNN, TBS  Superstation,  TNT and Turner  Classic  Movies.  For HBO,  revenues
benefited primarily from an increase in pay-television subscriptions.

         Likewise,  EBITA and  operating  income were higher due to increases at
the Turner cable networks  group and HBO. For the Turner cable  networks  group,
the increase in EBITA and operating  income was  principally  due to the revenue
gains and the absence of losses  associated with the Goodwill  Games,  offset in
part by higher  programming  costs. For HBO, the increase in EBITA and operating
income was principally due to the revenue gains and increased cost savings.

         Publishing.  Revenues increased to $1.110 billion in 1999,  compared to
$1.076  billion  in 1998.  EBITA  increased  to $129  million  in 1999 from $112
million in 1998.  Operating  income  increased to $118 million in 1999 from $102
million  in  1998.   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, as
well as increases in magazine 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 In Style, People, Sports Illustrated,
Entertainment  Weekly and Teen People. The increase in circulation  revenues was
principally due to higher  newsstand  sales,  led by People and Time,  offset in
part by lower net subscription revenues generated by American Family Enterprises
("AFE"), a 50%-owned equity investee, and other 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 the absence of
certain  one-time  gains  on the sale of  assets  recognized  in 1998 and  lower
results from direct-marketing  activities,  including Book-of-the-Month Club and
AFE.

         In addition,  in October  1999,  AFE  voluntarily  filed for Chapter 11
bankruptcy protection under the U.S. Bankruptcy Code. This action is expected to
allow AFE to resolve its pending private litigation  relating to its sweepstakes
promotions  and to  restructure  its  operations  and  finances.  Time  Warner's
management  expects that the outcome of the bankruptcy  proceedings  will not be
material to Time Warner's future operating results and financial condition.


                                       5

<PAGE>

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


         Music.  Revenues  decreased to $852  million in 1999,  compared to $938
million in 1998.  EBITA  decreased  to $76  million in 1999 from $99  million in
1998.  Operating  income  decreased  to $11  million in 1999 from $30 million in
1998.  Revenues  decreased  primarily  due to lower  domestic and  international
recorded music sales. The worldwide revenue decline  principally related to less
popular  releases  in  comparison  to the prior year,  as well as  industry-wide
softness in various international  markets,  like Brazil and Germany.  EBITA and
operating income  decreased  principally as a result of the decline in worldwide
revenues and lower results from Columbia  House,  a 50%-owned  equity  investee,
offset in part by increased cost savings,  lower artist royalty costs and higher
income from DVD manufacturing  operations.  Management  expects that the revenue
decline  relating to lower  worldwide sales levels will continue into the fourth
quarter of 1999, which could continue to affect operating results negatively.

         Filmed  Entertainment.  Revenues  decreased to $2.208  billion in 1999,
compared to $2.272 billion on a pro forma basis in 1998. EBITA decreased to $228
million in 1999 from $233 million on a pro forma basis in 1998. Operating income
increased  to $177  million in 1999 from $175  million  on a pro forma  basis in
1998.  Revenues  decreased  because revenue  increases at Warner Bros. were more
than offset by revenue declines at the Turner filmed  entertainment  businesses,
which include New Line Cinema, Castle Rock Entertainment and the former film and
television  libraries of  Metro-Goldwyn-Mayer,  Inc. and RKO Pictures,  Inc. For
Warner Bros.,  revenues benefited from increases in worldwide  theatrical,  home
video and television  syndication  operations,  offset in part by lower revenues
from consumer products operations. The increase in worldwide home video revenues
primarily  resulted  from  increased  sales  of  DVDs.  For  the  Turner  filmed
entertainment  businesses,  revenues  decreased  principally  as a result of the
absence  in  1999  of  significant   syndication   revenues  from  the  sale  of
second-cycle  broadcasting  rights  for  Seinfeld  in 1998,  and  fewer and less
popular third-quarter theatrical releases in 1999.

         EBITA  was lower and  operating  income  was  relatively  flat  because
increases at Warner Bros. were either more than or substantially offset by EBITA
and operating income declines at the Turner filmed entertainment businesses. For
Warner Bros.,  EBITA and operating income  increased  principally as a result of
improved   results  from  worldwide   theatrical,   home  video  and  television
syndication  operations,  offset in part by lower results from consumer products
operations. For the Turner filmed entertainment businesses,  EBITA and operating
income decreased  principally as a result of the decline in revenues,  offset in
part by lower participation costs payable to creative talent.

         In  connection  with  declines  in  the operations of certain of Warner
Bros.'s  retail  stores,  management  is  in  the  process of evaluating several
strategic alternatives for its retail operations. These alternatives include the
gradual reduction and updating of Warner Bros.'s store portfolio,  including the
transformation  of some of the  traditional  retail  outlets  to  smaller,  more
efficient stores and an increasing emphasis on e-commerce opportunities.  To the
extent  management  takes  action under some of these  alternatives,  a non-cash
charge, principally relating to the acceleration of future depreciation expense,
may be required.  Management's  evaluation  is expected to continue  through the
1999 holiday shopping season.

         Broadcasting  - The WB  Network.  Revenues  were $84  million  in 1999,
compared to $64 million on a pro forma basis in 1998.  EBITA decreased to a loss
of $24  million in 1999 from a loss of $17 million on a pro forma basis in 1998.
Operating  losses  increased  to $25  million in 1999 from $17  million on a pro
forma  basis  in  1998.  Revenues  increased  principally  as a  result  of  one
additional  night of weekly  prime-time  programming  in comparison to the prior
year and advertising rate increases,  offset in part by lower television ratings
for the summer repeat programming lineup. 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. Revenues increased to $1.342 billion in 1999, compared to $1.288
billion on a pro forma basis in 1998.  EBITA  increased  to $894 million in 1999
from $417 million on a pro forma basis in 1998.  Operating  income  increased to
$752  million  in 1999 from $269  million  on a pro forma  basis in 1998.  These
operating  results  were  affected by certain


                                       6

<PAGE>

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


cable-related   transactions    that   occurred   in   1998   (the  "1998  Cable
Transactions") and by net pretax gains of $477 million recognized in 1999 and $6
million in 1998  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 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.

         Interest and Other,  Net.  Interest and other,  net,  decreased to $490
million of expense in 1999,  compared to $508  million of expense on a pro forma
basis in 1998.  Interest expense increased to $376 million in 1999,  compared to
$358  million  on  a  pro  forma  basis  in  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 $114
million in 1999,  compared  to $150  million on a pro forma  basis in 1998.  The
decrease principally related to lower losses from certain investments  accounted
for under the equity method of accounting.

         Minority  Interest.  Minority interest expense increased to $59 million
in 1999, compared to $53 million on a pro forma basis in 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 1999,  minority
interest  expense  decreased  slightly  in  1999  principally  due  to a  higher
allocation of losses to a minority partner in The WB Network.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998

Consolidated Results

         Time Warner had revenues of $19.345  billion,  income of $1.112 billion
before an  extraordinary  loss on  retirement  of debt and net  income of $1.100
billion for the nine months ended September 30, 1999,  compared to revenues on a
pro forma  basis of $18.977  billion  and net income of $78 million for the nine
months ended September 30, 1998.  After preferred  dividend  requirements,  Time
Warner had basic income per common share before the  extraordinary  item of $.85
in 1999,  and $.84  after,  compared  to a net loss of $.13 per common  share in
1998. On a diluted basis,  income per common share before the extraordinary item
was $.82 in 1999,  and $.81  after,  compared  to a net loss of $.13 per  common
share in 1998.

         As previously described,  in  addition  to  the  consolidation  of  the
Entertainment  Group  retroactive to the beginning of 1999, the comparability of
Time Warner's  operating  results for 1999 and 1998 has been further affected by
certain  significant,  nonrecurring  items  recognized  in  each  period.  These
nonrecurring items consisted of approximately $1.578 billion of net pretax gains
in 1999,  compared to $90 million of net pretax gains in 1998. In addition,  net
income in 1999 included an  extraordinary  loss on the retirement of debt of $12
million.  The  aggregate  net effect of these items was an increase in basic net
income per common share of $.64 in 1999. On a diluted  basis,  the aggregate net
effect of these items was an increase of $.61 per common share in 1999, compared
to an increase of $.03 per common share in 1998.

         Time Warner's net income increased to $1.100 billion in 1999,  compared
to $78  million  in 1998.  However,  excluding  the  significant  effect  of the
nonrecurring items referred to earlier,  net income increased by $247 million to
$284 million in 1999 from $37 million in 1998.  As  discussed  more fully below,
this improvement  principally resulted from an overall increase in Time Warner's
business segment operating  income,  offset in part by higher equity losses from
certain investments accounted for under the equity method of accounting,  higher


                                       7

<PAGE>

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


interest  expense  principally in connection  with borrowings used to redeem the
Company's  Series M Preferred Stock in December 1998 and higher income taxes due
to the increase in Time  Warner's  income.  Similarly,  excluding  the aggregate
effect of these nonrecurring items,  normalized basic and diluted net income per
common share  increased to $.20,  compared to a normalized  net loss of $.16 per
common  share  in  1998.  In  addition  to  the  factors  discussed  above,  the
improvement  in 1999  normalized  per  share  results  reflects  a $191  million
reduction  in  preferred  dividend  requirements  principally  relating  to  the
redemption of Time Warner's Series M Preferred Stock in late 1998.

         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.

Business Segment Results

         Cable Networks.  Revenues increased to $4.425 billion in 1999, compared
to  $3.985  billion  on a pro forma  basis in 1998.  EBITA  increased  to $1.003
billion in 1999 from $844 million on a pro forma basis in 1998. Operating income
increased  to $851  million in 1999 from $694  million  on a pro forma  basis in
1998. Revenues grew due to increases at the Turner cable networks group and HBO.
For the Turner  cable  networks  group,  revenues  benefited  from  increases in
advertising and subscription revenues, offset in part by the absence of revenues
from the  Goodwill  Games  sponsored  in the  summer of 1998.  The  increase  in
advertising  revenues was principally due to a strong overall advertising market
for most of the group's networks, including CNN, TBS Superstation,  TNT, Cartoon
Network and Headline News. The increase in subscription revenues was principally
due to an increase in subscriptions  and higher rates,  primarily led by revenue
increases at CNN, TBS  Superstation,  TNT and Turner  Classic  Movies.  For HBO,
revenues benefited primarily from an increase in pay-television subscriptions.

         Likewise,  EBITA and  operating  income were higher due to increases at
the Turner cable networks  group and HBO. For the Turner cable  networks  group,
the increase in EBITA and operating  income was  principally  due to the revenue
gains and the absence of losses  associated with the Goodwill  Games,  offset in
part by higher  programming  costs. For HBO, the increase in EBITA and operating
income was  principally  due to the revenue gains,  increased cost savings,  and
higher income from Comedy Central, a 50%-owned equity investee.

         Publishing.  Revenues increased to $3.237 billion in 1999,  compared to
$3.160  billion  in 1998.  EBITA  increased  to $419  million  in 1999 from $373
million in 1998.  Operating  income  increased to $388 million in 1999 from $346
million  in  1998.   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.
The increase in  advertising  revenues was  principally  due to a strong overall
advertising  market for most of the  division's  magazines,  primarily led by In
Style,  People,  Time, Teen People and Sports Illustrated.  Magazine circulation
revenues were flat  principally  because higher newsstand sales, led by Time and
In Style,  were offset by lower net subscription  revenues  generated by AFE and
other third-party agencies.  EBITA and operating income increased principally as
a result of the revenue  gains,  increased  cost savings and higher gains on the
sale of  assets.  These  increases  were  offset in part by lower  results  from
direct-marketing activities, including Book-of-the-Month Club and AFE.

         In addition,  in October  1999,  AFE  voluntarily  filed for Chapter 11
bankruptcy protection under the U.S. Bankruptcy Code. This action is expected to
allow AFE to resolve its pending private litigation  relating to its sweepstakes
promotions  and to  restructure  its  operations  and  finances.  Time  Warner's
management  expects that the outcome of the bankruptcy  proceedings  will not be
material to Time Warner's future operating results and financial condition.


                                       8

<PAGE>

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


         Music. Revenues decreased to $2.616 billion in 1999, compared to $2.731
billion in 1998.  EBITA  decreased  to $279 million in 1999 from $288 million in
1998.  Operating  income  decreased  to $77  million in 1999 from $80 million in
1998.  Revenues  decreased  primarily  due to lower  domestic and  international
recorded music sales. The worldwide revenue decline  principally related to less
popular  releases  in  comparison  to the prior year,  as well as  industry-wide
softness in various international  markets,  like Brazil and Germany.  EBITA and
operating income  decreased  principally as a result of the decline in worldwide
revenues and lower results from Columbia  House,  a 50%-owned  equity  investee,
offset in part by increased cost savings,  lower artist royalty costs and higher
income from DVD manufacturing  operations.  Management  expects that the revenue
decline  relating to lower  worldwide sales levels will continue into the fourth
quarter of 1999, which could continue to affect operating results negatively.

         Filmed  Entertainment.  Revenues  decreased to $5.688  billion in 1999,
compared to $5.790 billion on a pro forma basis in 1998. EBITA increased to $806
million in 1999 from $497 million on a pro forma basis in 1998. Operating income
increased  to $655  million in 1999 from $331  million  on a pro forma  basis in
1998.  Revenues  decreased  because revenue  increases at Warner Bros. were more
than offset by revenue declines at the Turner filmed  entertainment  businesses,
which include New Line Cinema, Castle Rock Entertainment and the former film and
television  libraries of  Metro-Goldwyn-Mayer,  Inc. and RKO Pictures,  Inc. For
Warner Bros.,  revenues benefited from increases in worldwide  theatrical,  home
video and television distribution  operations,  offset in part by lower revenues
from consumer products operations. The increase in worldwide home video revenues
primarily  resulted  from  increased  sales  of  DVDs.  For  the  Turner  filmed
entertainment  businesses,  revenues  decreased  principally  as a result of the
absence  in  1999  of  significant   syndication   revenues  from  the  sale  of
second-cycle  broadcasting  rights  for  Seinfeld  in 1998 and fewer  theatrical
releases in 1999.

         EBITA and operating income were higher due to increases at Warner Bros.
and the Turner filmed  entertainment  businesses,  including an approximate $215
million net pretax gain  recognized by Warner Bros. in the first quarter of 1999
in connection  with the early  termination  and  settlement of a long-term  home
video  distribution  agreement.  Excluding  the gain,  Warner  Bros.'s EBITA and
operating  income  increased  principally  as a result of improved  results from
worldwide theatrical, home video and television distribution operations,  offset
in part by lower  results  from  consumer  products  operations.  For the Turner
filmed   entertainment   businesses,   EBITA  and  operating   income  increased
principally  due to the absence of film  write-offs  relating  to  disappointing
results for theatrical  releases of Castle Rock Entertainment in 1998, offset in
part by lower results from television  distribution  operations  relating to the
absence in 1999 of  significant  syndication  sales of  broadcasting  rights for
Seinfeld in 1998.

         In  connection  with  declines in  the operations of certain  of Warner
Bros.'s  retail  stores,  management  is  in  the  process of evaluating several
strategic  alternatives  for  its retail operations.  These alternatives include
the   gradual   reduction  and  updating  of  Warner  Bros.'s  store  portfolio,
including  the transformation   of some of the  traditional  retail  outlets  to
smaller,  more  efficient  stores  and  an  increasing  emphasis  on  e-commerce
opportunities.   To  the  extent  management  takes  action  under some of these
alternatives,  a non-cash charge,  principally  relating  to the acceleration of
future  depreciation  expense,  may  be  required.  Management's  evaluation  is
expected to continue  through the 1999 holiday shopping season.

         Broadcasting  - The WB  Network.  Revenues  were $246  million in 1999,
compared to $170 million on a pro forma basis in 1998. EBITA decreased to a loss
of $95  million in 1999 from a loss of $78 million on a pro forma basis in 1998.
Operating  losses  increased  to $98  million in 1999 from $80  million on a pro
forma  basis  in  1998.  Revenues  increased  principally  as a  result  of  one
additional  night of weekly  prime-time  programming  in comparison to the prior
year,  improved  television  ratings and advertising  rate increases.  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.


                                       9

<PAGE>

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


         Cable. Revenues decreased to $3.968 billion in 1999, compared to $4.015
billion on a pro forma basis in 1998.  EBITA increased to $2.477 billion in 1999
from $1.246 billion on a pro forma basis in 1998.  Operating income increased to
$2.068  billion in 1999 from $798  million on a pro forma  basis in 1998.  These
operating results were affected by the 1998 Cable Transactions and by net pretax
gains of $1.248  billion  recognized  in 1999 and $90 million in 1998 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  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.

         Interest and Other, Net.  Interest and other, net,  decreased to $1.387
billion of expense in 1999, compared to $1.410 billion of expense on a pro forma
basis in 1998. Interest expense increased to $1.116 billion in 1999, compared to
$1.082  billion  on a pro  forma  basis  in  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 $271
million in 1999,  compared  to $328  million on a pro forma  basis in 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.

         Minority Interest.  Minority interest expense increased to $358 million
in 1999,  compared  to $200  million  on a pro  forma  basis  in 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 decreased slightly in 1999 principally due to
a higher allocation of losses to a minority partner in The WB Network.

FINANCIAL CONDITION AND LIQUIDITY
September 30, 1999

Financial Condition

         At September  30,  1999,  Time Warner had $17.8  billion of debt,  $645
million of cash and  equivalents  (net debt of $17.2  billion),  $1.2 billion of
borrowings  against  future stock option  proceeds,  $575 million of mandatorily
redeemable   preferred   securities   of   subsidiaries   and  $8.8  billion  of
shareholders'  equity,  compared to $17.5 billion of debt,  $529 million of cash
and equivalents (net debt of $17.0 billion),  $895 million of borrowings against
future stock option proceeds,  $792 million of mandatorily  redeemable preferred
securities of  subsidiaries  and $8.9 billion of  shareholders'  equity on a pro
forma basis 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 was recognized in the third quarter of 1999.


                                       10

<PAGE>

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


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 nine months of 1999, Time Warner acquired 24.3 million
shares  of its  common  stock at an  aggregate  cost of  $1.636  billion.  These
repurchases  increased  the  cumulative  shares  purchased  under  this  and its
previous common stock repurchase  program begun in 1996 to  approximately  119.4
million shares at an aggregate cost of $4.676 billion.

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 nine months of 1999,  Time  Warner's  cash provided by
operations  amounted to $2.802  billion and reflected  $4.879  billion of EBITA,
$905 million of noncash  depreciation  expense and $85 million of proceeds  from
Time Warner's  asset  securitization  program,  less $1.137  billion of interest
payments,  $261 million of income taxes, $120 million of corporate  expenses and
$1.549 billion related to an aggregate increase in working capital requirements,
other balance sheet accounts and noncash  items.  Cash provided by operations of
$1.844  billion on a pro forma basis for the first nine months of 1998 reflected
$3.094 billion of business segment EBITA,  $983 million of noncash  depreciation
expense and $233 million of proceeds  from Time  Warner's  asset  securitization
program, less $1.122 billion of interest payments, $200 million of income taxes,
$112 million of corporate  expenses and $1.032  billion  related to an aggregate
increase in working  capital  requirements,  other  balance  sheet  accounts and
noncash items.

         Cash used by investing  activities was $1.392 billion in the first nine
months of 1999,  compared to $922 million on a pro forma basis in the first nine
months of 1998. This increase  principally resulted from a $463 million decrease
in  investment  proceeds  largely  relating to the 1998 sale of TWE's  remaining
interest in Six Flags Entertainment Corporation.  Capital expenditures increased
to $1.532  billion in the first nine months of 1999,  compared to $1.440 billion
on a pro forma basis in the first nine months of 1998.

         Cash used by financing  activities was $1.207 billion in the first nine
months of 1999,  compared  to $1.371  billion on a pro forma  basis in the first
nine  months  of 1998.  The use of cash in 1999  principally  resulted  from the
repurchase of  approximately  24.3 million shares of Time Warner common stock at
an aggregate cost of $1.636  billion,  the redemption of REIT Preferred Stock at


                                       11

<PAGE>

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


an aggregate  cost of $217 million and the payment of $226 million of dividends,
offset in part by a $316  million  increase in net  borrowings,  $335 million of
borrowings  against  future stock  option  proceeds and $350 million of proceeds
received  principally  from the exercise of employee stock  options.  During the
first nine months of 1998, on a pro forma basis, excluding 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
reduced debt by approximately  $1.1 billion.  Time Warner used proceeds from the
borrowings associated with the conversion of its zero-coupon  convertible notes,
together with most of the $599 million of proceeds received from the exercise of
employee stock options and $482 million of net  borrowings  against future stock
option proceeds, to repurchase  approximately 26.4 million shares of Time Warner
common stock at an aggregate cost of $1.944 billion during the first nine months
of 1998.  Time  Warner  also paid $394  million of  dividends  in the first nine
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.

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 amounted to
$1.107 billion in the nine months ended  September 30, 1999,  compared to $1.149
billion in the nine months ended September 30, 1998.  Cable capital  spending is
expected to approximate $450 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 for
all of Time Warner's filmed  entertainment  companies amounted to $3.153 billion
at  September  30,  1999,  compared  to $2.934  billion on a pro forma  basis at
December 31, 1998 (including  amounts  relating to the licensing of film product
to Time Warner's  cable  television  networks of $1.144 billion at September 30,
1999 and $995 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 is principally only dependent
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 a $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.


                                       12

<PAGE>

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


Year 2000 Technology Preparedness

         Time  Warner,  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  continues to be 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  initially  identified  and  assessed  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  distinguished  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  1,000
worldwide,  "mission critical"  potential  exposures.  As of September 30, 1999,
substantially  all of these  potential  exposures  have been  identified  by the
divisions  as  Year  2000  compliant  and of  those  that  are not  reported  as
compliant, substantially all were in final  testing  stages  and  expected to be
substantially  completed  in all  material  respects by the middle of the fourth
quarter of 1999. The Company,  however,  could experience unexpected delays. The
Company is expecting to focus its attention during the fourth quarter of 1999 on
conducting final integrated  testing in a stable  environment and on refinements
and testing of its contingency and transition plans, as necessary.

        As stated above, however, the Company's business is heavily dependent on
third parties,  both  domestically  and  internationally,  and these parties are
themselves  heavily  dependent  on  technology.  For  example,  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. In addition, in a situation endemic to
the cable industry,  much of the Company's headend equipment that controls cable
set-top  boxes  needed to be  upgraded to become  Year 2000  compliant.  The box
manufacturers  and cable industry groups together  developed  solutions that the
Company  has  substantially  completed  installing  and  testing in its  headend
equipment  at its various  geographic  locations.  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 has made its  determinations 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


                                       13

<PAGE>

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


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, as a whole, 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 80% to 90% has been incurred through
September 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.

         As stated  above,  the Company is now  focusing  its  attention  on its
contingency  and  transition  plans.  It has examined  its  existing  divisional
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.  These plans are intended to provide guidance and
alternatives for unanticipated  failures of internal systems as well as external
failures  that  may  impede  any  of the  Company's  businesses  from  operating
normally.  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


                                       14

<PAGE>

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


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.


                                       15

<PAGE>

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


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.


                                       16

<PAGE>

                                TIME WARNER INC.
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                  September 30,      December 31,
                                                                                  ----------------
                                                                     1999         1998        1998
                                                                 Historical(a) Pro Forma(a) Historical(a)
                                                                 ----------    ---------    ----------
                                                                  (millions, except per share amounts)
ASSETS
Current assets
<S>                                                                <C>        <C>         <C>
Cash and equivalents...........................................    $  645     $  529      $   442
Receivables, less allowances of $1.385, $1.514
   and $1.007 billion..........................................     4,190      4,640        2,885
Inventories....................................................     2,195      2,258          946
Prepaid expenses...............................................     1,570      1,342        1,176
                                                                   ------    -------       ------

Total current assets...........................................     8,600      8,769        5,449

Noncurrent inventories.........................................     3,942      4,219        1,900
Investment in and amounts due to and from
   Entertainment Group.........................................         -          -        4,980
Other investments..............................................     1,702      1,665          794
Property, plant and equipment..................................     8,489      8,037        1,991
Music catalogues, contracts and copyrights.....................       802        876          876
Cable television and sports franchises.........................     7,863      6,943        2,868
Goodwill.......................................................    15,377     15,830       11,919
Other assets...................................................     1,657      1,612          863
                                                                  -------    -------       ------

Total assets...................................................   $48,432    $47,951      $31,640
                                                                  =======    =======      =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...............................................   $ 1,456    $ 1,966       $  996
Participations, royalties and programming costs payable........     2,865      2,714        1,199
Debt due within one year.......................................        26         25           19
Other current liabilities......................................     4,229      4,365        2,404
                                                                  -------    -------       ------

Total current liabilities......................................     8,576      9,070        4,618

Long-term debt ................................................    17,812     17,503       10,925
Borrowings against future stock option proceeds................     1,230        895          895
Deferred income taxes..........................................     3,848      3,491        3,491
Unearned portion of paid subscriptions.........................       742        741          741
Other liabilities..............................................     3,688      3,580        1,543
Minority interests.............................................     3,175      3,027            -
Mandatorily redeemable preferred securities of
   subsidiaries holding solely notes and
   debentures of subsidiaries of the Company...................       575        792          575

Shareholders' equity
Preferred stock, $.10 par value, 8.4, 22.6 and 22.6
   million shares outstanding, $.840, $2.260 and
   $2.260 billion liquidation preference.......................         1          2            2
Series LMCN-V common stock, $.01 par value, 114.1
   million shares outstanding..................................         1          1            1
Common stock, $.01 par value, 1.172, 1.118 and
   1.118 billion shares outstanding............................        12         11           11
Paid-in capital................................................    12,880     13,134       13,134
Accumulated deficit............................................    (4,108)    (4,296)      (4,296)
                                                                  -------    -------      -------

Total shareholders' equity.....................................     8,786      8,852        8,852
                                                                  -------    -------       ------

Total liabilities and shareholders' equity.....................   $48,432    $47,951      $31,640
                                                                  =======    =======      =======
</TABLE>
---------------
(a)  The  1999   financial   statements   reflect  the   consolidation   of  the
     Entertainment  Group, which substantially  consists of TWE,  retroactive to
     the beginning of 1999. Time Warner's  historical  financial  statements for
     1998 have not been changed; however, in order to enhance comparability, pro
     forma  financial  statements for 1998 reflecting the  consolidation  of the
     Entertainment Group are presented supplementally (Note 1).

See accompanying notes.


                                       17

<PAGE>
                              TIME WARNER INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                  Three Months Ended                       Nine Months Ended
                                                       September 30,                           September 30,
                                          -------------------------------------     ---------------------------------------
                                               1999       1998          1998           1999         1998          1998
                                          Historical(a) Pro Forma(a) Historical(a)  Historical(a) Pro Forma(a) Historical(a)
                                          ----------    ---------    ----------     ----------    ---------    ----------
                                                                   (millions, except per share amounts)
<S>                                          <C>         <C>        <C>              <C>          <C>           <C>
Revenues (b)................................ $  6,723    $ 6,593    $ 3,578          $19,345      $ 18,977      $10,387
                                             --------    -------    -------          --------     --------      -------

Cost of revenues (b)(c).....................   (4,007)    (4,064)    (2,052)         (11,404)      (11,710)      (6,016)
Selling, general and administrative
   (b)(c)                                      (1,906)    (1,788)    (1,211)          (5,473)       (5,264)      (3,502)
Gain on sale or exchange of cable
   systems and investments (b)..............      477          6          -            1,248            90            -
Gain on early termination of
   video distribution agreement.............        -          -          -              215             -            -
                                             --------    -------    -------          -------      --------      -------

Business segment operating income...........    1,287        747        315            3,931         2,093          869
Equity in pretax income of
   Entertainment Group (b)..................        -          -        164                -             -          437
Interest and other, net (b)(d)..............     (490)      (508)      (311)          (1,387)       (1,410)        (877)
Minority interest...........................      (59)       (53)         -             (358)         (200)           -
Corporate expenses (b)......................      (40)       (38)       (20)            (120)         (112)         (58)
                                             --------    -------    -------          -------      --------      -------

Income before income taxes..................      698        148        148            2,066           371          371
Income tax provision........................     (317)      (109)      (109)            (954)         (293)        (293)
                                             --------    -------    -------          -------      --------      -------

Income before extraordinary item............      381         39         39            1,112            78           78
Extraordinary loss on retirement
   of debt, net of $9 million
   income tax benefit in 1999...............      (12)         -          -              (12)            -            -
                                             --------    -------    -------          -------      --------      -------

Net income..................................      369         39         39            1,100            78           78
Preferred dividend requirements.............       (9)       (76)       (76)             (45)         (236)        (236)
                                             --------    -------    -------          -------      --------      -------

Net income (loss) applicable to
   common shares............................ $    360    $   (37)   $   (37)         $ 1,055      $   (158)     $  (158)
                                             ========    =======    =======          =======      ========      =======

Income (loss) per common share before
extraordinary item:
   Basic.................................... $    .29    $ (0.03)   $ (0.03)         $   .85      $  (0.13)     $ (0.13)
                                             ========    =======    =======          =======      ========      ========
   Diluted.................................. $    .28    $( 0.03)   $ (0.03)         $   .82      $  (0.13)     $ (0.13)
                                             ========    =======    =======          =======      ========      =======

Net income (loss) per common share:
   Basic.................................... $    .28    $ (0.03)   $ (0.03)         $   .84      $  (0.13)     $ (0.13)
                                             ========    =======    =======          =======      ========      =======
   Diluted.................................. $    .27    $ (0.03)   $ (0.03)         $   .81      $  (0.13)     $ (0.13)
                                             ========    =======    =======          =======      ========      =======

Average common shares:
   Basic....................................  1,288.9    1,202.6    1,202.6          1,260.5       1,184.0      1,184.0
                                             ========    =======    =======          =======      ========      =======
   Diluted..................................  1,397.8    1,202.6    1,202.6          1,400.4       1,184.0      1,184.0
                                             ========    =======    =======          =======      ========      =======
--------------
(a)  The 1999 financial statements reflect the consolidation
     of the Entertainment Group, which substantially consists
     of TWE, retroactive to the beginning of 1999. Time Warner's
     historical financial statements for 1998 have not been
     changed; however, in order to enhance comparability,
     pro forma financial statements for 1998 reflecting the
     consolidation of the Entertainment Group are presented
     supplementally (Note 1).

<PAGE>

(b)  Includes the  following  income  (expenses)  resulting  from
     transactions with related  companies  and, for 1998
     historical purposes only, the Entertainment Group:
       Revenues..............................    $109    $   118    $   120          $   376      $    357      $   334
       Cost of revenues......................     (50)       (34)       (70)            (151)          (87)        (207)
       Selling, general and administrative...      (6)        (7)        (8)             (17)          (18)         (28)
       Gain on sale or exchange of cable
         systems and investments.............     427          -          -              427             -            -
       Equity in pretax income of
         Entertainment Group.................       -          -         72                -             -           52
       Interest and other, net...............       2          2         (2)              10             1           (8)
       Corporate expenses....................       -          -         18                -             -           54

(c)  Includes depreciation and amortization
     expense of:.............................    $641    $   658    $   295          $ 1,853      $  1,984      $   884
                                                 ====    =======    =======          =======      ========      =======

(d)  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.
</TABLE>

See accompanying notes.

                                       18

<PAGE>

                                TIME WARNER INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                                            -------------------------------
                                                                            1999         1998         1998
                                                                        Historical(a) Pro Forma(a) Historical(a)
                                                                        ------------  -----------  -------------
                                                                                      (millions)
OPERATIONS
<S>                                                                       <C>         <C>          <C>
Net income............................................................    $1,100      $   78       $  78
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt..............................        12           -           -
Depreciation and amortization.........................................     1,853       1,984         884
Noncash interest expense..............................................         3          29          29
Excess of distributions over equity in pretax income of
   Entertainment Group................................................         -           -         168
Changes in operating assets and liabilities...........................      (166)       (247)         35
                                                                          ------      ------       -----

Cash provided by operations...........................................     2,802       1,844       1,194
                                                                          ------      ------       -----

INVESTING  ACTIVITIES
Consolidation of the Entertainment Group's cash and equivalents.......        87           -           -
Investments and acquisitions..........................................      (423)       (421)        (86)
Capital expenditures..................................................    (1,532)     (1,440)       (348)
Investment proceeds...................................................       476         939         458
Proceeds received from distribution of TWE Senior Capital.............         -           -         455
                                                                          ------      ------       -----

Cash provided (used) by investing activities..........................    (1,392)       (922)        479
                                                                          ------      ------       -----

FINANCING  ACTIVITIES
Borrowings............................................................     3,127       3,184       1,669
Debt repayments.......................................................    (2,811)     (3,140)     (2,300)
Borrowings against future stock option proceeds.......................       335       1,015       1,015
Repayments of borrowings against future stock option proceeds.........         -        (533)       (533)
Redemption of mandatorily redeemable preferred securities
    of subsidiary.....................................................      (217)          -           -
Repurchases of Time Warner common stock...............................    (1,636)     (1,944)     (1,944)
Dividends paid........................................................      (226)       (394)       (394)
Proceeds received from stock option and dividend reinvestment plans...       350         599         599
Other.................................................................      (129)       (158)        (37)
                                                                          ------      ------       ------

Cash used by financing activities.....................................    (1,207)     (1,371)     (1,925)
                                                                          ------      ------       ------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS...........................       203        (449)       (252)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD...........................       442         967         645
                                                                          ------      ------       -----

CASH AND EQUIVALENTS AT END OF PERIOD.................................    $  645      $  518       $ 393
                                                                          ======      ======       =====

(a)  The  1999   financial   statements   reflect  the   consolidation   of  the
     Entertainment  Group, which substantially  consists of TWE,  retroactive to
     the beginning of 1999. Time Warner's  historical  financial  statements for
     1998 have not been changed; however, in order to enhance comparability, pro
     forma  financial  statements for 1998 reflecting the  consolidation  of the
     Entertainment Group are presented supplementally (Note 1).
</TABLE>

See accompanying notes


                                       19

<PAGE>

                                TIME WARNER INC.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            Nine Months
                                                                        Ended September 30,
                                                                        ------------------
                                                                         1999          1998
                                                                      Historical    Historical
                                                                      ----------    ----------
                                                                            (millions)
<S>                                                                      <C>         <C>
BALANCE AT BEGINNING OF PERIOD........................................   $8,852      $9,356

Net income............................................................    1,100          78
Other comprehensive income (loss).....................................      (40)        (59)
Cumulative effect of change in accounting for derivative
   instruments, net of $3 million tax benefit.........................        -         (18)
                                                                         ------      ------

Comprehensive income (loss)(a)........................................    1,060           1

Common stock dividends................................................     (170)       (161)
Preferred stock dividends.............................................      (45)       (236)
Repurchases of Time Warner common stock...............................   (1,636)     (1,944)
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............................      725         974
                                                                         ------      ------


BALANCE AT END OF PERIOD..............................................   $8,786      $9,140
                                                                         ======      ======
---------------
(a)  Comprehensive  income (loss) for the three months ended  September 30, 1999
     and 1998 was $339 million and $(16)  million,  respectively.  Comprehensive
     loss for the  three-month  period ended  September 30, 1998 includes an $18
     million  cumulative  effect  of  a  change  in  accounting  for  derivative
     instruments that occurred during the period.
</TABLE>

See accompanying notes.


                                       20

<PAGE>

                                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")  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 five 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; Music, consisting
principally  of  interests  in  recorded  music  and  music  publishing;  Filmed
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,  Publishing,
Music, Filmed 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.

         Financial  information for Time Warner's various business  segments are
presented herein as an indication of financial  performance (Note 8). Except for
start-up  losses  incurred  in  connection  with The WB Network,  Time  Warner's
principal business segments generate significant  operating income and cash flow
from  operations.  The cash  flow from  operations  generated  by such  business
segments 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  segments
amounted to $321 million and $335  million for the three months ended  September
30, 1999 and 1998, respectively, and $948 million and $1.001 billion in the nine
months ended September 30, 1999 and 1998, respectively.

Basis of Presentation

Consolidation of 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").

         Since  1993,  Time Warner  historically  had not  consolidated  TWE and
certain related companies (the  "Entertainment  Group") for financial  reporting
purposes  because  MediaOne  had rights that  allowed it to  participate  in the
management of TWE's businesses.  However,  in August 1999, TWE received a notice


                                       21

<PAGE>

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


from MediaOne  concerning  the  termination  of its covenant not to compete with
TWE. The  termination of that covenant is necessary for MediaOne to complete its
proposed merger with AT&T Corp. ("AT&T").  As a result of the termination notice
and the  operation  of the  TWE  partnership  agreement,  MediaOne's  rights  to
participate in the management of TWE's  businesses  terminated  immediately  and
irrevocably.   MediaOne  retains  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's  1999   financial   statements   reflect  the   consolidation   of  the
Entertainment  Group, which  substantially  consists of TWE,  retroactive to the
beginning of 1999. Time Warner's historical  financial  statements for 1998 have
not been changed, but are no longer comparable to 1999 because the Entertainment
Group was  reflected  on an  unconsolidated  basis  using the  equity  method of
accounting.  Accordingly, in order to enhance comparability, pro forma financial
statements for 1998 reflecting the consolidation of the Entertainment  Group are
presented supplementally.

1998 Stock Split

         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.

Reclassifications

         Certain  reclassifications have been made to the prior year's financial
statements to conform to the 1999 presentation.

Interim Financial Statements

         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 (the "1998 Form 10-K").

2.       CABLE TRANSACTIONS

         Time  Warner's  operating  results  have been  affected  by a number of
significant cable-related transactions that occurred in each period.

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,  largely through 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.,
and a large exchange of cable television systems serving  approximately  310,000
subscribers  for other  cable  television  systems of  comparable  size owned by
MediaOne.  As a result of these  transactions,  the  operating  results  of Time
Warner  include net pretax  gains for the third  quarter of $477 million in 1999
and $6 million in 1998 on a pro forma basis. Net pretax gains for the first nine
months of the year amounted to $1.248 billion in 1999 and $90 million in 1998 on
a pro forma basis. There were no gains included in the operating results of Time
Warner on a historical basis for 1998.


                                       22

<PAGE>

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


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.  Approximately  $180
million of these proceeds were used to pay  obligations  owed to Time Warner and
TWE. 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.

Primestar

         Time  Warner  and  TWE  own  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.  Time  Warner
recognized  its share of  Primestar's  1999  losses  under the equity  method of
accounting. Such losses are included in interest and other, net. As of September
30, 1999, Primestar has substantially completed the wind down of its operations.
As such,  future  wind-down  losses  are not  expected  to be  material  to Time
Warner's operating results.

3.       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  $215  million  ($.10  per  basic  common  share),  which has been
included in  operating  income in the  accompanying  consolidated  statement  of
operations.


                                       23

<PAGE>

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


4.       INVENTORIES

         Inventories consist of:
<TABLE>
<CAPTION>
                                             September 30, 1999        December 31, 1998        December 31, 1998
                                             ------------------        -----------------        -----------------
                                                 Historical               Pro Forma                Historical
                                                 ----------               ---------                ----------
                                             Current    Noncurrent    Current   Noncurrent     Current   Noncurrent
                                             -------    ----------    ------    ----------     -------   ----------
                                                                            (millions)
Film costs:
<S>                                          <C>          <C>         <C>          <C>           <C>       <C>
   Released, less amortization............   $  682       $  932      $  665       $1,051        $ 51      $  308
   Completed and not released.............      194           64         199           76          20           -
   In process and other...................       36          746          24          912           2         240
   Library, less amortization.............        -        1,486           -        1,567           -       1,007
Programming costs, less amortization......      742          714         883          613         457         345
Magazines, books, recorded music and
   merchandise............................      541            -         487            -         416           -
                                             ------       ------      ------       ------        ----      ------

Total  ...................................   $2,195       $3,942      $2,258       $4,219        $946      $1,900
                                             ======       ======      ======       ======        ====      ======
</TABLE>

5.       INVESTMENT IN ENTERTAINMENT GROUP

         Time  Warner's   investment  in  the   Entertainment   Group   consists
substantially  of its investment in TWE. TWE is a Delaware  limited  partnership
that was capitalized in 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 held 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 $1.640
billion and $435 million for the nine months ended  September 30, 1999 and 1998,
respectively.  Because of the  priority  rights over  allocations  of income and
distributions  of TWE held by the Time  Warner  General  Partners,  all of TWE's
income was allocated to Time Warner and none was allocated to MediaOne.

         In addition, the assets and cash flows of TWE are restricted by the TWE
partnership and credit agreements.  As such, they are unavailable for use by the
partners  except  through  the  payment of certain  fees,  reimbursements,  cash
distributions and loans, which are subject to limitations.  TWE had $6.3 billion
of net assets at September 30, 1999.

         Pursuant  to the TWE  partnership  agreement,  TWE makes  certain  cash
distributions to its partners.  During the nine months ended September 30, 1999,
the Time Warner General Partners received  distributions  from TWE in the amount
of $1.116  billion,  consisting of $627 million of senior capital  distributions
(representing  the  return  of  $454  million  of  contributed  capital  and the
distribution  of $173  million of  priority  capital  return),  $316  million of
tax-related   distributions   and  $173   million   of  stock   option   related
distributions.  During the nine months ended September 30, 1998, the Time Warner
General  Partners  received  distributions  from  TWE in the  amount  of  $1.060
billion,   consisting   of  $579   million  of  senior   capital   distributions
(representing  the  return  of  $455  million  of  contributed  capital  and the
distribution  of $124  million of  priority  capital  return),  $264  million of
tax-related   distributions   and  $217   million   of  stock   option   related
distributions.


                                       24

<PAGE>

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


6.       MANDATORILY REDEEMABLE PREFERRED SECURITIES

REIT Preferred Stock

         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.

Preferred Trust 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.

7.       SHAREHOLDERS' EQUITY

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.

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 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.


                                       25

<PAGE>

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


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
anticipated future free cash flow and financial capacity.

         During the first nine months of 1999, Time Warner acquired 24.3 million
shares  of its  common  stock at an  aggregate  cost of  $1.636  billion.  These
repurchases  increased  the  cumulative  shares  purchased  under  this  and its
previous common stock repurchase  program begun in 1996 to  approximately  119.4
million shares at an aggregate cost of $4.676 billion.

Income (Loss) Per Common Share Before Extraordinary Item

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

<TABLE>
<CAPTION>
                                                        Three Months                     Nine Months
                                                     Ended September 30,              Ended September 30,
                                          ------------------------------------   -----------------------------------
                                             1999       1998         1998          1999        1998         1998
                                          Historical Pro Forma(1) Historical(1)  Historical Pro Forma(1) Historical(1)
                                          ---------- ---------    ----------     ---------- ---------    ----------
                                                                (millions, except per share amounts)
<S>                                       <C>         <C>          <C>           <C>         <C>          <C>
Income (loss) before extraordinary
  item - basic..........................  $    372    $    (37)    $    (37)     $ 1,067     $    (158)   $   (158)
Interest savings, net of tax(2).........        12           -            -           31             -           -
Preferred dividends.....................         9           -            -           45             -           -
                                          --------    --------     --------      -------     ---------    --------
Income (loss) before extraordinary
  item - diluted........................  $    393    $    (37)    $    (37)     $ 1,143     $    (158)   $   (158)
                                          ========    ========     ========      =======     =========    ========

Average number of common shares
  outstanding - basic...................   1,288.9     1,202.6      1,202.6      1,260.5       1,184.0     1,184.0
Dilutive effect of stock options........      71.8           -            -         73.3             -           -
Dilutive effect of convertible
  preferred shares......................      37.1           -            -         66.6             -           -
                                         ---------    --------     --------      -------     ---------    --------
Average number of common shares
  outstanding - diluted.................   1,397.8     1,202.6      1,202.6      1,400.4       1,184.0     1,184.0
                                           =======    ========     ========      =======     =========    ========

Income (loss) per common share before
  extraordinary item:
     Basic..............................  $   0.29    $  (0.03)    $  (0.03)     $  0.85     $   (0.13)   $  (0.13)
                                          ========    ========     ========      =======     =========    ========
     Diluted............................  $   0.28    $  (0.03)    $  (0.03)     $  0.82     $   (0.13)   $  (0.13)
                                          ========    ========     ========      =======     =========    ========
---------------
(1)  1998 basic and diluted income (loss) per common share before  extraordinary
     item 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.
</TABLE>

8.       SEGMENT INFORMATION

         Time Warner  classifies its business  interests  into five  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; Music, consisting principally
of  interests  in recorded  music and music  publishing;  Filmed  Entertainment,
consisting   principally  of  interests  in  filmed  entertainment,   television
production and television  broadcasting;  and Cable,  consisting  principally of
interests in cable television systems.


                                       26

<PAGE>

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


         Information as to the  operations of Time Warner 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").  As a  result  of  the
consolidation  of the  Entertainment  Group  in  1999,  Time  Warner's  and  the
Entertainment Group's business segments have been combined. Accordingly, segment
information  for  1998  has  been  restated  in  order  to  conform  to the  new
presentation.

         The operating  results of Time Warner'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. These transactions are all more
fully described in Time Warner's 1998 Form 10-K.

<TABLE>
<CAPTION>
                                                    Three Months          Nine Months
                                                  Ended September 30,  Ended September 30,
                                                  ------------------   ------------------
                                                    1999     1998       1999       1998
                                                    ----     ----       ----       ----
                                                                  (millions)
Revenues
<S>                                               <C>      <C>        <C>        <C>
Cable Networks.................................   $1,450   $ 1,330    $ 4,425    $ 3,985
Publishing.....................................    1,110     1,076      3,237      3,160
Music..........................................      852       938      2,616      2,731
Filmed Entertainment...........................    2,208     2,272      5,688      5,790
Broadcasting-The WB Network....................       84        64        246        170
Cable..........................................    1,342     1,288      3,968      4,015
Intersegment elimination.......................     (323)     (375)      (835)      (874)
                                                  ------    ------     ------     ------

Total business segment revenues................    6,723     6,593     19,345     18,977

Entertainment Group revenues reported on
an unconsolidated basis(1).....................        -    (3,015)         -     (8,590)
                                                  ------   -------    -------    -------

Total consolidated revenues....................   $6,723   $ 3,578    $19,345    $10,387
                                                  ======   =======    =======    =======
----------------
(1)  Represents  amounts  previously  reported  for  the  Entertainment   Group,
     adjusted by intercompany  eliminations and other consolidating  adjustments
     necessary  for  Time  Warner  to  reflect  the  Entertainment  Group  on  a
     consolidated basis.
</TABLE>


                                       27

<PAGE>

                                TIME WARNER INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                              Three Months          Nine Months
                                            Ended September 30,   Ended September 30,
                                            ------------------    ------------------
                                             1999       1998       1999      1998
                                             ----       ----       ----      ----
                                                        (millions)
EBITA(1)
<S>                                         <C>        <C>       <C>        <C>
Cable Networks...........................   $  328     $ 271     $1,003     $  844
Publishing...............................      129       112        419        373
Music....................................       76        99        279        288
Filmed Entertainment(2)..................      228       233        806        497
Broadcasting-The WB Network..............      (24)      (17)       (95)       (78)
Cable(3).................................      894       417      2,477      1,246
Intersegment elimination.................      (23)      (33)       (10)       (76)
                                            ------     -----     ------     ------

Total business segment EBITA.............    1,608     1,082      4,879      3,094

Entertainment Group EBITA reported
   on an unconsolidated basis(4).........        -      (566)         -     (1,626)
                                            ------     -----     ------     ------

Total consolidated EBITA.................   $1,608     $ 516     $4,879     $1,468
                                            ======     =====     ======     ======
</TABLE>
---------------
(1)   EBITA  represents   business  segment   operating  income  before  noncash
      amortization  of  intangible  assets.  After  deducting   amortization  of
      intangible  assets,  Time Warner's  historical  business segment operating
      income for the third  quarter was $1.287  billion in 1999 and $315 million
      in 1998. Time Warner's  historical  business segment  operating income for
      the first  nine  months of the year was  $3.931  billion  in 1999 and $869
      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.
(3)   Includes  net pretax  gains  relating  to the sale or  exchange of certain
      cable  television  systems and  investments  of $477  million in the third
      quarter of 1999 and $6 million  in the third  quarter of 1998.  Similarly,
      nine month results  include net pretax gains of $1.248 billion in 1999 and
      $90 million in 1998.
(4)   Represents  amounts  previously  reported  for  the  Entertainment  Group,
      adjusted by intercompany  eliminations and other consolidating adjustments
      necessary  for  Time  Warner  to  reflect  the  Entertainment  Group  on a
      consolidated basis.

<TABLE>
<CAPTION>
                                                Three Months          Nine Months
                                            Ended September 30,   Ended September 30,
                                            -------------------   -------------------
                                               1999       1998       1999      1998
                                               ----       ----       ----      ----
                                                           (millions)
Depreciation of Property, Plant and Equipment
<S>                                          <C>        <C>        <C>       <C>
Cable Networks...............................$   33     $   31     $   96    $   88
Publishing...................................    19         20         57        58
Music........................................    19         16         54        54
Filmed Entertainment.........................    46         49        114       130
Broadcasting-The WB Network..................     -          1          1         1
Cable........................................   203        206        583       652
                                             ------     ------     ------    ------

Total business segment depreciation..........   320        323        905       983

Entertainment Group depreciation reported
 on an unconsolidated basis(1)...............     -       (229)         -     (698)
                                             ------     ------     ------    ------

Total consolidated depreciation..............$  320     $   94     $  905    $  285
                                             ======     ======     ======    ======
---------------
(1)   Represents  amounts  previously  reported  for  the  Entertainment  Group,
      adjusted by intercompany  eliminations and other consolidating adjustments
      necessary  for  Time  Warner  to  reflect  the  Entertainment  Group  on a
      consolidated basis.
</TABLE>


                                       28

<PAGE>

                               TIME WARNER INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                Three Months          Nine Months
                                            Ended September 30,    Ended September 30,
                                            ------------------     ------------------
                                              1999       1998       1999      1998
                                              ----       ----       ----      ----
                                                           (millions)
Amortization of Intangible Assets(1)
<S>                                          <C>        <C>        <C>       <C>
Cable Networks...............................$   51     $   50     $  152    $  150
Publishing...................................    11         10         31        27
Music........................................    65         69        202       208
Filmed Entertainment.........................    51         58        151       166
Broadcasting-The WB Network..................     1          -          3         2
Cable........................................   142        148        409       448
                                             ------     ------     ------    ------

Total business segment amortization..........   321        335        948     1,001

Entertainment Group amortization reported on
   an unconsolidated basis(2)................     -       (134)         -      (402)
                                             ------     ------     ------    ------

Total consolidated amortization...........   $  321     $  201     $  948    $  599
                                             ======     ======     ======    ======
</TABLE>

(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.
(2)  Represents  amounts  previously  reported  for  the  Entertainment   Group,
     adjusted by intercompany  eliminations and other consolidating  adjustments
     necessary  for  Time  Warner  to  reflect  the  Entertainment  Group  on  a
     consolidated basis.

9.       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.

10.       ADDITIONAL FINANCIAL INFORMATION

         Additional  financial  information  with  respect  to cash  flows is as
follows:

                                              Nine Months Ended September 30,
                                              -------------------------------
                                              1999       1998         1998
                                           Historical  Pro Forma   Historical
                                           ----------  ---------   ----------
                                                      (millions)
Interest expense............................. $1,116     $1,082      $ 669
Cash payments made for interest..............  1,137      1,122        708
Cash payments made for income taxes..........    304        251        191
Income tax refunds received..................     43         51         48


         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 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.


                                       29

<PAGE>

                                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 September 30, 1999

<TABLE>
<CAPTION>
                                                                              Non-                   Time
                                              Time        TW                Guarantor    Elimina-    Warner
                                             Warner   Companies      TBS    Subsidiaries  tions   Consolidated
                                             ------   ---------      ---    ------------  ------  ------------
                                                                      (millions)
<S>                                          <C>        <C>        <C>       <C>         <C>         <C>
Revenues ................................... $    -     $    -     $  200    $6,586      $  (63)     $6,723
                                             ------     ------     ------    ------      ------      ------

Cost of revenues (1)........................      -          -        (88)   (3,991)         72      (4,007)
Selling, general and administrative (1).....      -          -        (50)   (1,856)          -      (1,906)
Gain on sale or exchange of cable systems
   and investments..........................      -          -          -       477           -         477
                                             ------     ------     ------    ------      ------      ------

Operating expenses..........................      -          -       (138)   (5,370)         72      (5,436)
                                             ------     ------     ------    ------      ------      ------

Business segment operating income...........      -          -         62     1,216           9       1,287
Equity in pretax income of consolidated
   subsidiaries.............................    782        869         81         -      (1,732)          -
Interest and other, net.....................    (63)      (158)       (39)     (203)        (27)       (490)
Minority interest...........................      -          -          -       (59)          -         (59)
Corporate expenses..........................    (21)       (14)        (4)      (35)         34         (40)
                                             ------     ------     ------    ------      ------      ------

Income before income taxes..................    698        697        100       919      (1,716)        698
Income tax provision........................   (317)      (305)       (57)     (386)        748        (317)
                                             ------     ------     ------    ------      ------      ------
Income before extraordinary item............    381        392         43       533        (968)        381
Extraordinary loss on retirement of debt,
   net of $9 million income tax benefit.....    (12)       (12)         -         -          12         (12)
                                             ------     ------     ------    ------      ------      ------

Net income.................................. $  369     $  380     $   43    $  533      $ (956)     $  369
                                             ======     ======     ======    ======      ======      ======

---------------
(1) Includes depreciation and amortization
       expense of:.........................  $    -     $    -     $    2    $  649      $  (10)     $  641
                                             ======     ======     ======    ======      ======      ======
</TABLE>


                                       30

<PAGE>

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


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

<TABLE>
<CAPTION>
                                                                              Non-                   Time
                                              Time        TW                Guarantor    Elimina-    Warner
                                             Warner    Companies    TBS    Subsidiaries  tions     Consolidated
                                             ------    ---------    ---    ------------  --------  ------------
                                                                     (millions)
<S>                                          <C>        <C>        <C>       <C>         <C>         <C>
Revenues ................................... $    -     $    -     $  176    $3,418      $  (16)     $3,578
                                             -------    ------     ------    ------      ------      ------

Cost of revenues (1)........................      -          -        (83)   (1,985)         16      (2,052)
Selling, general and administrative (1).....      -          -        (45)   (1,166)          -      (1,211)
                                             ------     ------     ------    ------      ------      ------

Operating expenses..........................      -          -       (128)   (3,151)         16      (3,263)
                                             ------     ------     ------    ------      ------      ------

Business segment operating income...........      -          -         48       267           -         315
Equity in pretax income of consolidated
  subsidiaries.............................     203        335         87          -        (625)          -
Equity in pretax income of Entertainment
   Group ...................................      -          -          -       196         (32)        164
Interest and other, net.....................    (35)      (183)       (37)      (40)        (16)       (311)
Corporate expenses..........................    (20)       (14)        (3)      (15)         32         (20)
                                             ------     ------     ------    ------      ------      ------

Income before income taxes..................    148        138         95       408        (641)        148
Income tax provision........................   (109)      (102)       (54)     (232)        388        (109)
                                             ------     ------     ------    ------      ------      ------

Net income.................................. $   39     $   36     $   41    $  176      $ (253)     $   39
                                             ======     ======     ======    ======      ======      ======


---------------
(1) Includes depreciation and amortization
       expense of:.......................... $    -     $    -     $    2    $  293      $    -      $  295
                                             ======     ======     ======    ======      ======      ======
</TABLE>


                                       31

<PAGE>

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


                      Consolidating Statement of Operations
                  For The Nine Months Ended September 30, 1999

<TABLE>
<CAPTION>
                                                                               Non-                   Time
                                              Time       TW                  Guarantor   Elimina-    Warner
                                             Warner    Companies    TBS    Subsidiaries   tions    Consolidated
                                             ------    ---------    ---    ------------  -------   ------------
                                                                     (millions)
<S>                                          <C>        <C>        <C>       <C>         <C>         <C>
Revenues ..................................  $    -     $    -     $  626    $18,766     $   (47)    $19,345
                                             ------     ------     ------      -------   -------     -------

Cost of revenues (1)........................      -          -       (288)   (11,163)         47     (11,404)
Selling, general and administrative (1).....      -          -       (154)    (5,319)          -      (5,473)
Gain on sale or exchange of cable systems
   and investments..........................      -          -          -      1,248           -       1,248
Gain on early termination of video
   distribution agreement...................      -          -          -        215           -         215
                                             ------     ------     ------    -------     -------     -------

Operating expenses..........................      -          -       (442)   (15,019)         47     (15,414)
                                             ------     ------     ------    -------     -------     -------

Business segment operating income...........      -          -        184      3,747           -       3,931
Equity in pretax income of consolidated
   subsidiaries.............................  2,316      2,505        315          -      (5,136)          -
Interest and other, net.....................   (185)      (504)      (108)      (528)        (62)     (1,387)
Minority interest...........................      -          -          -       (358)          -        (358)
Corporate expenses..........................    (65)       (42)       (12)      (103)        102        (120)
                                             ------     ------     ------    -------     -------     -------

Income before income taxes..................  2,066      1,959        379      2,758      (5,096)      2,066
Income tax provision........................   (954)      (892)      (202)    (1,231)      2,325        (954)
                                             ------     ------     ------    -------     -------     -------

Income before extraordinary item............  1,112      1,067        177      1,527      (2,771)      1,112
Extraordinary loss on retirement of debt,
   net of tax...............................    (12)       (12)         -          -          12         (12)
                                             ------     ------     ------    --------    -------     -------

Net income.................................. $1,100     $1,055     $  177    $ 1,527     $(2,759)    $ 1,100
                                             ======     ======     ======    =======     =======     =======


---------------
(1)  Includes depreciation and amortization
     expense of:............................ $    -     $    -     $    7    $ 1,846     $     -     $ 1,853
                                             ======     ======     ======    =======     =======     =======
</TABLE>


                                       32

<PAGE>

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

                      Consolidating Statement of Operations
                  For The Nine Months Ended September 30, 1998

<TABLE>
<CAPTION>
                                                                              Non-                    Time
                                              Time        TW                 Guarantor   Elimina-    Warner
                                             Warner    Companies    TBS    Subsidiaries  tions      Consolidated
                                             ------    ---------    ---    ------------  -------    ------------
                                                                     (millions)
<S>                                          <C>        <C>        <C>       <C>         <C>         <C>
Revenues ................................... $   -      $    -     $  542    $ 9,861     $   (16)    $10,387
                                             ------     ------     ------    -------     -------     -------

Cost of revenues (1)........................      -          -       (244)    (5,788)         16      (6,016)
Selling, general and administrative (1).....      -          -       (142)    (3,360)          -      (3,502)
                                             ------     ------     ------    -------     -------     -------

Operating expenses..........................      -          -       (386)   (9,148)          16      (9,518)
                                             ------     ------     ------    -------     -------     -------

Business segment operating income...........      -          -        156        713           -         869
Equity in pretax income of consolidated
   subsidiaries.............................    486        949        165          -      (1,600)          -
Equity in pretax income of Entertainment
   Group ...................................      -          -          -        492         (55)        437
Interest and other, net.....................    (57)      (570)      (121)       (91)        (38)       (877)
Corporate expenses..........................    (58)       (40)       (11)       (46)         97         (58)
                                             ------     ------     ------    -------     -------     -------

Income before income taxes..................    371        339        189      1,068      (1,596)        371
Income tax provision........................   (293)      (237)      (127)      (599)        963        (293)
                                             ------     ------     ------    -------     -------     -------

Net income.................................. $   78     $  102     $   62    $   469     $  (633)    $    78
                                             ======     ======     ======    =======     =======     =======


---------------
(1)  Includes depreciation and amortization
     expense of:............................ $    -     $    -     $    6    $   878     $     -     $  884
                                             ======     ======     ======    =======     =======     =======
</TABLE>


                                       33

<PAGE>

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


                           Consolidating Balance Sheet
                               September 30, 1999
<TABLE>
<CAPTION>
                                                                                           Non-                  Time
                                                         Time         TW                Guarantor   Elimina-   Warner
                                                        Warner    Companies    TBS     Subsidiaries  tions   Consolidated
                                                        ------    ---------    ---     ------------ -------  ------------
                                                                                (millions)
ASSETS
Current assets
<S>                                                    <C>         <C>       <C>         <C>        <C>        <C>
Cash and equivalents.................................. $     -     $     1   $    15     $   629    $      -   $    645
Receivables, net......................................       6          27        92       4,065           -      4,190
Inventories...........................................       -           -       150       2,045           -      2,195
Prepaid expenses......................................      57           -         -       1,513           -      1,570
                                                       -------     -------   -------     -------    --------    -------

Total current assets..................................      63          28       257       8,252           -      8,600

Noncurrent inventories................................       -           -       175       3,767           -      3,942
Investments in and amounts due to and from
   consolidated subsidiaries..........................  15,810      15,474     9,361           -     (40,645)         -
Other investments.....................................     210           8        24       2,167        (707)     1,702
Property, plant and equipment.........................      39           -        44       8,406           -      8,489
Music catalogues, contracts and copyrights............       -           -         -         802           -        802
Cable television and sports franchises................       -           -         -       7,863           -      7,863
Goodwill..............................................       -           -         -      15,377           -     15,377
Other assets..........................................      99         104        65       1,389           -      1,657
                                                       -------     -------   -------     -------    --------   --------

Total assets.......................................... $16,221     $15,614   $ 9,926     $48,023    $(41,352)  $ 48,432
                                                       =======     =======   =======     =======    ========   =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $    25     $     -   $     5     $ 1,426   $       -   $  1,456
Participations, royalties and
   programming costs payable..........................       -           -        38       2,827           -      2,865
Debt due within one year..............................       -           -         -          26           -         26
Other current liabilities.............................     295         106       151       3,938        (261)     4,229
                                                       -------     -------   -------     -------    --------   --------

Total current liabilities.............................     320         106       194       8,217        (261)     8,576

Long-term debt .......................................   1,585       6,802       747       8,678           -     17,812
Debt due to affiliates................................       -           -     1,647         158      (1,805)         -
Borrowings against future stock option proceeds.......   1,230           -         -           -           -      1,230
Deferred income taxes.................................   3,848       3,661       267       3,928      (7,856)     3,848
Unearned portion of paid subscriptions................       -           -         -         742           -        742
Other liabilities.....................................     452           -       156       3,080           -      3,688
Minority interests....................................       -           -         -       3,175           -      3,175
TW Companies-obligated mandatorily redeemable
   preferred securities of subsidiaries
   holding solely debentures of TW Companies..........       -           -         -         575           -        575

Shareholders' equity
Due from Time Warner and subsidiaries.................       -      (2,293)     (752)     (3,450)      6,495          -
Other shareholders' equity............................   8,786       7,338     7,667      22,920     (37,925)     8,786
                                                       -------     -------   -------     -------    --------   --------

Total shareholders' equity............................   8,786       5,045     6,915      19,470     (31,430)     8,786
                                                       -------     -------   -------     -------    --------   --------

Total liabilities and shareholders' equity............ $16,221     $15,614   $ 9,926     $48,023    $(41,352)  $ 48,432
                                                       =======     =======   =======     =======    ========   ========
</TABLE>


                                       34

<PAGE>

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


                           Consolidating Balance Sheet
                                December 31, 1998
<TABLE>
<CAPTION>
                                                                                           Non-                  Time
                                                         Time         TW                Guarantor   Elimina-   Warner
                                                        Warner    Companies    TBS     Subsidiaries  tions   Consolidated
                                                        ------    ---------    ---     -----------  -------  ------------
                                                                                (millions)
ASSETS
Current assets
<S>                                                    <C>         <C>       <C>         <C>        <C>        <C>
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
                                                       =======     =======   ======      =======    ========   ========
</TABLE>


                                       35

<PAGE>

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


                      Consolidating Statement of Cash Flows
                  For The Nine Months Ended September 30, 1999

<TABLE>
<CAPTION>
                                                                                            Non-                  Time
                                                         Time         TW                Guarantor   Elimina-   Warner
                                                        Warner    Companies    TBS     Subsidiaries  tions   Consolidated
                                                        ------    ---------    ---     ------------  ------  ------------
                                                                                (millions)
OPERATIONS
<S>                                                     <C>        <C>       <C>         <C>        <C>        <C>
Net income............................................  $1,100     $ 1,055   $   177     $ 1,527    $ (2,759)  $  1,100
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt..............      12          12         -           -         (12)        12
Depreciation and amortization.........................       -           -         7       1,846           -      1,853
Noncash interest expense..............................       -           3         -           -           -          3
Excess (deficiency) of distributions over equity in
   pretax income of consolidated subsidiaries.........    (756)       (511)       14           -       1,253          -
Changes in operating assets and liabilities...........    (101)       (141)       74         685        (683)      (166)
                                                       -------     -------   -------     -------    --------   --------

Cash provided by operations...........................     255         418       272       4,058      (2,201)     2,802
                                                       -------     -------   -------     -------    --------   --------

INVESTING ACTIVITIES
Consolidation of the Entertainment Group's cash and
   equivalents........................................       -           -         -          87           -         87
Investments and acquisitions..........................       -           -         -        (423)          -       (423)
Advances to parents and consolidated subsidiaries.....       -           -         -      (1,153)      1,153          -
Repayment of advances from consolidated subsidiaries..       -         107         -         232        (339)         -
Capital expenditures..................................       -           -        (9)     (1,523)          -     (1,532)
Investment proceeds...................................       -           -         -         476           -        476
                                                        ------     -------   -------     -------    --------   --------

Cash provided (used) by investing activities..........       -         107        (9)     (2,304)        814     (1,392)
                                                        ------     -------   -------     -------    --------   --------

FINANCING ACTIVITIES
Borrowings............................................       -       1,978         -       1,149           -      3,127
Debt repayments.......................................       -      (2,567)        -        (244)          -     (2,811)
Change in due to/from parent..........................     922          20      (273)     (2,056)      1,387          -
Borrowings against future stock option proceeds.......     335           -         -           -           -        335
Redemption of mandatorily redeemable preferred
   securities of subsidiary...........................       -           -         -        (217)          -       (217)
Repurchases of Time Warner common stock...............  (1,636)          -         -           -           -     (1,636)
Dividends paid........................................    (226)          -         -           -           -       (226)
Proceeds received from stock option and
   dividend reinvestment plans........................     350           -         -           -           -        350
Other.................................................       -         (21)        -        (108)          -       (129)
                                                       -------     -------   -------     -------    --------   --------

Cash used by financing activities.....................    (255)       (590)     (273)     (1,476)      1,387     (1,207)
                                                       -------     -------   -------     -------    --------   --------

INCREASE (DECREASE) IN CASH AND
   EQUIVALENTS........................................       -         (65)      (10)        278           -        203
                                                       -------     -------   -------     -------    --------   --------

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

CASH AND EQUIVALENTS AT END OF PERIOD................. $     -     $     1   $    15     $   629    $      -   $    645
                                                       =======     =======   =======     =======    ========   ========
</TABLE>


                                       36

<PAGE>

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


                      Consolidating Statement of Cash Flows
                  For The Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
                                                                                           Non-                  Time
                                                         Time         TW                Guarantor   Elimina-   Warner
                                                        Warner    Companies    TBS     Subsidiaries  tions   Consolidated
                                                        ------    ---------    ---     ------------ -------  ------------
                                                                                (millions)
OPERATIONS
<S>                                                    <C>         <C>       <C>         <C>        <C>        <C>
Net income.............................................$    78     $   102   $    62     $   469    $   (633)  $     78
Adjustments for noncash and nonoperating items:
Depreciation and amortization..........................      -           -         6         878           -        884
Noncash interest expense...............................      -          29         -           -           -         29
Excess (deficiency) of distributions over equity in
   pretax income of consolidated subsidiaries..........  1,140        (467)      335           -      (1,008)         -
Excess of distributions over equity in pretax income of
   Entertainment Group.................................      -           -         -         113          55        168
Changes in operating assets and liabilities............    472           5      (125)       (233)        (84)        35
                                                       -------     -------   -------     -------    --------   --------

Cash provided (used) by operations.....................  1,690        (331)      278       1,227      (1,670)     1,194
                                                       -------     -------   -------     -------    --------   --------

INVESTING ACTIVITIES
Investments and acquisitions..........................    (213)          -         -         127           -        (86)
Advances to parents and consolidated subsidiaries.....    (873)       (187)        -         (39)      1,099          -
Repayment of advances from consolidated subsidiaries..      75         360         -           -        (435)         -
Capital expenditures..................................       -           -        (9)       (339)          -       (348)
Investment proceeds...................................       -           -         -         458           -        458
Proceeds received from distribution of TWE Senior
   Capital............................................       -           -         -         455           -        455
                                                       -------     -------   -------     -------    --------   --------

Cash provided (used) by investing activities..........  (1,011)        173        (9)        662         664        479
                                                       -------     -------   -------     -------    --------   --------

FINANCING ACTIVITIES
Borrowings............................................     601         496         -         579          (7)     1,669
Debt repayments.......................................       -        (500)      (75)     (1,800)         75     (2,300)
Change in due to/from parent..........................       -        (188)     (192)       (558)        938          -
Borrowings against future stock option proceeds.......   1,015           -         -           -           -      1,015
Repayments of borrowings against future stock
   option proceeds....................................    (533)          -         -           -           -       (533)
Repurchases of Time Warner common stock...............  (1,944)          -         -           -           -     (1,944)
Dividends paid........................................    (394)          -         -           -           -       (394)
Proceeds received from stock options and dividend
   reinvestment plans.................................     599           -         -           -           -        599
Other.................................................     (23)        (14)        -           -           -        (37)
                                                       -------     -------   -------     -------    --------   --------

Cash used by financing activities.....................    (679)       (206)     (267)     (1,779)      1,006     (1,925)
                                                       -------     -------   -------     -------    --------   --------

INCREASE (DECREASE) IN CASH AND
   EQUIVALENTS........................................       -        (364)        2         110           -       (252)
                                                       -------     -------   -------     -------    --------   --------

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

CASH AND EQUIVALENTS AT END OF PERIOD................. $     -     $   8     $    11     $   374   $       -   $    393
                                                       =======     =======   =======     =======    ========   ========
</TABLE>


                                       37

<PAGE>

                     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;  Filmed
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 is
also 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 Merger

         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").  In
August 1999, TWE received a notice from MediaOne  concerning the  termination of
its  covenant  not to compete  with TWE.  The  termination  of that  covenant is
necessary for MediaOne to complete its proposed merger with AT&T. As a result of
the  termination  notice and the  operation  of the TWE  partnership  agreement,
MediaOne's   rights  to  participate  in  the  management  of  TWE's  businesses
terminated immediately and irrevocably. MediaOne retains only certain protective
governance  rights  pertaining  to certain  limited  matters  affecting TWE as a
whole.

         The  proposed   merger  of  MediaOne  and  AT&T is subject to customary
closing  conditions,  including regulatory  approvals.  Accordingly, there is no
assurance that  it  will occur. Also, there are no assurances that AT&T and Time
Warner  will  reach  final  agreement  on  the  terms of a cable telephony joint
venture,  either  on  the  terms discussed on page F-8 of TWE's Annual Report on
Form 10-K for the year ended December 31, 1998, or any alternative terms.


                                       38

<PAGE>

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


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 $1.118  billion  recognized
in the first nine  months of 1999  relating  to the sale or  exchange of various
cable  television  systems and  investments.  This  compares to net pretax gains
recognized in the first nine months of 1998 of $90 million  relating to the sale
or exchange of cable television systems.

         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 TWE's Cable division results has been
affected further by certain 1998 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:

<TABLE>
<CAPTION>
                                                     Three Months Ended September 30,  Nine Months Ended September 30,
                                                                         Operating                      Operating
                                                           EBITA          Income           EBITA         Income
                                                       -------------  --------------  -------------  --------------
                                                        1999   1998    1999    1998    1999   1998    1999    1998
                                                        ----   ----    ----    ----    ----   ----    ----    ----
                                                                                 (millions)
<S>                                                    <C>     <C>     <C>    <C>   <C>     <C>     <C>    <C>
Filmed Entertainment-Warner Bros.(1).................  $180    $161    $150   $128  $  658  $  401  $  567 $  302
Broadcasting-The WB Network..........................   (24)    (17)    (25)   (17)    (95)    (78)    (98)   (80)
Cable Networks-HBO...................................   138     117     138    117     394     339     394    339
Cable(2).............................................   699     336     600    240   2,135   1,017   1,863    731
                                                       ----    ----    ----   ----   -----   -----   -----  -----

Total................................................  $993    $597    $863   $468  $3,092  $1,679  $2,726 $1,292
                                                       ====    ====    ====   ====  ======  ======  ====== ======
</TABLE>
------------
(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 $358 million in the third quarter of
     1999 and $6 million in the third  quarter  of 1998.  Similarly,  nine-month
     results  include net pretax gains of $1.118 billion in 1999 and $90 million
     in 1998.

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

Consolidated Results

         TWE had  revenues of $3.474  billion and net income of $561 million for
the three  months  ended  September  30,  1999,  compared  to revenues of $3.220
billion and net income of $172 million for the three months ended  September 30,
1998.


                                       39

<PAGE>

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


         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
$358 million of net pretax  gains in 1999,  compared to $6 million of net pretax
gains in 1998.

         TWE's net income  increased to $561  million in 1999,  compared to $172
million  in 1998.  However,  excluding  the  effect  of the  nonrecurring  items
referred to earlier, net income increased by $54 million to $220 million in 1999
from $166 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 $39 million and $23 million for
the three  months ended  September  30, 1999 and 1998,  respectively,  have been
provided  for  the   operations  of  TWE's   domestic  and  foreign   subsidiary
corporations.

Business Segment Results

         Filmed  Entertainment-Warner Bros. Revenues increased to $1.862 billion
in 1999,  compared to $1.727 billion in 1998. EBITA increased to $180 million in
1999 from $161 million in 1998.  Operating  income  increased to $150 million in
1999 from $128 million in 1998.  Revenues  benefited from increases in worldwide
theatrical, home video and television syndication operations,  offset in part by
lower revenues from consumer products operations. The increase in worldwide home
video  revenues  primarily  resulted  from  increased  sales of DVDs.  EBITA and
operating  income  increased  principally  as a result of improved  results from
worldwide theatrical,  home video and television syndication operations,  offset
in part by lower results from consumer products operations.

         In  connection  with  declines  in  the operations of certain of Warner
Bros.'s  retail  stores,  management  is  in  the  process of evaluating several
strategic   alternatives   for   its  retail  operations.   These   alternatives
include the gradual  reduction and updating of Warner  Bros.'s store  portfolio,
including  the  transformation  of some of the  traditional  retail  outlets  to
smaller,  more  efficient  stores  and  an  increasing  emphasis  on  e-commerce
opportunities.  To the  extent  management  takes  action  under  some of  these
alternatives,  a non-cash  charge,  principally  relating to the acceleration of
future depreciation expense, may be required.
Management's  evaluation  is  expected  to  continue  through  the 1999  holiday
shopping season.

         Broadcasting-The WB  Network.  Revenues  were $84  million  in 1999,
compared to $64  million in 1998.  EBITA  decreased  to a loss of $24 million in
1999 from a loss of $17  million  in 1998.  Operating  losses  increased  to $25
million in 1999 from $17 million in 1998.  Revenues  increased  principally as a
result of one additional night of weekly prime-time programming in comparison to
the  prior  year  and  advertising  rate  increases,  offset  in part  by  lower
television  ratings for the summer repeat programming  lineup.  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  $540  million  in  1999,
compared to $505 million in 1998.  EBITA and operating  income increased to $138
million in 1999 from $117 million in 1998.  Revenues benefited primarily from an
increase in pay-television  subscriptions.  EBITA and operating income increased
principally due to the revenue gains and increased cost savings.

         Cable. Revenues increased to $1.124 billion in 1999, compared to $1.052
billion in 1998.  EBITA  increased  to $699 million in 1999 from $336 million in
1998.  Operating  income  increased to $600 million in 1999 from $240 million in


                                       40

<PAGE>

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


1998.   These   operating   results  were  affected  by  certain   cable-related
transactions  that occurred in 1998 (the "1998 Cable  Transactions")  and by net
pretax gains of $358 million  recognized  in 1999 and $6 million in 1998 related
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.

         Interest and Other,  Net.  Interest and other,  net,  decreased to $185
million  of  expense  in 1999,  compared  to $203  million  of  expense in 1998.
Interest expense decreased to $138 million in 1999,  compared to $145 million in
1998,  principally  due to interest  savings  associated with the Company's 1998
debt reduction  efforts.  Other expense,  net, decreased to $47 million in 1999,
compared  to $58  million in 1998.  The  decrease  principally  related to lower
dividend  requirements  on preferred  stock of a subsidiary that was redeemed in
March 1999.

         Minority  Interest.  Minority interest expense increased to $60 million
in 1999,  compared to $52 million in 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 1999,  minority  interest expense
decreased slightly in 1999 principally due to a higher allocation of losses to a
minority partner in The WB Network.

Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998

Consolidated Results

         TWE had revenues of $9.468 billion and net income of $1.640 billion for
the nine months ended September 30, 1999, compared to revenues of $8.980 billion
and net income of $435 million for the nine months ended September 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
$1.333  billion  of net pretax  gains in 1999,  compared  to $90  million of net
pretax gains in 1998.

         TWE's net income increased to $1.640 billion in 1999,  compared to $435
million in 1998.  However,  excluding the significant effect of the nonrecurring
items referred to earlier,  net income increased by $117 million to $482 million
in 1999  from  $365  million  in  1998.  As more  fully  discussed  below,  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 $94 million and $55 million for
the nine  months  ended  September  30, 1999 and 1998,  respectively,  have been
provided  for  the   operations  of  TWE's   domestic  and  foreign   subsidiary
corporations.

Business Segment Results

         Filmed  Entertainment-Warner Bros. Revenues increased to $4.688 billion
in 1999,  compared to $4.364 billion in 1998. EBITA increased to $658 million in
1999 from $401 million in 1998.  Operating  income  increased to $567 million in


                                       41

<PAGE>

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


1999 from $302 million in 1998.  Revenues  benefited from increases in worldwide
theatrical, home video and television distribution operations, offset in part by
lower revenues from consumer products operations. The increase in worldwide home
video  revenues  primarily  resulted  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.  Excluding the gain, EBITA and operating income increased principally
as a result of  improved  results  from  worldwide  theatrical,  home  video and
television  distribution  operations,  offset  in part  by  lower  results  from
consumer products operations.

         In  connection  with  declines  in  the operations of certain of Warner
Bros.'s  retail  stores,  management  is in the  process of  evaluating  several
strategic   alternatives  for   its  retail   operations.   These   alternatives
include the gradual  reduction and updating of Warner  Bros.'s store  portfolio,
including  the  transformation  of some of the  traditional  retail  outlets  to
smaller,  more  efficient  stores  and  an  increasing  emphasis  on  e-commerce
opportunities.  To the  extent  management  takes  action  under  some of  these
alternatives,  a non-cash  charge,  principally  relating to the acceleration of
future  depreciation  expense,  may  be  required.  Management's  evaluation  is
expected  to  continue  through  the 1999  holiday shopping season.

         Broadcasting  - The WB  Network.  Revenues  were $246  million in 1999,
compared to $170  million in 1998.  EBITA  decreased to a loss of $95 million in
1999 from a loss of $78  million  in 1998.  Operating  losses  increased  to $98
million in 1999 from $80 million in 1998.  Revenues  increased  principally as a
result of one additional night of weekly prime-time programming in comparison to
the prior year,  improved  television  ratings and  advertising  rate increases.
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 $1.612  billion  in 1999,
compared to $1.526 billion in 1998. EBITA and operating income increased to $394
million in 1999 from $339 million in 1998.  Revenues benefited primarily from an
increase in pay-television  subscriptions.  EBITA and operating income increased
principally due to the revenue gains,  increased cost savings, and higher income
from Comedy Central, a 50%-owned equity investee.

         Cable. Revenues increased to $3.312 billion in 1999, compared to $3.289
billion in 1998.  EBITA  increased to $2.135 billion in 1999 from $1.017 billion
in 1998.  Operating income increased to $1.863 billion in 1999 from $731 million
in 1998.  These operating  results were affected by the 1998 Cable  Transactions
and by net pretax gains of $1.118 billion  recognized in 1999 and $90 million in
1998  related 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.

         Interest and Other,  Net.  Interest and other,  net,  increased to $577
million  of  expense  in 1999,  compared  to $550  million  of  expense in 1998.
Interest expense decreased to $411 million in 1999,  compared to $418 million in
1998,  principally  due to interest  savings  associated with the Company's 1998
debt reduction efforts.  Other expense,  net, increased to $166 million in 1999,
compared to $132 million in 1998.  This increase  principally  related to higher
losses  from  certain  investments  accounted  for  under the  equity  method of
accounting,  offset in part by lower dividend requirements on preferred stock of
a subsidiary that was redeemed in March 1999.


                                       42

<PAGE>

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


         Minority Interest.  Minority interest expense increased to $361 million
in 1999,  compared to $198 million in 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
decreased slightly in 1999 principally due to a higher allocation of losses to a
minority partner in The WB Network.

FINANCIAL CONDITION AND LIQUIDITY
September 30, 1999

Financial Condition

         At September  30, 1999,  TWE had $6.7 billion of debt,  $235 million of
cash and  equivalents  (net debt of $6.5  billion) and $6.3 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

         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 nine months of 1999, TWE's cash provided by operations
amounted to $2.205 billion and reflected $3.092 billion of EBITA from its Filmed
Entertainment-Warner Bros.,  Broadcasting-The WB Network, Cable Networks-HBO and
Cable businesses,  $632 million of noncash  depreciation expense and $20 million
of  proceeds  from TWE's  asset  securitization  program,  less $394  million of
interest  payments,  $84  million of income  taxes,  $54  million  of  corporate
expenses, and $1.007 billion related to an aggregate increase in working capital
requirements,  other balance sheet accounts and noncash items.  Cash provided by
operations of $1.273 billion in the first nine months of 1998  reflected  $1.679
billion of EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB
Network,  Cable  Networks-HBO  and Cable  businesses,  $698  million  of noncash
depreciation   expense   and  $131   million  of   proceeds   from  TWE's  asset
securitization  program, less $419 million of interest payments,  $57 million of
income taxes,  $54 million of corporate  expenses and $705 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items.

         Cash used by  investing  activities  was $540 million in the first nine
months of 1999,  compared to $887 million in the first nine months of 1998.  The
decrease  principally resulted from the collection of TWE's $400 million loan to


                                       43

<PAGE>

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


Time Warner and lower  capital  expenditures,  offset in part by a $198  million
decrease  in  investment  proceeds  relating  largely  to the 1998 sale of TWE's
remaining interest in Six Flags Entertainment Corporation.  Capital expenditures
decreased to $1.009 billion in the first nine months of 1999, compared to $1.092
billion in the first nine months of 1998.

         Cash used by financing  activities was $1.517 billion in the first nine
months of 1999,  compared to $583 million in the first nine 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 $1.116  billion of
capital distributions to Time Warner and $39 million of debt reduction.  The use
of cash in 1998  principally  resulted  from the  payment  of $1.060  billion of
capital distributions to Time Warner, offset in part by an $675 million increase
in net borrowings.

         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 $910 million in the nine months ended  September  30, 1999,  compared to $991
million in the nine months ended September 30, 1998.  Cable capital  spending is
expected to approximate $350 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

         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 $2.571 billion at
September 30, 1999 (including  amounts relating to the licensing of film product
to TWE's cable  television  networks of $307 million and to Time Warner's  cable
television  networks  of $612  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).

         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 is principally only dependent
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.


                                       44

<PAGE>

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


         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's  Year 2000  initiative  continues to be 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.

         The Company,  initially  identified  and assessed  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  distinguished  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.  As of September 30, 1999,
substantially  all  of the  potential  exposures  have  been  identified  by the
divisions  as Year  2000  compliant  and   of  those  that are not  reported  as
compliant,  substantially  all were in the  installation or final testing stages
and  expected to be  substantially  completed  in all  material  respects by the
middle of the fourth quarter of 1999.  The Company,  however,  could  experience
unexpected  delays.  The Company is expecting to focus its attention  during the
fourth  quarter  of 1999 on  conducting  final  integrated  testing  in a stable
environment  and on refinements  and testing of its  contingency  and transition
plans, as necessary.

        As stated above, however, the Company's business is heavily dependent on
third parties,  both  domestically  and  internationally,  and these parties are
themselves  heavily  dependent  on  technology.  For  example,  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. In addition, in a situation endemic to
the cable industry,  much of the Company's headend equipment that controls cable
set-top  boxes  needed to be  upgraded to become  Year 2000  compliant.  The box
manufacturers  and cable industry groups together  developed  solutions that the
Company  has  substantially  completed  installing  and  testing in its  headend
equipment  at its various  geographic  locations.  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 has made its  determinations 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.


                                       45

<PAGE>

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


         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  75% to 85% has  been  incurred  through
September 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.

         As stated  above,  the Company is now  focusing  its  attention  on its
contingency and transition plans. It has examined 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.   These  plans  are  intended  to  provide  guidance  and
alternatives for unanticipated  failures of internal systems as well as external
failures  that  may  impede  any  of the  Company's  businesses  from  operating
normally.  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:


                                       46

<PAGE>

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


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 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.

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,  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.


                                       47

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                September 30,  December 31,
                                                                                    1999          1998
                                                                                    ----          ----
                                                                                        (millions)
ASSETS
Current assets
<S>                                                                                <C>         <C>
Cash and equivalents............................................................   $  235      $    87
Receivables, including $1.049 billion and $765 million
    due from Time Warner, less allowances of $470 and $506 million..............    2,885        2,618
Inventories.....................................................................    1,238        1,312
Prepaid expenses................................................................      223          166
                                                                                   ------       ------

Total current assets............................................................    4,581        4,183

Noncurrent inventories..........................................................    2,021        2,327
Loan receivable from Time Warner................................................        -          400
Investments.....................................................................      829          886
Property, plant and equipment...................................................    6,385        6,041
Cable television franchises.....................................................    4,823        3,773
Goodwill........................................................................    3,764        3,854
Other assets....................................................................      825          766
                                                                                  -------       ------

Total assets....................................................................  $23,228      $22,230
                                                                                  =======      =======

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable................................................................  $ 1,440      $ 1,473
Participations and programming costs payable....................................    1,673        1,515
Debt due within one year........................................................        6            6
Other current liabilities, including $821 and $370 million due to Time Warner...    2,075        1,942
                                                                                   ------       ------

Total current liabilities.......................................................    5,194        4,936

Long-term debt..................................................................    6,725        6,578
Other long-term liabilities, including $1.024 and $1.130
   billion due to Time Warner...................................................    3,166        3,267
Minority interests..............................................................    1,801        1,522
Preferred stock of subsidiary holding solely a mortgage note of its parent......        -          217
Time Warner General Partners' Senior Capital....................................        -          603

Partners' capital
Contributed capital.............................................................    7,338        7,341
Undistributed partnership deficit...............................................     (996)      (2,234)
                                                                                  -------       ------

Total partners' capital.........................................................    6,342        5,107
                                                                                   ------       ------

Total liabilities and partners' capital.........................................  $23,228      $22,230
                                                                                  =======      =======
See accompanying notes.

</TABLE>


                                       48

<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Three Months            Nine Months
                                                                       Ended September 30,     Ended September 30,
                                                                       ------------------      ------------------
                                                                       1999        1998        1999         1998
                                                                       ----        ----        ----         ----
                                                                                     (millions)
<S>                                                                   <C>          <C>         <C>         <C>
Revenues (a).......................................................   $3,474       $3,220      $9,468      $8,980
                                                                      ------       ------      ------      ------

Cost of revenues (a)(b)............................................   (2,362)      (2,181)     (6,266)     (6,017)
Selling, general and administrative (a)(b).........................     (607)        (577)     (1,809)     (1,761)
Gain on sale or exchange of cable systems and investments..........      358            6       1,118          90
Gain on early termination of video distribution agreement..........        -            -         215           -
                                                                      ------      -------      ------      ------

Business segment operating income..................................      863          468       2,726       1,292
Interest and other, net (a)........................................     (185)        (203)       (577)       (550)
Minority interest..................................................      (60)         (52)       (361)       (198)
Corporate services (a).............................................      (18)         (18)        (54)        (54)
                                                                      -------      ------      ------      ------

Income before income taxes.........................................      600          195       1,734         490
Income taxes.......................................................      (39)         (23)        (94)        (55)
                                                                      ------       ------      ------      ------

Net income.........................................................   $  561       $  172      $1,640     $   435
                                                                      ======       ======      ======     =======

---------------
(a)  Includes the following income (expenses) resulting from
     transactions with the partners of TWE and other related companies:
       Revenues....................................................     $150         $227        $422        $474
       Cost of revenues............................................      (62)         (49)       (198)       (142)
       Selling, general and administrative.........................       (7)         (14)        (23)        (16)
       Gain on sale or exchange of cable systems and investments...      308            -         308           -
       Interest and other, net.....................................       (8)           1          20           6
       Corporate expenses..........................................      (18)         (18)        (54)        (54)

(b) Includes depreciation and amortization expense of:.............   $  356       $  358      $  998      $1,085
                                                                      ======       ======      ======      ======

See accompanying notes.

</TABLE>


                                       49

<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Nine Months
                                                                       Ended September 30,
                                                                       ------------------
                                                                       1999        1998
                                                                       ----        ----
                                                                          (millions)
OPERATIONS
<S>                                                                   <C>         <C>
Net income.........................................................   $1,640      $  435
Adjustments for noncash and nonoperating items:
Depreciation and amortization......................................      998       1,085
Changes in operating assets and liabilities........................     (433)       (247)
                                                                      ------      ------

Cash provided by operations........................................    2,205       1,273
                                                                      ------      ------

INVESTING ACTIVITIES
Investments and acquisitions.......................................     (273)       (335)
Capital expenditures...............................................   (1,009)     (1,092)
Investment proceeds................................................      342         540
Collection of loan to Time Warner..................................      400           -
                                                                     -------      ------

Cash used by investing activities..................................     (540)       (887)
                                                                      ------      ------

FINANCING ACTIVITIES
Borrowings.........................................................    1,854       1,515
Debt repayments....................................................   (1,893)       (840)
Redemption of preferred stock of subsidiary........................     (217)          -
Capital distributions..............................................   (1,116)     (1,060)
Other..............................................................     (145)       (198)
                                                                      ------      ------

Cash used by financing activities..................................   (1,517)       (583)
                                                                      ------      ------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS........................      148        (197)

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

CASH AND EQUIVALENTS AT END OF PERIOD..............................  $   235      $  125
                                                                     =======      ======

See accompanying notes.

</TABLE>


                                       50

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Nine Months
                                                                             Ended September 30,
                                                                             -------------------
                                                                             1999        1998
                                                                             ----        ----
                                                                                (millions)
<S>                                                                         <C>         <C>
BALANCE AT BEGINNING OF PERIOD...........................................   $5,107      $6,333

Net income...............................................................    1,640         435
Other comprehensive income (loss)........................................        6         (21)
                                                                            ------      ------
Comprehensive income(a)..................................................    1,646         414

Stock option and tax-related distributions...............................     (383)       (746)
Distribution of Time Warner Telecom interests............................        -        (191)
Allocation of income to Time Warner General Partners' Senior Capital.....      (24)        (52)
Other....................................................................       (4)         (2)
                                                                            ------      -------

BALANCE AT END OF PERIOD.................................................   $6,342      $5,756
                                                                            ======      ======
---------------
(a)   Comprehensive income for the three months ended September 30, 1999 and
      1998 was $520 million and $167 million, respectively.

See accompanying notes.


</TABLE>
                                       51

<PAGE>

                    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;
Filmed   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,   Filmed
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 segments 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
segments  generate  significant  operating income and cash flow from operations.
The  cash  flow  from  operations   generated  by  such  business   segments  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
business segments amounted to $130 million and $129 million for the three months
ended  September  30,  1999 and 1998,  respectively  and $366  million  and $387
million for the nine months ended September 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

         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 TWE
included in its Annual Report on Form 10-K for the year ended  December 31, 1998
(the "1998 Form 10-K").


                                       52

<PAGE>

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


Reclassifications

         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  its  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., and a large exchange of cable
television  systems serving  approximately  160,000  subscribers for other cable
television  systems of comparable  size owned by MediaOne.  As a result of these
transactions,  the  operating  results of TWE include  net pretax  gains for the
third  quarter of $358 million in 1999 and $6 million in 1998.  Net pretax gains
for the first nine months of the year amounted to $1.118 billion in 1999 and $90
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.  As of September 30, 1999,  Primestar has substantially
completed the wind down of its operations.  As such, future wind-down losses are
not expected to be material to TWE's operating results.


                                       53

<PAGE>

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


5.       INVENTORIES

         Inventories consist of:
<TABLE>
<CAPTION>
                                                     September 30, 1999       December 31, 1998
                                                    --------------------      ------------------
                                                    Current    Noncurrent     Current  Noncurrent
                                                    -------    ----------     -------  ----------
                                                                        (millions)
Film costs:
<S>                                                   <C>          <C>         <C>         <C>
   Released, less amortization.....................   $  609       $  735      $  614      $  744
   Completed and not released......................      164           64         179          76
   In process and other............................       36          324          23         572
   Library, less amortization......................        -          521           -         560
Programming costs, less amortization...............      331          377         426         375
Merchandise........................................       98            -          70           -
                                                      ------     --------      ------    --------
Total..............................................   $1,238       $2,021      $1,312      $2,327
                                                      ======       ======      ======      ======
</TABLE>


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 nine months  ended  September  30,  1999,  TWE accrued  $316
million  of   tax-related   distributions   and  $67  million  of  stock  option
distributions,  based on closing  prices of Time  Warner  Inc.  common  stock of
$60.75 at September  30, 1999 and $62.06 at December  31, 1998.  During the nine
months  ended  September  30,  1998,  TWE accrued  $264  million of  tax-related
distributions  and $482 million of stock option  distributions as a result of an
increase  at that time in the market  price of Time Warner  Inc.  common  stock.
Also,  during the nine months  ended  September  30, 1998,  Time Warner  Cable's
business telephony operations were reorganized into a separate entity named Time
Warner  Telecom  Inc.   ("Time  Warner   Telecom").   In  connection  with  that
reorganization, TWE recorded a $191 million noncash distribution of its business
telephony net assets to its partners based on their historical cost.

         During the nine months ended September 30, 1999, TWE paid distributions
to the Time Warner General Partners in the amount of $489 million, consisting of
$316  million of  tax-related  distributions  and $173  million of stock  option
related distributions. During the nine months ended September 30, 1998, TWE paid
the Time Warner General Partners  distributions in the amount of $1.060 billion,
consisting of $264 million of tax-related  distributions,  $217 million of stock


                                       54

<PAGE>

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


option related  distributions and a $579 million distribution to the Time Warner
General Partners relating to their Senior Capital interests.

         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; Filmed 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.

<TABLE>
<CAPTION>
                                                Three Months             Nine Months
                                             Ended September 30,     Ended September 30,
                                             ------------------      ------------------
                                               1999        1998         1999        1998
                                               ----        ----         ----        ----
                                                               (millions)
Revenues
<S>                                              <C>          <C>        <C>         <C>
Filmed Entertainment-Warner Bros..........   $1,862       $1,727      $4,688      $4,634
Broadcasting-The WB Network...............       84           64         246         170
Cable Networks-HBO........................      540          505       1,612       1,526
Cable.....................................    1,124        1,052       3,312       3,289
Intersegment elimination..................     (136)        (128)       (390)       (369)
                                             ------       ------      ------      ------

Total.....................................   $3,474       $3,220      $9,468      $8,980
                                             ======       ======      ======      ======
</TABLE>


                                       55

<PAGE>

                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                       Three Months             Nine Months
                                                    Ended September 30,     Ended September 30,
                                                    ------------------      -------------------
                                                    1999        1998         1999        1998
                                                    ----        ----         ----        ----
                                                                  (millions)
EBITA(1)
<S>                                                <C>          <C>       <C>         <C>
Filmed Entertainment-Warner Bros.(2)..........     $180         $161      $  658      $  401
Broadcasting-The WB Network...................      (24)         (17)        (95)        (78)
Cable Networks-HBO............................      138          117         394         339
Cable(3)......................................      699          336       2,135       1,017
                                                   ----         ----      ------      ------

Total.........................................     $993         $597      $3,092      $1,679
                                                   ====         ====      ======      ======
</TABLE>
---------------
(1)EBITA   represents   business   segment   operating   income  before  noncash
   amortization of intangible assets. After deducting amortization of intangible
   assets, TWE's business segment operating income for the three and nine months
   ended September 30, 1999, respectively,  and for the corresponding periods in
   the prior year was $863  million and $2.726  billion in 1999 and $468 million
   and $1.292 billion 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.
(3)Includes net pretax gains  relating to the sale or exchange of certain  cable
   television  systems  of $358  million  in the  third  quarter  of 1999 and $6
   million in the third quarter of 1998.  Similarly,  nine-month results include
   net pretax gains of $1.118 billion in 1999 and $90 million in 1998.

<TABLE>
<CAPTION>
                                                        Three Months            Nine Months
                                                     Ended September 30,      Ended September 30,
                                                     -------------------      -------------------
                                                      1999        1998         1999        1998
                                                      ----        ----         ----        ----
                                                                     (millions)
Depreciation of Property, Plant and Equipment
<S>                                                  <C>           <C>         <C>         <C>
Filmed Entertainment-Warner Bros.................    $  44         $ 48        $109        $126
Broadcasting-The WB Network......................        -            1           1           1
Cable Networks-HBO...............................        7            6          20          16
Cable............................................      175          174         502         555
                                                      ----         ----        ----        ----

Total............................................     $226         $229        $632        $698
                                                      ====         ====        ====        ====

                                                       Three Months              Nine Months
                                                     Ended September 30,      Ended September 30,
                                                     -------------------      -------------------
                                                     1999        1998         1999        1998
                                                     ----        ----         ----        ----
                                                                      (millions)
Amortization of Intangible Assets (1)
Filmed Entertainment-Warner Bros.................     $ 30         $ 33        $ 91        $ 99
Broadcasting-The WB Network......................        1            -           3           2
Cable Networks-HBO...............................        -            -           -           -
Cable............................................       99           96         272         286
                                                       ---         ----        ----        ----

Total............................................     $130         $129        $366        $387
                                                      ====         ====        ====        ====
</TABLE>
(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.


                                       56

<PAGE>

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


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.

10.      ADDITIONAL FINANCIAL INFORMATION
                                                            Nine Months
                                                        Ended September 30,
                                                        --------------------
                                                         1999        1998
                                                         ----        ----
                                                            (millions)
Interest expense...................................     $411        $418
Cash payments made for interest....................      394         419
Cash payments made for income taxes, net...........       84          57
Noncash capital distributions......................       67         673

         Noncash  investing  activities  included the exchange of certain  cable
television  systems in 1999 and 1998 (see Note 3). Noncash investing  activities
in the first nine 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.


                                       57

<PAGE>


                           Part II. Other Information

Item 1.   Legal Proceedings.

         Reference is made to the various actions filed against  American Family
Enterprises  ("AFE"),  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 (the
"1998 Form 10-K").  On October 29,  1999,  AFE filed for  bankruptcy  protection
pursuant  to  Chapter  11 of  the  Bankruptcy  Code.  In  conjunction  with  the
bankruptcy  filing,  AFE has also  announced a  settlement  in  principle of the
consolidated  private actions presently pending against it in Federal court, the
terms of which  remain  confidential.  Private  actions  pending  against AFE in
various  State courts have been stayed and Time Warner  expects these actions to
be resolved by the operation of the Federal court  settlement and the bankruptcy
proceedings.  Time Warner  does not expect  that the  outcome of the  bankruptcy
proceedings  and the costs of settlement of such actions will be material to its
future operating results and financial condition.

         Reference  is  made to the  consolidated  actions  referenced  as In re
Compact  Disc  Antitrust  Litigation  described  on pages  I-40 and I-41 of Time
Warner's 1998 Form 10-K.  The Court has scheduled  trial to commence on February
14, 2000.  Plaintiffs  claim  substantial  and treble damages against all record
company defendants.

         Reference is made to the lawsuit filed by former President of Indonesia
H.M.  Suharto  against  Time Inc.  Asia  described  on page 64 of Time  Warner's
Quarterly  Report  on Form  10-Q  for the  quarter  ended  June  30,  1999.  The
Indonesian Court has denied a pre-trial motion contesting jurisdiction.  Further
pre-trial  proceedings have been scheduled and Time Inc. Asia expects that trial
will commence shortly thereafter.

         Reference  is made to the litigation entitled Parker, et al. v. TWE, et
al., described on page I-42 of Time  Warner's  1998  Form  10-K.  The  Court, on
reconsideration  of its earlier decision to grant defendants'  motion to dismiss
this action,  as had been reported on page 50 of Time Warner's  Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999, has now denied that motion.

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.

                  (ii)  Time  Warner  filed a  Current  Report on Form 8-K dated
August 3, 1999  reporting in Item 5 Time Warner's consolidation, for accounting
purposes,  of  the  Entertainment Group (which  substantially  consists of  TWE)
retroactive to the beginning of 1999.


                                       58

<PAGE>


                                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:    November 12, 1999


                                       59

<PAGE>


                                  EXHIBIT INDEX
                     Pursuant to Item 601 of Regulations S-K


Exhibit No.                Description of Exhibit



27.1                       Financial Data Schedule with respect to the period
                           ending September 30, 1999.

27.2                       Restated Financial Data Schedule with respect to
                           the period ending March 31, 1999.

27.3                       Restated Financial Data Schedule with respect to
                           the period ending June 30, 1999.




                                       60