SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

[ x ]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT of 1934 for the quarterly period ended March 31, 2000 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                        1,201,618,569
    Series LMCN-V Common Stock - $.01 par value           114,123,884
    --------------------------------------------        ---------------
             Description of Class                      Shares Outstanding
                                                      as of  April 30, 2000


<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          28
     Consolidated balance sheet at March 31, 2000
          and December 31, 1999............................    10          34
     Consolidated statement of operations for the
          three months ended March 31, 2000 and 1999.......    11          35
     Consolidated statement of cash flows for the three
           months ended March 31, 2000 and 1999............    12          36
     Consolidated statement of shareholders' equity
          and partnership capital..........................    13          37
     Notes to consolidated financial statements............    14          38
     Supplementary information.............................    22


PART II.  OTHER INFORMATION................................    44

<PAGE>

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

Description of Business

         Time  Warner  Inc.  ("Time  Warner" or the  "Company")  is the  world's
largest  media and  entertainment  company.  Time  Warner's  principal  business
objective is to create and  distribute  branded  information  and  entertainment
copyrights  throughout the world. Time Warner classifies its business  interests
into six fundamental areas: Cable Networks,  consisting principally of interests
in cable television programming; Publishing, consisting principally of interests
in magazine publishing,  book publishing and direct marketing; Music, consisting
principally  of  interests  in  recorded  music  and  music  publishing;  Filmed
Entertainment,  consisting  principally  of interests  in filmed  entertainment,
television production and television broadcasting; Cable, consisting principally
of  interests  in  cable  television  systems;  and  Digital  Media,  consisting
principally of interests in Internet-related and digital media businesses.

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  and digital media,
are held through Time Warner Entertainment  Company,  L.P. ("TWE").  Time Warner
owns general and limited  partnership  interests in TWE  consisting of 74.49% of
the pro rata priority  capital  ("Series A Capital") and residual equity capital
("Residual  Capital"),  and 100% of the junior priority  capital.  The remaining
25.51%  limited  partnership  interests  in the  Series A Capital  and  Residual
Capital of TWE are held by a subsidiary of MediaOne  Group,  Inc.  ("MediaOne").
The 1999  financial  statements  reflect  the  consolidation  of TWE and certain
related companies (referred to as the Entertainment  Group),  retroactive to the
beginning of 1999.

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 include the $14 billion
acquisition of Warner  Communications Inc. in 1989, the $6.2 billion acquisition
of Turner  Broadcasting  System,  Inc.  ("TBS") in 1996 and the $2.3  billion of
cable  acquisitions  in 1996  and  1995,  which  created  over  $25  billion  of
intangible assets that generally are being amortized over a twenty to forty year
period.  The exclusion of noncash  amortization  charges is also consistent with
management's  belief  that  Time  Warner's  intangible  assets,  such  as  cable
television and sports  franchises,  music  catalogues and  copyrights,  film and
television libraries and the goodwill associated with its brands,  generally are
increasing  in value and  importance  to Time  Warner's  business  objective  of
creating,   extending  and  distributing   recognizable  brands  and  copyrights
throughout  the world.  As such,  the  following  comparative  discussion of the
results of operations of Time Warner includes,  among other factors, an analysis
of changes in business  segment  EBITA.  However,  EBITA should be considered in
addition to, not as a substitute  for,  operating  income,  net income and other
measures of financial performance reported in accordance with generally accepted
accounting principles.


<PAGE>


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


Transactions Affecting Comparability of Results of Operations

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

         For 2000, the significant, nonrecurring items included (i) pretax gains
of  approximately  $28 million relating to the sale or exchange of various cable
television   systems  and   investments,   (ii)  a  noncash   pretax  charge  of
approximately  $220 million relating to the write-down of Time Warner's carrying
value of its  investment in the Columbia House Company  Partnerships  ("Columbia
House"),   a  50%-owned   equity  investee  and  (iii)   transaction   costs  of
approximately $46 million relating to Time Warner's proposed merger with America
Online, Inc. ("America Online").

         For 1999, the  significant,  nonrecurring  item was an approximate $215
million net pretax gain recognized in connection with the early  termination and
settlement of a long-term, home video distribution agreement.

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

         In  addition  to the above  significant  and  nonrecurring  items,  the
comparability of Time Warner's  Publishing division results has been affected by
the  deconsolidation  of  Book-of-the-Month   Club  after  its  operations  were
contributed  to a joint venture with Doubleday  Direct,  Inc.  ("Doubleday"),  a
leading consumer book club group owned by Bertelsmann AG, as discussed in Note 2
to the accompanying  consolidated  financial statements.  While this transaction
had a significant effect on the comparability of the Publishing division's EBITA
and operating income, it did not have a significant  effect on the comparability
of Time Warner's net income and per share results.


<PAGE>


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


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

         EBITA and operating income are as follows:

                                                            Three Months Ended March 31,
                                                    -----------------------------------------
                                                         EBITA              Operating Income
                                                    -----------------       ------------------
                                                    2000      1999(a)       2000       1999(a)
                                                    ----      ----          ----       ----
                                                                    (millions)
<S>                                               <C>          <C>         <C>         <C>
Cable Networks.................................   $  364       $  309      $  311      $  259
Publishing(b)..................................      117           94         104          84
Music..........................................       80           89          21          27
Filmed Entertainment(c)........................      194          375         144         325
Broadcasting-The WB Network....................      (31)         (41)        (32)        (42)
Cable(d).......................................      485          403         331         270
Digital Media..................................      (30)           -         (30)          -
Intersegment elimination.......................       (8)          12          (8)         12
                                                   -----        -----       -----       -----

Total..........................................   $1,171       $1,241      $  841      $  935
                                                  ======       ======      ======      ======

--------------
(a)  Effective on January 1, 2000,  management  reclassified Time Warner's share
     of the segment  operating  results of Columbia House from its Music segment
     to interest and other, net. Accordingly, segment operating results for 1999
     have been reclassified to conform to the 2000 presentation.
(b)  1999  results  include  losses  from  Book-of-the-Month   Club,  which  was
     deconsolidated  in 2000 after its  operations  were  contributed to a joint
     venture with  Doubleday.  Equity losses for 2000 are classified in interest
     and  other,  net.  During  the  three  months  ended  March 31,  1999,  the
     Publishing division's operating results included EBITA losses of $9 million
     and operating losses of $10 million relating to Book-of-the-Month Club.
(c)  1999  results  include a net  pretax  gain of  approximately  $215  million
     relating to the early termination and settlement of a long-term, home video
     distribution agreement.
(d)  2000 results include pretax gains of approximately  $28 million relating to
     the sale or exchange of certain cable television systems and investments.

</TABLE>

Consolidated Results

         Time  Warner  had  revenues  of  $6.549  billion  and a net loss of $96
million  for the three  months  ended  March 31,  2000,  compared to revenues of
$6.091  billion and net income of $138  million for the three months ended March
31, 1999.  After preferred  dividend  requirements,  Time Warner had a basic and
diluted net loss per common share of $.08 in 2000, compared to basic and diluted
net income of $.10 per common share in 1999.

         As previously  described,  the comparability of Time Warner's operating
results for 2000 and 1999 has been affected by certain significant, nonrecurring
items  recognized  in  each  period.   These  nonrecurring  items  consisted  of
approximately  $238  million  of net  pretax  losses in 2000,  compared  to $215
million of net pretax gains in 1999. The aggregate net effect of these items was
to decrease basic and diluted net income per common share by $.13 in 2000 and to
increase basic and diluted net income per common share by $.10 in 1999.

         Time  Warner's  net income  decreased  to a net loss of $96  million in
2000,  compared to net income of $138 million in 1999.  However,  excluding  the
significant  effect of the  nonrecurring  items referred to earlier,  net income
increased  by $54 million to $65  million in 2000 from $11  million in 1999.  As
discussed  more fully  below,  this  improvement  principally  resulted  from an
overall increase in Time Warner's business segment  operating income,  offset in
part by higher interest expense  principally due to higher market interest rates
on variable-rate  debt.  Similarly,  normalized basic and diluted net income per
common share, excluding the effect of significant  nonrecurring items, increased
to $.05 in 2000, compared to breakeven in 1999.


<PAGE>


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


         The  relationship  between  income  before  income taxes and income tax
expense of Time Warner is principally  affected by the  amortization of goodwill
and certain  other  financial  statement  expenses that are not  deductible  for
income tax purposes.

Business Segment Results

         Cable Networks.  Revenues increased to $1.586 billion in 2000, compared
to $1.364  billion in 1999.  EBITA  increased  to $364 million in 2000 from $309
million in 1999.  Operating  income  increased to $311 million in 2000 from $259
million  in 1999.  Revenues  grew due to  increases  at both  the  Turner  cable
networks group and HBO. For the Turner cable networks group,  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 group's  networks,  including  CNN,  TBS  Superstation,  TNT and
Cartoon Network. The increase in subscription revenues was principally due to an
increase in subscriptions  and higher rates,  primarily led by revenue increases
at CNN, TBS  Superstation,  TNT and Turner  Classic  Movies.  For HBO,  revenues
benefited primarily from an increase in subscriptions.

         Likewise,  EBITA and  operating  income  were  higher  due to  improved
results at both the Turner  cable  networks  group and HBO. For the Turner cable
networks group,  the increase in EBITA and operating  income was principally due
to the revenue  gains and a small gain on the sale of an  investment,  offset in
part by  higher  programming  costs  and  lower  results  at World  Championship
Wrestling.  For HBO, the increase in EBITA and operating  income was principally
due to the revenue  gains and increased  cost  savings,  offset in part by lower
gains from the sale of certain investments.

         Publishing.  Revenues  decreased to $939  million in 2000,  compared to
$974 million in 1999.  EBITA  increased to $117 million in 2000 from $94 million
in 1999.  Operating income increased to $104 million in 2000 from $84 million in
1999. As described further below, the comparability of the Publishing division's
operating   results  was   affected   by  a   transaction   in  2000   involving
Book-of-the-Month Club.

         In the first quarter of 2000, the operations of Book-of-the-Month  Club
were deconsolidated after being contributed to a joint venture with the domestic
book club operations of Doubleday. Time Warner is accounting for its interest in
the joint venture under the equity method of accounting and Time Warner's equity
in the net loss of the joint  venture for 2000 is  classified  in  interest  and
other, net, in the accompanying statement of operations. As such, the Publishing
division's  revenue and  operating  results for 2000 exclude the  operations  of
Book-of-the-Month  Club.  During the three  months  ended  March 31,  1999,  the
Publishing division's operating results included revenues of $66 million,  EBITA
losses  of  $9  million  and  operating   losses  of  $10  million  relating  to
Book-of-the-Month Club.

         Excluding  the 1999  operations  of  Book-of-the-Month  Club,  revenues
increased  primarily  from  significant,  across-the-board  growth  in  magazine
advertising  revenues,  offset in part by marginally lower magazine  circulation
revenues.  The increase in advertising  revenues was principally due to a strong
overall  advertising  market  for the  division's  magazines,  primarily  led by
Fortune,  In Style and  Entertainment  Weekly.  Excluding the 1999 operations of
Book-of-the-Month  Club, EBITA and operating  income increased  principally as a
result  of  the   revenue   gains  and   increased   cost   savings,   including
pension-related  savings.  In  addition,  EBITA and  operating  income  for 2000
included  approximately  $30  million of gains on the sale of  assets.  However,
those gains did not affect  operating  trends because they were more than offset
by the combination of higher  start-up costs in 2000 for new magazine  launches,
severance costs in 2000 related to certain restructuring efforts and lower gains
on the sale of assets recognized in 1999.


<PAGE>


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


         Music.  Revenues  decreased to $917  million in 2000,  compared to $936
million in 1999. EBITA decreased to $80 million in 2000 from $89 million in 1999
after giving effect to the Columbia House  reclassification  described  earlier.
Operating income decreased to $21 million in 2000 from $27 million in 1999 after
giving  effect  to  the  Columbia  House  reclassification.  Revenues  decreased
primarily  due to  lower  domestic  recorded  music  sales,  offset  in  part by
increased  revenues  from DVD  manufacturing  operations.  The  revenue  decline
principally  related is accurate to lower sales of new  releases  and  carryover
product in comparison to the prior year.  EBITA and operating  income  decreased
principally  as a result of the  decline  in  revenues,  offset in part by lower
artist  royalty  costs and  higher  income  from DVD  manufacturing  operations.

         Filmed  Entertainment.  Revenues  increased to $1.880  billion in 2000,
compared to $1.697  billion in 1999.  EBITA  decreased  to $194  million in 2000
compared to $375 million in 1999.  Operating income decreased to $144 million in
2000, compared to $325 million in 1999. Revenues grew primarily due to increases
at both Warner Bros. and the Turner filmed entertainment businesses.  For Warner
Bros.,  revenues benefited from increases in the distribution of both theatrical
and television  product,  offset in part by lower revenues from consumer product
operations.  Warner Bros.'s revenues from the distribution of theatrical product
increased  principally due to higher worldwide home video and DVD sales,  higher
revenues from worldwide television  exhibition and higher domestic revenues from
theatrical  exhibition,  offset  in part by lower  international  revenues  from
theatrical  exhibition.   Warner  Bros.'s  revenues  from  the  distribution  of
television  product increased  principally due to higher aggregate revenues from
pay-TV, basic cable, broadcast network and syndicated television exhibition. For
the Turner filmed entertainment businesses,  revenues benefited principally from
the licensing of library product.

         Operating  results for 1999  included an  approximate  $215 million net
pretax gain recognized in connection  with the early  termination and settlement
of a long-term, home video distribution agreement.  Excluding the effect of this
item,  EBITA and  operating  income were higher due to improved  results at both
Warner Bros. and the Turner filmed entertainment  businesses.  For Warner Bros.,
EBITA and operating income increased primarily as a result of the revenue gains,
offset  in part by  lower  investment-related  income.  For  the  Turner  filmed
entertainment  businesses,  EBITA and operating  income increased as a result of
the revenue gains and lower film and television-related production costs.

         Broadcasting  - The WB Network.  Revenues  increased to $102 million in
2000,  compared to $79 million in 1999.  EBITA improved to a loss of $31 million
in 2000 from a loss of $41 million in 1999.  Operating  losses  decreased to $32
million in 2000 from $42 million in 1999.  Revenues  increased  principally as a
result of one  additional  night of prime-time  programming in comparison to the
prior year and advertising  rate increases,  offset in part by lower  prime-time
television  ratings.  Prime-time  television ratings were negatively affected by
lower household delivery associated with the WGN Superstation  discontinuing its
carriage of The WB  Network's  programming  beginning  in the fall of 1999.  The
EBITA and operating loss improvements were due to the revenue gains,  which more
than offset higher  programming  costs associated with the expanded  programming
schedule.

         Cable. Revenues increased to $1.447 billion in 2000, compared to $1.296
billion in 1999.  EBITA  increased  to $485 million in 2000 from $403 million in
1999.  Operating  income  increased to $331 million in 2000 from $270 million in
1999. Revenues increased due to growth in basic cable subscribers,  increases in
basic cable rates,  increases in  advertising  revenues and  increases  from the
deployment  of digital  cable and  high-speed  online  services.  The  operating
results of the Cable division were affected by pretax gains of approximately $28
million  recognized  in 2000  related to the sale or exchange  of various  cable
television  systems and investments.  Excluding these gains, EBITA and operating
income   increased   principally   as  a  result  of  the   revenue   gains  and
pension-related  cost savings,  offset in part by higher  programming  costs and
higher depreciation related to capital spending.

<PAGE>


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


         Digital Media.  Digital Media operating  results reflect start-up costs
associated with Time Warner's  digital media  businesses.  Digital Media had $30
million  of  operating  losses on $2  million of  revenues  in 2000.  Due to the
start-up nature of these businesses, losses are expected to continue in 2000.

         Interest and Other,  Net.  Interest and other,  net,  increased to $808
million  of  expense  in 2000,  compared  to $506  million  of  expense in 1999.
Interest expense increased to $398 million in 2000,  compared to $366 million in
1999.  Interest  expense  increased  principally  as a result of  higher  market
interest rates on  variable-rate  debt.  Other expense,  net,  increased to $410
million  in 2000  from  $140  million  in 1999.  Other  expense,  net  increased
primarily  because of a $220 million noncash pretax charge in 2000 to reduce the
carrying  value of Time Warner's  investment in Columbia  House and  transaction
costs of $46 million in 2000 relating to the Time Warner's  proposed merger with
America Online.

         Minority  Interest.  Minority interest expense decreased to $54 million
in 2000,  compared to $85  million in 1999.  The  decrease in minority  interest
expense  was  principally  due to a higher  allocation  of  losses  in 2000 to a
minority partner in The WB Network.

FINANCIAL CONDITION AND LIQUIDITY
March 31, 2000

Financial Condition

         At March 31, 2000,  Time Warner had $17.7 billion of debt, $848 million
of cash  and  equivalents  (net  debt  of  $16.9  billion),  $1.245  billion  of
borrowings  against  future stock option  proceeds,  $575 million of mandatorily
redeemable   preferred   securities  of  a  subsidiary   and  $10.3  billion  of
shareholders'  equity,  compared to $18.1 billion of debt,  $1.3 billion of cash
and  equivalents  (net debt of $16.8  billion),  $1.243  billion  of  borrowings
against future stock option  proceeds,  $575 million of  mandatorily  redeemable
preferred securities of a subsidiary and $9.7 billion of shareholders' equity at
December 31, 1999.

Cash Flows

         During the first three months of 2000,  Time  Warner's cash provided by
operations  amounted to $399 million and  reflected  $1.171  billion of business
segment EBITA, $308 million of noncash depreciation  expense,  less $473 million
of interest  payments,  $100 million of income  taxes,  $43 million of corporate
expenses,   $98  million  of  proceeds   repaid   under  Time   Warner's   asset
securitization  program  and $366  million  related  to an  increase  in working
capital  requirements,  other balance  sheet  accounts and noncash  items.  Cash
provided  by  operations  of $816  million  for the first  three  months of 1999
reflected  $1.241  billion of business  segment  EBITA,  $279 million of noncash
depreciation  expense and $94 million of proceeds  received  under Time Warner's
asset  securitization  program,  less $451  million of  interest  payments,  $97
million of income  taxes,  $40 million of  corporate  expenses  and $210 million
related to an increase in working  capital  requirements,  other  balance  sheet
accounts and noncash items.

         Cash used by investing  activities  was $660 million in the first three
months of 2000, compared to $389 million in the first three months of 1999. This
increase was  principally due to an increase in cash used for  acquisitions  and
investments  and higher capital  expenditures,  offset in part by increased cash
proceeds from the sale of investments.  Capital  expenditures  increased to $544
million in the first three months of 2000, compared to $442 million in the first
three months of 1999.


<PAGE>


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


         Cash used by financing  activities  was $175 million in the first three
months of 2000,  compared to $248 million in the first three months of 1999. The
use of cash in 2000  principally  resulted from $350 million of debt  reduction,
the repurchase of approximately  930 thousand shares of Time Warner common stock
at an aggregate cost of $65 million and the payment of $67 million of dividends,
offset  in part by $290  million  of  proceeds  received  principally  from  the
exercise of employee  stock  options.  Cash used by financing  activities in the
first  three  months  of  1999  principally  resulted  from  the  repurchase  of
approximately  5.1 million  shares of Time Warner  common  stock at an aggregate
cost of $330 million,  the  redemption of preferred  stock of a subsidiary at an
aggregate  cost of $217  million and the  payment of $75  million of  dividends,
offset in part by a $30 million  increase  in net  borrowings,  $205  million of
borrowings  against  future stock  option  proceeds and $156 million of proceeds
received  principally  from the exercise of employee  stock  options.  The lower
level of share  repurchases  in the first  quarter of 2000 in  comparison to the
prior year relates to the suspension of Time Warner's stock  repurchase  program
in early  January  2000 as a result of Time  Warner's  agreement  to merge  with
America Online.

         The assets and cash flows of TWE are  restricted  by certain  borrowing
and partnership agreements and are unavailable to Time Warner except through the
payment of certain fees, reimbursements, cash distributions and loans, which are
subject to  limitations.  Under its bank credit  agreement,  TWE is permitted to
incur additional  indebtedness to make loans, advances,  distributions and other
cash payments to Time Warner, subject to its individual compliance with the cash
flow coverage and leverage ratio covenants contained therein.

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

Cable Capital Spending

         Time  Warner   Cable  has  been  engaged  in  a  plan  to  upgrade  the
technological  capability and  reliability of its cable  television  systems and
develop  new  services,  which  it  believes  will  position  the  business  for
sustained,  long-term growth.  Capital spending by Time Warner Cable amounted to
$419 million in 2000,  compared to $321 million in 1999.  Cable capital spending
for  the  remainder  of 2000  is  budgeted  to be  approximately  $1.6  billion,
reflecting  higher spending on variable  capital to facilitate a more aggressive
roll-out of Time Warner  Cable's  popular  digital cable and  high-speed  online
services.  Capital  spending by Time Warner  Cable is expected to continue to be
funded by cable operating cash flow.

Filmed Entertainment Backlog

         Backlog  represents  the amount of future revenue not yet recorded from
cash contracts for the licensing of theatrical  and  television  product for pay
cable, basic cable, network and syndicated  television  exhibition.  Backlog for
all of Time Warner's filmed  entertainment  companies amounted to $3.328 billion
at March 31, 2000,  compared to $3.595  billion at December 31, 1999  (including
amounts  relating  to the  licensing  of film  product  to Time  Warner's  cable
television  networks of $1.110  billion at March 31, 2000 and $1.176  billion at
December 31, 1999).

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


<PAGE>


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


licensing  fees  are  collected  periodically  over  the  term  of  the  related
licensing   agreements  or  on  an  accelerated   basis  using  a  $500  million
securitization  facility.  The portion of backlog for which cash has not already
been  received  has  significant  off-balance  sheet  asset value as a source of
future  funding.  As of March  31,  2000,  including  cash  received  under  the
securitization facility and other advanced payments,  approximately $600 million
of cash  licensing  fees had been  collected  against the  backlog.  The backlog
excludes advertising barter contracts,  which also are expected to result in the
future  realization of revenues and cash through the sale of  advertising  spots
received under such contracts.

Caution Concerning Forward-Looking Statements

         The SEC 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 with the SEC 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 and DSL; increases in government regulation of basic cable or
     equipment rates or other terms of service (such as "digital  must-carry" or
     common carrier  requirements);  increased difficulty in obtaining franchise
     renewals;  the failure of new equipment  (such as digital set-top boxes) or
     services  (such  as  digital  cable  and  high-speed  on-line  services  or
     telephony over cable or video on demand) to function properly, to appeal to
     enough  consumers  or  to be  available  at  reasonable  prices  and  to be
     delivered  in a timely  fashion;  and greater  than  expected  increases in
     programming or other costs.

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

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


<PAGE>


                                TIME WARNER INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(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 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;  its  ability  to
     complete its proposed  transaction  with EMI and integrate  the  businesses
     successfully; and the overall strength of global music sales.

o    For Time  Warner's  print media and  publishing  businesses,  increases  in
     paper,  postal 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 locate and
     invest in profitable businesses,  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  risks  related  to the  Company's  merger  with  America  Online  (the
     "Merger"),  including  the  failure of the Time  Warner or  America  Online
     shareholders  to  approve  the  Merger;  the risk that the Time  Warner and
     America Online  businesses will not be integrated  successfully;  the costs
     related to the Merger;  the inability to obtain, or meet conditions imposed
     for,  governmental  approvals for the Merger;  and other factors  generally
     affecting the businesses of the combined company.

         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.


<PAGE>


                                TIME WARNER INC.
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                  March 31,  December 31,
                                                                                    2000         1999
                                                                                  --------   ------------
                                                                                     (millions, except
                                                                                    per share amounts)
<S>                                                                               <C>           <C>
ASSETS
Current assets
Cash and equivalents..............................................................$    848      $ 1,284
Receivables, less allowances of $1.645 and $1.682 billion.........................   4,235        4,931
Inventories.......................................................................   2,139        2,182
Prepaid expenses..................................................................   1,654        1,464
                                                                                   -------       ------

Total current assets..............................................................   8,876        9,861

Noncurrent inventories............................................................   4,233        4,201
Investments.......................................................................   2,134        2,096
Property, plant and equipment.....................................................   8,933        8,728
Music catalogues, contracts and copyrights........................................     758          782
Cable television and sports franchises............................................   8,430        8,472
Goodwill..........................................................................  15,319       15,458
Other assets......................................................................   1,530        1,641
                                                                                   -------       ------

Total assets......................................................................$ 50,213      $51,239
                                                                                  ========      =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable..................................................................$  1,474      $ 1,923
Participations, royalties and programming costs payable...........................   2,898        2,967
Debt due within one year..........................................................      22           22
Other current liabilities.........................................................   4,255        4,758
                                                                                   -------       ------

Total current liabilities.........................................................   8,649        9,670

Long-term debt ...................................................................  17,734       18,083
Borrowings against future stock option proceeds...................................   1,245        1,243
Deferred income taxes.............................................................   4,033        4,234
Unearned portion of paid subscriptions............................................     780          762
Other liabilities.................................................................   3,768        3,773
Minority interests................................................................   3,165        3,186
Mandatorily redeemable preferred securities of a subsidiary holding solely
   debentures of a subsidiary of the Company......................................     575          575

Shareholders' equity
Preferred stock, $.10 par value, 5.4 and 8.4 million shares outstanding,
   $.540 and $.840 billion liquidation preference.................................       1            1
Series LMCN-V Common Stock, $.01 par value, 114.1 million shares outstanding......       1            1
Common stock, $.01 par value, 1.201 and 1.173 billion shares outstanding..........      12           12
Paid-in capital...................................................................  14,745       12,998
Accumulated deficit...............................................................  (4,495)      (3,299)
                                                                                   -------       ------

Total shareholders' equity........................................................  10,264        9,713
                                                                                   -------       ------

Total liabilities and shareholders' equity........................................$ 50,213      $51,239
                                                                                  ========      =======

See accompanying notes.

</TABLE>


<PAGE>


                                TIME WARNER INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                    Three Months Ended
                                                                                         March 31,
                                                                                      2000       1999
                                                                                      ----       ----
                                                                                       (millions, except
                                                                                      per share amounts)
<S>                                                                               <C>           <C>
Revenues(a).......................................................................$  6,549      $ 6,091

Cost of revenues(a)(b)............................................................  (3,661)      (3,319)
Selling, general and administrative(a)(b).........................................  (1,745)      (1,746)
Amortization of goodwill and other intangible assets..............................    (330)        (306)
Gain on sale or exchange of cable systems and investments.........................      28            -
Gain on early termination of video distribution agreement.........................       -          215
                                                                                   -------       ------

Business segment operating income.................................................     841          935
Interest and other, net(a)........................................................    (808)        (506)
Corporate expenses................................................................     (43)         (40)
Minority interest.................................................................     (54)         (85)
                                                                                   -------       ------

Income (loss) before income taxes.................................................     (64)         304
Income taxes......................................................................     (32)        (166)
                                                                                   -------       ------

Net income (loss).................................................................     (96)         138
Preferred dividend requirements...................................................      (5)         (18)
                                                                                   -------       ------

Net income (loss) applicable to common shares.....................................$   (101)     $   120
                                                                                  ========      =======

Basic and diluted income (loss) per common share:

Net income (loss).................................................................$   (.08)     $   .10
                                                                                  ========      =======

Average common shares............................................................. 1,301.5      1,243.1
                                                                                  ========      =======
--------------
(a) Includes the following income (expenses) resulting from transactions with related companies:
      Revenues....................................................................$     92      $   129
      Cost of revenues............................................................     (29)         (45)
      Selling, general and administrative.........................................      (5)           8
      Interest and other, net.....................................................      (7)           1

(b)   Includes depreciation expense of:...........................................$    308      $   279
                                                                                  ========      =======

See accompanying notes.

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                       Three Months
                                                                                      Ended March 31,
                                                                                      2000       1999
                                                                                      ----       ----
                                                                                         (millions)
<S>                                                                                <C>          <C>
OPERATIONS
Net income (loss)................................................................. $   (96)     $   138
Adjustments for noncash and nonoperating items:
   Depreciation and amortization..................................................     638          585
   Amortization of film costs.....................................................     556          568
   Equity in losses of investee companies after distributions.....................     101          105
Changes in operating assets and liabilities.......................................    (800)        (580)
                                                                                    ------       ------

Cash provided by operations.......................................................     399          816
                                                                                    ------       ------

INVESTING ACTIVITIES
Consolidation of the Entertainment Group's cash and cash equivalents..............       -           87
Investments and acquisitions......................................................    (321)         (92)
Capital expenditures..............................................................    (544)        (442)
Investment proceeds...............................................................     205           58
                                                                                    ------       ------

Cash used by investing activities.................................................    (660)        (389)
                                                                                    ------       ------

FINANCING ACTIVITIES
Borrowings........................................................................   1,051        1,276
Debt repayments...................................................................  (1,401)      (1,246)
Borrowings against future stock option proceeds...................................       2          205
Repurchases of Time Warner common stock...........................................     (65)        (330)
Dividends paid....................................................................     (67)         (75)
Redemption of preferred stock of a subsidiary.....................................       -         (217)
Proceeds received from stock option and dividend reinvestment plans...............     290          156
Other.............................................................................      15          (17)
                                                                                    ------       ------

Cash used by financing activities.................................................    (175)        (248)
                                                                                    ------       ------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......................................    (436)         179

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.......................................   1,284          442
                                                                                    ------       -----

CASH AND EQUIVALENTS AT END OF PERIOD............................................. $   848      $   621
                                                                                   =======      =======

See accompanying notes.

</TABLE>

<PAGE>


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


<TABLE>
<CAPTION>

                                                                                      Three Months
                                                                                     Ended March 31,
                                                                                    2000         1999
                                                                                    ----         ----
                                                                                       (millions)
<S>                                                                                <C>          <C>
BALANCE AT BEGINNING OF PERIOD.................................................... $ 9,713      $ 8,852

Net income (loss).................................................................     (96)         138
Other comprehensive income (loss).................................................       7            3
                                                                                     -----        -----
Comprehensive income (loss).......................................................     (89)         141

Common stock dividends............................................................     (59)         (57)
Preferred stock dividends.........................................................      (5)         (18)
Repurchases of Time Warner common stock...........................................     (65)        (330)
Other, principally shares issued pursuant to stock option, dividend
   reinvestment and benefit plans.................................................     769          313
                                                                                     -----        -----


BALANCE AT END OF PERIOD.......................................................... $10,264      $ 8,901
                                                                                   =======      =======

See accompanying notes.

</TABLE>


<PAGE>


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


1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

         Time  Warner  Inc.  ("Time  Warner" or the  "Company")  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 six fundamental areas: Cable Networks,  consisting principally of interests
in cable television programming; Publishing, consisting principally of interests
in magazine publishing,  book publishing and direct marketing; Music, consisting
principally  of  interests  in  recorded  music  and  music  publishing;  Filmed
Entertainment,  consisting  principally  of interests  in filmed  entertainment,
television production and television broadcasting; Cable, consisting principally
of  interests  in  cable  television  systems;  and  Digital  Media,  consisting
principally of interests in Internet-related and digital media businesses.

         Each of the  business  interests  within  Cable  Networks,  Publishing,
Music,   Filmed   Entertainment,   Cable  and  Digital  Media  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,  (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  owned or managed by
Warner  Bros.  and New Line  Cinema,  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, (6) Time Warner Cable, currently
the largest  operator of cable  television  systems in the U.S. and (7) Internet
websites, such as CNN.com and Entertaindom.com.

         Financial  information for Time Warner's various  business  segments is
presented herein as an indication of financial  performance (Note 6). Except for
start-up  losses  incurred in connection  with The WB Network and Digital Media,
Time Warner's principal business segments generate significant  operating income
and cash flow from operations.  The cash flow from operations  generated by such
business  segments is considerably  greater than their  operating  income due to
significant  amounts of noncash  amortization of intangible assets recognized in
various acquisitions accounted for by the purchase method of accounting. Noncash
amortization of intangible  assets recorded by Time Warner's  business  segments
amounted to $330 million in 2000 and $306 million in 1999.

Basis of Presentation

         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 and digital media 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.

<PAGE>


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


("MediaOne").  Time  Warner's 1999 financial statements  and segment information
reflect  the  consolidation  of  the  Entertainment  Group,  which substantially
consists of TWE, retroactive to the beginning of 1999.

Interim Financial Statements

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

Reclassifications

         Certain  reclassifications have been made to the prior year's financial
information to conform to the 2000 presentation, including a reclassification of
the  Music  segment's  operating  results  for  1999 to  reflect a change in how
management  classifies  Time  Warner's  share of the  operating  results  of the
Columbia  House Company  Partnerships  ("Columbia  House"),  a 50%-owned  equity
investee.  Effective on January 1, 2000,  management  reclassified Time Warner's
share of the  operating  results of  Columbia  House from its Music  segment  to
interest and other,  net.  This  reclassification  resulted  primarily  from the
planned restructuring of Columbia House's traditional  direct-marketing business
and an increasing dependency on the sale of video product.

2.       SIGNIFICANT TRANSACTIONS

America Online-Time Warner Merger

         In  January  2000,  Time  Warner and  America  Online,  Inc.  ("America
Online")  announced  that  they had  entered  into an  agreement  to merge  (the
"Merger") by forming a new holding company named AOL Time Warner Inc. ("AOL Time
Warner"). As part of the Merger, each issued and outstanding share of each class
of common stock of Time Warner will be converted into 1.5 shares of an identical
series  of  common  stock of AOL Time  Warner.  In  addition,  each  issued  and
outstanding  share of each  class of  preferred  stock  of Time  Warner  will be
converted into one share of preferred stock of AOL Time Warner,  which will have
substantially  identical terms except that such shares will be convertible  into
approximately 6.25 shares of AOL Time Warner common stock.  Lastly,  each issued
and  outstanding  share of common stock of America Online will be converted into
one share of common stock of AOL Time Warner.

         As a result of the Merger,  the former  shareholders  of America Online
will  have an  approximate  55%  interest  in AOL  Time  Warner  and the  former
shareholders  of Time  Warner  will  have an  approximate  45%  interest  in the
combined  entity,  expressed on a fully diluted basis. The Merger is expected to
be accounted for by AOL Time Warner as an  acquisition  of Time Warner under the
purchase method of accounting for business combinations.

         The Merger is  expected  to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals.  There
can be no assurance that such approvals will be obtained.


<PAGE>


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


Warner-EMI Music Merger

         In January 2000,  Time Warner and EMI Group plc ("EMI")  announced they
had entered into an agreement to combine their global music  operations into two
jointly owned ventures, to be referred to collectively as Warner EMI Music. Time
Warner will control the ventures  through majority board  representation,  among
other factors, and will account for the transaction under the purchase method of
accounting for business combinations.

         As part of the  transaction,  each  company will  contribute  its music
operations  to the  ventures,  subject  to a  comparable  amount of debt.  As of
December  31,  1999,  EMI  had  approximately  $1.5  billion  of net  debt.  EMI
shareholders   also  will  receive  an  aggregate,   special  cash  dividend  of
approximately  $1.3 billion.  This dividend is expected to be financed through a
combination  of  proceeds  from debt  incurred  or assumed by the  ventures  and
consideration  to be paid by Time Warner  directly to EMI for a new class of EMI
equity  securities.  The new class of EMI equity  securities  to be held by Time
Warner will convert automatically into an 8% common equity interest in EMI, on a
fully diluted basis, if EMI's share price reaches L9 for a short period of
time within the first three-and-a-half years after closing.

         The  transaction  is expected  to close by the end of 2000,  subject to
customary closing conditions, including regulatory approvals and the approval of
EMI's  shareholders.  There  can be no  assurance  that such  approvals  will be
obtained.

Book-of-The-Month Club Joint Venture

         In the first  quarter of 2000,  Time Warner formed a jointly owned book
club venture  with  Bertelsmann  AG  ("Bertelsmann").  The venture  combined the
domestic  operations of Time Warner's  Book-of-the-Month  Club with the domestic
book club operations of Doubleday Direct, Inc. ("Doubleday"), a leading consumer
book club group owned by Bertelsmann. In connection with this transaction,  Time
Warner has  deconsolidated  its  domestic  book club  operations  in 2000 and is
accounting  for its  interest in the joint  venture  under the equity  method of
accounting.  Time  Warner's  initial  interest in the joint venture was recorded
based on the historical cost basis of the  contributed  net assets.  Time Warner
did not recognize a gain or loss on the transaction.  Time Warner's share of the
operating  results of the joint  venture for the first  quarter of 2000 has been
included in interest and other, net, in the accompanying  consolidated statement
of operations.

Columbia House Investment Write-Down

         In July 1999, Time Warner  announced an agreement with Sony Corporation
of America ("Sony") to merge their jointly owned music and video club operations
of  Columbia  House with CDNOW,  Inc.  ("CDNOW"),  a music and video  e-commerce
company.  Since  that  time,  the  parties  had been  pursuing  the  receipt  of
regulatory  approvals.  While  awaiting  these  approvals,  the March  13,  2000
termination date in the merger agreement was reached, and the parties terminated
the agreement. Accordingly, the merger will not occur.

         In lieu of the  merger,  Time  Warner  and Sony  each  committed  $25.5
million of funding to CDNOW to help support the future  growth of its  business.
Each company's  funding will be in the form of a $10.5 million equity investment
and a $15 million long-term convertible debt interest.


<PAGE>


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


         Time  Warner is  continuing  to  evaluate  strategic  alternatives  for
Columbia House's operations. Those alternatives are focused primarily on ways to
improve  Columbia  House's  declining  operating  performance,  including online
initiatives,  joint ventures and other strategic  actions.  Management  believes
that such  strategies are important to achieve a turnaround in Columbia  House's
operating  performance  and to  position  it for  long-term  growth  in a highly
competitive and rapidly changing business environment.

         With the  termination  of the  CDNOW  merger  in March  2000,  the risk
associated with the timely execution of these strategies and the  transformation
of Columbia House's  traditional  business model to an online one has increased.
As a result,  management  has  concluded  that the decline in  Columbia  House's
business  is going to  continue  through  the near term.  As such,  Time  Warner
recorded a $220 million  noncash  pretax charge during the first quarter of 2000
to reduce the carrying  value of its investment in Columbia House to an estimate
of its fair value.  The charge has been included in interest and other,  net, in
the accompanying consolidated statement of operations.

Gain on Sale or Exchange of Cable Television Systems and Investments

         In 2000,  largely  in an  ongoing  effort  to  enhance  its  geographic
clustering  of cable  television  properties,  Time Warner  continued to sell or
exchange  various cable television  systems and investments.  In connection with
these  transactions,  Time Warner Cable recognized pretax gains of approximately
$28 million in the first  quarter of 2000,  which have been included in business
segment  operating  income  in  the  accompanying   consolidated   statement  of
operations.

1999 Gain on Termination of 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 1999 business  segment
operating income in the accompanying consolidated statement of operations.

3.       INVESTMENT IN THE ENTERTAINMENT GROUP

         TWE is a Delaware  limited  partnership that was capitalized in 1992 to
own and  operate  substantially  all of the Filmed  Entertainment-Warner  Bros.,
Cable Networks-HBO and Cable businesses previously owned by subsidiaries of Time
Warner. Time Warner,  through its wholly owned  subsidiaries,  collectively owns
general and limited  partnership  interests in TWE  consisting  of 74.49% of the
Series A Capital  and  Residual  Capital  and 100% of the Series B Capital.  The
remaining  25.51%  limited  partnership  interests  in the Series A Capital  and
Residual Capital of TWE are held by MediaOne.  Certain Time Warner  subsidiaries
are the general partners of TWE ("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 $222
million  and $312  million in the three  months  ended  March 31, 2000 and 1999,
respectively.  Because of the  priority  rights over  allocations  of income and
distributions  of TWE held by the Time  Warner  General  Partners,  all of TWE's
income was allocated to Time Warner and none was allocated to MediaOne.


<PAGE>


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


         The assets and cash flows of TWE are restricted by the TWE  partnership
and credit  agreements.  As such,  they are  unavailable for use by the partners
except through the payment of certain fees,  reimbursements,  cash distributions
and loans, which are subject to limitations.

4.       INVENTORIES

<TABLE>
<CAPTION>

         Inventories consist of:
                                                                March 31, 2000          December 31, 1999
                                                                --------------          -----------------
                                                              Current  Noncurrent      Current Noncurrent
                                                              -------  ----------      ------- ----------
                                                                              (millions)
<S>                                                          <C>          <C>          <C>        <C>
         Film costs:
           Released, less amortization.....................  $   697      $   958      $  777     $   966
           Completed and not released......................       92           24          73          17
           In process and other............................        7          882           8         864
           Library, less amortization......................        -        1,526           -       1,554
         Programming costs, less amortization..............      889          843         820         800
         Magazines, books, recorded music and other
           merchandise.....................................      454            -         504           -
                                                              ------       ------       -----      ------

         Total.............................................  $ 2,139      $ 4,233      $2,182     $ 4,201

                                                             =======      =======      ======     =======
</TABLE>

5.       MANDATORILY REDEEMABLE PREFERRED SECURITIES

         In 1995, Time Warner,  through TW Companies,  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.       SEGMENT INFORMATION

         Time Warner  classifies  its business  interests  into six  fundamental
areas: Cable Networks,  consisting  principally of interests in cable television
programming;   Publishing,  consisting  principally  of  interests  in  magazine
publishing,  book publishing and direct marketing; Music, consisting principally
of  interests  in recorded  music and music  publishing;  Filmed  Entertainment,
consisting   principally  of  interests  in  filmed  entertainment,   television
production  and  television  broadcasting;   Cable,  consisting  principally  of
interests in cable television systems; and Digital Media, consisting principally
of interests in  Internet-related  and digital media  businesses.  Time Warner's
Digital Media segment commenced operations in the fourth quarter of 1999.


<PAGE>


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


         Information as to the  operations of Time Warner in different  business
segments  is set forth below based on the nature of the  products  and  services
offered.  Time Warner evaluates  performance based on several factors,  of which
the  primary  financial  measure is business  segment  operating  income  before
noncash amortization of intangible assets ("EBITA").  The accounting policies of
the  business  segments  are the  same as  those  described  in the  summary  of
significant  accounting  policies  under Note 1 in Time Warner's 1999 Form 10-K.
Intersegment sales are accounted for at fair value as if the sales were to third
parties.

         As  described  more  fully  in  Note  1,  effective  January  1,  2000,
management reclassified Time Warner's share of the operating results of Columbia
House from its Music  division to  interest  and other,  net.  As such,  segment
results  for 1999 have been  reclassified  to conform to the 2000  presentation.
Also, as described  more fully in Note 2, the  comparability  of the  Publishing
division's  operating  results was affected by a transaction  in 2000  involving
Book-of-the-Month  Club.  In  connection  with that  transaction,  the operating
results of Book-of-the-Month Club were deconsolidated and are no longer included
in the Publishing division's operating results for 2000. During the three months
ended March 31, 1999,  the  Publishing  division's  operating  results  included
revenues of $66 million,  EBITA losses of $9 million and operating losses of $10
million  relating to  Book-of-the-Month  Club,  whose  results  are  included in
interest and other, net, in 2000.

                                                       Three Months
                                                     Ended March 31,
                                                     ----------------
                                                     2000        1999
                                                     ----        ----
                                                        (millions)
Revenues
Cable Networks...................................   $1,586      $1,364
Publishing.......................................      939         974
Music............................................      917         936
Filmed Entertainment.............................    1,880       1,697
Broadcasting-The WB Network......................      102          79
Cable............................................    1,447       1,296
Digital Media....................................        2           -
Intersegment elimination.........................     (324)       (255)
                                                    ------      ------

Total............................................   $6,549      $6,091
                                                    ======      ======


<PAGE>


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

                                                       Three Months
                                                      Ended March 31,
                                                     -----------------
                                                     2000        1999
                                                     ----        ----
                                                        (millions)
EBITA(a)
Cable Networks...................................   $  364      $  309
Publishing.......................................      117          94
Music............................................       80          89
Filmed Entertainment(b)..........................      194         375
Broadcasting-The WB Network......................      (31)        (41)
Cable(c).........................................      485         403
Digital Media....................................      (30)          -
Intersegment elimination.........................       (8)         12
                                                    ------      ------

Total............................................   $1,171      $1,241
                                                    ======      ======

---------------
(a)  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 was $841
     million in 2000 and $935 million in 1999.
(b)  Includes a net pretax gain of  approximately  $215 million in 1999 relating
     to  the  early  termination  and  settlement  of a  long-term,  home  video
     distribution agreement.
(c)  Includes pretax gains of approximately  $28 million in 2000 relating to the
     sale or exchange of certain cable television systems and investments.


                                                      Three Months
                                                      Ended March 31,
                                                     2000        1999
                                                     ----        ----
                                                         (millions)
Depreciation of Property, Plant and Equipment
Cable Networks..................................    $   33      $   31
Publishing......................................        19          19
Music...........................................        20          17
Filmed Entertainment............................        22          30
Broadcasting-The WB Network.....................         -           -
Cable...........................................       213         182
Digital Media...................................         1           -
                                                     -----       -----

Total...........................................    $  308      $  279
                                                    ======      ======

                                                      Three Months
                                                     Ended March 31,
                                                     2000        1999
                                                     ----        ----
                                                       (millions)
Amortization of Intangible Assets(a)
Cable Networks..................................    $   53      $   50
Publishing......................................        13          10
Music...........................................        59          62
Filmed Entertainment............................        50          50
Broadcasting-The WB Network.....................         1           1
Cable...........................................       154         133
Digital Media...................................         -           -
                                                     -----       -----

Total...........................................    $  330      $  306
                                                    ======      ======
-------------------
(a) 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.


<PAGE>


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


7.       COMMITMENTS AND CONTINGENCIES

         Time Warner is subject to a class  action  lawsuit  alleging  collusive
pricing   practices  by  the  major  record   companies  in  their  capacity  as
distributors  of  compact  discs to CD  wholesalers  and  retailers.  The  trial
presently is scheduled for the fall of 2000.  Although  management  believes the
case is without  merit,  an adverse jury verdict could result in a material loss
to Time Warner. Due to the lack of specificity to plaintiffs' claims, a range of
loss is not determinable at this time.

         TWE also is subject to certain  litigation  relating  to Six Flags.  In
December 1998, a jury returned an adverse verdict in the Six Flags matter in the
amount  of $454  million.  TWE and its  former  51%  partner  in Six  Flags  are
financially  responsible for this judgment.  Management believes that there were
numerous legal errors in the case and has appealed the verdict.  In management's
opinion and  considering the gain deferred on the sale of Six Flags described on
pages  F-36 and F-37 of Time  Warner's  1999 Form 10-K to cover  this  potential
exposure,  the  resolution  of this  matter is not  expected  to have a material
effect on Time Warner's financial statements.

         Time  Warner  is  also  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 financial statements.

8.       ADDITIONAL FINANCIAL INFORMATION

     Cash Flows

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

<TABLE>
<CAPTION>

                                                                                 Three Months
                                                                                Ended March 31,
                                                                                ---------------
                                                                               2000        1999
                                                                               ----        ----
                                                                                  (millions)
<S>                                                                            <C>         <C>
         Cash payments made for interest...................................    $ 473       $ 451
         Cash payments made for income taxes...............................      112         102
         Income tax refunds received.......................................       12           5

     Interest and Other, Net

         Interest and other, net, consists of:
                                                                                  Three Months
                                                                                 Ended March 31,
                                                                                 ---------------
                                                                               2000         1999
                                                                               ----         ----
                                                                                   (millions)
         Interest expense..................................................    $(398)      $(366)
         Other investment-related activity, principally net losses of
           corporate-related equity investees..............................      (78)        (83)
         Write-down of Columbia House investment...........................     (220)          -
         America Online-Time Warner merger costs...........................      (46)          -
         Corporate finance-related activity, principally losses on
          asset securitization programs....................................      (36)        (32)
         Miscellaneous.....................................................      (30)        (25)
                                                                               -----       -----
         Total interest and other, net.....................................    $(808)      $(506)
                                                                               =====       =====
</TABLE>


<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.

<TABLE>
<CAPTION>

                                                              Consolidating Statement of Operations
                                                           For The Three Months Ended March 31, 2000

                                                                                   Non-                     Time
                                              Time          TW                   Guarantor    Elimina-     Warner
                                             Warner      Companies      TBS    Subsidiaries    tions     Consolidated
                                             ------      ---------      ---    ------------   -------    ------------
                                                                          (millions)
<S>                                           <C>         <C>          <C>         <C>          <C>        <C>
Revenues ...................................  $   -       $    -       $ 214       $6,346       $ (11)     $6,549
                                              -----       ------       -----       ------       -----      ------

Cost of revenues(a).........................      -            -         (82)      (3,590)         11      (3,661)
Selling, general and administrative(a)......      -            -         (58)      (1,687)          -      (1,745)
Amortization of goodwill and other
   intangible assets........................      -            -           -         (330)          -        (330)
Gain on sale or exchange of cable systems
   and investments..........................      -            -           -           28           -          28
                                              -----       ------       -----       ------       -----      ------

Business segment operating income...........      -            -          74          767           -         841
Equity in pretax income of consolidated
   subsidiaries.............................     86          126          99            -        (311)          -
Interest and other, net.....................   (127)        (150)        (44)        (466)        (21)       (808)
Corporate expenses..........................    (23)         (15)         (4)         (37)         36         (43)
Minority interest...........................      -            -           -          (54)          -         (54)
                                              -----       ------       -----       ------       -----      ------

Income (loss) before income taxes...........    (64)         (39)        125          210        (296)        (64)
Income taxes................................    (32)         (39)        (66)        (121)        226         (32)
                                              -----       ------       -----       ------       -----      ------

Net income (loss)...........................  $ (96)      $  (78)      $  59       $   89       $ (70)     $  (96)
                                              =====       ======       =====       ======       =====      ======
--------------
(a) Includes depreciation expense of:.......  $   -       $    -       $   2       $  306       $   -      $  308
                                              =====       ======       =====       ======       =====      ======

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

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

                                                                                   Non-                     Time
                                              Time          TW                   Guarantor   Elimina-     Warner
                                             Warner      Companies      TBS    Subsidiaries   tions     Consolidated
                                             ------      ---------      ---    ------------  --------   ------------
                                                                          (millions)
<S>                                           <C>         <C>          <C>         <C>          <C>        <C>
Revenues ...................................  $   -       $    -       $ 184       $6,005       $ (98)     $6,091
                                              -----       ------       -----       ------       -----      ------

Cost of revenues(a).........................      -            -         (68)      (3,344)         93      (3,319)
Selling, general and administrative(a)......      -            -         (56)      (1,690)          -      (1,746)
Amortization of goodwill and other
   intangible assets........................      -            -           -         (306)          -        (306)
Gain on early termination of video
   distribution agreement...................      -            -           -          215           -         215
                                              -----       ------       -----       ------       -----      ------

Business segment operating income...........      -            -          60          880          (5)        935
Equity in pretax income of consolidated
   subsidiaries.............................    378          474          76            -        (928)          -
Interest and other, net.....................    (52)        (183)        (34)        (225)        (12)       (506)
Corporate expenses..........................    (22)         (14)         (4)         (34)         34         (40)
Minority interest...........................      -            -           -          (85)          -         (85)
                                              -----       ------       -----       ------       -----      ------

Income before income taxes..................    304          277          98          536        (911)        304
Income taxes................................   (166)        (151)        (56)        (264)        471        (166)
                                              -----       ------       -----       ------       -----      ------

Net income..................................  $ 138       $  126       $  42       $  272       $(440)     $  138
                                              =====       ======       =====       ======       =====      ======

--------------
(a) Includes depreciation expense of:.......  $   -       $    -       $   2       $  277       $   -      $  279
                                              =====       ======       =====       ======       =====      ======

</TABLE>


<PAGE>


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

<TABLE>
<CAPTION>

                                                                   Consolidating Balance Sheet
                                                                          March 31, 2000

                                                                                    Non-                    Time
                                               Time        TW                    Guarantor   Elimina-      Warner
                                              Warner    Companies      TBS     Subsidiaries   tions      Consolidated
                                              ------    ---------      ---     ------------  --------    ------------
                                                                        (millions)
<S>                                           <C>        <C>         <C>          <C>        <C>           <C>
ASSETS
Current assets
Cash and equivalents......................... $     -    $    57     $    41      $   750    $      -      $    848
Receivables, net.............................      55         27          93        4,060           -         4,235
Inventories..................................       -          -         130        2,009           -         2,139
Prepaid expenses.............................     320          -           4        1,330           -         1,654
                                              -------    -------     -------      -------    --------      --------

Total current assets.........................     375         84         268        8,149           -         8,876

Noncurrent inventories.......................       -          -         201        4,032           -         4,233
Investments in and amounts due to and from
   consolidated subsidiaries.................  17,277     16,342       9,285            -     (42,904)            -
Other investments............................     330          7          24        2,524        (751)        2,134
Property, plant and equipment................      33          -          45        8,855           -         8,933
Music catalogues, contracts and copyrights...       -          -           -          758           -           758
Cable television and sports franchises.......       -          -           -        8,430           -         8,430
Goodwill.....................................       -          -           -       15,319           -        15,319
Other assets.................................      81        103          67        1,279           -         1,530
                                              -------    -------     -------      -------    --------      --------

Total assets................................. $18,096    $16,536     $ 9,890      $49,346    $(43,655)     $ 50,213
                                              =======    =======     =======      =======    ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................. $    18    $     -     $    16      $ 1,440    $      -      $  1,474
Participations, royalties and
      programming costs payable..............       -          -          36        2,862           -         2,898
Debt due within one year.....................       -          -           -           22           -            22
Other current liabilities....................     346         87         112        3,670          40         4,255
                                              -------    -------     -------      -------    --------      --------

Total current liabilities....................     364         87         164        7,994          40         8,649

Long-term debt ..............................   1,585      6,353         747        9,049           -        17,734
Debt due to affiliates.......................       -          -       1,647          158      (1,805)            -
Borrowings against future stock
     option proceeds.........................   1,245          -           -            -           -         1,245
Deferred income taxes........................   4,033      3,794         320        4,113      (8,227)        4,033
Unearned portion of paid subscriptions.......       -          -           -          780           -           780
Other liabilities............................     605          -         110        3,053           -         3,768
Minority interests...........................       -          -           -        3,165           -         3,165
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........       -     (1,950)       (950)      (3,746)      6,646             -
Other shareholders' equity...................  10,264      8,252       7,852       24,205     (40,309)       10,264
                                              -------    -------     -------      -------    --------      --------

Total shareholders' equity...................  10,264      6,302       6,902       20,459     (33,663)       10,264
                                              -------    -------     -------      -------    --------      --------

Total liabilities and shareholders' equity... $18,096    $16,536     $ 9,890      $49,346    $(43,655)     $ 50,213
                                              =======    =======     =======      =======    ========      ========

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                              Consolidating Balance Sheet
                                                                                  December 31, 1999

                                                                                                Non-                    Time
                                                          Time         TW                     Guarantor    Elimina-     Warner
                                                         Warner     Companies       TBS     Subsidiaries    tions     Consolidated
                                                         ------     ---------       ---     ------------   --------   ------------
                                                                                     (millions)
<S>                                                      <C>         <C>          <C>        <C>           <C>         <C>
ASSETS
Current assets
Cash and equivalents.....................................$     -     $   366      $    77    $    841      $      -    $  1,284
Receivables, net.........................................     18          27           89       4,797             -       4,931
Inventories..............................................      -           -          125       2,057             -       2,182
Prepaid expenses.........................................     12           -            4       1,448             -       1,464
                                                         -------     -------      -------    --------      --------    --------

Total current assets.....................................     30         393          295       9,143             -       9,861

Noncurrent inventories...................................      -           -          203       3,998             -       4,201
Investments in and amounts due to and from
   consolidated subsidiaries............................. 17,212      16,711        9,354           -       (43,277)          -
Other investments........................................    236           7           24       2,562          (733)      2,096
Property, plant and equipment............................     42           -           47       8,639             -       8,728
Music catalogues, contracts and copyrights...............      -           -            -         782             -         782
Cable television and sports franchises...................      -           -            -       8,472             -       8,472
Goodwill.................................................      -           -            -      15,458             -      15,458
Other assets.............................................     91         103           65       1,382             -       1,641
                                                         -------     -------      -------    --------      --------    --------

Total assets.............................................$17,611     $17,214      $ 9,988    $ 50,436      $(44,010)   $ 51,239
                                                         =======     =======      =======    ========      ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.........................................$    13     $     -      $    25    $  1,885      $      -    $  1,923
Participations, royalties and programming
   costs payable.........................................      -           -           35       2,932             -       2,967
Debt due within one year.................................      -           -            -          22             -          22
Other current liabilities................................    342         190          150       4,114           (38)      4,758
                                                         -------     -------       ------    --------      --------    --------

Total current liabilities................................    355         190          210       8,953           (38)      9,670

Long-term debt ..........................................  1,585       6,745          746       9,007             -      18,083
Debt due to affiliates...................................      -           -        1,647         158        (1,805)          -
Borrowings against future stock option
   proceeds..............................................  1,243           -            -           -             -       1,243
Deferred income taxes....................................  4,234       3,978          337       4,314        (8,629)      4,234
Unearned portion of paid subscriptions...................      -           -            -         762             -         762
Other liabilities........................................    481           -          130       3,162             -       3,773
Minority interests.......................................      -           -            -       3,186             -       3,186
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....................      -      (1,997)        (903)     (3,791)        6,691           -
Other shareholders' equity...............................  9,713       8,298        7,821      24,110       (40,229)      9,713
                                                         -------     -------      -------    --------      --------    --------

Total shareholders' equity...............................  9,713       6,301        6,918      20,319       (33,538)      9,713
                                                          ------     -------      -------    --------      --------    --------

Total liabilities and shareholders' equity...............$17,611     $17,214      $ 9,988    $ 50,436      $(44,010)   $ 51,239
                                                         =======     =======      =======    ========      ========    ========

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                         Consolidating Statement of Cash Flows
                                                                      For The Three Months Ended March 31, 2000

                                                                                                Non-                    Time
                                                          Time         TW                    Guarantor     Elimina-    Warner
                                                          Warner    Companies       TBS    Subsidiaries     tions    Consolidated
                                                          ------    ---------       ---    ------------    --------  ------------
                                                                                     (millions)
<S>                                                      <C>         <C>          <C>        <C>           <C>         <C>
OPERATIONS
Net income (loss)........................................$   (96)    $   (78)     $    59    $     89      $    (70)   $    (96)
Adjustments for noncash and nonoperating items:
   Depreciation and amortization.........................      -           -            2         636             -         638
   Amortization of film costs............................      -           -            -         556             -         556
   Excess (deficiency) of distributions over equity in
      pretax income of consolidated subsidiaries.........    (56)       (139)         112           -            83           -
   Equity in losses of investee companies after
      distributions......................................      -           -            -          82            19         101
Changes in operating assets and liabilities..............    (98)         50         (161)     (1,015)          424        (800)
                                                         -------     -------      -------    --------      --------    --------

Cash provided (used) by operations.......................   (250)       (167)          12         348           456        399
                                                         -------     -------      -------    --------      --------    --------

INVESTING ACTIVITIES
Investments and acquisitions.............................      -           -            -        (321)            -        (321)
Advances to parents and consolidated subsidiaries........      -           -            -         (58)           58           -
Repayments of advances from consolidated subsidiaries....      -         203            -           -          (203)          -
Capital expenditures.....................................      -           -           (2)       (542)            -        (544)
Investment proceeds......................................      -           -            -         205             -         205
                                                         -------     -------      -------    --------      --------    --------

Cash provided (used) by investing activities.............      -         203           (2)       (716)         (145)       (660)
                                                         -------     -------      -------    --------      --------    --------

FINANCING ACTIVITIES
Borrowings...............................................      -         108            -         943             -       1,051
Debt repayments..........................................      -        (500)           -        (901)            -      (1,401)
Change in due to/from parent.............................     57          47          (46)        253          (311)          -
Borrowings against future stock option proceeds..........      2           -            -           -             -           2
Repurchases of Time Warner common stock..................    (65)          -            -           -             -         (65)
Dividends paid...........................................    (67)          -            -           -             -         (67)
Proceeds received from stock option and dividend
   reinvestment plans....................................    290           -            -           -             -         290
Other....................................................     33           -            -         (18)            -          15
                                                         -------     -------      -------    --------      --------    --------

Cash provided (used) by financing activities.............    250        (345)         (46)        277          (311)       (175)
                                                         -------     -------      -------    --------      --------    --------

DECREASE IN CASH AND EQUIVALENTS.........................      -        (309)         (36)        (91)            -        (436)
                                                         -------     -------      -------    --------      --------    --------

CASH AND EQUIVALENTS AT
   BEGINNING OF PERIOD...................................      -         366           77         841             -       1,284
                                                         -------     -------      ------     --------      --------    --------

CASH AND EQUIVALENTS AT END OF PERIOD....................$     -     $    57      $    41    $    750      $      -    $    848
                                                         =======     =======      ===--==    ========      ========    ========

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

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

                                                                                                Non-                     Time
                                                           Time         TW                   Guarantor     Elimina-     Warner
                                                          Warner    Companies       TBS     Subsidiaries     tions   Consolidated
                                                          ------    ---------       ---     ------------   --------  ------------
                                                                                     (millions)
<S>                                                      <C>         <C>          <C>        <C>           <C>         <C>
OPERATIONS
Net income...............................................$   138     $   126      $    42    $    272      $   (440)   $    138
Adjustments for noncash and nonoperating items:
   Depreciation and amortization.........................      -           -            2         583             -         585
   Amortization of film costs............................      -           -            -         568             -         568
   Excess (deficiency) of distributions over equity in
      pretax income of consolidated subsidiaries.........     49        (258)         244           -           (35)          -
   Equity in losses of investee companies after
      distributions......................................      -           -            -          90            15         105
Changes in operating assets and liabilities..............     89        (118)        (287)       (482)          218        (580)
                                                          ------      ------       ------      ------       -------     -------

Cash provided (used) by operations.......................    276        (250)           1       1,031          (242)        816
                                                          ------      ------       ------      ------       -------     -------

INVESTING ACTIVITIES
Consolidation of the Entertainment Group's cash and
   cash equivalents......................................      -           -            -          87             -          87
Investments and acquisitions.............................      -           -            -         (92)            -         (92)
Advances to parents and consolidated subsidiaries........      -        (237)           -           -           237           -
Repayments of advances from consolidated subsidiaries....      -         308            -         232          (540)          -
Capital expenditures.....................................      -           -           (2)       (440)            -        (442)
Investment proceeds......................................      -           -            -          58             -          58
                                                          ------      ------       ------     -------       -------     -------

Cash provided (used) by investing activities.............      -          71           (2)       (155)         (303)       (389)
                                                          ------      ------       ------     -------       -------     -------

FINANCING ACTIVITIES
Borrowings...............................................      -         116            -       1,160             -       1,276
Debt repayments..........................................      -          (2)           -      (1,244)            -      (1,246)
Change in due to/from parent.............................   (232)          -            -        (313)          545           -
Borrowings against future stock option proceeds..........    205           -            -           -             -         205
Repurchases of Time Warner common stock..................   (330)          -            -           -             -        (330)
Dividends paid...........................................    (75)          -            -           -             -         (75)
Redemption of preferred stock of a subsidiary............      -           -            -        (217)            -        (217)
Proceeds received from stock option and dividend
   reinvestment plans....................................    156           -            -           -             -         156
Other....................................................      -           -            -         (17)            -         (17)
                                                          ------      ------       ------     -------       -------     -------

Cash provided (used) by financing activities.............   (276)        114            -        (631)          545        (248)
                                                          ------      ------       ------     -------       -------     -------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS..............      -         (65)          (1)        245             -         179
                                                          ------      ------       ------     -------       -------     -------

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

CASH AND EQUIVALENTS AT END OF PERIOD....................$     -     $     1      $    24    $    596      $      -    $    621
                                                         =======     =======      =======    ========      ========    ========

</TABLE>


<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 four fundamental  areas: Cable Networks,
consisting  principally  of interests in cable  television  programming;  Filmed
Entertainment,  consisting  principally  of interests  in filmed  entertainment,
television production and television broadcasting; Cable, consisting principally
of  interests  in  cable  television  systems;  and  Digital  Media,  consisting
principally of interests in Internet-related  and digital media businesses.  TWE
also manages the cable  properties owned by Time Warner Inc. ("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  include 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, which
created over $10 billion of intangible assets that generally are being amortized
over a twenty to forty  year  period.  The  exclusion  of  noncash  amortization
charges  also is  consistent  with  management's  belief  that TWE's  intangible
assets, such as cable television  franchises,  film and television libraries and
the goodwill  associated with its brands,  generally are increasing in value and
importance to TWE's business  objective of creating,  extending and distributing
recognizable brands and copyrights  throughout the world. As such, the following
comparative discussion of the results of operations of TWE includes, among other
factors, an analysis of changes in business segment EBITA. However, EBITA should
be considered in addition to, not as a substitute  for,  operating  income,  net
income and other measures of financial  performance  reported in accordance with
generally accepted accounting principles.

Transactions Affecting Comparability of Results of Operations

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

         In 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 significant  nonrecurring items. As such, the following
discussion  and analysis  focuses on amounts and trends  adjusted to exclude the
impact of this unusual  item.  However,  unusual  items may occur in any period.
Accordingly,  investors and other financial  statement users individually should
consider the types of events and  transactions  for which  adjustments have been
made.


<PAGE>


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


RESULTS OF OPERATIONS

         EBITA and operating income are as follows:

<TABLE>
<CAPTION>

                                                              Three Months Ended March 31,
                                                              ----------------------------
                                                                                     Operating
                                                              EBITA                   Income
                                                       -----------------       ------------------
                                                       2000        1999        2000         1999
                                                       ------      ------      ------       -----
                                                                        (millions)
<S>                                                    <C>         <C>         <C>          <C>
Filmed Entertainment-Warner Bros.(a).............      $144        $346        $114         $316
Broadcasting-The WB Network......................       (31)        (41)        (32)         (42)
Cable Networks-HBO...............................       144         125         144          125
Cable............................................       393         337         284          252
Digital Media....................................       (13)          -         (13)           -
                                                       ----        ----        ----         ----

Total............................................      $637        $767        $497         $651
                                                       ====        ====        ====         ====

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


Consolidated Results

         TWE had  revenues of $3.297  billion and net income of $222 million for
the three months ended March 31,  2000,  compared to revenues of $2.934  billion
and net income of $312 million for the three months ended March 31, 1999.

         As discussed more fully below,  TWE's net income decreased  principally
as a  result  of the  inclusion  in  1999  of a $215  million  net  pretax  gain
recognized  in  connection  with  the  early  termination  and  settlement  of a
long-term, home video distribution agreement.

         Excluding this gain, TWE's net income increased by $125 million to $222
million in 2000 from $97 million in 1999.  This  increase  principally  resulted
from an overall  increase in TWE's business  segment  operating income and lower
losses from certain investments accounted for under the equity method.

         As a U.S.  partnership,  TWE is not  subject to U.S.  federal and state
income taxation. Income and withholding taxes of $36 million and $28 million for
the three months ended March 31, 2000 and 1999, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.

Business Segment Results

         Filmed  Entertainment-Warner Bros. Revenues increased to $1.553 billion
in 2000,  compared to $1.380 billion in 1999. EBITA decreased to $144 million in
2000 from $346 million in 1999.  Operating  income  decreased to $114 million in
2000 from  $316  million  in 1999.  Revenues  benefited  from  increases  in the
distribution of both theatrical and television product,  offset in part by lower
revenues from consumer  product  operations.  Revenues from the  distribution of
theatrical product increased  principally due to higher worldwide home video and
DVD sales,  higher  revenues from  worldwide  television  exhibition  and higher
domestic  revenues  from  theatrical   exhibition,   offset  in  part  by  lower
international   revenues   from   theatrical   exhibition.   Revenues  from  the
distribution of television product increased principally due to higher aggregate
revenues from pay-TV, basic cable,  broadcast network and syndicated  television
exhibition.


<PAGE>


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


         Operating  results for 1999  included an  approximate  $215 million net
pretax gain recognized in connection  with the early  termination and settlement
of a long-term, home video distribution agreement.  Excluding the effect of this
item, EBITA and operating income increased  primarily as a result of the revenue
gains, offset in part by lower investment-related income.

         Broadcasting  - The WB Network.  Revenues  increased to $102 million in
2000,  compared to $79 million in 1999.  EBITA improved to a loss of $31 million
in 2000 from a loss of $41 million in 1999.  Operating  losses  decreased to $32
million in 2000 from $42 million in 1999.  Revenues  increased  principally as a
result of one  additional  night of prime-time  programming in comparison to the
prior year and advertising  rate increases,  offset in part by lower  prime-time
television  ratings.  Prime-time  television ratings were negatively affected by
lower household delivery associated with the WGN Superstation  discontinuing its
carriage of The WB  Network's  programming  beginning  in the fall of 1999.  The
EBITA and operating loss improvements were due to the revenue gains,  which more
than offset higher  programming  costs associated with the expanded  programming
schedule.

         Cable  Networks-HBO.  Revenues  increased  to  $554  million  in  2000,
compared to $526 million in 1999.  EBITA and operating  income increased to $144
million in 2000 from $125 million in 1999.  Revenues benefited primarily from an
increase in subscriptions.  EBITA and operating income increased principally due
to the revenue gains and increased  cost savings,  offset in part by lower gains
from the sale of certain investments.

         Cable. Revenues increased to $1.231 billion in 2000, compared to $1.074
billion in 1999.  EBITA  increased  to $393 million in 2000 from $337 million in
1999.  Operating  income  increased to $284 million in 2000 from $252 million in
1999. Revenues increased due to growth in basic cable subscribers,  increases in
basic cable rates,  increases in  advertising  revenues and  increases  from the
deployment of digital cable and high-speed online services.  EBITA and operating
income   increased   principally   as  a  result  of  the   revenue   gains  and
pension-related  cost savings,  offset in part by higher  programming  costs and
higher depreciation related to capital spending.

         Digital Media. Digital Media operating results reflect costs associated
with the fourth quarter 1999 start-up of TWE's digital media businesses. Digital
Media had $13 million of operating losses on $1 million of revenues in 2000. Due
to the start-up nature of these  businesses,  losses are expected to continue in
2000.

         Interest and Other,  Net.  Interest and other,  net,  decreased to $180
million  of  expense  in 2000,  compared  to $220  million  of  expense in 1999.
Interest expense increased to $144 million in 2000,  compared to $137 million in
1999 as a result of higher market interest rates on  variable-rate  debt.  Other
expense,  net decreased to $36 million in 2000, compared to $83 million in 1999.
This  decrease  principally  related to lower  losses from  certain  investments
accounted for under the equity method.

         Minority  Interest.  Minority interest expense decreased to $40 million
in  2000,   compared  to  $73  million  in  1999.  Minority  interest  decreased
principally due to a higher allocation of losses to a minority partner in The WB
Network.


<PAGE>


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


FINANCIAL CONDITION AND LIQUIDITY
March 31, 2000

Financial Condition

         At March 31, 2000,  TWE had $6.7 billion of debt,  $360 million of cash
and  equivalents  (net  debt of $6.3  billion)  and $6.3  billion  of  partners'
capital.  This  compares  to $6.7  billion  of debt,  $517  million  of cash and
equivalents (net debt of $6.2 billion) and $7.1 billion of partners'  capital at
December 31, 1999.

Cash Flows

         During  the  first  three  months  of  2000,  TWE's  cash  provided  by
operations  amounted to $776  million  and  reflected  $637  million of business
segment  EBITA,  $215 million of noncash  depreciation  expense and $121 million
related to a decrease  in working  capital  requirements,  other  balance  sheet
accounts and noncash items, less $157 million of interest payments,  $19 million
of income  taxes,  $19 million of corporate  expenses and $2 million of proceeds
repaid under TWE's asset securitization  program. Cash provided by operations of
$788  million  in the first  three  months of 1999  reflected  $767  million  of
business  segment EBITA,  $192 million of noncash  depreciation  expense and $44
million  related to a decrease in working  capital  requirements,  other balance
sheet accounts and noncash items,  less $144 million of interest  payments,  $22
million of income  taxes,  $18 million of  corporate  expense and $31 million of
proceeds repaid under TWE's asset securitization program.

         Cash used by investing  activities  was $599 million in the first three
months of 2000, compared to $322 million in 1999,  principally as a result of an
increase  in cash used for  investments  and  acquisitions  and an  increase  in
capital  expenditures.  Capital  expenditures  increased  to $391 million in the
first three months of 2000, compared to $305 million in 1999.

         Cash used by financing  activities  was $334 million in the first three
months  of 2000,  compared  to $232  million  in  1999.  The use of cash in 2000
principally related to $308 million of capital distributions to Time Warner. The
use of cash in 1999 principally  resulted from the redemption of preferred stock
of a  subsidiary  at an  aggregate  cost of $217 million and the payment of $154
million  of  capital  distributions  to Time  Warner,  offset  in part by a $157
million increase in net borrowings.

         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 $360  million in the three  months  ended  March 31,  2000,  compared to $276
million in 1999. Cable capital spending for the remainder of 2000 is budgeted to
be approximately $1.3 billion, reflecting higher spending on variable capital to
facilitate a more  aggressive  roll-out of Time Warner Cable's  popular  digital
cable and high-speed  online services.  Capital spending is expected to continue
to be funded by cable operating cash flow.


<PAGE>


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


Warner Bros. Backlog

         Warner Bros.'s  backlog, representing  the amount of future revenue not
yet recorded from cash  contracts for the licensing of theatrical and television
product  for  pay  cable,  basic  cable,   network  and  syndicated   television
exhibition,  amounted  to $2.749  billion at March 31, 2000  (including  amounts
relating to TWE's cable television networks of $331 million and to Time Warner's
cable  television  networks  of $558  million),  compared  to $3.033  billion at
December 31, 1999 (including amounts relating to TWE's cable television networks
of $365 million and $599 million to Time Warner's cable television networks).

         Because  backlog  generally  relates to contracts  for the licensing of
theatrical  and  television  product  which  have  already  been  produced,  the
recognition of revenue for such completed  product is principally only dependent
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement.  Cash licensing fees are received  periodically
over the term of the related  licensing  agreements or on an  accelerated  basis
using a $500 million  securitization  facility. The portion of backlog for which
cash has not already been received has significant off-balance sheet asset value
as a source of future  funding.  As of March 31, 2000,  including  cash received
under the  securitization  facility and other advanced  payments,  approximately
$600 million of cash licensing fees had been collected against the backlog.  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.

Caution Concerning Forward-Looking Statements

         The SEC 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.

o    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 with the SEC
     and:

o    For  TWE's  cable business,  more aggressive than expected competition from
     new  technologies  and  other  types  of  video  programming  distributors,
     including  DBS  and  DSL;  increases  in  government  regulation  of basic
     cable  or  equipment  rates  or  other  terms of  service (such as "digital
     must-carry"  or  common  carrier  requirements);  increased  difficulty  in
     obtaining franchise renewals; the failure of new equipment (such as digital
     set-top  boxes) or services (such as digital cable and  high-speed  on-line
     services   or  telephony  over  cable  or  video  on  demand)  to  function


<PAGE>


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


     properly,  to  appeal to enough consumers or to be available at  reasonable
     prices  and  to  be  delivered  in  a  timely  fashion;  and  greater  than
     expected  increases in  programming or other costs.

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

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

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

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


<PAGE>


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

<TABLE>
<CAPTION>

                                                                             March 31,   December 31,
                                                                               2000         1999
                                                                             --------    ------------
                                                                                  (millions)
<S>                                                                          <C>          <C>
ASSETS
Current assets
Cash and equivalents.......................................................  $   360      $   517
Receivables, including $1.165 and $1.354 billion due from
     Time Warner, less allowances of $685 and $668 million.................    2,837        3,328
Inventories................................................................    1,192        1,220
Prepaid expenses...........................................................      195          246
                                                                              ------       ------

Total current assets.......................................................    4,584        5,311

Noncurrent inventories.....................................................    2,259        2,274
Investments................................................................      767          774
Property, plant and equipment..............................................    6,708        6,488
Cable television franchises................................................    5,558        5,464
Goodwill...................................................................    3,698        3,731
Other assets...............................................................      698          801
                                                                              ------       ------

Total assets...............................................................  $24,272      $24,843
                                                                             =======      =======

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable...........................................................  $ 1,636      $ 1,791
Participations and programming costs payable...............................    1,676        1,717
Debt due within one year...................................................        6            6
Other current liabilities, including $951 and $893 million
     due to Time Warner....................................................    1,966        2,209
                                                                              ------       ------

Total current liabilities..................................................    5,284        5,723

Long-term debt.............................................................    6,648        6,655
Other long-term liabilities, including $2.014 and $1.292
     billion due to Time Warner............................................    4,192        3,501
Minority interests.........................................................    1,805        1,815

Partners' capital
Contributed capital........................................................    7,349        7,338
Partnership deficit........................................................   (1,006)        (189)
                                                                              ------       ------

Total partners' capital....................................................    6,343        7,149
                                                                              ------       ------

Total liabilities and partners' capital....................................  $24,272      $24,843
                                                                             =======      =======

See accompanying notes.

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                 Three Months
                                                                                Ended March 31,
                                                                                ---------------
                                                                               2000         1999
                                                                               ----         ----
                                                                                  (millions)
<S>                                                                           <C>          <C>
Revenues(a)................................................................   $3,297       $2,934

Cost of revenues(a)(b).....................................................   (2,080)      (1,818)
Selling, general and administrative(a)(b)..................................     (580)        (564)
Amortization of goodwill and other intangible assets.......................     (140)        (116)
Gain on early termination of video distribution agreement..................        -          215
                                                                               -----        -----

Business segment operating income..........................................      497          651
Interest and other, net(a).................................................     (180)        (220)
Corporate services(a)......................................................      (19)         (18)
Minority interest..........................................................      (40)         (73)
                                                                               -----        -----

Income before income taxes.................................................      258          340
Income taxes...............................................................      (36)         (28)
                                                                               -----        -----

Net income.................................................................   $  222       $  312
                                                                              ======       ======

---------------
(a)  Includes the following income  (expenses)  resulting from transactions with
     the partners of TWE and other related companies:
       Revenues............................................................   $   93       $  120
       Cost of revenues....................................................      (63)         (78)
       Selling, general and administrative.................................      (24)          (4)
       Interest and other, net.............................................        3           20
       Corporate expenses..................................................      (19)         (18)

(b)  Includes depreciation expense of:.....................................   $  215       $  192
                                                                              ======       ======

See accompanying notes.

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                 Three Months
                                                                                Ended March 31,
                                                                                ---------------
                                                                               2000        1999
                                                                               ----        ----
                                                                                  (millions)
<S>                                                                           <C>          <C>
OPERATIONS
Net income.................................................................   $  222       $  312
Adjustments for noncash and nonoperating items:
   Depreciation and amortization...........................................      355          308
   Amortization of film costs..............................................      478          436
   Equity in losses of investee companies after distributions..............       31           63
Changes in operating assets and liabilities................................     (310)        (331)
                                                                               -----        -----

Cash provided by operations................................................      776          788
                                                                               -----        -----

INVESTING ACTIVITIES
Investments and acquisitions...............................................     (272)         (47)
Capital expenditures.......................................................     (391)        (305)
Investment proceeds........................................................       64           30
                                                                               -----        -----

Cash used by investing activities..........................................     (599)        (322)
                                                                               -----        -----

FINANCING ACTIVITIES
Borrowings.................................................................      894        1,160
Debt repayments............................................................     (901)      (1,003)
Redemption of preferred stock of subsidiary................................        -         (217)
Capital distributions......................................................     (308)        (154)
Other......................................................................      (19)         (18)
                                                                               -----        -----

Cash used by financing activities..........................................     (334)        (232)
                                                                               -----        -----

INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................     (157)         234

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................      517           87
                                                                               -----        -----

CASH AND EQUIVALENTS AT END OF PERIOD......................................   $  360       $  321
                                                                              ======       ======

See accompanying notes.

</TABLE>


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                Three Months
                                                                               Ended March 31,
                                                                               ---------------
                                                                               2000        1999
                                                                               ----        ----
                                                                                   (millions)
<S>                                                                           <C>          <C>
BALANCE AT BEGINNING OF PERIOD.............................................   $7,149       $5,107

Net income.................................................................      222          312
Other comprehensive income (loss)..........................................       (9)          41
                                                                               -----        -----
Comprehensive income.......................................................      213          353

Distributions..............................................................   (1,030)        (333)
Allocation of income to Time Warner General
      Partners' Senior Capital.............................................        -          (12)
Other......................................................................       11            -
                                                                               -----        -----

BALANCE AT END OF PERIOD...................................................   $6,343       $5,115
                                                                              ======       ======

See accompanying notes.

</TABLE>


<PAGE>


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


1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

         Time Warner Entertainment Company, L.P., a Delaware limited partnership
("TWE"),  classifies its business  interests into four fundamental  areas: Cable
Networks,  consisting principally of interests in cable television  programming;
Filmed   Entertainment,   consisting   principally   of   interests   in  filmed
entertainment,   television  production  and  television  broadcasting;   Cable,
consisting  principally of interests in cable  television  systems;  and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses.

         Each  of  the  business   interests   within  Cable  Networks,   Filmed
Entertainment,  Cable and  Digital  Media 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.'s
collection of children's  cartoons and television  programming,  (4) Time Warner
Cable,  currently the largest operator of cable  television  systems in the U.S.
and (5) Internet websites, such as Entertaindom.com.

         The operating  results of TWE's various business segments are presented
herein as an indication of financial  performance  (Note 5). Except for start-up
losses  incurred in  connection  with The WB Network and  Digital  Media,  TWE's
principal business segments generate significant  operating income and cash flow
from  operations.  The cash  flow from  operations  generated  by such  business
segments is considerably  greater than their operating income due to significant
amounts of noncash  amortization of intangible assets recognized  principally in
Time  Warner  Inc.'s  ("Time   Warner")  $14  billion   acquisition   of  Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications  Corporation ("ATC") in 1992,
a portion  of which cost was  allocated  to TWE upon the  capitalization  of the
partnership.  Noncash  amortization  of  intangible  assets  recorded  by  TWE's
business segments amounted to $140 million in 2000 and $116 million in 1999.

         Certain of Time Warner's  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").


<PAGE>


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


Basis of Presentation

         The accompanying  consolidated  financial statements are unaudited but,
in the opinion of management,  contain all the adjustments  (consisting of those
of a normal  recurring  nature)  considered  necessary  to  present  fairly  the
financial  position and the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods. The accompanying consolidated financial statements should be
read in conjunction with the audited  consolidated  financial  statements of TWE
included in its Annual Report on Form 10-K for the year ended  December 31, 1999
(the "1999 Form 10-K").

Reclassifications

         Certain  reclassifications have been made to the prior year's financial
statements to conform to the 2000 presentation.

2.       SIGNIFICANT TRANSACTIONS

America Online-Time Warner Merger

         In  January  2000,  Time  Warner and  America  Online,  Inc.  ("America
Online")  announced  that  they had  entered  into an  agreement  to merge  (the
"Merger") by forming a new holding company named AOL Time Warner Inc. ("AOL Time
Warner").  The  Merger  will  create  a  leading,  fully  integrated  media  and
communications  company that will combine Time Warner's and TWE's  collection of
media,  entertainment  and news brands and its  technologically  advanced  cable
infrastructure   with  America  Online's  extensive   Internet   franchises  and
technology.   Management  believes  that  the  combined  company  will  be  well
positioned to expand the use of the Internet in consumers'  everyday  lives and,
accordingly,  provide Time Warner's and TWE's content  businesses with increased
access to consumers through a new and growing  distribution  medium.  Management
further  believes  that the Merger will result in  significant  new business and
other  value-creation  opportunities,  including  additional  opportunities  for
e-commerce,  growth in subscribers for each company's products and services, and
cost and operating efficiencies from cross-promotional and other opportunities.

         As a result of the Merger,  the former  shareholders  of America Online
will  have an  approximate  55%  interest  in AOL  Time  Warner  and the  former
shareholders  of Time  Warner  will  have an  approximate  45%  interest  in the
combined  entity,  expressed on a fully diluted basis. The Merger is expected to
be accounted for by AOL Time Warner as an  acquisition  of Time Warner under the
purchase method of accounting for business combinations.

         The Merger is  expected  to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals.  There
can be no assurance that such approvals will be obtained.

1999 Gain on Termination of 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


<PAGE>


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


a  net  pretax  gain  of  approximately $215 million, which has been included in
1999  business  segment  operating  income  in  the  accompanying   consolidated
statement of operations.

3.       INVENTORIES

         Inventories consist of:

<TABLE>
<CAPTION>

                                                           March 31, 2000           December 31, 1999
                                                        ---------------------      --------------------
                                                        Current    Noncurrent      Current   Noncurrent
                                                        -------    ----------      -------   ----------
                                                                           (millions)
<S>                                                       <C>          <C>         <C>         <C>
     Film costs:
           Released, less amortization.................   $  598       $  758      $  652      $  774
           Completed and not released..................       90           24          60          17
           In process and other........................        7          513           8         532
           Library, less amortization..................        -          495           -         508
         Programming costs, less amortization..........      417          469         411         443
         Merchandise...................................       80            -          89           -
                                                          ------       ------      ------      ------
         Total.........................................   $1,192       $2,259      $1,220      $2,274
                                                          ======       ======      ======      ======

</TABLE>

4.       PARTNERS' CAPITAL

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

         During the three months ended March 31, 2000,  TWE accrued $145 million
of  tax-related  distributions  and $885 million of stock option  distributions,
based on closing prices of Time Warner Inc. common stock of $100.00 at March 31,
2000 and $72.31 at December  31,  1999.  During the three months ended March 31,
1999, TWE accrued $67 million of tax-related  distributions  and $266 million of
stock option distributions as a result of an increase at that time in the market
price of Time Warner Inc. common stock.  During the three months ended March 31,
2000, TWE paid  distributions  to the Time Warner General Partners in the amount
of $308 million,  consisting of $145 million of  tax-related  distributions  and
$163  million of stock  option  related  distributions.  During the three months
ended March 31, 1999, TWE paid the Time Warner General Partners distributions in
the  amount  of  $154  million,   consisting  of  $67  million  of   tax-related
distributions and $87 million of stock option related distributions.

5.       SEGMENT INFORMATION

         TWE classifies  its business  interests  into four  fundamental  areas:
Cable  Networks,   consisting  principally  of  interests  in  cable  television
programming; Filmed Entertainment, consisting principally of interests in filmed
entertainment,   television  production  and  television  broadcasting;   Cable,
consisting  principally of interests in cable  television  systems;  and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses.  TWE's  Digital  Media  segment  commenced  operations in the fourth
quarter of 1999.


<PAGE>


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

         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 accounting  policies of the business segments
are the  same as  those  described  in the  summary  of  significant  accounting
policies  under Note 1 in TWE's 1999  Annual  Report on Form 10-K.  Intersegment
sales are accounted for at fair value as if the sales were to third parties.

                                                         Three Months
                                                        Ended March 31,
                                                        --------------
                                                        2000        1999
                                                        ----        ----
                                                           (millions)
Revenues
Filmed Entertainment-Warner Bros....................   $1,553      $1,380
Broadcasting-The WB Network.........................      102          79
Cable Networks-HBO..................................      554         526
Cable...............................................    1,231       1,074
Digital Media.......................................        1           -
Intersegment elimination............................     (144)       (125)
                                                       ------      ------

Total...............................................   $3,297      $2,934
                                                       ======      ======

                                                         Three Months
                                                        Ended March 31,
                                                        ---------------
                                                        2000        1999
                                                        ----        ----
                                                           (millions)
EBITA(a)
Filmed Entertainment-Warner Bros.(b)................   $  144      $  346
Broadcasting-The WB Network.........................      (31)        (41)
Cable Networks-HBO..................................      144         125
Cable...............................................      393         337
Digital Media.......................................      (13)          -
                                                        -----       -----

Total...............................................   $  637      $  767
                                                       ======      ======
---------------
(a)  EBITA  represents   business   segment   operating  income  before  noncash
     amortization  of  intangible  assets.   After  deducting   amortization  of
     intangible assets, TWE's business segment operating income was $497 million
     in 2000 and $651 million in 1999.
(b)  1999  results  include a net  pretax  gain of $215  million  recognized  in
     connection with the early  termination and settlement of a long-term,  home
     video distribution agreement.

                                                         Three Months
                                                        Ended March 31,
                                                        ---------------
                                                        2000        1999
                                                        ----        ----
                                                           (millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment-Warner Bros...................    $   21      $   29
Broadcasting-The WB Network........................         -           -
Cable Networks-HBO.................................         7           7
Cable..............................................       186         156
Digital Media......................................         1           -
                                                        -----       -----

Total..............................................    $  215      $  192
                                                       ======      ======


<PAGE>


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


                                                          Three Months
                                                        Ended March 31,
                                                        ---------------
                                                        2000        1999
                                                        ----        ----
                                                           (millions)
Amortization of Intangible Assets(a)
Filmed Entertainment-Warner Bros....................   $   30      $   30
Broadcasting-The WB Network.........................        1           1
Cable Networks-HBO..................................        -           -
Cable...............................................      109          85
Digital Media.......................................        -           -
                                                        -----       -----

Total...............................................   $  140      $  116
                                                       ======      ======
----------------------
(a)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.


6.       COMMITMENTS AND CONTINGENCIES

         TWE is subject to certain litigation relating to Six Flags. In December
1998, a jury  returned an adverse  verdict in the Six Flags matter in the amount
of $454  million.  TWE and its former 51%  partner in Six Flags are  financially
responsible  for this  judgment.  Management  believes  that there were numerous
legal errors in the case and has appealed the verdict.  In management's  opinion
and  considering  the gain  deferred on the sale of Six Flags  described on page
F-41 of TWE's 1999 Form 10-K to cover this potential exposure, the resolution of
this  matter  is not  expected  to have a  material  effect  on TWE's  financial
statements.

         TWE is subject to numerous  other 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.

7.       ADDITIONAL FINANCIAL INFORMATION

Cash Flows

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

                                                                Three Months
                                                               Ended March 31,
                                                               ---------------
                                                               2000      1999
                                                               ----      ----
                                                                  (millions)
         Cash payments made for interest.....................  $ 157     $ 144
         Cash payments made for income taxes, net............     19        22
         Noncash capital distributions.......................    885       266


<PAGE>


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


Interest and Other, Net

         Interest and other, net, consists of:

                                                                Three Months
                                                               Ended March 31,
                                                               ---------------
                                                                2000     1999
                                                                ----     ----
                                                                  (millions)
         Interest expense....................................  $(144)    $(137)
         Other investment-related activity, principally net
           losses on corporate-related equity investees......    (14)      (66)
         Corporate finance-related activity, including
           losses on asset securitization programs...........     (7)       (9)
         Miscellaneous.......................................    (15)       (8)
                                                                ----      -----
         Total interest and other, net.......................  $(180)    $(220)
                                                               =====     ======


<PAGE>


                           Part II. Other Information


Item 1.   Legal Proceedings.

     Reference is made to the disclosure of nine pending lawsuits related to the
proposed  merger of the Company with America  Online,  Inc.  ("America  Online")
described on page I-32 of Time Warner's  Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 Form 10-K").  One of these actions,  Feinberg
v. Time Warner Inc. et al., has been voluntarily  discontinued.  The other eight
lawsuits remain pending.

     Reference is made to the Consent  Order  entered into by Warner Music Group
with the Federal Trade Commission ("FTC") staff relating to its investigation of
minimum advertised price ("MAP") programs descibed on pages I-11, I-32 and I-33
of Time Warner's 1999 Form 10-K.  On May 10, 2000, the FTC  granted  its initial
approval of the Consent  Order as well as similar  Consent  Orders for the other
major record companies. Those Orders  remain subject to public comment and final
approval by the FTC.

     Reference  is  made to the  lawsuit  brought  by the  former  President  of
Indonesia,  H. M.  Suharto,  against  Time Inc.  Asia and  certain  individuals,
described  on page  I-33 of Time  Warner's  1999  Form  10-K.  The  parties  are
currently presenting oral testimony.


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) The Company  filed a Current  Report on Form 8-K dated  January 10,
2000 in which it reported in Item 5 that the Company and America  Online entered
into an Agreement and Plan of Merger and related  agreements with respect to the
proposed merger of the Company and America Online (the "AOL Merger").

         (ii) The Company  filed a Current  Report on Form 8-K dated January 10,
2000 setting forth in Item 7 certain pro forma consolidated  condensed financial
statements of the new holding  company  which will be formed in connection  with
the  AOL  Merger, giving  effect  to  the AOL  Merger as of and for (i) the nine
months  ended  September 30, 1999 and the year ended December 31, 1999  and (ii)
the three months ended September 30, 1999 and the year ended June 30, 1999.

         (iii) The Company filed a Current  Report on Form 8-K dated January 23,
2000 in which it  reported  in Item 5 that the Company and EMI Group plc ("EMI")
entered into a Combination  Agreement pursuant to which the Company and EMI will
combine their respective music and music publishing businesses.

         (iv) The Company filed a Current  Report on Form 8-K dated  February 2,
2000 setting forth in Item 5 the Company's results of operations for the quarter
and year ended December 31, 1999.

         (v) The Company filed a Current Report on Form 8-K dated March 13, 2000
in which it reported  in Item 5 that the  Company  and Sony Music  Entertainment
Inc. terminated their proposed merger with CDNOW, Inc.

         (vi) The  Company  filed a Current  Report on Form 8-K dated  March 31,
2000  setting  forth  in  Item  5 pro  forma  consolidated  condensed  financial
statements of the new holding  company  which will be formed in connection  with
the AOL Merger, giving effect to the AOL Merger as of and for (i) the year ended
December 31, 1999 and (ii) the  six  months ended December 31, 1999 and the year
ended June 30, 1999.


<PAGE>


         (vii) The  Company  filed a Current  Report on Form 8-K dated April 12,
2000 in which it reported in Item 5 that the  Company  announced  its results of
operations for the quarter ended March 31, 2000.

         (viii) The Company filed a Current  Report on Form 8-K dated April 19,
2000 in which it reported in Item 5 that the Company was reclassifying its share
of  the  operating  results  of  the  Columbia  House Partnerships and set forth
certain  historical financial information with respect to the Company's business
segments  restating  the  Music  division's  financial  results to reflect such
change.


<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:    May 15, 2000


<PAGE>


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


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

2        Amended and Restated Agreement and Plan of Merger, dated as of January
         10, 2000, among America Online, Inc., Time Warner Inc., America Online
         Merger Sub Inc. and Time Warner Merger Sub Inc. (which is incorporated
         herein  by  reference  to  Annex  A  to  the  preliminary joint proxy
         statement -  prospectus  forming   part  of Amendment  No. 2  to  the
         Registration   Statement  on  Form  S-4  of   AOL   Time   Warner Inc.
         (Registration  No. 333-30184) (the  "AOL  Time  Warner  Joint  Proxy
         Statement")).

10.1     Amended and Restated Voting  Agreement,  dated as of January 10, 2000,
         among America Online, Inc. and  the  stockholders  of Time Warner Inc.
         party thereto (which is  incorporated  herein by reference to Annex D
         to the AOL Time Warner Joint Proxy Statement).

10.2     Restated Combination Agreement dated as of January 23, 2000, between
         Time Warner Inc. and EMI Group plc.

27       Financial Data Schedule.