SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

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

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

Commission file number 1-12259
                       --------


                                TIME WARNER INC.
             (Exact name of registrant as specified in its charter)

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


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

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


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

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

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


<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       43

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

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

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

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

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

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


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



<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 junior  priority  capital  ("Series B Capital").  The  remaining
25.51%  limited  partnership  interests  in the  Series A Capital  and  Residual
Capital of TWE are held by a subsidiary of MediaOne  Group,  Inc.  ("MediaOne").
Time  Warner  has  not  consolidated  TWE and  certain  related  companies  (the
"Entertainment  Group")  for  financial  reporting  purposes  because of certain
limited  partnership  approval  rights held by  MediaOne  related to TWE's cable
television business.

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

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

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

                                       1
<PAGE>


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

Columbia House-CDnow Merger

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

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

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

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

Use of EBITA

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

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

                                       2
<PAGE>


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

Transactions Affecting Comparability of Results of Operations

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

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

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

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

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

                                       3
<PAGE>


RESULTS OF OPERATIONS

         EBITA and operating income are as follows:

<TABLE>
<CAPTION>

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

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

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


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

Total.................................... $1,332      $586   $1,212     $456   $2,099    $1,083   $1,863     $825
                                          ======      ====   ======     ====   ======    ======   ======     ====
</TABLE>

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

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

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

          As previously described, the comparability of  Time  Warner's  and the
Entertainment  Group's  operating results for 1999 and 1998 has been affected by
certain  significant,  nonrecurring  items  recognized  in  each  period.  These
nonrecurring  items consisted of approximately  $886 million of net pretax gains
in 1999,  compared to $70 million of net pretax gains in 1998. The aggregate net
effect of these items was an increase in

                                       4
<PAGE>


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

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

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

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

Time Warner

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

                                       5
<PAGE>


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

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

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

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

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

                                       6
<PAGE>


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

Entertainment Group

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

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

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

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

                                       7
<PAGE>


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

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

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

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

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

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

                                       8
<PAGE>


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

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

Time Warner

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

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

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

                                       9
<PAGE>


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

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

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

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

Entertainment Group

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

                                       10
<PAGE>


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

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

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

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

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

         Minority  Interest.  Minority  interest expense was $301 million in the
first six months of 1999,  compared  to $146  million in the first six months of
1998.  Minority interest expense increased  primarily due to the allocation of a
portion of the net pretax  gains  relating  to the sale or  exchange  of various
cable television systems and investments

                                       11
<PAGE>


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

FINANCIAL CONDITION AND LIQUIDITY
June 30, 1999

Time Warner

Financial Condition

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

Debt Refinancings

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

Preferred Stock Conversion

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

Common Stock Repurchase Program

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

                                       12
<PAGE>


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

Cash Flows

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

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

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

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

                                       13
<PAGE>


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

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

Entertainment Group

Financial Condition

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

Senior Capital Distributions

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

Redemption of REIT Preferred Stock

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

Cash Flows

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

                                       14
<PAGE>


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

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

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

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

Cable Capital Spending

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

Filmed Entertainment Backlog

         Backlog  represents  the amount of future revenue not yet recorded from
cash contracts for the licensing of theatrical  and  television  product for pay
cable, basic cable,  network and syndicated  television  exhibition.  Backlog of
TWE's Filmed  Entertainment-Warner  Bros. division amounted to $2.663 billion at
June 30,  1999,  compared  to $2.298  billion at December  31,  1998  (including
amounts  relating to the  licensing of film  product to Time  Warner's and TWE's
cable television networks of $1.014 billion at June 30, 1999 and $769 million at
December   31,   1998).   In   addition,   backlog  of  Time   Warner's   Filmed
Entertainment-TBS  division  amounted to $587  million at June 30, 1999 and $636
million at December 31, 1998  (including  amounts  relating to the  licensing of
film  product to Time  Warner's  and TWE's  cable  television  networks  of $222
million at June 30, 1999 and $226 million at December 31, 1998).

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

                                       15
<PAGE>


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

Year 2000 Technology Preparedness

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

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

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

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

                                       16
<PAGE>


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

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

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

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

                                       17
<PAGE>


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

Caution Concerning Forward-Looking Statements

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

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

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

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

                                       18
<PAGE>


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

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

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

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

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

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

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

                                       19
<PAGE>



                                TIME WARNER INC.
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                        June 30,     December 31,
                                                                                          1999         1998
                                                                                        --------     --------
                                                                                           (millions, except
                                                                                           per share amounts)
ASSETS
Current assets
<S>                                                                                     <C>          <C>
Cash and equivalents..................................................................  $   304      $   442
Receivables, less allowances of $875 million and $1.007 billion.......................    2,397        2,885
Inventories...........................................................................      923          946
Prepaid expenses......................................................................    1,279        1,176
                                                                                         ------       ------

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

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

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

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

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

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

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

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

Total liabilities and shareholders' equity............................................  $31,893      $31,640
                                                                                        =======      =======
</TABLE>


See accompanying notes.

                                       20
<PAGE>


                                TIME WARNER INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

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

<S>                                                                   <C>          <C>         <C>         <C>
Revenues (a).......................................................   $3,574       $3,672      $6,840      $6,809
                                                                      ------       ------      ------      ------

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

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

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

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

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

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

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

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


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

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

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


See accompanying notes.

                                       21
<PAGE>


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

<TABLE>
<CAPTION>

                                                                                        Six Months
                                                                                      Ended June 30,
                                                                                      --------------
                                                                                    1999        1998
                                                                                    ----        ----
                                                                                       (millions)
OPERATIONS
<S>                                                                                  <C>        <C>
Net income......................................................................     $731       $  39
Adjustments for noncash and nonoperating items:
Depreciation and amortization...................................................      560         589
Noncash interest expense........................................................        2          29
Excess (deficiency) of distributions over equity in pretax income of
   Entertainment Group..........................................................     (855)         25
Changes in operating assets and liabilities.....................................      157         207
                                                                                     ----       -----

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

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

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

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

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

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

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

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

</TABLE>


See accompanying notes.

                                       22
<PAGE>


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


<TABLE>
<CAPTION>

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

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

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

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


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

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

</TABLE>


See accompanying notes.

                                       23
<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 junior  priority  capital  ("Series B Capital").  The
remaining 25.51%  limited  partnership  interests  in the  Series A Capital  and
Residual Capital  of  TWE  are  held  by a  subsidiary of MediaOne  Group,  Inc.
("MediaOne").   Time  Warner  has  not  consolidated  TWE and  certain  related
companies (the "Entertainment Group") for financial reporting purposes  because
of certain limited  partnership  approval  rights held by  MediaOne  related to
TWE's cable television business.

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

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

                                       24
<PAGE>


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

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

Basis of Presentation

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

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

2.   ENTERTAINMENT GROUP

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

                                                                                  June 30,   December 31,
                                                                                    1999         1998
                                                                                  ------       --------
                                                                                       (millions)
<S>                                                                                <C>         <C>
Investment in TWE...............................................................   $4,497      $3,850
Stock option related distributions due from TWE.................................    1,347       1,130
Credit agreement debt due to TWE................................................     (400)       (400)
Other net amounts due to TWE, principally related to home video distribution....     (104)       (395)
                                                                                    -----       -----
Investment in and amounts due to and from TWE...................................    5,340       4,185
Investment in TWE-A/N and other Entertainment Group companies...................      912         795
                                                                                    -----       -----

Total...........................................................................   $6,252      $4,980
                                                                                   ======      ======
</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 Series B Capital. The
remaining  25.51%  limited  partnership  interests  in the Series A Capital  and
Residual Capital of TWE are owned by MediaOne.  Certain Time Warner subsidiaries
are the general partners of TWE (the "Time Warner General Partners").

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

                                       25
<PAGE>


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

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

Summarized Financial Information of the Entertainment Group

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

<TABLE>
<CAPTION>

                                                      Three Months             Six Months
                                                      Ended June 30,          Ended June 30,
                                                      --------------          ---------------
                                                    1999        1998         1999        1998
                                                    ----        ----         ----        ----
                                                                    (millions)
Operating Statement Information
<S>                                              <C>          <C>          <C>         <C>
Revenues......................................   $3,060       $2,853       $5,994      $5,765
Depreciation and amortization.................     (334)        (356)        (642)       (727)
Business segment operating income(1)(2).......    1,212          456        1,863         825
Interest and other, net.......................     (167)        (183)        (392)       (347)
Minority interest.............................     (233)         (82)        (301)       (146)
Income before income taxes ...................      794          173        1,134         296
Net income....................................      767          156        1,079         264

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

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

                                       26
<PAGE>

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

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

Capital Distributions

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

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

Gain on Termination of MGM Video Distribution Agreement

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

                                       27
<PAGE>


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


Gain on Sale or Exchange of Cable Television Systems and Investments

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

Primestar

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

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

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

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

                                       28
<PAGE>


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

4.   INVENTORIES

         Inventories consist of:
<TABLE>
<CAPTION>

                                                     June 30, 1999           December 31, 1998
                                                     -------------           -----------------
                                                   Current   Noncurrent     Current   Noncurrent
                                                   -------   ----------     -------   ----------
                                                                   (millions)
Film costs:
<S>                                                 <C>        <C>           <C>       <C>
   Released, less amortization.................     $ 74       $  226        $ 51      $  308
   Completed and not released..................       28            5          20           -
   In process and other........................        -          246           2         240
   Library, less amortization..................        -          979           -       1,007
Programming costs, less amortization...........      403          382         457         345
Magazines, books and recorded music............      418            -         416           -
                                                    ----      -------        ----      ------

Total  ........................................     $923       $1,838        $946      $1,900
                                                    ====       ======        ====      ======
</TABLE>

5.   MANDATORILY REDEEMABLE PREFERRED SECURITIES

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

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

6.   SHAREHOLDERS' EQUITY

Preferred Stock Conversion

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

Series LMCN-V Stock Split

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

                                       29
<PAGE>


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


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

Common Stock Repurchase Program

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

Net Income (Loss) Per Common Share

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

<TABLE>
<CAPTION>

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

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

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

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

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


                                       30
<PAGE>

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


7.   SEGMENT INFORMATION

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

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

<TABLE>
<CAPTION>

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

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

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

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

Total....................................   $3,060       $2,853      $5,994      $5,765
                                            ======       ======      ======      ======
</TABLE>

                                       31
<PAGE>

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

<TABLE>
<CAPTION>


                                                   Three Months              Six Months
                                                  Ended June 30,            Ended June 30,
                                                  --------------            --------------
                                                 1999        1998          1999       1998
                                                 ----        ----          ----       ----
                                                                  (millions)
EBITA(1)
Time Warner:
<S>                                            <C>          <C>          <C>         <C>
Publishing..................................   $  196       $  176       $  290      $  261
Music.......................................      101           96          203         189
Cable Networks-TBS..........................      235          198          419         351
Filmed Entertainment-TBS....................       71           38          100          23
Cable(2)....................................       81           74          147         148
Intersegment elimination....................        2           (1)          12         (20)
                                                -----        -----        -----       -----
Total.......................................    $ 686       $  581       $1,171      $  952
                                                =====       ======       ======      ======

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

---------------
(1)EBITA   represents   business   segment   operating   income  before  noncash
   amortization of intangible assets. After deducting amortization of intangible
   assets, Time Warner's business segment operating income for the three and six
   months ended June 30, 1999,  respectively,  and for the corresponding periods
   in the prior year was $495 million and $790 million in 1999, $384 million and
   $554 million in 1998.  Similarly,  business  segment  operating income of the
   Entertainment  Group  for the  three  and six  months  ended  June 30,  1999,
   respectively,  and for the corresponding periods in the prior year was $1.212
   billion and $1.863 billion in 1999, $456 million and $825 million in 1998.
(2)Includes net pretax gains  relating to the sale or exchange of certain  cable
   television systems and investments of $771  million in the second  quarter of
   1999  and  $70  million in the second quarter of 1998.  Similarly, six-month
   results  include  net pretax gains of $771 million in 1999 and $84 million in
   1998.  Of such  amounts,  $11 million of net pretax  gains recognized in the
   second quarter of 1999 relate to Time Warner's wholly owned Cable division.
(3)Includes a net pretax gain of  approximately  $215 million  recognized in the
   first quarter of 1999 in connection with the early termination and settlement
   of a long-term home video distribution agreement.
<TABLE>
<CAPTION>
                                                           Three Months              Six Months
                                                          Ended June 30,           Ended June 30,
                                                          --------------           --------------
                                                        1999        1998         1999        1998
                                                        ----        ----         ----        ----
                                                                        (millions)
Depreciation of Property, Plant and Equipment
Time Warner:
<S>                                                    <C>          <C>         <C>         <C>
Publishing........................................     $ 19         $ 19        $ 38        $ 38
Music.............................................       18           19          35          38
Cable Networks-TBS................................       26           25          50          47
Filmed Entertainment-TBS..........................        2            1           3           3
Cable.............................................       27           32          53          65
                                                        ---         ----         ---        ----
Total.............................................     $ 92         $ 96        $179        $191
                                                       ====         ====        ====        ====

Entertainment Group:
Filmed Entertainment-Warner Bros..................     $ 36         $ 38        $ 65        $ 78
Broadcasting-The WB Network.......................        1            -           1           -
Cable Networks-HBO................................        6            5          13          10
Cable.............................................      171          183         327         381
                                                       ----         ----        ----        ----
Total.............................................     $214         $226        $406        $469
                                                       ====         ====        ====        ====
</TABLE>
                                       32
<PAGE>


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


<TABLE>
<CAPTION>

                                                          Three Months              Six Months
                                                          Ended June 30,         Ended June 30,
                                                          --------------         --------------
                                                        1999        1998         1999        1998
                                                        ----        ----         ----        ----
                                                                       (millions)
Amortization of Intangible Assets(1)
Time Warner:
<S>                                                    <C>          <C>         <C>         <C>
Publishing........................................     $ 10         $  8        $ 20        $ 17
Music.............................................       70           71         137         139
Cable Networks-TBS................................       51           50         101         100
Filmed Entertainment-TBS..........................       18           20          37          40
Cable.............................................       42           48          86         102
                                                        ---          ---         ---        ----
Total.............................................     $191         $197        $381        $398
                                                       ====         ====        ====        ====

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

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

8.   COMMITMENTS AND CONTINGENCIES

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

9.   ADDITIONAL FINANCIAL INFORMATION

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

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

                                       33
<PAGE>


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


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

                                       34
<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 June 30, 1999
<TABLE>
<CAPTION>

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


<S>                                           <C>         <C>         <C>          <C>        <C>          <C>
Revenues ...................................  $   -       $    -      $  242       $3,333     $    (1)     $3,574
                                              -----       ------      ------       ------     -------      ------

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

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

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

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

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


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

</TABLE>
                                       35
<PAGE>


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

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

<TABLE>
<CAPTION>


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

<S>                                           <C>         <C>         <C>          <C>        <C>          <C>
Revenues ...................................  $   -       $    -      $  198       $3,474     $     -      $3,672
                                              -----       ------      ------       ------     -------      ------

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

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

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

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

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


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

</TABLE>
                                       36
<PAGE>


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

                      Consolidating Statement of Operations
                     For The Six Months Ended June 30, 1999
<TABLE>
<CAPTION>

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

<S>                                           <C>         <C>         <C>          <C>        <C>          <C>
Revenues ...................................  $   -       $    -      $  426       $6,417     $    (3)     $6,840
                                              -----       ------      ------       ------     -------      ------

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

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

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

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

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


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

                                       37
<PAGE>

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

                      Consolidating Statement of Operations
                     For The Six Months Ended June 30, 1998
<TABLE>
<CAPTION>

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

<S>                                           <C>         <C>         <C>          <C>        <C>          <C>
Revenues ...................................  $   -       $    -      $  366       $6,443     $     -      $6,809
                                              -----       ------      ------       ------     -------      ------

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

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

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

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

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


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

</TABLE>
                                       38
<PAGE>

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

                           Consolidating Balance Sheet
                                  June 30, 1999
<TABLE>
<CAPTION>
T
                                                                                              Non-        Time
                                                Time        TW                   Guarantor    Elimina-    Warner
                                               Warner     Companies     TBS     Subsidiaries  tions    Consolidated
                                              -------     ---------     ---     ------------  -------   -----------
                                                                               (millions)
ASSETS
Current assets

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

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

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

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

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

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

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

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

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

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

                                       39
<PAGE>

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

                           Consolidating Balance Sheet
                                December 31, 1998

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

                                       40
<PAGE>


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


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

<TABLE>
<CAPTION>

                                                                                                   Non-                    Time
                                                             Time         TW                      Guarantor    Elimina-   Warner
                                                             Warner    Companies        TBS      Subsidiaries  tions   Consolidated
                                                             ------    ---------        ---      ------------  ------  -----------
                                                                                          (millions)
OPERATIONS
<S>                                                          <C>         <C>          <C>          <C>          <C>        <C>
Net income.................................................  $   731     $   675      $   134      $   994      $(1,803)   $   731
Adjustments for noncash and nonoperating items:
Depreciation and amortization..............................        -           -            5          555            -        560
Noncash interest expense...................................        -           2            -            -            -          2
Excess (deficiency) of distributions over equity in
   pretax income of consolidated subsidiaries..............     (174)       (502)         147            -          529          -
Deficiency of distributions over equity in pretax
   income of Entertainment Group...........................        -           -            -         (854)          (1)      (855)
Changes in operating assets and liabilities................      (89)        (53)        (134)         452          (19)       157
                                                              ------      ------       ------        -----       ------     ------

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

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

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

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

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

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

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

CASH AND EQUIVALENTS AT END OF PERIOD......................  $     -     $     -      $     8      $   296      $     -    $   304
                                                             =======     =======      =======      =======      =======    =======
</TABLE>

                                       41
<PAGE>

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


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

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

CASH AND EQUIVALENTS AT END OF PERIOD......................  $    -    $   62     $  16       $   266       $    -     $344
                                                             ======    ======     ======      =======       ======     ====
</TABLE>

                                       42
<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.

AT&T/MediaOne Acquisition

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

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

                                       43
<PAGE>


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

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

Transactions Affecting Comparability of Results of Operations

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

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

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

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

RESULTS OF OPERATIONS

         EBITA and operating income are as follows:

<TABLE>
<CAPTION>

                                       Three Months Ended June 30,     Six Months Ended June 30,
                                       ---------------------------     --------------------------
                                                         Operating                      Operating
                                           EBITA           Income          EBITA         Income
                                           -----         ---------         -----        ---------
                                       1999    1998    1999    1998     1999   1998    1999    1998
                                       ----    ----    ----    ----     ----   ----    ----    ----
                                                              (millions)
<S>                                    <C>      <C>    <C>     <C>     <C>     <C>     <C>     <C>
Filmed Entertainment-Warner Bros.(1).  $  132   $121   $ 101   $ 88    $ 478   $ 240   $ 417   $174
Broadcasting-The WB Network..........     (30)   (23)    (31)   (24)     (71)    (61)    (73)   (63)
Cable Networks-HBO...................     131    113     131    113      256     222     256    222
Cable(2).............................   1,099    374   1,011    278    1,436     681   1,263    491
                                       ------   ----  ------   ----   ------    ----  ------   ----

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

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

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

                                       44
<PAGE>


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


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

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

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

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

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

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

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

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

         Cable. Revenues increased to $1.114 billion,  compared to $1.084
billion in the second quarter of 1998. EBITA increased to $1.099 billion from
$374 million.  Operating income increased to $1.011 billion from $278

                                       45
<PAGE>


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

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

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

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

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

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

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

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

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

                                       46
<PAGE>


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

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

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

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

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

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

         Interest and  Other, Net.   Interest  and  other, net, increased to an
expense of $392 million in the first six months of 1999,  compared to an expense
of $347 million in the first six months of 1998.  Interest  expense was $273
million in both periods.  Other  expense, net, increased to $119 million in the
first six months of 1999,

                                       47
<PAGE>


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

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

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

FINANCIAL CONDITION AND LIQUIDITY
June 30, 1999

Financial Condition

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

Senior Capital Distributions

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

Redemption of REIT Preferred Stock

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

Cash Flows

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

                                       48
<PAGE>


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


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

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

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

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

Cable Capital Spending

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

Filmed Entertainment

         Backlog  represents  the amount of future revenue not yet recorded from
cash contracts for the licensing of theatrical  and  television  product for pay
cable, basic cable,  network and syndicated  television  exhibition.  Backlog of
TWE's Filmed  Entertainment-Warner  Bros. division amounted to $2.663 billion at
June 30, 1999  (including  amounts  relating to the licensing of film product to
TWE's cable  television  networks of $359  million  and to Time  Warner's  cable
television  networks  of $655  million).  This  compares  to $2.298  billion  at
December 31, 1998 (including  amounts  relating to the licensing of film product
to TWE's cable  television  networks of $199 million and to Time Warner's  cable
television networks of $570 million).

         Because  backlog  generally  relates to contracts  for the licensing of
theatrical  and  television  product  which  have  already  been  produced,  the
recognition of revenue for such completed product principally is dependent only

                                       49
<PAGE>


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


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

Year 2000 Technology Preparedness

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

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

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

                                       50
<PAGE>

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


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

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

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

         The Company  continues to focus its efforts on  remediation of its Year
2000 exposures.  Simultaneously,  it is examining its existing standard business
interruption  strategies to evaluate whether they would  satisfactorily meet the
demands  of  failures  arising  from  Year-2000  related  problems.  It is  also
developing and refining specific transition

                                       51
<PAGE>


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


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

Caution Concerning Forward-Looking Statements

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

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

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

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

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

                                       52
<PAGE>


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


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

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

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.

                                       53
<PAGE>


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

<TABLE>
<CAPTION>

                                                                                               June 30,    December 31,
                                                                                                1999          1998
                                                                                                ----          -----
                                                                                                     (millions)
ASSETS
Current assets
<S>                                                                                            <C>         <C>
Cash and equivalents........................................................................   $  117      $    87
Receivables, including $469 and $765 million due from Time Warner,
    less allowances of $476 and $506 million................................................    2,639        2,618
Inventories.................................................................................    1,247        1,312
Prepaid expenses............................................................................      220          166
                                                                                               ------       ------

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

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

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

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

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

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

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

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

Total liabilities and partners' capital.....................................................  $22,889      $22,230
                                                                                              =======      =======
</TABLE>


See accompanying notes.

                                       54
<PAGE>


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

<TABLE>
<CAPTION>

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

<S>                                                                   <C>          <C>         <C>         <C>
Revenues (a).......................................................   $3,060       $2,850      $5,994      $5,760
                                                                      ------       ------      ------      ------

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

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

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

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

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

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

</TABLE>


See accompanying notes.

                                       55
<PAGE>


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


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

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

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

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

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

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

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

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

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

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

</TABLE>


See accompanying notes.

                                       56
<PAGE>


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


<TABLE>
<CAPTION>


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

<S>                                                                          <C>         <C>
BALANCE AT BEGINNING OF PERIOD.............................................  $5,107      $6,333

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

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


BALANCE AT END OF PERIOD...................................................  $5,711      $5,983
                                                                             ======      ======
</TABLE>

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


See accompanying notes.

                                       57
<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 8). Except for start-up
losses  incurred in connection  with The WB Network,  TWE's  principal  business
interests generate  significant  operating income and cash flow from operations.
The  cash  flow  from  operations   generated  by  such  business  interests  is
considerably  greater than their operating income due to significant  amounts of
noncash amortization of intangible assets recognized  principally in Time Warner
Companies,   Inc.'s   ("Time   Warner")  $14  billion   acquisition   of  Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications  Corporation ("ATC") in 1992,
a portion  of which cost was  allocated  to TWE upon the  capitalization  of the
partnership.  Noncash  amortization  of  intangible  assets  recorded  by  TWE's
businesses  amounted to $120  million and $130 million in the three months ended
June 30, 1999 and 1998,  respectively  and $236 million and $258 million for the
six months ended June 30, 1999 and 1998, respectively.

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

Basis of Presentation

         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

                                       58
<PAGE>


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

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

2.   GAIN ON TERMINATION OF MGM VIDEO DISTRIBUTION AGREEMENT

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

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

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

4.   INVESTMENT IN PRIMESTAR

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

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

                                       59
<PAGE>


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


5.       INVENTORIES

         TWE's inventories consist of:

<TABLE>
<CAPTION>

                                                  June 30, 1999              December 31, 1998
                                                --------------------       --------------------
                                                Current    Noncurrent      Current   Noncurrent
                                                -------    ----------      -------   ----------
                                                                   (millions)
Film costs:
<S>                                              <C>          <C>         <C>         <C>
   Released, less amortization................   $  529       $  778      $  614      $  744
   Completed and not released.................      224           64         179          76
   In process and other.......................       54          367          23         572
   Library, less amortization.................        -          534           -         560
Programming costs, less amortization..........      361          371         426         375
Merchandise...................................       79            -          70           -
                                                  -----       ------      ------      ------
Total.........................................   $1,247       $2,114      $1,312      $2,327
                                                 ======       ======      ======      ======
</TABLE>

6.       PREFERRED STOCK OF SUBSIDIARY

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

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

7.       PARTNERS' CAPITAL

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

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

                                       60
<PAGE>


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

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

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

8.       SEGMENT INFORMATION

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

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

<TABLE>
<CAPTION>


                                                       Three Months              Six Months
                                                      Ended June 30,          Ended June 30,
                                                    ----------------         -----------------
                                                    1999        1998         1999        1998
                                                    ----        ----         ----        ----
                                                                    (millions)
Revenues
<S>                                               <C>          <C>         <C>         <C>
Filmed Entertainment-Warner Bros...............   $1,446       $1,327      $2,826      $2,637
Broadcasting-The WB Network....................       83           61         162         106
Cable Networks-HBO.............................      546          509       1,072       1,021
Cable..........................................    1,114        1,084       2,188       2,237
Intersegment elimination.......................     (129)        (131)       (254)       (241)
                                                   -----       ------       -----      ------

Total..........................................   $3,060       $2,850      $5,994      $5,760
                                                  ======       ======      ======      ======
</TABLE>

                                       61
<PAGE>
                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months              Six Months
                                                      Ended June 30,          Ended June 30,
                                                    ----------------         ----------------
                                                    1999        1998         1999        1998
                                                    ----        ----         ----        ----
                                                                   (millions)
EBITA(1)
<S>                                               <C>            <C>        <C>        <C>
Filmed Entertainment-Warner Bros.(2)...........   $  132         $121       $ 478      $  240
Broadcasting-The WB Network....................      (30)         (23)        (71)        (61)
Cable Networks-HBO.............................      131          113         256         222
Cable(3).......................................    1,099          374       1,436         681
                                                   ------         ----      ------        ----

Total..........................................   $1,332         $585      $2,099      $1,082
                                                  ======         ====      ======      ======
</TABLE>
---------------
(1)EBITA   represents   business   segment   operating   income  before  noncash
   amortization of intangible assets. After deducting amortization of intangible
   assets,  TWE's business segment operating income for the three and six months
   ended June 30, 1999,  respectively,  and for the corresponding periods in the
   prior year was $1.212 billion and $1.863 billion in 1999 and $455 million and
   $824 million in 1998.

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

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

<TABLE>
<CAPTION>
                                                     Three Months              Six Months
                                                     Ended June 30,          Ended June 30,
                                                    ----------------         ----------------
                                                    1999        1998         1999        1998
                                                    ----        ----         ----        ----
                                                                   (millions)
Depreciation of Property, Plant and Equipment
<S>                                                 <C>          <C>         <C>         <C>
Filmed Entertainment-Warner Bros...............     $ 36         $ 38        $ 65        $ 78
Broadcasting-The WB Network....................        1            -           1           -
Cable Networks-HBO.............................        6            5          13          10
Cable..........................................      171          183         327         381
                                                    ----         ----        ----        ----

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

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

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

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

9.       COMMITMENTS AND CONTINGENCIES

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

                                       62
<PAGE>


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


10.      ADDITIONAL FINANCIAL INFORMATION

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

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

                                       63
<PAGE>



                           Part II. Other Information

Item 1.  Legal Proceedings.

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

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

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

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

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

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

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

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

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

                                       64
<PAGE>


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

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

         (d)   Not applicable.


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

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

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

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

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

                                       65
<PAGE>


                                TIME WARNER INC.

                                    SIGNATURE


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

                                       TIME WARNER INC.
                                       (Registrant)



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


Dated:    August 13, 1999

                                       66
<PAGE>


                                  EXHIBIT INDEX
                     Pursuant to Item 601 of Regulations S-K


Exhibit No.                Description of Exhibit


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

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

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

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

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

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

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

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

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

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


<PAGE>


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

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

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

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

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

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

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

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

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

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


<PAGE>


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

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

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

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

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

27                Financial Data Schedule.