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 March 31, 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                         1,135,787,052
Series LMCN-V Common Stock - $.01 par value                   57,061,942
-------------------------------------------             ----------------------
       Description of Class                               Shares Outstanding
                                                         as of April 30, 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          33
     
     Consolidated balance sheet at March 31, 1999 
     and December 31, 1998.................................    14          41

     Consolidated statement of operations for the
     three months ended March 31, 1999 and 1998............    15          42

     Consolidated statement of cash flows for the 
     three months ended March 31, 1999 and 1998............    16          43

     Consolidated statement of shareholders' equity 
     and partnership capital..................... .........    17          44

     Notes to consolidated financial statements............    18          45

     Supplementary information.............................    27


PART II.  OTHER INFORMATION................................    50

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

Investment in TWE

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

         At the time of this filing, MediaOne had agreed to be acquired  by AT&T
Corp. ("AT&T").  This acquisition is subject to customary conditions,  including
regulatory  approvals,  and  accordingly,  there is no  assurance  that it will
occur.  However,  if AT&T's  acquisition of MediaOne proceeds as announced,  the
minority interest in TWE held by MediaOne would be affected,  and the governance
rights presently held by MediaOne would be reduced materially.  Such a reduction
in  governance  rights is  expected  to trigger  other  changes  affecting  TWE,
including Time Warner's  consolidation of TWE's operating  results and financial
position for accounting purposes.

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 also is consistent with
management's  belief  that  Time  Warner's  intangible  assets,  such  as  cable
television and sports  franchises,  music  catalogues and  copyrights,  film and
television libraries and the goodwill associated with its brands,  generally are
increasing in value

                                       1

<PAGE>

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


and importance to Time Warner's  business  objective of creating,  extending and
distributing  recognizable brands and copyrights  throughout the world. As such,
the following comparative discussion of the results of operations of Time Warner
and the  Entertainment  Group  includes,  among  other  factors,  an analysis of
changes in business  segment  EBITA.  However,  EBITA  should be  considered  in
addition to, not as a substitute  for,  operating  income,  net income and other
measures of financial performance reported in accordance with generally accepted
accounting principles.

Transactions Affecting Comparability of Results of Operations

         The  comparability  of  Time  Warner's  and the  Entertainment  Group's
operating results has been affected by a $215 million net pretax gain recognized
by TWE in 1999 in  connection  with the early  termination  and  settlement of a
long-term home video distribution agreement.

         In order to meaningfully assess underlying operating trends, management
believes  that the  results of  operations  for 1999  should be  analyzed  after
excluding  the  effects of this  significant  nonrecurring  gain.  As such,  the
following  discussion  and  analysis  focuses on amounts and trends  adjusted to
exclude the impact of this unusual item. However, unusual items may occur in any
period. Accordingly,  investors and other financial statement users individually
should consider the types of events and transactions for which  adjustments have
been made.

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

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

RESULTS OF OPERATIONS

         EBITA and operating income are as follows:

                                               Three Months Ended March 31,
                                               ----------------------------
                                           EBITA              Operating Income
                                           -----              ----------------
                                    1999         1998        1999        1998 
                                    ----         ----        ----        ----
                                                     (millions)
Time Warner:
  
Publishing.....................    $  94        $  85       $  84       $  76
Music..........................      102           93          35          25
Cable Networks-TBS.............      184          153         134         103
Filmed Entertainment-TBS.......       29          (15)         10         (35)
Cable(1).......................       66           74          22          20
Intersegment elimination.......       10          (19)         10         (19)
                                   -----        -----       -----       ----- 

Total..........................    $ 485        $ 371       $ 295       $ 170
                                   =====        =====       =====       =====

                                       2

<PAGE>

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


                                               Three Months Ended March 31,
                                               ----------------------------
                                           EBITA              Operating Income
                                           -----              ----------------
                                    1999         1998        1999        1998 
                                    ----         ----        ----        ---- 
                                                    (millions)
Entertainment Group:
 
Filmed Entertainment-
   Warner Bros.(2).............     $346         $119        $316       $  86
Broadcasting-The WB Network....      (41)         (38)        (42)        (39)
Cable Networks-HBO.............      125          109         125         109
Cable(1).......................      337          307         252         213
                                    ----         ----        ----        ----

Total..........................     $767         $497        $651        $369
                                    ====         ====        ====        ====

(1) The comparability of Time Warner's and the Entertainment Group's  Cable  
    division  results  has been  affected  by certain  cable-related
    transactions  that occurred in 1998,  as described  more fully under the 
    caption "Summarized  Financial  Information of the Entertainment Group"
    in Note 2 to the accompanying  consolidated financial statements.
(2) Includes a net pretax gain of  approximately  $215 million  recognized
    in 1999 in connection with the early termination and settlement of a
    long-term home video distribution agreement.


         Time  Warner  had  revenues  of $3.266  billion  and net income of $138
million ($0.10 income per common share after  preferred  dividend  requirements)
for the three  months  ended  March 31,  1999,  compared  to  revenues of $3.137
billion and a net loss of $62 million ($.12 loss per common share) for the three
months ended March 31, 1998.  Time  Warner's  equity in the pretax income of the
Entertainment  Group was $342 million for the three months ended March 31, 1999,
compared to $107 million for the three months ended March 31, 1998.

         Time Warner  reported  net income of $138  million for the three months
ended March 31, 1999,  which  represents an  improvement  over a net loss of $62
million for the three  months  ended March 31,  1998.  As  discussed  more fully
below,  this  improvement   principally   resulted  from  the  inclusion  of  an
approximate  $215 million net pretax gain ($.10 per common share)  recognized by
TWE in 1999 in  connection  with  the  early  termination  and  settlement  of a
long-term home video distribution agreement.  Excluding the effect of this gain,
net income  increased  to $11  million in 1999 from a net loss of $62 million in
the prior year. This improvement  principally  resulted from an overall increase
in Time Warner's  business segment  operating income and higher income from Time
Warner's equity in the pretax income of the Entertainment Group.

         Similarly,  excluding  the effect of the $215  million  net pretax gain
referred to above,  normalized  net income per common  share was at breakeven in
1999,  compared to a normalized  net loss per common  share of $.12 in 1998.  In
addition to the factors  discussed above, the improvement in 1999 normalized per
share  results   reflects  a  $64  million   reduction  in  preferred   dividend
requirements  relating to the redemption of Time Warner's  Series M exchangeable
preferred stock ("Series M Preferred  Stock") in late 1998 and the conversion of
approximately  15 million shares of preferred  stock into shares of common stock
that also occurred during 1998.

         The  Entertainment  Group had revenues of $2.934 billion and net income
of $312 million for the three months ended March 31, 1999,  compared to revenues
of $2.912  billion  and net income of $108  million for the three  months  ended
March 31, 1998. As discussed  more fully below,  the  Entertainment  Group's net
income  increased  principally  due to the  recognition  of the $215 million net
pretax gain referred to above. Similarly, excluding this gain, the Entertainment
Group's net income  decreased  to $97  million in 1999 from $108  million in the
prior year. This decrease  principally  resulted from higher losses from certain
investments accounted for under the equity method of accounting, which more than
offset an overall increase in business segment operating income.

                                       3

<PAGE>

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


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

Time Warner

         Publishing.  Revenues  increased  to  $974  million,  compared  to $948
million in the first three months of 1998.  EBITA  increased to $94 million from
$85  million.  Operating  income  increased  to $84  million  from $76  million.
Revenues benefited primarily from significant  increases in magazine advertising
revenues,  offset  in  part  by  lower  direct-marketing  revenues.  Circulation
revenues also increased  marginally.  The increase in  advertising  revenues was
principally  due  to a  strong  overall  advertising  market  for  most  of  the
division's  magazines,  primarily  led by Time,  Fortune,  People,  In Style and
Entertainment  Weekly. The increase in circulation  revenues principally was due
to higher subscription revenues,  primarily led by the same magazines. EBITA and
operating  income increased  principally as a result of the revenue gains,  cost
savings and a one-time gain on the sale of an asset. These increases were offset
in part by lower results from direct-marketing  activities,  including losses of
American Family Enterprises, a 50%-owned equity investee.

         Music. Revenues increased to $936 million,  compared to $888 million in
the first  three  months  of 1998.  EBITA  increased  to $102  million  from $93
million.  Operating income  increased to $35 million from $25 million.  Revenues
benefited  from an increase in domestic and  international  recorded music sales
principally  relating to higher  compact  disc sales of a broad range of popular
releases  from  new and  established  artists,  offset  in part by  lower  music
publishing  revenues.  EBITA and operating  income  increased  principally  as a
result of the  revenue  gains,  offset in part by lower  licensing  income  from
direct-marketing activities.

         Cable  Networks-TBS.  Revenues  increased to $838 million,  compared to
$728 million in the first three months of 1998.  EBITA increased to $184 million
from $153 million. Operating income increased to $134 million from $103 million.
Revenues benefited from increases in advertising and subscription  revenues. The
increase  in  advertising  revenues  was  principally  due to a  strong  overall
advertising  market for most of the  division's  networks,  including  TNT,  TBS
Superstation,  CNN and Cartoon  Network.  The increase in subscription  revenues
principally related to an increase in subscriptions and higher rates,  primarily
led by revenue  increases at TNT, TBS  Superstation,  Turner  Classic Movies and
CNN. EBITA and operating income increased principally as a result of the revenue
gains, offset in part by higher programming costs.

         Filmed Entertainment-TBS.  Revenues decreased to $317 million, compared
to $372  million  in the first  three  months of 1998.  EBITA  increased  to $29
million from a loss of $15 million.  Operating  income  increased to $10 million
from a loss of $35 million.  Revenues decreased principally as a result of fewer
theatrical  releases,  offset  in part  by  increased  international  television
syndication and worldwide home video revenues.  Despite the decline in revenues,
EBITA and operating income  increased  principally due to the absence in 1999 of
film write-offs  relating to  disappointing  results for theatrical  releases of
Castle Rock Entertainment in the first quarter of 1998.

         Cable. Revenues decreased to $222 million,  compared to $248 million in
the first three months of 1998. EBITA decreased to $66 million from $74 million.
Operating income increased to $22 million from $20 million.

                                       4

<PAGE>

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


The Cable division's 1999 operating results were negatively  affected by certain
cable-related   transactions   that   occurred   in  1998   (the  "1998   Cable
Transactions"),   as  described  more  fully  in  Note  2  to  the  accompanying
consolidated  financial  statements.  Excluding  the  effect  of the 1998  Cable
Transactions,  revenues  benefited from an increase in basic cable  subscribers,
increases in basic cable rates and an increase in advertising  and  pay-per-view
revenues.  Similarly excluding the effect of the 1998 Cable Transactions,  EBITA
and operating income increased principally as a result of the revenue gains.

         Interest and Other,  Net.  Interest and other,  net,  increased to $311
million in the first three months of 1999, compared to $283 million in the first
three months of 1998.  Interest  expense was  unchanged at $233 million for both
periods, principally because interest savings associated with the Company's 1998
debt  reduction  efforts  fully  offset  increased  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. Other expense,  net, increased to $78
million in the first  three  months of 1999 from $50  million in the first three
months  of 1998,  principally  due to higher  losses  from  certain  investments
accounted for under the equity method of accounting.

Entertainment Group

         Filmed Entertainment-Warner Bros. Revenues increased to $1.380 billion,
compared to $1.312 billion in the first three months of 1998. EBITA increased to
$346 million from $119 million.  Operating income increased to $316 million from
$86 million.  Revenues  benefited  from  increases  in worldwide  home video and
theatrical  operations,  offset in part by lower worldwide television production
and distribution  revenues.  EBITA and operating income increased primarily from
the  inclusion  of an  approximate  $215 million net pretax gain  recognized  in
connection  with the early  termination and settlement of a long-term home video
distribution agreement.  In addition,  EBITA and operating income benefited from
improved  results from  worldwide  theatrical  and home video  operations and an
increase in  investment-related  income,  offset in part by lower  results  from
television production, television distribution and consumer products operations.

         Broadcasting  - The WB  Network.  Revenues  increased  to $79  million,
compared to $45 million in the first three months of 1998.  EBITA decreased to a
loss of $41 million from a loss of $38 million.  Operating  losses  increased to
$42  million  from $39  million.  Revenues  increased  as a result  of  improved
television ratings and the addition of a fifth night of primetime programming in
September 1998. Despite the revenue increase, operating losses increased because
of a lower allocation of losses to a minority  partner in the network.  However,
excluding this minority interest effect,  operating losses improved  principally
as a result of the revenue gains,  which  outweighed  higher  programming  costs
associated with the expanded programming schedule.

         Cable  Networks-HBO.  Revenues  increased to $526 million,  compared to
$512  million in the first  three  months of 1998.  EBITA and  operating  income
increased to $125 million from $109 million.  Revenues benefited  primarily from
an increase in subscriptions.  EBITA and operating income increased  principally
as a result of the revenue gains, cost savings,  one-time gains from the sale of
certain  investments and higher income from Comedy Central,  a 50%-owned  equity
investee, offset in part by higher marketing expenses.

         Cable. Revenues decreased to $1.074 billion, compared to $1.153 billion
in the first three  months of 1998.  EBITA  increased  to $337 million from $307
million. Operating income increased to $252 million from $213 million.

                                       5

<PAGE>

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


The Cable  division's  1999  operating  results were  affected by the 1998 Cable
Transactions.  Excluding  the  effect of the 1998 Cable  Transactions,  revenues
benefited from an increase in basic cable subscribers,  increases in basic cable
rates and an  increase  in  advertising  and  pay-per-view  revenues.  Similarly
excluding the effect of the 1998 Cable Transactions,  EBITA and operating income
increased  principally as a result of the revenue  gains,  offset in part by the
absence of  approximately  $14 million of net pretax  gains  recognized  in 1998
relating to the sale or exchange of certain cable television systems.

         Interest and Other,  Net.  Interest and other, net, was $225 million in
the first  three  months of 1999,  compared  to $164  million in the first three
months of 1998.  Interest  expense  decreased to $137 million,  compared to $141
million in the first three months of 1998, principally due to lower average debt
levels.  There was other expense,  net, of $88 million in the first three months
of 1999, compared to $23 million in the first three months of 1998,  principally
due to higher  losses from certain  investments  accounted  for under the equity
method of accounting.

FINANCIAL CONDITION AND LIQUIDITY
March 31, 1999

Time Warner

Financial Condition

         At March 31, 1999,  Time Warner had $10.6 billion of debt, $300 million
of cash and equivalents (net debt of $10.3 billion),  $1.1 billion of borrowings
against future stock option  proceeds,  $575 million of  mandatorily  redeemable
preferred  securities of a subsidiary and $8.9 billion of shareholders'  equity.
This  compares to $10.9  billion of debt,  $442 million of cash and  equivalents
(net debt of $10.5  billion),  $895 million of borrowings  against  future stock
option proceeds,  $575 million of mandatorily redeemable preferred securities of
a subsidiary and $8.9 billion of shareholders' equity at December 31, 1998.

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  quarter of 1999,  Time  Warner  acquired  5.1 million
shares of its common  stock at an aggregate  cost of $330  million  under its $5
billion  common  stock  repurchase  program.  These  repurchases  increased  the
cumulative  shares purchased under this and its previous common stock repurchase
program begun in 1996 to approximately 100.2 million shares at an aggregate cost
of $3.37 billion.

                                       6

<PAGE>

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


Cash Flows

         During the first three months of 1999,  Time  Warner's cash provided by
operations amounted to $183 million and reflected $485 million of EBITA from its
Publishing,  Music,  Cable  Networks-TBS,  Filmed  Entertainment-TBS  and  Cable
businesses,  $87  million  of  noncash  depreciation  expense,  $125  million of
proceeds from Time  Warner's  asset  securitization  program and $154 million of
distributions from TWE, less $308 million of interest  payments,  $75 million of
income taxes,  $22 million of corporate  expenses and $263 million related to an
increase in working  capital  requirements,  other  balance  sheet  accounts and
noncash  items.  Cash provided by operations of $332 million for the first three
months of 1998 reflected $371 million of EBITA from its Publishing, Music, Cable
Networks-TBS,  Filmed  Entertainment-TBS  and Cable  businesses,  $95 million of
noncash  depreciation  expense,  $172  million of  distributions  from TWE,  $37
million of proceeds  from Time  Warner's  asset  securitization  program and $10
million  related to a decrease in working  capital  requirements,  other balance
sheet accounts and noncash items,  less $316 million of interest  payments,  $18
million of income taxes and $19 million of corporate expenses.

         Cash used by investing  activities  was $154 million in the first three
months of 1999,  compared  to $42  million  in the first  three  months of 1998,
principally  as a result  of  higher  capital  expenditures  and a  decrease  in
investment proceeds. Capital expenditures increased to $136 million in the first
three  months of 1999,  compared to $103  million in the first  three  months of
1998.

         Cash used by financing  activities  was $171 million in the first three
months of 1999,  compared to $391 million in the first three months of 1998. The
use of cash in 1999  principally  resulted from $127 million of debt  reduction,
the repurchase of  approximately  5.1 million shares of Time Warner common stock
at an  aggregate  cost of  $330  million  and  the  payment  of $75  million  of
dividends, offset in part by $205 million of net borrowings against future stock
option  proceeds  and $156  million of proceeds  received  principally  from the
exercise of employee  stock  options.  Cash used by financing  activities in the
first  three  months of 1998  principally  resulted  from $190  million  of debt
reduction,  the repayment of $68 million of net borrowings  against future stock
option  proceeds,  the  repurchase of  approximately  4.4 million shares of Time
Warner common stock at an aggregate cost of $277 million and the payment of $133
million  of  dividends,  offset in part by $290  million  of  proceeds  received
principally  from the  exercise  of  employee  stock  options.  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.

                                       7

<PAGE>

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


Entertainment Group

Financial Condition

         At March 31, 1999,  the  Entertainment  Group had $6.9 billion of debt,
$321 million of cash and equivalents (net debt of $6.6 billion), $615 million of
Time Warner  General  Partners'  Senior  Capital and $5.1  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 Capital and
$5.2 billion of partners' capital at December 31, 1998.

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 three months of 1999, the  Entertainment  Group's cash
provided by operations  amounted to $788 million and  reflected  $767 million of
EBITA from its Filmed Entertainment-Warner  Bros.,  Broadcasting-The WB Network,
Cable  Networks-HBO and Cable businesses,  $192 million of noncash  depreciation
expense and $44 million related to a decrease in working  capital  requirements,
other balance sheet  accounts and noncash  items,  less $144 million of interest
payments, $22 million of income taxes, $18 million of corporate expenses and $31
million of  proceeds  repaid  under  TWE's asset  securitization  program.  Cash
provided  by  operations  of $441  million  in the  first  three  months of 1998
reflected  $497  million of EBITA from its  Filmed  Entertainment-Warner  Bros.,
Broadcasting-The  WB Network,  Cable  Networks-HBO  and Cable  businesses,  $243
million of noncash  depreciation expense and $148 million of proceeds from TWE's
asset  securitization  program,  less $156  million of  interest  payments,  $20
million of income  taxes,  $18 million of  corporate  expense  and $253  million
related to an increase in working  capital  requirements,  other  balance  sheet
accounts and noncash items.

         Cash used by investing  activities  was $322 million in the first three
months of 1999,  compared  to $559  million in the first  three  months of 1998,
principally as a result of a $183 million  decrease in cash used for investments
and acquisitions and a decrease in capital  expenditures.  Capital  expenditures
decreased to $305  million in the first three  months of 1999,  compared to $352
million in the first three months of 1998.

         Cash used by financing  activities  was $232 million in the first three
months of 1999,  compared to $97 million in the first three 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 and the payment of $154 million of
capital  distributions to Time Warner, offset in part by a $157 million increase
in net borrowings. The use of cash in 1998 principally resulted

                                       8

<PAGE>

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


from the payment of $172 million of capital distributions to Time Warner, offset
in part by a $113 million increase in net borrowings.

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

Cable Capital Spending

         Time  Warner   Cable  has  been  engaged  in  a  plan  to  upgrade  the
technological  capability and  reliability of its cable  television  systems and
develop  new  services,  which  it  believes  will  position  the  business  for
sustained,  long-term growth.  Capital spending by Time Warner Cable,  including
the cable  operations  of both Time Warner and TWE,  amounted to $321 million in
the three  months  ended March 31,  1999,  compared to $369 million in the three
months ended March 31, 1998. For the full year of 1999,  cable capital  spending
is expected to be comparable  to 1998 levels,  with  approximately  $1.2 billion
budgeted  for the  remainder of 1999.  Capital  spending by Time Warner Cable is
expected to continue to be funded by cable operating cash flow.

Filmed Entertainment Backlog

         Backlog  represents  the amount of future revenue not yet recorded from
cash contracts for the licensing of theatrical  and  television  product for pay
cable, basic cable,  network and syndicated  television  exhibition.  Backlog of
TWE's Filmed  Entertainment-Warner  Bros. division amounted to $2.313 billion at
March 31,  1999,  compared  to $2.298  billion at December  31, 1998  (including
amounts  relating to the  licensing of film  product to Time  Warner's and TWE's
cable television  networks of $802 million at March 31, 1999 and $769 million at
December   31,   1998).   In   addition,   backlog  of  Time   Warner's   Filmed
Entertainment-TBS  division  amounted  to $636  million  at March  31,  1999 and
December 31, 1998 (including  amounts  relating to the licensing of film product
to Time  Warner's and TWE's cable  television  networks of $222 million at March
31, 1999 and $226 million at December 31, 1998).

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

Year 2000 Technology Preparedness

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

                                       9

<PAGE>

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


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

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

         The  Company  has  generally   completed  the  process  of  identifying
potential Year 2000 difficulties in its technological  operations,  including IT
applications,  IT technology and support, desktop hardware and software,  non-IT
systems and important third party operations,  and distinguishing those that are
"mission  critical"  from those  that are not.  An item is  considered  "mission
critical"  if its Year  2000-related  failure  would  significantly  impair  the
ability of one of the Company's major business units to (1) produce,  market and
distribute the products or services that generate  significant revenues for that
business,  (2) meet its obligations to pay its employees,  artists,  vendors and
others or (3) meet its obligations  under  regulatory  requirements and internal
accounting controls. The Company and its divisions,  including the Entertainment
Group,  have  identified  approximately  1,000  worldwide,   "mission  critical"
potential exposures. Of these, as of March 31, 1999, approximately 51% have been
identified by the divisions as Year 2000 compliant,  approximately 46% as in the
remediation  implementation or final testing stages,  approximately 2% as in the
remediation  planning  stage and less than 1% as in the  assessment  stage.  The
Company  currently  expects  that the  assessment  phase  for the few  remaining
potential  exposures  should be completed  during the second quarter of 1999 and
that  remediation  with  respect to  approximately  80% of all these  identified
operations will be substantially  completed in all material  respects by the end
of the second quarter of 1999. The Company, however, could experience unexpected
delays.  The Company is  currently  planning  to impose a "quiet"  period at the
beginning of the fourth  quarter of 1999 during which any remaining  remediation
involving  installation  or  modification  of systems that  interface with other
systems will be  minimized to permit the Company to conduct  testing in a stable
environment.

         As stated above,  however,  the Company's business is heavily dependent
on  third  parties  and  these  parties  are  themselves  heavily  dependent  on
technology.  For example, in a situation endemic to the cable industry,  much of
the Company's  headend  equipment that controls cable set-top boxes was not Year
2000  compliant.  The box  manufacturers  have been working with cable  industry
groups to develop  solutions  that the  Company is  installing  in its  head-end
equipment.  It is currently  expected that these solutions will be substantially
implemented  by the  end of the  second  quarter  of  1999.  In  addition,  if a
television  broadcaster or cable  programmer  encounters Year 2000 problems that
impede its ability to deliver  its  programming,  the Company  will be unable to
provide that programming to its cable  customers.  Because the Company is also a
programming  supplier,  third-party  signal  delivery  problems would affect its
ability to deliver its  programming to its customers.  The Company has attempted
to  include  in  its  "mission  critical"  inventory  such  significant  service
providers, vendors, suppliers, customers and governmental entities

                                       10

<PAGE>

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


that are believed to be critical to business operations and is in various stages
of  ascertaining  their  state of Year 2000  readiness  through  various  means,
including questionnaires,  interviews,  on-site visits, system interface testing
and  industry  group  participation.  The  Company  continues  to monitor  these
situations. Moreover, Time Warner is dependent, like all large companies, on the
continued  functioning,  domestically  and  internationally,  of basic,  heavily
computerized services such as banking,  telephony,  water and power, and various
distribution  mechanisms  ranging  from the  mail,  railroads  and  trucking  to
high-speed data transmission.  Time Warner is taking steps to attempt to satisfy
itself  that the third  parties  on which it is  heavily  reliant  are Year 2000
compliant, are developing satisfactory contingency plans or that alternate means
of meeting its requirements are available,  but cannot predict the likelihood of
such   compliance   nor  the  direct  or  indirect   costs  to  the  Company  of
non-compliance  by  those  third  parties  or of  securing  such  services  from
alternate  compliant  third parties.  In areas in which the Company is uncertain
about the  anticipated  Year 2000  readiness of a significant  third party,  the
Company is investigating available alternatives, if any.

         The Company,  including the Entertainment  Group,  currently  estimates
that the aggregate cost of its Year 2000 remediation  program,  which started in
1996, will be approximately  $125 to $175 million,  of which an estimated 50% to
60% has been incurred through March 31, 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 does not  complete any of its  currently
planned additional  remediation prior to the Year 2000, 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. In addition,  disruptions  experienced  by third parties with which
the  Company  does  business  as well as by the  economy  generally  could  also
materially  adversely affect the Company.  The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.

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

                                       11

<PAGE>

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


Caution Concerning Forward-Looking Statements

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

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

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

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

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

                                       12

<PAGE>

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


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 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    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.

                                       13

<PAGE>

                                TIME WARNER INC.
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                          March 31,  December 31,
                                                                             1999         1998
                                                                          --------   -----------
                                                                            (millions, except
                                                                            per share amounts)
<S>                                                                       <C>          <C>    
ASSETS
Current assets
Cash and equivalents....................................................  $   300      $   442
Receivables, less allowances of $945 million and $1.007 billion.........    2,253        2,885
Inventories.............................................................    1,009          946
Prepaid expenses........................................................    1,299        1,176
                                                                          -------      -------

Total current assets....................................................    4,861        5,449

Noncurrent inventories..................................................    1,813        1,900
Investments in and amounts due to and from Entertainment Group..........    5,607        4,980
Other investments.......................................................      813          794
Property, plant and equipment, net......................................    1,978        1,991
Music catalogues, contracts and copyrights..............................      851          876
Cable television and sports franchises..................................    2,660        2,868
Goodwill................................................................   11,734       11,919
Other assets............................................................      856          863
                                                                          -------      -------

Total assets............................................................  $31,173      $31,640
                                                                          =======      =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................  $   836      $   996
Participations, royalties and programming costs payable.................    1,195        1,199
Debt due within one year................................................       19           19
Other current liabilities...............................................    2,120        2,404
                                                                          -------      -------

Total current liabilities...............................................    4,170        4,618

Long-term debt .........................................................   10,606       10,925
Borrowings against future stock option proceeds.........................    1,100          895
Deferred income taxes...................................................    3,497        3,491
Unearned portion of paid subscriptions..................................      777          741
Other liabilities.......................................................    1,547        1,543
Company-obligated mandatorily redeemable preferred securities of 
   a subsidiary holding solely subordinated debentures of a
   subsidiary of the Company ...........................................      575          575

Shareholders' equity
Preferred stock, $.10 par value, 19.6 and 22.6 million shares
   outstanding, $1.960 and $2.260 billion liquidation preference........        2            2
Series LMCN-V Common Stock, $.01 par value, 57.1 million
   shares outstanding ..................................................        1            1
Common stock, $.01 par value, 1.134 and 1.118 billion 
   shares outstanding ..................................................       11           11
Paid-in capital.........................................................   13,358       13,134
Accumulated deficit.....................................................   (4,471)      (4,296)
                                                                          -------      ------- 

Total shareholders' equity..............................................    8,901        8,852
                                                                          -------      -------

Total liabilities and shareholders' equity..............................  $31,173      $31,640
                                                                          =======      =======

See accompanying notes.
</TABLE>

                                       14

<PAGE>

                                TIME WARNER INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                                March 31,
                                                                           ------------------
                                                                             1999        1999
                                                                             ----        ----
                                                                           (millions, except
                                                                           per share amounts)

<S>                                                                        <C>          <C>   
Revenues (a)............................................................   $3,266       $3,137
                                                                           ------       ------

Cost of revenues (a)(b).................................................    1,786        1,887
Selling, general and administrative (a)(b)..............................    1,185        1,080
                                                                           ------       ------

Operating expenses......................................................    2,971        2,967
                                                                           ------       ------

Business segment operating income.......................................      295          170
Equity in pretax income of Entertainment Group (a)......................      342          107
Interest and other, net (a).............................................     (311)        (283)
Corporate expenses (a)..................................................      (22)         (19)
                                                                           ------       ------ 

Income (loss) before income taxes.......................................      304          (25)
Income tax provision....................................................     (166)         (37)
                                                                           ------       ------ 

Net income (loss).......................................................      138          (62)
Preferred dividend requirements.........................................      (18)         (82)
                                                                           ------       ------ 

Net income (loss) applicable to common shares...........................   $  120       $ (144)
                                                                           ======       ====== 

Basic and diluted income (loss) per common share:

Net income (loss).......................................................   $  .10       $ (.12)
                                                                           ======       ====== 

Average common shares...................................................    1,243.1      1,156.6
                                                                           ========     ========
--------------
(a)Includes the following income (expenses) resulting from transactions with the
   Entertainment  Group and other  related  companies for the three months ended
   March  31,  1999  and  1998,  respectively:  revenues-$134  million  and $112
   million; cost of revenues-$(86) million and $(67) million;  selling,  general
   and  administrative-$(9)  million in both periods; equity in pretax income of
   Entertainment  Group-$(16)  million  and $(5)  million;  interest  and other,
   net-$(10)  million and $(3) million;  and corporate  expenses-$18  million in
   both periods.

(b)Includes depreciation and amortization expense of: ..................   $  277       $  296
                                                                           ======       ======
</TABLE>


See accompanying notes.

                                       15

<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Three Months
                                                                              Ended March 31,
                                                                              ---------------
                                                                             1999         1998
                                                                             ----         ----
                                                                                (millions)
<S>                                                                          <C>        <C>   
OPERATIONS
Net income (loss).......................................................     $138       $ (62)
Adjustments for noncash and nonoperating items:
Depreciation and amortization...........................................      277         296
Noncash interest expense................................................        1          15
Excess (deficiency) of distributions over equity in pretax income of
   Entertainment Group..................................................     (188)         65
Changes in operating assets and liabilities.............................      (45)         18
                                                                            -----       -----

Cash provided by operations.............................................      183         332
                                                                            -----       -----

INVESTING ACTIVITIES
Investments and acquisitions............................................      (46)        (24)
Capital expenditures....................................................     (136)       (103)
Investment proceeds.....................................................       28          85
                                                                            -----       -----

Cash used by investing activities.......................................     (154)        (42)
                                                                            -----       ----- 

FINANCING ACTIVITIES
Borrowings..............................................................      116         510
Debt repayments.........................................................     (243)       (700)
Borrowings against future stock option proceeds.........................      205         465
Repayments of borrowings against future stock option proceeds...........        -        (533)
Repurchases of Time Warner common stock.................................     (330)       (277)
Dividends paid..........................................................      (75)       (133)
Proceeds received from stock option and dividend reinvestment plans.....      156         290
Other, principally financing costs......................................        -         (13)
                                                                            -----       ----- 

Cash used by financing activities.......................................     (171)       (391)
                                                                            -----       ----- 

DECREASE IN CASH AND EQUIVALENTS........................................     (142)       (101)

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

CASH AND EQUIVALENTS AT END OF PERIOD...................................     $300        $544
                                                                           ======      ======


See accompanying notes.

</TABLE>

                                       16

<PAGE>

                                TIME WARNER INC.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                               Three Months
                                                                              Ended March 31,
                                                                              ---------------
                                                                             1999         1998
                                                                             ----         ----
                                                                                (millions)

<S>                                                                        <C>         <C>   
BALANCE AT BEGINNING OF PERIOD..........................................   $8,852      $9,356

Net income (loss).......................................................      138         (62)
Other comprehensive income (loss).......................................        3         (24)
                                                                           ------      ------ 
Comprehensive income (loss).............................................      141         (86)

Common stock dividends..................................................      (57)        (52)
Preferred stock dividends...............................................      (18)        (82)
Repurchases of Time Warner common stock.................................     (330)       (277)
Other, principally shares issued pursuant to stock option,
   dividend reinvestment and benefit plans..............................      313         438
                                                                           ------      ------


BALANCE AT END OF PERIOD................................................   $8,901      $9,297
                                                                           ======      ======


See accompanying notes.

</TABLE>

                                       17

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

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

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

         The operating  results of Time Warner's various business  interests are
presented herein as an indication of financial  performance (Note 6). Except for
start-up  losses  incurred  in  connection  with The WB Network,  Time  Warner's
principal business interests generate significant operating income and cash flow
from  operations.  The cash  flow from  operations  generated  by such  business
interests is considerably greater than their operating income due to significant
amounts of noncash  amortization  of  intangible  assets  recognized  in various
acquisitions  accounted  for by  the  purchase  method  of  accounting.  Noncash
amortization of intangible assets recorded by Time Warner's business

                                       18

<PAGE>

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


interests,   including  the   unconsolidated   business  interests  of  the
Entertainment  Group,  amounted to $306  million and $329  million for the three
months ended March 31, 1999 and 1998, respectively.

Basis of Presentation

         The accompanying  consolidated  financial statements are unaudited but,
in the opinion of management,  contain all the adjustments  (consisting of those
of a normal  recurring  nature)  considered  necessary  to  present  fairly  the
financial  position and the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods.  The  accompanying  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
(the "1998 Form 10-K").  Certain  reclassifications  have been made to the prior
year's financial statements to conform to the 1999 presentation.

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

2.       ENTERTAINMENT GROUP

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

<TABLE>
<CAPTION>
                                                                 March 31,   December 31,
                                                                    1999        1998  
                                                                 --------    -----------
                                                                       (millions)

<S>                                                                 <C>         <C>   
Investment in TWE................................................   $3,882      $3,850
Stock option related distributions due from TWE..................    1,309       1,130
Credit agreement debt due to TWE.................................     (400)       (400)
Other net liabilities due to TWE, principally related to
    home video distribution .....................................     (120)       (395)
                                                                    ------      ------
Investment in and amounts due to and from TWE....................    4,671       4,185
Investment in TWE-A/N and other Entertainment Group companies....      936         795
                                                                    ------      ------

Total............................................................   $5,607      $4,980
                                                                    ======      ======
</TABLE>

Partnership Structure and Allocation of Income

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

         The TWE  partnership  agreement  provides  for special  allocations  of
income,  loss and  distributions  of  partnership  capital,  including  priority
distributions in the event of liquidation. TWE reported net income of $312

                                       19

<PAGE>

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


million and $108 million in the three months ended March 31, 1999 and 1998,
respectively,  no  portion of which was  allocated  to the  limited  partnership
interests.

Summarized Financial Information of the Entertainment Group

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

                                                                Three Months
                                                              Ended March 31,
                                                              ---------------
                                                             1999       1998
                                                             ----       ----
                                                                (millions)
Operating Statement Information
Revenues................................................   $2,934      $2,912
Depreciation and amortization...........................     (308)       (371)
Business segment operating income(1)....................      651         369
Interest and other, net.................................     (225)       (164)
Minority interest.......................................      (68)        (64)
Income before income taxes .............................      340         123
Net income..............................................      312         108
--------------

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


                                                                Three Months
                                                              Ended March 31,
                                                              ---------------
                                                             1999       1998
                                                             ----       ----
                                                                 (millions)
Cash Flow Information
Cash provided by operations.............................  $   788      $  441
Capital expenditures....................................     (305)       (352)
Investments and acquisitions............................      (47)       (230)
Investment proceeds.....................................       30          23
Borrowings..............................................    1,160         489
Debt repayments.........................................   (1,003)       (376)
Redemption of preferred stock of subsidiary.............     (217)          -
Capital distributions...................................     (154)       (172)
Other financing activities, net.........................      (18)        (38)
Increase (decrease) in cash and equivalents.............      234        (215)

                                       20

<PAGE>

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

                                                       March 31,   December 31,
                                                         1999         1998 
                                                       -------     ----------- 
                                                              (millions)
Balance Sheet Information
Cash and equivalents.................................... $    321    $     87
Total current assets....................................    4,123       4,187
Total assets............................................   22,532      22,241
Total current liabilities...............................    4,818       4,940
Long-term debt..........................................    6,921       6,578
Minority interests......................................    1,623       1,522
Preferred stock of subsidiary...........................        -         217
Time Warner General Partners' Senior Capital............      615         603
Partners' capital ......................................    5,115       5,210

Capital Distributions

         The assets and cash flows of TWE are restricted by the TWE  partnership
and credit agreements and are unavailable for use by the partners except through
the payment of certain fees, reimbursements, cash distributions and loans, which
are subject to  limitations.  At March 31, 1999 and December 31, 1998,  the Time
Warner  General  Partners  had  recorded  $1.309  billion  and  $1.130  billion,
respectively,  of stock  option  related  distributions  due from TWE,  based on
closing  prices of Time Warner common stock of $70.81 and $62.06,  respectively.
Time  Warner is paid when the  options are  exercised.  The Time Warner  General
Partners also receive  tax-related  distributions  from TWE on a current  basis.
During the three months ended March 31, 1999, the Time Warner  General  Partners
received distributions from TWE in the amount of $154 million, consisting of $67
million of  tax-related  distributions  and $87 million of stock option  related
distributions.  During the three months  ended March 31,  1998,  the Time Warner
General Partners received  distributions from TWE in the amount of $172 million,
consisting of $52 million of tax-related distributions and $120 million of stock
option related distributions.

Gain on Termination of MGM Video Distribution Agreement

         In  March 1999, Warner  Bros. and  Metro-Goldwyn-Mayer,  Inc.  ("MGM")
terminated a long-term  distribution  agreement  under which  Warner  Bros.  had
exclusive  worldwide  distribution  rights  for  MGM/United  Artists  home video
product.  In  connection  with the  early  termination  and  settlement  of this
distribution   agreement,   Warner  Bros.   recognized  a  net  pretax  gain  of
approximately  $215 million ($.10 per common share),  which has been included in
Time  Warner's  equity in the pretax  income of the  Entertainment  Group in the
accompanying consolidated statement of operations.

Primestar

         TWE owns an approximate 24% equity interest in Primestar. In the fourth
quarter of 1998, TWE recorded a charge of approximately $210 million principally
to reduce the carrying value of its interest in Primestar to fair value.

         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

                                       21

<PAGE>

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


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.  The final terms of this medium-power
transaction  confirmed  the  decline  in value of TWE's  interest  in  Primestar
recognized in 1998. The closing of the sale of Primestar's  high-power satellite
rights to DirecTV is expected to occur in the second quarter of 1999, subject to
customary  closing   conditions,   including  all  necessary   governmental  and
regulatory  approvals.  There can be no assurance  that such  approvals  will be
obtained and that this high-power transaction will be consummated.

         During the period in which Primestar's operations are being wound down,
TWE  continues  to recognize  its share of losses of Primestar  under the equity
method of  accounting.  Such losses are included in interest and other,  net, in
TWE's consolidated statement of operations.

3.       INVENTORIES

         Inventories consist of:

<TABLE>
<CAPTION>

                                                            March 31, 1999          December 31, 1998  
                                                            --------------          -----------------  
                                                          Current  Noncurrent      Current   Noncurrent
                                                          -------  ----------      -------   ----------
                                                                            (millions)
<S>                                                       <C>          <C>          <C>        <C>   
Film costs:
   Released, less amortization.........................   $   82       $  242       $  51      $  308
   Completed and not released..........................        -            -          20           -
   In process and other................................        4          226           2         240
   Library, less amortization..........................        -          993           -       1,007
Programming costs, less amortization...................      501          352         457         345
Magazines, books and recorded music....................      422            -         416           -
                                                          ------       ------      ------      ------

Total  ................................................   $1,009       $1,813        $946      $1,900
                                                          ======       ======      ======      ======
</TABLE>

4.       MANDATORILY REDEEMABLE PREFERRED SECURITIES

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

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

                                       22

<PAGE>

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


5.       SHAREHOLDERS' EQUITY

         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  quarter of 1999,  Time  Warner  acquired  5.1 million
shares of its common  stock at an aggregate  cost of $330  million  under its $5
billion  common  stock  repurchase  program.  These  repurchases  increased  the
cumulative  shares purchased under this and its previous common stock repurchase
program begun in 1996 to approximately 100.2 million shares at an aggregate cost
of $3.37 billion.

6.       SEGMENT INFORMATION

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

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

                                       23

<PAGE>

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

                                                           Three Months
                                                          Ended March 31,
                                                          ---------------
                                                          1999        1998
                                                          ----        ----
                                                             (millions)
Revenues
Time Warner:
Publishing...........................................   $  974      $  948
Music................................................      936         888
Cable Networks-TBS...................................      838         728
Filmed Entertainment-TBS.............................      317         372
Cable................................................      222         248
Intersegment elimination.............................      (21)        (47)
                                                        ------      ------

Total................................................   $3,266      $3,137
                                                        ======      ======

Entertainment Group:
Filmed Entertainment-Warner Bros.....................   $1,380      $1,312
Broadcasting-The WB Network..........................       79          45
Cable Networks-HBO...................................      526         512
Cable................................................    1,074       1,153
Intersegment elimination.............................     (125)       (110)
                                                        ------      ------ 

Total................................................   $2,934      $2,912
                                                        ======      ======

                                                           Three Months
                                                          Ended March 31,
                                                          ---------------
                                                         1999        1998
                                                         ----        ----
                                                            (millions)
EBITA(1)
Time Warner:
Publishing...........................................   $   94      $   85
Music................................................      102          93
Cable Networks-TBS...................................      184         153
Filmed Entertainment-TBS.............................       29         (15)
Cable................................................       66          74
Intersegment elimination.............................       10         (19)
                                                        ------      ------

Total................................................   $  485      $  371
                                                        ======      ======

Entertainment Group:
Filmed Entertainment-Warner Bros.(2).................   $  346      $  119
Broadcasting-The WB Network..........................      (41)        (38)
Cable Networks-HBO...................................      125         109
Cable................................................      337         307
                                                        ------      ------

Total................................................   $  767      $  497
                                                        ======      ======
---------------
(1)  EBITA  represents   business   segment   operating  income  before  noncash
     amortization  of  intangible  assets.   After  deducting   amortization  of
     intangible assets,  Time Warner's business segment operating income for the
     three  months  ended  March  31,  1999 and 1998 was $295  million  and $170
     million, respectively.  Similarly, business segment operating income of the
     Entertainment  Group for the three months ended March 31, 1999 and 1998 was
     $651 million and $369 million, respectively.

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

                                       24

<PAGE>

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

                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                          1999        1998
                                                          ----        ----
                                                            (millions)
Depreciation of Property, Plant and Equipment
Time Warner:
Publishing...........................................    $  19       $  19
Music................................................       17          19
Cable Networks-TBS...................................       24          22
Filmed Entertainment-TBS.............................        1           2
Cable................................................       26          33
                                                         -----       -----

Total................................................    $  87       $  95
                                                         =====       =====

Entertainment Group:
Filmed Entertainment-Warner Bros.....................    $  29       $  40
Broadcasting-The WB Network..........................        -           -
Cable Networks-HBO...................................        7           5
Cable................................................      156         198
                                                         -----       -----

Total................................................    $ 192       $ 243
                                                         =====       =====

                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                          1999        1998
                                                          ----        ----
                                                             (millions)
Amortization of Intangible Assets(1)
Time Warner:
Publishing...........................................    $  10       $   9
Music................................................       67          68
Cable Networks-TBS...................................       50          50
Filmed Entertainment-TBS.............................       19          20
Cable................................................       44          54
                                                         -----       -----

Total................................................    $ 190       $ 201
                                                         =====       =====

Entertainment Group:
Filmed Entertainment-Warner Bros.....................    $  30       $  33
Broadcasting-The WB Network..........................        1           1
Cable Networks-HBO...................................        -           -
Cable................................................       85          94
                                                         -----       -----

Total................................................    $ 116       $ 128
                                                         =====       =====

(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.

                                       25

<PAGE>

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


7.       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.

8.       ADDITIONAL FINANCIAL INFORMATION

         Additional  financial  information  with  respect  to cash  flows is as
follows:
                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999       1998
                                                           ----       ----
                                                             (millions)

Interest expense.....................................     $233        $233
Cash payments made for interest.....................       308         316
Cash payments made for income taxes..................       80          60
Tax-related distributions received from TWE..........       67          52
Income tax refunds received..........................        5          42

         Noncash investing activities in the first three months of 1998 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.

                                       26

<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 March 31, 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 ...................................  $   -        $   -        $184       $3,084       $  (2)     $3,266
                                              -----        -----        -----      ------       -----      ------

Cost of revenues (1)........................      -            -          68        1,720          (2)      1,786
Selling, general and administrative (1).....      -            -          56        1,129           -       1,185
                                              -----        -----        -----      ------       -----      ------
Operating expenses..........................      -            -         124        2,849          (2)      2,971
                                              -----        -----        -----      ------       -----      ------

Business segment operating income...........      -            -          60          235           -         295
Equity in pretax income of consolidated
   subsidiaries.............................    378          474          76            -        (928)          -
Equity in pretax income of Entertainment
   Group ...................................      -            -           -          340           2         342
Interest and other, net.....................    (52)        (183)        (34)         (25)        (17)       (311)
Corporate expenses..........................    (22)         (14)         (4)         (16)         34         (22)
                                              -----        -----        -----      ------       -----      ------

Income before income taxes..................    304          277          98          534        (909)        304
Income taxes................................   (166)        (151)        (56)        (264)        471        (166)
                                              -----        -----        -----      ------       -----      ------

Net income..................................  $ 138         $126        $ 42        $ 270       $(438)     $  138
                                              =====        =====        =====       =====       =====      ======

--------------
(1) Includes depreciation and amortization
       expense of:..........................  $   -         $  -        $  2        $ 275       $   -      $  277
                                              =====        =====        =====       =====       =====      ======

</TABLE>

                                       27

<PAGE>

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

                      Consolidating Statement of Operations
                    For The Three Months Ended March 31, 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 ...................................  $   -        $   -        $168       $2,969       $   -      $3,137
                                              -----        -----        -----      ------       -----      ------

Cost of revenues (1)........................      -            -          61        1,826           -       1,887
Selling, general and administrative (1).....      -            -          50        1,030           -       1,080
                                              -----        -----        -----      ------       -----      ------

Operating expenses..........................      -            -         111        2,856           -       2,967
                                              -----        -----        -----      ------       -----      ------

Business segment operating income...........      -            -          57          113           -         170
Equity in pretax income (loss) of consolidated
   subsidiaries.............................      4          217         (21)           -        (200)          -
Equity in pretax income of Entertainment
   Group ...................................      -            -           -          123         (16)        107
Interest and other, net.....................    (10)        (185)        (44)         (40)         (4)       (283)
Corporate expenses..........................    (19)         (13)         (4)         (16)         33         (19)
                                              -----        -----        -----      ------       -----      ------

Income (loss) before income taxes...........    (25)          19         (12)         180        (187)        (25)
Income taxes................................    (37)         (18)        (13)        (106)        137         (37)
                                              -----        -----       ------      ------      ------      ------

Net income (loss)...........................  $ (62)      $    1       $ (25)       $  74      $  (50)     $  (62)
                                              =====       ======       ======      ======      ======      ======




--------------
(1) Includes depreciation and amortization
       expense of:.......................... $    -       $    -      $    2       $  294      $    -      $  296
                                              =====       ======      ======       ======      ======      ======

</TABLE>

                                       28

<PAGE>

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

                           Consolidating Balance Sheet
                                 March 31, 1999

<TABLE>
<CAPTION>
                                                                                          Non-                 Time
                                                              Time       TW            Guarantor    Elimina-  Warner
                                                             Warner   Companies TBS   Subsidiaries  tions    Consolidated
                                                             ------   --------- ---   ------------  -------  ------------
                                                                                  (millions)
<S>                                                         <C>      <C>       <C>       <C>        <C>     <C>    
ASSETS
Current assets
Cash and equivalents....................................... $     -  $     1   $   24    $  275     $    -  $   300
Receivables, net...........................................       8       45       81     2,119          -    2,253
Inventories................................................       -        -      125       884          -    1,009
Prepaid expenses...........................................      83        -        1     1,215          -    1,299
                                                             ------   ------   ------    ------     ------  -------

Total current assets.......................................      91       46      231     4,493          -    4,861

Noncurrent inventories.....................................       -               153     1,660          -    1,813
Investments in and amounts due to and from
   consolidated subsidiaries...............................  15,384   13,811    9,372         -    (38,567)       -
Investments in and amounts due to and
   from Entertainment Group................................       -      904        -     4,809       (106)   5,607
Other investments..........................................     238       13       24     1,203       (665)     813
Property, plant and equipment, net.........................      54        -       44     1,880          -    1,978
Music catalogues, contracts and copyrights.................       -        -        -       851          -      851
Cable television and sports franchises.....................       -        -        -     2,660          -    2,660
Goodwill...................................................       -        -        -    11,734          -   11,734
Other assets...............................................      65      105       64       622          -      856
                                                             ------   ------   ------    ------     ------  -------
Total assets............................................... $15,832  $14,879   $9,888   $29,912   $(39,338) $31,173
                                                            =======  =======   ======   =======   ========  =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...........................................  $   12   $    -   $    1    $  823   $      -   $  836
Participations, royalties and programming costs
   payable.................................................       -        -       33     1,162          -    1,195
Debt due within one year...................................       -        -        -        19          -       19
Other current liabilities..................................     290      100      166     1,578        (14)   2,120
                                                             ------   ------   ------    ------     ------  -------

Total current liabilities..................................     302      100      200     3,582        (14)   4,170

Long-term debt ............................................   1,584    7,457      747       818          -   10,606
Debt due to affiliates.....................................       -        -    1,647       158     (1,805)       -
Borrowings against future stock option proceeds............   1,100        -        -         -          -    1,100
Deferred income taxes......................................   3,497    3,413      164     3,578     (7,155)   3,497
Unearned portion of paid subscriptions.....................       -        -        -       777          -      777
Other liabilities..........................................     448        -       83     1,016          -    1,547
TW Companies-obligated mandatorily redeemable preferred
   securities of a subsidiary holding solely subordinated
   debentures of TW Companies..............................       -        -        -       575          -      575

Shareholders' equity
Due to (from) Time Warner and subsidiaries.................       -   (2,550)    (483)   (2,408)     5,441        -
Other shareholders' equity.................................   8,901    6,459    7,530    21,816    (35,805)   8,901
                                                             ------   ------   ------    ------    -------   -------

Total shareholders' equity.................................   8,901    3,909    7,047    19,408    (30,364)   8,901
                                                             ------   ------   ------    ------     -----   -------

Total liabilities and shareholders' equity................. $15,832  $14,879   $9,888   $29,912  $(39,338)  $31,173
                                                            =======  =======   ======   =======   ========  =======
</TABLE>

                                       29

<PAGE>

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

                           Consolidating Balance Sheet
                                December 31, 1998

<TABLE>
<CAPTION>
                                                                                          Non-              Time
                                                             Time       TW            Guarantor    Elimina- Warner
                                                             Warner   Companies TBS  Subsidiaries  tions    Consolidated
                                                             ------   --------- ---  ------------  ------   ------------
                                                                                     (millions)
<S>                                                          <C>      <C>       <C>     <C>        <C>      <C>    
ASSETS
Current assets
Cash and equivalents.......................................  $    -   $   66    $  25   $   351    $     -  $   442
Receivables, net...........................................      10       56       78     2,750         (9)   2,885
Inventories................................................       -        -      131       815          -      946
Prepaid expenses...........................................      17        5        -     1,166        (12)   1,176
                                                             ------   ------   ------    ------     ------   ------

Total current assets.......................................      27      127      234     5,082        (21)   5,449
 
Noncurrent inventories.....................................       -        -      156     1,744          -    1,900
Investments in and amounts due to and from
   consolidated subsidiaries...............................  15,222   13,745    9,465         -    (38,432)       -
Investments in and amounts due to and
   from Entertainment Group................................       -      919        -     4,169       (108)   4,980
Other investments..........................................     211       15       24     1,194       (650)     794
Property, plant and equipment, net.........................      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 to (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>

                                       30

<PAGE>

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

                      Consolidating Statement of Cash Flows
                    For The Three Months Ended March 31, 1999

<TABLE>
<CAPTION>
                                                                                           Non-              Time
                                                               Time       TW            Guarantor   Elimina- Warner
                                                              Warner   Companies  TBS  Subsidiaries tions    Consolidated
                                                              ------   ---------  ---  ------------------   ------------
                                                                                     (millions)
<S>                                                            <C>      <C>      <C>       <C>     <C>         <C> 
OPERATIONS
Net income.................................................    $138     $126     $ 42      $270    $  (438)    $138
Adjustments for noncash and nonoperating items:
Depreciation and amortization..............................       -        -        2       275          -      277
Noncash interest expense...................................       -        1        -         -          -        1
Excess (deficiency) of distributions over equity in
   pretax income of consolidated subsidiaries..............      49     (258)     244         -        (35)       -
Deficiency of distributions over equity in
   pretax income of Entertainment Group....................       -        -        -      (186)        (2)    (188)
Changes in operating assets and liabilities................      89     (119)    (287)       39        233      (45)
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by operations.........................     276     (250)       1       398       (242)     183
                                                             ------   ------   ------    ------    -------   -------

INVESTING ACTIVITIES
Investments and acquisitions...............................       -        -        -       (46)         -      (46)
Repayments of advances from consolidated subsidiaries......       -       71        -       232       (303)       -
Capital expenditures.......................................       -        -       (2)     (134)         -     (136)
Investment proceeds........................................       -        -        -        28          -       28
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by investing activities...............       -       71       (2)       80       (303)    (154)
                                                             ------   ------   ------    ------    -------   -------

FINANCING ACTIVITIES
Borrowings.................................................       -      114        -         2          -      116
Debt repayments............................................       -        -        -      (243)         -     (243)
Change in due to/from parent...............................    (232)       -        -      (313)       545        -
Borrowings against future stock option proceeds............     205        -        -         -          -      205
Repayments of borrowings against future stock
   option proceeds.........................................       -        -        -         -          -        -
Repurchases of Time Warner common stock....................    (330)       -        -         -          -     (330)
Dividends paid.............................................     (75)       -        -         -          -      (75)
Proceeds received from stock option and dividend
   reinvestment plans......................................     156        -        -         -          -      156
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by financing activities...............    (276)     114        -      (554)       545     (171)
                                                             ------   ------   ------    ------    -------   -------

DECREASE IN CASH AND EQUIVALENTS...........................       -      (65)      (1)      (76)         -     (142)
                                                             ------   ------   ------    ------    -------   -------

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

CASH AND EQUIVALENTS AT END OF PERIOD......................   $   -    $   1    $  24      $275      $   -     $300
                                                            =======  =======   ======   =======   ========  =======
</TABLE>

                                       31

<PAGE>

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

                      Consolidating Statement of Cash Flows
                    For The Three Months Ended March 31, 1998

<TABLE>
<CAPTION>
                                                                                          Non-              Time
                                                               Time      TW            Guarantor  Elimina- Warner
                                                              Warner  Companies TBS  Subsidiaries  tions   Consolidated
                                                              ------  --------- ---  ------------ -------  ------------
                                                                                 (millions)
<S>                                                           <C>      <C>      <C>        <C>      <C>       <C>   
OPERATIONS
Net income (loss) .........................................   $ (62)   $   1    $ (25)     $ 74     $  (50)   $ (62)
Adjustments for noncash and nonoperating items:
Depreciation and amortization..............................       -        -        2       294          -      296
Noncash interest expense...................................       -       15        -         -          -       15
Excess (deficiency) of distributions over equity in pretax
   income of consolidated subsidiaries.....................      50     (120)     190         -       (120)       -
Excess of distributions over equity in pretax income
   of Entertainment Group..................................       -        -        -        49         16       65
Changes in operating assets and liabilities................     336      174      (88)      124       (528)      18
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by operations.........................     324       70       79       541       (682)     332
                                                             ------   ------   ------    ------    -------   -------

INVESTING ACTIVITIES
Investments and acquisitions...............................    (213)       -        -       189          -      (24)
Advances to parents and consolidated subsidiaries                 -     (187)       -        (2)       189        -
Repayment of advances from consolidated subsidiaries             75        -        -         -        (75)       -
Capital expenditures.......................................       -        -       (2)     (101)         -     (103)
Investment proceeds........................................       -        -        -        85          -       85
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by investing activities...............    (138)    (187)      (2)      171        114      (42)
                                                             ------   ------   ------    ------    -------   -------

FINANCING ACTIVITIES
Borrowings.................................................       -      495        -        15          -      510
Debt repayments............................................       -     (500)     (75)     (200)        75     (700)
Change in due to/from parent...............................       2        -        -      (495)       493        -
Borrowings against future stock option proceeds............     465        -        -         -          -      465
Repayments of borrowings against
   future stock option proceeds............................    (533)       -        -         -          -     (533)
Repurchases of Time Warner common stock....................    (277)       -        -         -          -     (277)
Dividends paid.............................................    (133)       -        -         -          -     (133)
Proceeds received from stock option and dividend
   reinvestment plans......................................     290        -        -         -          -      290
Other, principally financing costs.........................       -      (13)       -         -          -      (13)
                                                             ------   ------   ------    ------    -------   -------

Cash provided (used) by financing activities...............    (186)     (18)     (75)     (680)       568     (391)
                                                             ------   ------   ------    ------    -------   -------

INCREASE (DECREASE) IN CASH AND
   EQUIVALENTS.............................................       -     (135)       2        32          -     (101)

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

CASH AND EQUIVALENTS AT END OF PERIOD......................   $   -     $237    $  11      $296     $    -     $544
                                                            =======  =======   ======   =======   ========  =======
</TABLE>

                                       32

<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;
Entertainment,  consisting  principally  of interests  in filmed  entertainment,
television  production  and  television  broadcasting;   and  Cable,  consisting
principally of interests in cable television systems. TWE also manages the cable
properties owned by Time Warner and the combined cable television operations are
conducted under the name of Time Warner Cable.

Use of EBITA

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

Transactions Affecting Comparability of Results of Operations

         The  comparability  of TWE's  operating  results has been affected by a
$215 million net pretax gain  recognized by TWE in 1999 in  connection  with the
early  termination  and  settlement  of  a  long-term  home  video  distribution
agreement.

         In order to meaningfully assess underlying operating trends, management
believes  that the  results of  operations  for 1999  should be  analyzed  after
excluding  the  effects of this  significant  nonrecurring  gain.  As such,  the
following  discussion  and  analysis  focuses on amounts and trends  adjusted to
exclude the impact of this unusual item. 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 by certain cable-related transactions,  as described more fully in Note
7  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.

                                       33

<PAGE>

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


RESULTS OF OPERATIONS

         EBITA and operating income are as follows:

<TABLE>
<CAPTION>
                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                                          Operating
                                                   EBITA                   Income
                                                   -----                  ---------
                                              1999        1998        1999         1998 
                                              ----        ----        ----         ---- 
                                                            (millions)

<S>                                          <C>          <C>       <C>            <C> 
Filmed Entertainment-Warner Bros.(1)....     $ 346        $119      $  316         $ 86
Broadcasting-The WB Network.............       (41)        (38)        (42)         (39)
Cable Networks-HBO......................       125         109         125          109
Cable(2)................................       337         307         252          213
                                             -----        ----      ------         ----

Total...................................     $ 767        $497      $  651         $369
                                             =====        ====      ======         ====
------------------

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

(2)  The  comparability  of the Cable  division's  results has been  affected by
     certain cable-related transactions that occurred in 1998, as described more
     fully in Note 7 to the accompanying consolidated financial statements.

</TABLE>

         TWE had  revenues of $2.934  billion and net income of $312 million for
the three months ended March 31,  1999,  compared to revenues of $2.910  billion
and net income of $108 million for the three months ended March 31, 1998.

         As discussed more fully below,  TWE's net income increased  principally
as a result of the  inclusion  of an  approximate  $215  million net pretax gain
recognized in 1999 in connection with the early  termination and settlement of a
long-term home video  distribution  agreement.  Excluding  this gain,  TWE's net
income  decreased  to $97  million in 1999 from $108  million in the prior year.
This decrease  principally  resulted from higher losses from certain investments
accounted for under the equity method of  accounting,  which more than offset an
overall increase in 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 $28 million and $15 million for
the three months ended March 31, 1999 and 1998, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.

         Filmed Entertainment-Warner Bros. Revenues increased to $1.380 billion,
compared to $1.310 billion in the first three months of 1998. EBITA increased to
$346 million from $119 million.  Operating income increased to $316 million from
$86 million.  Revenues  benefited  from  increases  in worldwide  home video and
theatrical  operations,  offset in part by lower worldwide television production
and distribution  revenues.  EBITA and operating income increased primarily from
the  inclusion  of an  approximate  $215 million net pretax gain  recognized  in
connection  with the early  termination and settlement of a long-term home video
distribution agreement.  In addition,  EBITA and operating income benefited from
improved  results from  worldwide  theatrical  and home video  operations and an
increase in  investment-related  income,  offset in part by lower  results  from
television production, television distribution and consumer products operations.

         Broadcasting - The WB Network.  Revenues  increased  to  $79  million, 
compared to $45 million in the first three months of 1998.  EBITA  decreased to 
a loss of $41 million from a loss of $38  million.  Operating  losses  increased
to $42 million  from  $39 million.  Revenues increased  as a result of improved 
television ratings and the addition of a fifth  night of primetime  programming 
in September 1998. Despite the revenue increase, operating losses

                                       34

<PAGE>

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


increased  because of a lower allocation of losses to a minority partner in
the network. However,  excluding this minority interest effect, operating losses
improved  principally as a result of the revenue gains,  which outweighed higher
programming costs associated with the expanded programming schedule.

         Cable  Networks-HBO.  Revenues  increased to $526 million,  compared to
$512  million in the first  three  months of 1998.  EBITA and  operating  income
increased to $125 million from $109 million.  Revenues benefited  primarily from
an increase in subscriptions.  EBITA and operating income increased  principally
as a result of the revenue gains, cost savings,  one-time gains from the sale of
certain  investments and higher income from Comedy Central,  a 50%-owned  equity
investee, offset in part by higher marketing expenses.

         Cable. Revenues decreased to $1.074 billion, compared to $1.153 billion
in the first three  months of 1998.  EBITA  increased  to $337 million from $307
million. Operating income increased to $252 million from $213 million. The Cable
division's  1999  operating  results  were  affected  by  certain  cable-related
transactions that occurred in 1998 (the "1998 Cable Transactions"), as described
more  fully in Note 7 to the  accompanying  consolidated  financial  statements.
Excluding the effect of the 1998 Cable Transactions,  revenues benefited from an
increase  in basic  cable  subscribers,  increases  in basic  cable rates and an
increase in  advertising  and  pay-per-view  revenues.  Similarly  excluding the
effect of the 1998 Cable  Transactions,  EBITA and  operating  income  increased
principally as a result of the revenue  gains,  offset in part by the absence of
approximately $14 million of net pretax gains recognized in 1998 relating to the
sale or exchange of certain cable television systems.

         Interest and Other,  Net.  Interest and other, net, was $225 million in
the first  three  months of 1999,  compared  to $164  million in the first three
months of 1998.  Interest  expense  decreased to $137 million,  compared to $141
million in the first three months of 1998, principally due to lower average debt
levels.  There was other expense,  net, of $88 million in the first three months
of 1999, compared to $23 million in the first three months of 1998,  principally
due to higher  losses from certain  investments  accounted  for under the equity
method of accounting.

FINANCIAL CONDITION AND LIQUIDITY
March 31, 1999

Financial Condition

         TWE had $6.9  billion  of debt,  $321  million of cash and  equivalents
(net debt of $6.6 billion), $615 million of Time Warner General Partners' Senior
Capital and $5.1  billion of partners'  capital at March 31,  1999,  compared 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 Capital and $5.1 billion of partners' capital at
December 31, 1998.

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.

                                       35

<PAGE>

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


Cash Flows

         During  the  first  three  months  of  1999,  TWE's  cash  provided  by
operations amounted to $788 million and reflected $767 million of EBITA from its
Filmed   Entertainment-Warner   Bros.,   Broadcasting-The   WB  Network,   Cable
Networks-HBO and Cable businesses,  $192 million of noncash depreciation expense
and $44 million  related to a decrease in working  capital  requirements,  other
balance  sheet  accounts  and  noncash  items,  less $144  million  of  interest
payments, $22 million of income taxes, $18 million of corporate expenses and $31
million of  proceeds  repaid  under  TWE's asset  securitization  program.  Cash
provided  by  operations  of $441  million  in the  first  three  months of 1998
reflected  $497  million of EBITA from its  Filmed  Entertainment-Warner  Bros.,
Broadcasting-The  WB Network,  Cable  Networks-HBO  and Cable  businesses,  $243
million of noncash depreciation expense and $148 million of proceeds provided by
TWE's asset securitization  program, less $156 million of interest payments, $20
million of income  taxes,  $18 million of  corporate  expense  and $253  million
related to an increase in working  capital  requirements,  other  balance  sheet
accounts and noncash items.

         Cash used by investing  activities  was $322 million in the first three
months of 1999,  compared  to $559  million in the first  three  months of 1998,
principally as a result of a $183 million  decrease in cash used for investments
and acquisitions and a decrease in capital  expenditures.  Capital  expenditures
decreased to $305  million in the first three  months of 1999,  compared to $352
million in the first three months of 1998.

         Cash used by financing activities  was $232 million  in the first three
months of 1999,  compared to $97 million in the first three 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 and the payment of $154 million of
capital  distributions to Time Warner, offset in part by a $157 million increase
in net borrowings. The use of cash in 1998 principally resulted from the payment
of $172 million of capital  distributions  to Time  Warner,  offset in part by a
$113 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 $276  million in the three  months  ended  March 31,  1999,  compared to $326
million the three months ended March 31, 1998. For the full year of 1999,  cable
capital spending is expected to be comparable to 1998 levels, with approximately
$900 million budgeted for the remainder of 1999. Capital spending by TWE's Cable
division is expected to continue to be funded by cable operating cash flow.

Warner Bros. Backlog

         Warner Bros.'  backlog,  representing  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,  amounted  to $2.313  billion at March 31, 1999  (including  amounts
relating to TWE's cable television networks of $218 million and to Time Warner's
cable  television  networks  of $584  million),  compared  to $2.298  

                                       36

<PAGE>

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


billion at December  31, 1998  (including  amounts  relating 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  already  have  been  produced,  the
recognition of revenue for such completed product  principally is dependent only
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement.  Cash licensing fees are collected periodically
over the term of the related  licensing  agreements or on an  accelerated  basis
using TWE's $500  million  securitization  facility.  The portion of backlog for
which cash has not already been received has significant off-balance sheet asset
value as a source of future funding.  The backlog  excludes  advertising  barter
contracts,  which  also are  expected  to result in the  future  realization  of
revenues  and cash through the sale of  advertising  spots  received  under such
contracts.

Year 2000 Technology Preparedness

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

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

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

         The  Company  has  generally   completed  the  process  of  identifying
potential Year 2000 difficulties in its technological  operations,  including IT
applications,  IT technology and support, desktop hardware and software,  non-IT
systems and important third party operations,  and distinguishing those that are
"mission  critical"  from those  that are not.  An item is  considered  "mission
critical"  if its Year  2000-related  failure  would  significantly  impair  the
ability of one of the Company's major business units to (1) produce,  market and
distribute the products or services that generate  significant revenues for that
business,  (2) meet its obligations to pay its employees,  artists,  vendors and
others or (3) meet its obligations  under  regulatory  requirements and internal
accounting controls. The Company and its divisions have identified approximately
600 worldwide, "mission critical" potential exposures. Of these, as of March 31,
1999,  approximately  50% have been  identified  by the  divisions  as Year 2000
compliant,  approximately  45% as in the  remediation  implementation  or  final
testing stages,  approximately 4% as in the remediation  planning stage and less
than 2% as in the  assessment  stage.  The Company  currently  expects  that the
assessment phase for the few remaining  potential  exposures should be completed
during  the  second  quarter  of 1999  and  that  remediation  with  respect  to
approximately  90% of all  these  identified  operations  will be  substantially
completed in all material respects by the end of the second quarter of 1999. The
Company,  however,  could experience unexpected delays. The

                                       37

<PAGE>

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


Company is currently  planning to impose a "quiet"  period at the beginning
of the fourth quarter of 1999 during which any remaining  remediation  involving
installation  or  modification of systems that interface with other systems will
be minimized to permit the Company to conduct testing in a stable environment.

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

         The Company  currently  estimates  that the aggregate  cost of its Year
2000 remediation  program,  which started in 1996, will be approximately  $50 to
$85 million,  of which an estimated 50% to 60% has been  incurred  through March
31, 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 does not  complete any of its  currently
planned additional  remediation prior to the Year 2000, 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. In addition,  disruptions  experienced  by third parties with which
the  Company  does  business  as well as by the  economy  generally  could  also
materially  adversely affect the Company.  The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.

         The  Company  has been  focusing  its  efforts  on  identification  and
remediation  of its Year 2000  exposures  and is beginning  to develop  specific
contingency  plans in the event it does not successfully  complete its remaining

                                       38

<PAGE>

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


remediation as anticipated or experiences  unforeseen  problems.  The Company is
also  examining  its  existing  standard  business  interruption  strategies  to
evaluate whether they would  satisfactorily meet the demands of failures arising
from  Year-2000  related  problems.  The  Company  intends to examine its status
periodically to determine the necessity of establishing  and  implementing  such
contingency  plans or additional  strategies,  which could involve,  among other
things, manual workarounds,  adjusting staffing strategies and sharing resources
across divisions.

Caution Concerning Forward-Looking Statements

         The Securities and Exchange Commission encourages companies to disclose
forward-looking  information so that investors can better understand a company's
future prospects and make informed investment decisions. This document, together
with   management's   public   commentary   related   thereto,   contains   such
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of 1995,  particularly  statements  anticipating  future
growth in revenues, EBITA and cash flow. Words such as "anticipate," "estimate,"
"expects,"  "projects,"  "intends,"  "plans,"  "believes" and words and terms of
similar  substance used in connection with any discussion of future operating or
financial   performance   identify  such   forward-looking   statements.   Those
forward-looking  statements  are  management's  present  expectations  of future
events. As with any projection or forecast,  they are inherently  susceptible to
uncertainty and changes in circumstances, and 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  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.  TWE's actual results could
differ  materially  from  management's  expectations  because of changes in such
factors.  Some of the other  factors  that also could  cause  actual  results to
differ from those  contained in the  forward-looking  statements  include  those
identified in TWE's other filings and:

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

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

o    For TWE's film and  television  businesses,  their  ability to  continue to
     attract  and select  desirable  talent and  scripts  at  manageable  costs;
     increases in production costs generally;  fragmentation of consumer leisure
     and entertainment  time (and its possible negative effects on the broadcast
     and cable networks,  which are significant  

                                       39

<PAGE>

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


     customers of these businesses); continued  popularity  of  merchandising;
     and  the  uncertain  impact  of technological developments such as DVD and
     the Internet.

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.

                                       40

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           March 31,   December 31,
                                                                                           ---------   ------------
                                                                                              1999         1998
                                                                                              ----         ----
                                                                                                 (millions)
<S>                                                                                           <C>          <C>    
ASSETS
Current assets
Cash and equivalents........................................................................  $   321      $    87
Receivables, including $512 and $765 million due from Time Warner, 
    less allowances of $477 and $506 million................................................    2,423        2,618
Inventories.................................................................................    1,191        1,312
Prepaid expenses............................................................................      188          166
                                                                                              -------      -------

Total current assets........................................................................    4,123        4,183

Noncurrent inventories......................................................................    2,353        2,327
Loan receivable from Time Warner............................................................      400          400
Investments.................................................................................    1,070          886
Property, plant and equipment, net..........................................................    6,185        6,041
Cable television franchises.................................................................    3,898        3,773
Goodwill....................................................................................    3,828        3,854
Other assets................................................................................      675          766
                                                                                              -------      -------

Total assets................................................................................  $22,532      $22,230
                                                                                              =======      =======

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable............................................................................  $ 1,297      $ 1,473
Participations and programming costs payable................................................    1,464        1,515
Debt due within one year....................................................................        6            6
Other current liabilities, including $392 and $370 million due to Time Warner...............    2,051        1,942
                                                                                              -------      -------

Total current liabilities...................................................................    4,818        4,936

Long-term debt..............................................................................    6,921        6,578
Other long-term liabilities, including $1.309 and $1.130 billion due to Time Warner.........    3,440        3,267
Minority interests..........................................................................    1,623        1,522
Preferred stock of subsidiary holding solely a mortgage note of its parent..................        -          217
Time Warner General Partners' Senior Capital................................................      615          603

Partners' capital
Contributed capital.........................................................................    7,341        7,341
Undistributed partnership earnings (deficit)................................................   (2,226)      (2,234)
                                                                                              -------      -------

Total partners' capital.....................................................................    5,115        5,107
                                                                                              -------      -------

Total liabilities and partners' capital.....................................................  $22,532      $22,230
                                                                                              =======      =======

See accompanying notes.

</TABLE>

                                       41

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                 Three Months
                                                                                                 Ended March 31,
                                                                                                 ---------------
                                                                                                1999        1998
                                                                                                ----        ----
                                                                                                    (millions)
<S>                                                                                           <C>          <C>   
Revenues (a)................................................................................  $ 2,934      $ 2,910
                                                                                              -------      -------

Cost of revenues (a)(b).....................................................................    1,704        1,946
Selling, general and administrative (a)(b)..................................................      579          595
                                                                                              -------      -------

Operating expenses..........................................................................    2,283        2,541
                                                                                              -------      -------

Business segment operating income...........................................................      651          369
Interest and other, net (a).................................................................     (225)        (164)
Minority interest...........................................................................      (68)         (64)
Corporate services (a)......................................................................      (18)         (18)
                                                                                              -------      -------

Income before income taxes..................................................................      340          123
Income taxes................................................................................      (28)         (15)
                                                                                              -------      -------

Net income..................................................................................  $   312      $   108
                                                                                              =======      =======

---------------
(a)  Includes the following income  (expenses)  resulting from transactions with
     the partners of TWE and other related  companies for the three months ended
     March  31,  1999 and 1998,  respectively:  revenues-$120  million  and $129
     million; cost of revenues-$(78) million and $(38) million; selling, general
     and administrative-$(4) million and $1 million; interest and other, net-$20
     million  and $2  million;  and  corporate  services-$(18)  million  in both
     periods.

(b) Includes depreciation and amortization expense of:......................................  $   308      $   371
                                                                                              =======      =======

See accompanying notes.

</TABLE>

                                       42

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                 Three Months
                                                                                                 Ended March 31,
                                                                                                 ---------------
                                                                                                1999        1998 
                                                                                                ----        ---- 
                                                                                                   (millions)
<S>                                                                                           <C>          <C>   
OPERATIONS
Net income..................................................................................  $   312      $   108
Adjustments for noncash and nonoperating items:
Depreciation and amortization...............................................................      308          371
Changes in operating assets and liabilities.................................................      168          (38)
                                                                                              -------      -------

Cash provided by operations.................................................................      788          441
                                                                                              -------      -------

INVESTING ACTIVITIES
Investments and acquisitions................................................................      (47)        (230)
Capital expenditures........................................................................     (305)        (352)
Investment proceeds.........................................................................       30           23
                                                                                              -------      -------

Cash used by investing activities...........................................................     (322)        (559)
                                                                                              -------      -------

FINANCING ACTIVITIES
Borrowings..................................................................................    1,160          489
Debt repayments.............................................................................   (1,003)        (376)
Redemption of preferred stock of subsidiary ................................................     (217)           -
Capital distributions.......................................................................     (154)        (172)
Other.......................................................................................      (18)         (38)
                                                                                              -------      -------

Cash used by financing activities...........................................................     (232)         (97)
                                                                                              -------      -------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................................................      234         (215)

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

CASH AND EQUIVALENTS AT END OF PERIOD.......................................................  $   321      $   107
                                                                                              =======      =======


See accompanying notes.

</TABLE>

                                       43

<PAGE>

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

                                                           Three Months
                                                          Ended March 31,
                                                          ---------------
                                                         1999        1998
                                                         ----        ----
                                                            (millions)

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

Net income...........................................      312         108
Other comprehensive income (loss)....................       41         (14)
                                                        ------      ------
Comprehensive income.................................      353          94

Distributions........................................     (333)       (277)
Allocation of income to Time Warner General
   Partners' Senior Capital .........................      (12)        (22)
                                                        ------      ------ 


BALANCE AT END OF PERIOD.............................   $5,115      $6,128
                                                        ======      ======


See accompanying notes.

                                       44

<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;
Entertainment,  consisting  principally  of interests  in filmed  entertainment,
television  production  and  television  broadcasting;   and  Cable,  consisting
principally of interests in cable television systems.

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

         The operating results of TWE's various business interests are presented
herein as an indication of financial  performance  (Note 7). Except for start-up
losses  incurred in connection  with The WB Network,  TWE's  principal  business
interests generate  significant  operating income and cash flow from operations.
The  cash  flow  from  operations   generated  by  such  business  interests  is
considerably  greater than their operating income due to significant  amounts of
noncash amortization of intangible assets recognized  principally in Time Warner
Companies,   Inc.'s   ("Time   Warner")  $14  billion   acquisition   of  Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications  Corporation ("ATC") in 1992,
a portion  of which cost was  allocated  to TWE upon the  capitalization  of the
partnership.  Noncash  amortization  of  intangible  assets  recorded  by  TWE's
businesses  amounted to $116  million and $128 million in the three months ended
March 31, 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 senior priority capital ("Senior Capital")
and 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").  Certain  reclassifications  have been made to the prior
year's financial statements to conform to the 1999 presentation.

                                       45

<PAGE>

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


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.       INVESTMENT IN PRIMESTAR

         TWE  owns  an  approximate  24%  equity  interest  in  Primestar,  Inc.
("Primestar").  In the  fourth  quarter  of  1998,  TWE  recorded  a  charge  of
approximately  $210  million  principally  to reduce the  carrying  value of its
interest in Primestar to fair value.

         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.  The final terms of this medium-power
transaction  confirmed  the  decline  in value of TWE's  interest  in  Primestar
recognized in 1998. The closing of the sale of Primestar's  high-power satellite
rights to DirecTV is expected to occur in the second quarter of 1999, subject to
customary  closing   conditions,   including  all  necessary   governmental  and
regulatory  approvals.  There can be no assurance  that such  approvals  will be
obtained and that this high-power transaction will be consummated.

         During the period in which Primestar's operations are being wound down,
TWE  continues  to recognize  its share of losses of Primestar  under the equity
method of  accounting.  Such losses are included in interest and other,  net, in
TWE's consolidated statement of operations.

4.       INVENTORIES

         TWE's inventories consist of:

<TABLE>
<CAPTION>
                                                                        March 31, 1999         December 31, 1998
                                                                        --------------         -----------------
                                                                    Current    Noncurrent      Current   Noncurrent
                                                                    -------    ----------      -------   ----------
                                                                                      (millions)
<S>                                                                   <C>          <C>         <C>         <C>   
Film costs:
   Released, less amortization.....................................   $  612       $  782      $  614      $  744
   Completed and not released......................................       73           22         179          76
   In process and other............................................       25          628          23         572
   Library, less amortization......................................        -          547           -         560
Programming costs, less amortization...............................      406          374         426         375
Merchandise........................................................       75            -          70           -
                                                                      ------       ------      ------      ------

Total..............................................................   $1,191       $2,353      $1,312      $2,327
                                                                      ======       ======      ======      ======
</TABLE>

                                       46

<PAGE>

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


5.       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.

6.       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 three months ended March 31, 1999, TWE accrued $67 million of
tax-related distributions and $266 million of stock option distributions,  based
on closing  prices of Time Warner Inc.  common stock of $70.81 at March 31, 1999
and $62.06 at December 31,  1998.  During the three months ended March 31, 1998,
TWE accrued $52 million of tax-related  distributions  and $225 million of stock
option distributions as a result of an increase at that time in the market price
of Time Warner Inc. common stock.  During the three months ended March 31, 1999,
TWE paid distributions to the Time Warner General Partners in the amount of $154
million,  consisting of $67 million of tax-related distributions and $87 million
of stock option related  distributions.  During the three months ended March 31,
1998, TWE paid the Time Warner General  Partners  distributions in the amount of
$172 million,  consisting of $52 million of tax-related  distributions  and $120
million of stock option related distributions.

                                       47

<PAGE>

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


7.       SEGMENT INFORMATION

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

         Information as to the operations of TWE in different  business segments
is set forth below based on the nature of the products and services offered. TWE
evaluates  performance based on several factors,  of which the primary financial
measure is business  segment  operating  income before noncash  amortization  of
intangible  assets  ("EBITA").  The  operating  results of TWE's  cable  segment
reflect:  (i) the transfer of Time Warner  Cable's  direct  broadcast  satellite
operations  to Primestar,  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 named Time Warner  Telecom LLC,  effective as of July 1,
1998 and  (iv) the  formation  of a joint  venture  in  Texas  that  owns  cable
television systems serving  approximately 1.1 million subscribers,  effective as
of  December  31, 1998  (collectively,  the "1998  Cable  Transactions").  These
transactions are described more fully in TWE's 1998 Form 10-K.

                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999       1998
                                                           ----       ----
                                                             (millions)
Revenues
Filmed Entertainment-Warner Bros......................  $ 1,380      $1,310
Broadcasting-The WB Network...........................       79          45
Cable Networks-HBO....................................      526         512
Cable.................................................    1,074       1,153
Intersegment elimination..............................     (125)       (110)
                                                        -------      ------

Total.................................................  $ 2,934      $2,910
                                                        =======      ======


                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999       1998
                                                              (millions)
EBITA(1)
Filmed Entertainment-Warner Bros(2)...................     $346        $119
Broadcasting-The WB Network...........................      (41)        (38)
Cable Networks-HBO....................................      125         109
Cable.................................................      337         307
                                                        -------      ------

Total.................................................     $767        $497
                                                        =======      ======
---------------
(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
     months  ended  March 31, 1999 and 1998 was $651  million and $369  million,
     respectively.

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

                                       48

<PAGE>

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

                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999      1998
                                                           ----      ----
                                                             (millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment-Warner Bros......................  $    29      $   40
Broadcasting-The WB Network...........................        -           -
Cable Networks-HBO....................................        7           5
Cable.................................................      156         198
                                                        -------      ------

Total.................................................  $   192      $  243
                                                        =======      ======

                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999       1998
                                                           ----       ----
                                                              (millions)
Amortization of Intangible Assets (1)
Filmed Entertainment-Warner Bros......................    $  30       $  33
Broadcasting-The WB Network...........................        1           1
Cable Networks-HBO....................................        -           -
Cable.................................................       85          94
                                                        -------      ------

Total.................................................     $116        $128
                                                        =======      ======

(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.

8.       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.

9.                ADDITIONAL FINANCIAL INFORMATION

         Additional  financial  information  with  respect  to cash  flows is as
follows:
                                                            Three Months
                                                           Ended March 31,
                                                           ---------------
                                                           1999       1998
                                                           ----       ----
                                                              (millions)
Interest expense......................................     $137        $141
Cash payments made for interest.......................      144         156
Cash payments made for income taxes, net..............       22          20
Noncash capital distributions.........................      266         225

         Noncash investing activities in the first three months of 1998 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.

                                       49

<PAGE>


                           Part II. Other Information


Item 1.   Legal Proceedings.

         Reference is made to the  litigation  entitled Six Flags Over  Georgia,
Inc.,  et al. v. Six Flags Fund,  Ltd.,  et al.  commenced in Superior  Court in
Gwinnett County, Georgia in connection with the management of the Six Flags Over
Georgia  Theme Park  described  on pages I-39 and I-40 of Time  Warner's  Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K").
On April 22, 1999, the Court denied defendants'  post-trial motions for judgment
notwithstanding the verdict, for a new trial and for the remittur of all or part
of the  damages  awarded  by the jury,  and also  ordered  defendants  to post a
supersedeas  bond in the amount of $454  million.  Defendants  filed a notice of
appeal on April 23, 1999.

         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. On April 30, 1999,
the Court  granted  defendants'  motion to dismiss in its entirety and dismissed
this case.


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.
             -------------------

         No  Current  Report on Form 8-K was  filed by Time  Warner  during  the
quarter ended March 31, 1999.

                                       50

<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/  Richard J. Bressler 
                                                    ---------------------------
                                            Name:   Richard J. Bressler
                                           Title:   Senior Vice President and
                                                    Chief Financial Officer


Dated:    May 12, 1999

<PAGE>


                                  EXHIBIT INDEX
                     Pursuant to Item 601 of Regulations S-K
                     ---------------------------------------



Exhibit No.                Description of Exhibit
-----------                ----------------------


27                         Financial Data Schedule.