##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

|      |  |                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|[ x ] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the quarterly period ended September 30,
2002, 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 001-12878

TIME WARNER ENTERTAINMENT COMPANY, L.P.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 13-3666692                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

|                                                       |  |                                                                |  |                                        
|------------------------------------------------------ |  | -------------------------------------------------------------- |  | ---------------------------------------
|American Television and Communications Corporation     |  | Delaware                                                       |  | 13-2922502                             
|Warner Communications Inc.                             |  | Delaware                                                       |  | 13-2696809                             
|(Exact name of registrant as specified in its charter) |  | (State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

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

(Address, including zip code, and telephone number, including
area code, of each 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





---

TABLE OF CONTENTS



|                              |                                                                                       |  |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|                              | CONSOLIDATED BALANCE SHEET                                                           
|                              | CONSOLIDATED STATEMENT OF OPERATIONS                                                 
|                              | CONSOLIDATED STATEMENT OF CASH FLOWS                                                 
|                              | CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL                                        
|                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                           
|PART II. OTHER INFORMATION   
|Section 906 Certifications   
|Section 906 Certifications   



---



##### Table of Contents



TIME WARNER ENTERTAINMENT COMPANY, L.P.
AND TWE GENERAL PARTNERS

INDEX TO FORM 10-Q

|                              |                                                                                                                              |    |      |  |          |  |         |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -- | ---- |  | -------- |  | ------- |  | 
|                              |                                                                                                                              |    | Page
|                              |                                                                                                                              |    |     
|                              |                                                                                                                              |    |      |  |          |  | TWE    
|                              |                                                                                                                              |    |      |  |          |  | General
|                              |                                                                                                                              |    | TWE  |  | Partners
|                              |                                                                                                                              |    |      |  |         
|PART I. FINANCIAL INFORMATION |                                                                                                                              |    |      | 
|                              | Managements discussion and analysis of results of operations and financial condition                                        |    | 1    |  | 35      
|                              | Consolidated balance sheet at September 30, 2002 and December 31, 2001                                                       |    | 17   |  | 45      
|                              | Consolidated statement of operations for the three and nine months ended
September 30, 2002 and 2001                         |    | 18   |  | 46      
|                              | Consolidated statement of cash flows for the nine months ended September 30, 2002
and 2001                                   |    | 19   |  | 48      
|                              | Consolidated statement of partnership capital and shareholders equity for the nine months
ended September 30, 2002 and 2001 |    | 20   |  | 49      
|                              | Notes to consolidated financial statements                                                                                   |    | 21   |  | 50      
|                             
|PART II. OTHER INFORMATION    |                                                                                                                              | 63 |      | 





---



##### Table of Contents






TIME WARNER ENTERTAINMENT COMPANY, L.P.




MANAGEMENTS DISCUSSION AND ANALYSIS


OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION


INTRODUCTION

Managements discussion and analysis of results of operations and
financial condition (MD&A) is provided as a supplement to the accompanying
consolidated financial statements and footnotes to help provide an
understanding of Time Warner Entertainment Company, L.P.s (TWE or the
Company) financial condition, changes in financial condition and results of
operations. The MD&A is organized as follows:



| |  | Overview.This section provides a general description of TWEs
businesses, as well as recent developments that the Company believes
are important in understanding the results of operations, as well as
to anticipate future trends in those operations.                                                                                                                                                                                                                                                                                                            
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Results of operations.This section provides an analysis of the
Companys results of operations for the three and nine months ended
September 30, 2002 relative to the comparable periods in 2001. This
analysis is presented on both a consolidated and segment basis. In
addition, a brief description is provided of transactions and events
that impact the comparability of the results being analyzed.                                                                                                                                                         
| 
| |  | Financial condition and liquidity.This section provides an analysis
of the Companys financial condition as of September 30, 2002 and cash
flows for the nine months ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                      
| 
| |  | Caution concerning forward-looking statements and risk factors.This
section discusses how certain forward-looking statements made by the
Company in this report, including throughout MD&A and in the
consolidated financial statements are based on managements present
expectations about future events and are inherently susceptible to
uncertainty and changes in circumstances. In addition, a description
is provided of the risk factors that could adversely affect the
operations, business or financial results of the Company or its
business segments.

OVERVIEW

Description of Business

AOL Time Warner Inc. (AOL Time Warner) is the worlds leading media and
entertainment company. AOL Time Warner was formed in connection with the merger
of America Online, Inc. (America Online) and Time Warner Inc. (Time Warner)
which was consummated on January 11, 2001 (the Merger). As a result of the
Merger, America Online and Time Warner each became a wholly-owned subsidiary of
AOL Time Warner.

A majority of AOL Time Warners interests in filmed entertainment,
television production, broadcast network programming and cable television
systems, and a portion of its interests in cable television programming, are
held through TWE. AOL Time Warner owns general and limited partnership
interests in TWE consisting of 72.36% 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 27.64% limited
partnership interests in the Series A Capital and Residual Capital of TWE are
held by MediaOne TWE Holdings, Inc., a subsidiary of AT&T Corp. (AT&T). Due
to the Companys 100% ownership of the Series B Capital, AOL Time Warners
economic interest in TWE exceeds 72.36%. The preceding ownership percentages
reflect AT&Ts exercise of a one-time option to acquire additional interests in
the Series A Capital and Residual Capital as discussed in more detail below
under Recent Developments.

TWE classifies its business interests into three fundamental areas: Cable,
consisting principally of interests in cable television systems; Filmed
Entertainment, consisting principally of interests in filmed entertainment and
television production; and Networks, consisting principally of interests in
cable television and broadcast network programming. TWE also manages the cable properties owned by AOL Time
Warner and the combined cable television operations are conducted under the
name of Time Warner Cable.

1



---



##### Table of Contents



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

Use of EBITDA

TWE evaluates operating performance based on several factors, including
its primary financial measure of operating income (loss) before noncash
depreciation of tangible assets and amortization of intangible assets
(EBITDA). TWE considers EBITDA an important indicator of the operational
strength and performance of its businesses, including the ability to provide
cash flows to service debt and fund capital expenditures. In addition, EBITDA
eliminates the uneven effect across all business segments of considerable
amounts of noncash depreciation of tangible assets and amortization of certain
intangible assets deemed to have finite useful lives that were recognized in
business combinations accounted for by the purchase method. As such, the
following comparative discussion of the results of operations of TWE includes,
among other measures, an analysis of changes in business segment EBITDA.
However, EBITDA should be considered in addition to, not as a substitute for,
operating income (loss), net income (loss) and other measures of financial
performance reported in accordance with generally accepted accounting
principles. In addition, EBITDA should not be used as a substitute for the
Companys cash flow measures (operating cash flow) which are discussed in
detail beginning on page 13.

Recent Developments

Ownership Interest in TWE

During the second quarter of 2002, AT&T exercised a one-time option to
increase its ownership in the Series A Capital and Residual Capital of TWE. As
a result, on May 31, 2002, AT&Ts interest in the Series A Capital and Residual
Capital of TWE increased by approximately 2.13% to approximately 27.64% and AOL
Time Warners corresponding interest in the Series A and Residual Capital of
TWE decreased by approximately 2.13% to approximately 72.36%. This transaction
had no impact on the TWE financial statements as it represents a transaction
between its partners.

In August 2002, AOL Time Warner and AT&T announced that they had agreed to
restructure TWE. As a result of the restructuring, AOL Time Warner will
acquire complete ownership of TWEs content assets, including Warner Bros. and
Home Box Office, as well as TWEs interests in The WB Network, Comedy Central
and Court TV. In addition, almost all of AOL Time Warners interests in TWE
and all of its interests in cable television systems held through wholly-owned
subsidiaries will be contributed to an existing subsidiary of AT&T that will
become a subsidiary of AOL Time Warner and be renamed Time Warner Cable Inc.
In connection with the restructuring, AT&T will receive $2.1 billion in cash
and AOL Time Warner common stock valued at $1.5 billion at the time of the
closing of the restructuring and will retain both a 17.9% economic stake in
Time Warner Cable Inc. and a 4.7% economic stake in TWE. AT&Ts combined
interests in Time Warner Cable Inc. and TWE will result in AT&T holding an
approximately 21% economic interest in the business of Time Warner Cable Inc.
AT&Ts 17.9% economic stake in Time Warner Cable Inc. will represent
approximately a 10.7% voting interest in Time Warner Cable Inc. The Company
anticipates that the restructuring will be completed in early 2003, upon the
receipt of local cable franchise approvals, where required, and other required
regulatory approvals. Clearance under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 has been received.

Based upon its controlling voting interest in Time Warner Cable Inc., AOL
Time Warner will consolidate the results of Time Warner Cable Inc. for
accounting purposes. At the closing of the restructuring, it is anticipated
that Time Warner Cable Inc. will have approximately $8.1 billion in
consolidated net debt and preferred equity.

2



---



##### Table of Contents



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

Subject to market conditions, AOL Time Warner plans to conduct an initial
public offering of Time Warner Cable Inc. soon after the closing of the
restructuring. It is anticipated that the first $2.1 billion raised in any
such offering would be used to pay off Time Warner Cable Inc. debt incurred to
fund the $2.1 billion cash payment to AT&T. Thereafter, AT&T will have certain
priority registration rights with respect to its stake in Time Warner Cable
Inc.

Restructuring of TWE-Advance/Newhouse Partnership and Road Runner

As of June 30, 2002, the TWE-Advance/Newhouse Partnership (TWE-A/N) was
owned approximately 64.8% by TWE, the managing partner, 33.3% by the
Advance/Newhouse Partnership (Advance/Newhouse) and 1.9% indirectly by AOL
Time Warner. Prior to August 1, 2002, the financial position and operating
results of TWE-A/N were consolidated by AOL Time Warner and TWE, and the
partnership interest owned by Advance/Newhouse was reflected in the
consolidated financial statements of AOL Time Warner and TWE as minority
interest. In addition, Road Runner, a high-speed cable modem Internet service
provider, was owned by TWI Cable Inc. (a wholly owned subsidiary of AOL Time
Warner), TWE and TWE-A/N, with AOL Time Warner owning approximately 65% on a
fully attributed basis (i.e., after considering the portion attributable to the
minority partners of TWE and TWE-A/N). AOL Time Warners interest in Road
Runner was previously accounted for using the equity method of accounting prior
to the restructuring because of certain approval rights held by
Advance/Newhouse, a partner in TWE-A/N.

On June 24, 2002, TWE and Advance/Newhouse agreed to restructure TWE-A/N,
which, on August 1, 2002 (the Debt Closing Date), resulted in
Advance/Newhouse assuming responsibility for the day-to-day operations of
certain TWE-A/N cable systems serving approximately 2.1 million subscribers
located primarily in Florida (the Advance/Newhouse Systems). The
restructuring is anticipated to be completed by the end of 2002, upon the
receipt of certain regulatory approvals. On the Debt Closing Date,
Advance/Newhouse and its affiliates arranged for a new credit facility to
support the Advance/Newhouse Systems and assumed and repaid approximately $780
million of TWE-A/Ns senior indebtedness. As of the Debt Closing Date,
Advance/Newhouse assumed responsibility for the day-to-day operations of the
Advance/Newhouse Systems. As a result, AOL Time Warner and TWE have deconsolidated the financial
position and operating results of these systems. Additionally, all prior
period results associated with the Advance/Newhouse Systems, including the
historical minority interest allocated to Advance/Newhouses interest in
TWE-A/N, have been reflected as a discontinued operation for all periods
presented. Under the new TWE-A/N Partnership Agreement, effective as of the
Debt Closing Date, Advance/Newhouses partnership interest tracks only the
economic performance of the Advance/Newhouse Systems, including associated
liabilities, while AOL Time Warner retains all of the economic interests in the
other TWE-A/N assets and liabilities. The net impact of the deconsolidation of
these systems was a reduction of Cables previously reported six months ended
June 30, 2002, revenues, EBITDA and operating income of $715 million, $333
million and $206 million, respectively. For the three months ended September
30, 2001, the net impact of the deconsolidation of the Advance/Newhouse Systems
was a reduction of Cables reported revenues, EBITDA and operating income of
$316 million, $141 million and $74 million, respectively. For the nine months
ended September 30, 2001, the net impact was a reduction of Cables reported
revenues, EBITDA and operating income of $912 million, $412 million and $225
million, respectively.

As part of the restructuring of TWE-A/N, on the Debt Closing Date, AOL
Time Warner effectively acquired Advance/Newhouses interest in Road Runner,
thereby increasing its ownership to approximately 82% on a fully attributed
basis. As a result of the termination of Advance/Newhouses minority rights in
Road Runner, AOL Time Warner has consolidated the financial position and
results of operations of Road Runner with the financial position and results of
operations of AOL Time Warners Cable segment. As permitted under generally
accepted accounting principles, the Company has consolidated the results of
Road Runner retroactive to the beginning of the year.

3



---



##### Table of Contents



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

In connection with the TWE-A/N restructuring, TWE recognized a noncash
pretax gain of approximately $1.2 billion, related to the difference between
the carrying value and fair value of AT&Ts interest in the Advance/Newhouse
Systems with the fair value being determined by reference to the fair value of
AT&Ts additional interest acquired in the remaining TWE-A/N systems. This
gain is included as part of discontinued operations in the accompanying
consolidated statement of operations for the three and nine months
ended September 30, 2002. There was no gain related to AOL Time
Warners interest as this gain relates to AT&Ts interest in TWE-A/N and it is
substantially offset by AOL Time Warners minority interest expense, which is
similarly included as part of AOL Time Warners discontinued operations.
Additionally, there is no impact on TWEs consolidated net income of
consolidating Road Runner since the Company had previously accounted for its
interest in Road Runner under the equity method of accounting.

RESULTS OF OPERATIONS

Transactions Affecting Comparability of Results of Operations

TWEs results for 2002 have been impacted by the following transactions
and events that cause them not to be comparable to the results reported in
2001.



| |  | New Accounting Standard for Goodwill and Other Intangible Assets.
During 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 Goodwill and
Other Intangible Assets (FAS 142), which requires that, effective
January 1, 2002, goodwill, including the goodwill included in the
carrying value of investments accounted for using the equity method of
accounting, and certain other intangible assets deemed to have an
indefinite useful life, cease amortizing (Note 3).       
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Consolidation of Road Runner. In August 2002, AOL Time Warner acquired
Advance/Newhouses 17% indirect ownership in Road Runner. As a result
of the termination of Advance/Newhouses minority rights in Road
Runner, TWE has consolidated the financial position and results of
operations of Road Runner with the financial position and results of
operations of TWEs Cable segment. As permitted under generally
accepted accounting principles, the Company has consolidated the
results of Road Runner retroactive to the beginning of 2002.

Discontinued Operations

As previously discussed in Restructuring of TWE-Advance/Newhouse
Partnership and Road Runner, the Companys results of operations have been
adjusted to reflect the results of the Advance/Newhouse Systems as a
discontinued operation for all periods presented. For the six months
ended June 30, 2002, the net impact of the
deconsolidation of these systems was a reduction of the Cable segments previously reported revenues, EBITDA and operating income of $715
million, $333 million and $206 million, respectively. For the three months
ended September 30, 2001, the net impact of the deconsolidation of the
Advance/Newhouse Systems was a reduction of the Cable segments reported
revenues, EBITDA and operating income of $316 million, $141 million and $74
million, respectively. For the nine months ended September 30, 2001, the net
impact was a reduction of the Cable segments reported revenues, EBITDA and
operating income of $912 million, $412 million and $225 million, respectively.
In addition, as of December 31, 2001, the Advance/Newhouse Systems had current
assets and total assets of approximately $64 million and $2.7 billion,
respectively, and current liabilities and total liabilities of approximately
$210 million and $963 million, respectively, including debt
assumed in the restructuring.

4



---



##### Table of Contents



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

New Accounting Standard

In addition to the transactions previously discussed, in the first quarter
of 2002, the Company adopted new accounting guidance that requires retroactive
restatement of all periods presented to reflect the new accounting provisions.

Reimbursement of Out-of-Pocket Expenses

In January 2002, the FASB Staff reached a consensus on Emerging Issues
Task Force (EITF) Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF 01-14).
EITF 01-14 requires that reimbursements received for out-of-pocket expenses be
classified as revenue on the income statement and was effective for TWE in the
first quarter of 2002. The new guidance requires retroactive restatement of all
periods presented to reflect the new accounting provisions. This change in
revenue classification impacts TWEs Cable segment, resulting in an increase in
both revenues and costs of approximately $49 million in the third quarter of
2001 and $142 million for the first nine months of 2001.

Other Significant Nonrecurring Item

The Company adopted, effective January 1, 2002, new accounting rules for
goodwill and certain intangible assets. Among the requirements of the new rules
is that goodwill and certain intangible assets be assessed for impairment using
fair value measurement techniques. During the first quarter of 2002, the
Company completed its impairment review and recorded a $22 billion noncash
pretax charge for the impairment of goodwill, all of which was generated in the
Merger. The charge reflects the decline in AOL Time Warners stock price since
the Merger was announced in January 2000, is nonoperational in nature and is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated financial statements (Note 3).

The Company will perform its annual impairment review during the fourth
quarter of each year, commencing in the fourth quarter of 2002. While the
Companys overall goodwill impairment analysis will not be completed until the
fourth quarter, based on the current market capitalization of AOL Time Warner
as implied by AOL Time Warners stock price and current market conditions in
the Cable industry, management believes that it is probable that a substantial
overall goodwill impairment has occurred as of September 30, 2002. At this
time, management is unable to reasonably estimate the magnitude of such an
impairment. The factors that will affect the magnitude of impairment include
the results of the Companys overall current budgeting and long-term plan
process, and a valuation of assets (including unrecognized intangible assets)
and liabilities, all of which will be completed in the fourth quarter.
Additionally, the magnitude of any impairment will take into consideration
AOL Time Warners overall market capitalization as well as the extent to which
the stock price of comparable companies in the Cable industry continue to
experience a sustained decline in values. Any impairment charge would be
noncash in nature and, therefore, is not expected to affect the Companys
liquidity or result in the non-compliance of any debt covenants. In addition,
TWE would record any such noncash charge as a component of operating income.

5



---



##### Table of Contents



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

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Revenue and EBITDA by business segment are as follows (in millions):

|                              |                                     |   |                                 |       |         |   |       |       |      |   |      |     |  |   |      |    | 
|----------------------------- | ----------------------------------- | - | ------------------------------- | ----- | ------- | - | ----- | ----- | ---- | - | ---- | --- |  | - | ---- | -- | 
|                              |                                     |   | Three Months Ended September 30
|                              |                                     |   |                                
|                              |                                     |   | Revenues                        |       | EBITDA 
|                              |                                     |   |                                 |       |        
|                              |                                     |   | 2002                            |       | 2001(a) |   | 2002  |       | 2001
|                              |                                     |   |                                 |       |         |   |       |       |     
|Cable(b)                      |                                     | $ | 1,471                           |       |         | $ | 1,258 |       |      | $ | 582  |     |  | $ | 540  |   
|Filmed Entertainment          |                                     |   | 1,745                           |       |         |   | 1,689 |       |      |   | 170  |     |  |   | 204  |   
|Networks                      |                                     |   | 824                             |       |         |   | 726   |       |      |   | 207  |     |  |   | 184  |   
|Corporate                     |                                     |   |                                |       |         |   |      |       |      |   | (24  | )   |  |   | (19  | ) 
|Intersegment elimination      |                                     |   | (105                            | )     |         |   | (114  | )     |      |   |     |     |  |   |     |   
|                              |                                     |   |                                 |       |         |   |       |       |      |   |      |     |  |   |      |   
|Total revenues and EBITDA     |                                     | $ | 3,935                           |       |         | $ | 3,559 |       |      | $ | 935  |     |  | $ | 909  |   
|Depreciation and amortization |                                     |   |                                |       |         |   |      |       |      |   | (323 | )   |  |   | (890 | ) 
|                              |                                     |   |                                 |       |         |   |       |       |      |   |      |     |  |   |      |   
|                              | Total revenues and operating income |   | $                               | 3,935 |         |   | $     | 3,559 |      |   | $    | 612 |  |   | $    | 19 | 
|                              |                                     |   |                                 |       |         |   |       |       |      |   |      |     |  |   |      |   



---

|(a) |  | Revenues reflect the provisions of EITF 01-14 that were adopted by the
Company in the first quarter of 2002, which require retroactive
restatement of 2001 to reflect the new accounting provisions. As a result,
the impact of EITF 01-14 was to increase revenues and costs by equal
amounts of approximately $49 million for the third quarter of 2001.                                                                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The Cable segments results reflect the restructuring of TWE-A/N, which resulted in
the deconsolidation of the operating results of the Advance/Newhouse
Systems for all periods presented. For the three months ended September
30, 2001, the net impact of the deconsolidation of these systems was a
reduction of the Cable segments reported revenues, EBITDA and operating income of
$316 million, $141 million and $74 million,
respectively. In addition, the Cable segments results reflect the consolidation of Road Runners operating
results effective January 1, 2002.

Consolidated Results

Revenues.TWEs revenues increased to $3.935 billion in 2002, compared to
$3.559 billion in 2001. This increase was driven by an increase in Subscription
revenues of 15% to $1.892 billion and an increase in Content and Other revenues
of 9% to $1.772 billion, offset in part by a decline in Advertising and
Commerce revenues of 6% to $271 million.

As discussed more fully below, the increase in Subscription revenues was
principally due to increases in the number of subscribers and an increase in
subscription rates at both the Cable and Networks segments and the
consolidation of Road Runner. The decline in Advertising and Commerce revenues
was primarily due to lower results at the Filmed Entertainment segment due to
the closure of the Studio Stores, offset in part by advertising increases at the Cable and
Networks segments. The increase in Content and Other revenues was principally
due to improved worldwide home video results at the Filmed Entertainment
segment.

Depreciation
and Amortization.Depreciation and amortization decreased to
$323 million in 2002 from $890 million in 2001. This
decrease was primarily due to a decrease in amortization expense to
$36 million in 2002 from $663 million in 2001. The decrease was
offset in part by
an increase in depreciation expense to $287 million in 2002 from $227 million in 2001.

The increase in depreciation expense reflects higher levels of capital
spending at the Cable segment related to the roll-out of digital services over
the past three years and increased capital spending on equipment that varies
with the number of new subscribers and is depreciated over a shorter useful
life, as well as additional depreciation expense from the consolidation of
Road Runner. Amortization expense decreased due to the adoption of FAS 142,
which resulted in goodwill and certain intangible assets ceasing to be
amortized.

6



---



##### Table of Contents



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

Operating Income.TWEs operating income increased to $612 million in
2002 from $19 million in 2001. The improvement primarily related to a decrease
in amortization expense due to the adoption of FAS 142 and the
increase in EBITDA, which is discussed in detail under Business Segment
Results, offset in part by the increase in depreciation expense.

Interest Expense, Net.Interest expense, net, decreased to $103 million in
2002, compared to $129 million in 2001, principally as a result of lower market
interest rates in 2002 and lower levels of outstanding long-term debt.

Other Income (Expense), Net.Other income (expense), net, increased to
income of $5 million in 2002, compared to expense of $101 million in 2001.
Other income (expense), net, increased primarily due to the reduction of losses
from equity method investees and the adoption of FAS 142.

Minority Interest Income (Expense).Minority interest income (expense) was
$6 million of expense in 2002, compared to income of $8 million in 2001. The
2002 expense primarily reflects the allocation of higher income to AOL Time
Warner related to its interests in certain cable systems consolidated
by TWE offset in part by losses at Road Runner in 2002 being attributed to Road Runners
minority partners.

Income Tax Expense.As a U.S. partnership, TWE is not subject to U.S.
federal income taxation. Income and withholding taxes of $32 million in 2002
and $31 million in 2001 have been provided for the operations of TWEs domestic
and foreign subsidiary corporations.

Net Income (Loss).TWEs net income increased to $1.655 billion in 2002,
compared to net loss of $241 million in 2001. Excluding the impact of the
discontinued operations, the Companys income from continuing operations was
$476 million in 2002 compared to a loss of $234 million in 2001. TWEs income
from continuing operations increased due to higher EBITDA and decreases in
interest expense, net and other expense, net, offset in part by increases in
depreciation expense and minority interest expense.

Management Analysis

As noted above, the consolidation of Road Runner, as well as the
implementation of FAS 142, significantly impacted the comparability of TWEs
2002 results. As such, in reviewing the performance of its
businesses, management also evaluates the Companys results
assuming that the consolidation of Road Runner and the adoption of FAS 142
occurred as of the beginning of 2001. Giving effect to these items,
the Companys total
revenues would have increased 10% (from $3.582 billion to $3.935 billion),
EBITDA would have increased 8% (from $868 million to $935 million), operating
income would have increased 4% (from $590 million to $612 million), and income
from continuing operations and before the cumulative effect of an accounting
change would have increased 10% (from $432 million to $476 million).

Business Segment Results

Cable.Revenues increased 17% to $1.471 billion in 2002, compared to
$1.258 billion in 2001. EBITDA increased 8% to $582 million in 2002 from $540
million in 2001.

Revenues increased due to a 18% increase in Subscription revenues (from
$1.139 billion to $1.343 billion) and an 8% increase in Advertising and
Commerce revenues (from $119 million to $128 million). The increase in
Subscription revenues was due to higher basic cable rates and increases in
high-speed data services subscribers, digital cable subscribers and basic cable
subscribers, as well as the impact of the consolidation of Road Runner in 2002.
In 2002, as compared to the prior year comparable period, high-speed data
subscribers managed by TWE increased by 69% to 2.313 million, digital cable
subscribers managed by TWE increased by 47% to 3.456 million and basic cable
subscribers increased by 1.5% to 10.862 million. In addition, total customer
relationships,

7



---



##### Table of Contents



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

representing the number of customers that receive at least one level of
service, increased by 4% to approximately 11.2 million as of September 30, 2002
compared to approximately 10.8 million as of September 20, 2001 and revenue
generating units, representing the total of all analog video, digital video,
high-speed data and telephony customers, increased by 16% to approximately 16.6
million in 2002 compared to approximately 14.4 million in 2001. The Companys subscriber
amounts include subscribers at both consolidated entities and investees
accounted for under the equity method of accounting. High speed data
subscribers include residential subscribers, as well as commercial and bulk
(e.g., apartment buildings and universities) subscribers. Due to their nature,
commercial and bulk subscribers are charged at a higher amount than residential
subscribers. The number of commercial and bulk high speed data subscribers is calculated by
dividing commercial and high speed data revenue by the lower average rate
charged to residential customers.

The increase in Advertising and Commerce revenues was primarily related to
higher intercompany sales of advertising to other business segments of AOL Time
Warner (from $10 million to $27 million) offset in part by lower levels of
advertising purchased by programming vendors to promote their channels,
including new channel launches (from $30 million to $16 million). The Company
expects fourth quarter 2002 advertising sales to programming vendors to be
below fourth quarter 2001 levels and overall 2003 amounts to be lower than
2002.

EBITDA increased principally as a result of the revenue gains, offset in
part by increases in programming and other operating costs and the
consolidation of Road Runner. Video programming costs increased 19% relating to
general programming rate increases across both basic and digital services, the
addition of new programming services and higher basic and digital subscriber
levels. Programming costs are expected to continue to increase as general
programming rates increase and digital services continue to be rolled out.

As noted above, the consolidation of Road Runner, effective January 1,
2002, significantly impacted the comparability of the Cable segments 2002
results by increasing revenues and decreasing EBITDA. As such, management of
the Company also evaluates the results of the Cable segment assuming that the
results of Road Runner were included in both periods, total revenues would have
increased 15% (from $1.281 billion to $1.471 billion), Subscription revenues
would have increased 16% (from $1.161 billion to $1.343 billion) and EBITDA
would have increased 17% (from $499 million to $582 million).

Filmed Entertainment.Revenues increased 3% to $1.745 billion in 2002,
compared to $1.689 billion in 2001. EBITDA decreased 17% to $170 million in
2002, compared to $204 million in 2001.

The revenue increase was primarily related to international home video
performance, including Harry Potter and the Sorcerers Stoneand Oceans
Eleven,syndication revenues from the initial availability of Will & Graceand
revenues from the sale of cable broadcasting rights to The Drew Carey Showto
the cable networks of Turner Broadcasting System, Inc. This was offset in part
by the reduction in 2002 of revenues related to the sale of broadcasting rights
for Friendsand reduced commerce revenues related to the closure of its Studio
Stores.

EBITDA declined against difficult comparisons, which includes the sale of
broadcasting rights for Friendsin 2001.In addition, the current period
revenue growth was partially offset by costs associated with current period
theatrical releases.

Networks.Revenues increased 13% to $824 million in 2002, compared to $726
million in 2001. EBITDA increased 13% to $207 million in 2002 from $184 million
in 2001.

8



---



##### Table of Contents



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

Revenues grew primarily due to an increase in Subscription and Content and
Other revenues at HBO, as well as an increase in Advertising and Commerce
revenues at The WB Network. EBITDA increased at HBO, offset in part by lower
results at The WB Network.

For HBO, Subscription revenues benefited from an increase in the number of
subscribers and higher rates. Content and Other revenues benefited from higher
home video sales of HBOs original programming and higher licensing and
syndication revenue from the broadcast comedy series, Everybody Loves Raymond.
For The WB Network, the increase in Advertising and Commerce revenues (from
$105 million to $121 million) was primarily driven by higher rates.

For HBO, the increase in EBITDA was principally due to the increase in
revenues. For The WB Network, the lower EBITDA was principally due to higher
programming and marketing costs, offset in part by the increase in revenues.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Revenues and EBITDA by business segment are as follows (in millions):

|                              |                                            |   |                                |        |         |   |        |        |      |   |       |       |  |   |        |      |  
|----------------------------- | ------------------------------------------ | - | ------------------------------ | ------ | ------- | - | ------ | ------ | ---- | - | ----- | ----- |  | - | ------ | ---- | -
|                              |                                            |   | Nine Months Ended September 30 |       
|                              |                                            |   |                                |        |        
|                              |                                            |   | Revenues                       |        | EBITDA 
|                              |                                            |   |                                |        |        
|                              |                                            |   | 2002                           |        | 2001(a) |   | 2002   |        | 2001
|                              |                                            |   |                                |        |         |   |        |        |     
|Cable(b)                      |                                            | $ | 4,363                          |        |         | $ | 3,631  |        |      | $ | 1,692 |       |  | $ | 1,597  |     
|Filmed Entertainment          |                                            |   | 5,481                          |        |         |   | 4,882  |        |      |   | 528   |       |  |   | 465    |     
|Networks                      |                                            |   | 2,452                          |        |         |   | 2,195  |        |      |   | 564   |       |  |   | 498    |     
|Corporate                     |                                            |   |                               |        |         |   |       |        |      |   | (64   | )     |  |   | (58    | )   
|Intersegment elimination      |                                            |   | (397                           | )      |         |   | (433   | )      |      |   |      |       |  |   |       |     
|                              |                                            |   |                                |        |         |   |        |        |      |   |       |       |  |   |        |     
|Total revenues and EBITDA     |                                            | $ | 11,899                         |        |         | $ | 10,275 |        |      | $ | 2,720 |       |  | $ | 2,502  |     
|Depreciation and amortization |                                            |   |                               |        |         |   |       |        |      |   | (931  | )     |  |   | (2,623 | )   
|                              |                                            |   |                                |        |         |   |        |        |      |   |       |       |  |   |        |     
|                              | Total revenues and operating income (loss) |   | $                              | 11,899 |         |   | $      | 10,275 |      |   | $     | 1,789 |  |   | $      | (121 | )
|                              |                                            |   |                                |        |         |   |        |        |      |   |       |       |  |   |        |     



---

|(a) |  | Revenues reflect the provisions of EITF 01-14 that were adopted by the
Company in the first quarter of 2002, which require retroactive
restatement of 2001 to reflect the new accounting provisions. As a result,
the impact of EITF 01-14 was to increase revenues and costs by equal
amounts of approximately $142 million for the first nine months of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The Cable segments results reflect the restructuring of TWE-A/N, which resulted in
the deconsolidation of the operating results of the Advance/Newhouse
Systems for all periods presented. For the six months ended
June 30, 2002, the net impact of the deconsolidation
of these systems was a reduction of the Cable segments previously reported revenues, EBITDA and operating income of $715
million, $333 million and $206 million, respectively. For the nine months
ended September 30, 2001, the net impact of the deconsolidation of these
systems was a reduction of the Cable segments reported revenues, EBITDA and operating
income of $912 million, $412 million and $225 million, respectively. In
addition, the Cable segments results reflect the consolidation of Road Runners
operating results effective January 1, 2002.

Consolidated Results

Revenues.TWEs revenues increased 16% to $11.899 billion in 2002,
compared to $10.275 billion in 2001. This increase was driven by an increase in
Subscription revenues of 16% to $5.619 billion and an increase in Content and
Other revenues of 19% to $5.453 billion, offset in part by a decline in
Advertising and Commerce revenues of 3% to $827 million.

As discussed more fully below, the increase in Subscription revenues was
principally due to an increase in the number of subscribers and an increase in
subscription rates at both the Cable and Networks segments and the
consolidation of Road Runner. The increase in Content and Other revenues was
principally due to increased theatrical results at the Filmed Entertainment
segment. Advertising and Commerce revenues were relatively flat as increases
at the Cable and Networks segments were offset by lower results at the Filmed
Entertainment segment due
to the closure of the Studio Stores.

9



---



##### Table of Contents



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

Depreciation
and Amortization.Depreciation and amortization decreased to
$931 million in 2002 from $2.623 billion in 2001. This
decrease was primarily due to a decrease in amortization expense to
$111 million in 2002 from $1.990 billion in 2001. The decrease was
offset in part by an increase in depreciation expense to $820 million in 2002 from $633 million in 2001.

The increase in depreciation expense reflects higher levels of capital
spending at the Cable segment related to the roll-out of digital services over
the past three years and increased capital spending on equipment that varies
with the number of new subscribers and is depreciated over a shorter useful
life, as well as additional depreciation expense from the consolidation of Road
Runner. Amortization expense decreased due to the adoption of FAS 142, which
resulted in goodwill and certain intangible assets ceasing to be amortized.

Operating Income (Loss).TWEs operating income increased to $1.789
billion in 2002 from a loss of $121 million in 2001. The improvement primarily
related to a decrease in amortization expense due to the adoption of FAS 142
and the increase in EBITDA, which is discussed in detail under Business
Segment Results, offset in part by the increase in depreciation expense.

Interest Expense, Net.Interest expense, net, decreased to $310 million in
2002, compared to $413 million in 2001, principally as a result of lower market
interest rates in 2002 and lower levels of outstanding long-term debt.

Other Income (Expense), Net.Other income (expense), net, increased to
breakeven in 2002, compared to $218 million of expense in 2001. Other income
(expense), net, increased primarily due to the reduction of losses from equity
method investees and the adoption of FAS 142.

Minority Interest Income (Expense).Minority interest income (expense)
was $19 million of expense in 2002, compared to income of $22 million
in 2001. Minority interest expense increased primarily due to the allocation
of higher income to AOL Time Warner related to its interests in certain cable
systems consolidated by TWE offset in part by losses at Road Runner in 2002
being attributed to Road Runners minority partners.

Income Tax Expense.As a U.S. partnership, TWE is not subject to U.S.
federal income taxation. Income and withholding taxes of $124 million in 2002
and $69 million on both a pro forma and historical basis in 2001 have been
provided for the operations of TWEs domestic and foreign subsidiary
corporations.

Net Income (Loss) Before the Cumulative Effect of an Accounting Change.
TWEs net income before the cumulative effect of an accounting change increased
to $2.518 billion in 2002, compared to a net loss of $823 million in 2001.
Also excluding the impact of the discontinued operations, the Companys income
from continuing operations and before the cumulative effect of an accounting
change was $1.336 billion in 2002 compared to a loss of $799 million in 2001.
TWEs income from continuing operations and before the cumulative effect of an
accounting change increased due to higher EBITDA and decreases in interest
expense, net and other expense, net, offset in part by increases in
depreciation expense and minority interest expense.

Management Analysis

As noted above, the consolidation of Road Runner, as well as the
implementation of FAS 142, significantly impacted the comparability of TWEs
2002 results. As such, in reviewing the performance of its
businesses, management also evaluates the Companys results
assuming that the consolidation of Road Runner and the adoption of FAS 142
occurred as of the beginning of 2001. Giving effect to these items,
the Company's total
revenues would have increased 15% (from $10.353 billion to $11.899 billion),

10



---



##### Table of Contents



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

EBITDA would have increased 15% (from $2.371 billion to $2.720 billion),
operating income would have increased 13% (from $1.578 billion to $1.789
billion), and income from continuing operations and before the cumulative
effect of an accounting change would have increased 18% (from $1.128 billion to
$1.336 billion).

Business Segment Results

Cable.Revenues increased 20% to $4.363 billion in 2002, compared to
$3.631 billion in 2001. EBITDA increased 6% to $1.692 billion in 2002 from
$1.597 billion in 2001.

Revenues increased due to a 19% increase in Subscription revenues (from
$3.341 billion to $3.963 billion) and a 38% increase in Advertising and
Commerce revenues (from $290 million to $400 million). The increase in
Subscription revenues was due to higher basic cable rates and increases in
high-speed data services subscribers, digital cable subscribers and basic cable
subscribers, as well as the impact of the consolidation of Road Runner in 2002.
In 2002, as compared to the prior year comparable period, high-speed data
subscribers managed by TWE increased by 69% to 2.313 million, digital cable
subscribers managed by TWE increased by 47% to 3.456 million and basic cable
subscribers increased by 1.5% to 10.862 million. In addition, total customer
relationships, representing the number of customers that receive at least one
level of service, increased by 4% to approximately 11.2 million as of September
30, 2002 compared to approximately 10.8 million as of September 20, 2001 and
revenue generating units, representing the total of all analog video, digital
video, high-speed data and telephony customers, increased by 16% to
approximately 16.6 million in 2002 compared to approximately 14.4 million in 2001. The
Companys subscriber amounts include subscribers at both consolidated entities
and investees accounted for under the equity method of accounting. High speed
data subscribers include residential subscribers, as well as commercial and
bulk (e.g., apartment buildings and universities) subscribers. Due to their
nature, commercial and bulk subscribers are charged at a higher amount than
residential subscribers. The number of commercial and bulk high speed
data subscribers is
calculated by dividing commercial and high speed data revenue by the lower
average rate charged to residential customers.

The increase in Advertising and Commerce revenues
was primarily related to higher intercompany sales of advertising to
other business segments of AOL Time Warner (from $15 million to $76
million) offset in part by lower levels of advertising purchased by
programming vendors to promote their channels, including new channel
launches (from $83 million to $43 million). The Company expects
fourth quarter 2002 advertising sales to programming vendors to be
below fourth quarter 2001 levels and overall 2003 amounts to be
lower than 2002.

EBITDA increased principally as a result of the revenue gains, offset in
part by increases in programming and other operating costs and the
consolidation of Road Runner in 2002. Video programming costs increased 19%
relating to general programming rate increases across both basic and digital
services, the addition of new programming services and higher basic and digital
subscriber levels. Programming costs are expected to continue to increase as
general programming rates increase and digital services continue to be rolled
out.

As noted above, the consolidation of Road Runner, effective January 1,
2002, significantly impacted the comparability of the Cable segments 2002
results by increasing revenues and decreasing EBITDA. As such, management of
the Company also evaluates the results of the Cable segment assuming that the
results of Road Runner were included in both periods, total revenues would have
increased 18% (from $3.709 billion to $4.363 billion), Subscription revenues
would have increased 16% (from $3.416 billion to $3.963 billion) and EBITDA
would have increased 15% (from $1.466 billion to $1.692 billion).

Filmed Entertainment.Revenues increased 12% to $5.481 billion in 2002,
compared to $4.882 billion in 2001. EBITDA increased 14% to $528 million in
2002, compared to $465 million in 2001.

The revenue increase was primarily related to the worldwide theatrical and
home video performance of Harry Potter and the Sorcerers Stoneand Oceans
Eleven, partially offset by reduced commerce revenues related to the closure of
its Studio Stores. EBITDA increased principally due to the profitability of
Harry Potter and the Sorcerers Stone.

11



---



##### Table of Contents



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

Networks.Revenues increased 12% to $2.452 billion in 2002, compared to
$2.195 billion in 2001. EBITDA increased 13% to $564 million in 2002 from $498
million in 2001. Revenues grew primarily due to an increase in Subscription
revenues and Content and Other revenues at HBO and an increase in Advertising
and Commerce revenues at The WB Network. EBITDA increased due to improved
results at HBO, offset in part by lower results at The WB Network.

For HBO, Subscription revenues benefited from an increase in the number of
subscribers and higher rates. Content and Other revenues benefited from higher
home video sales of HBOs original programming and higher licensing and
syndication revenue from the broadcast comedy series Everybody Loves Raymond.
For The WB Network, the increase in Advertising and Commerce revenues was
driven by higher rates.

For The WB Network, the EBITDA decline was principally due to higher
program license fees offset in part by higher Advertising and Commerce
revenues. For HBO, the increase in EBITDA was principally due to the increase
in revenues and reduced costs relating to the finalization of certain licensing
agreements, offset in part by reserves established on receivables from Adelphia
Communications, a major cable television operator, and the write-off of
development costs.

FINANCIAL CONDITION AND
LIQUIDITYSeptember 30, 2002

Current Financial Condition

At September 30, 2002, TWE had $6.6 billion of debt, $947 million of cash
and equivalents (net debt of $5.6 billion, defined as total debt less cash and
cash equivalents) and $39.4 billion of partnership capital, compared to $8.1
billion of debt, $250 million of cash and equivalents (net debt of $7.8
billion) and $65.4 billion of partnership capital at
December 31, 2001. Further, pursuant to a previously negotiated
agreement and as previously disclosed, TWE is committed to acquiring
in January 2003 an incremental 11% interest in The WB Network for
$128 million in cash. The Company had approximately $6.2 billion of
committed available funding as of September 30, 2002. The Company has
no scheduled debt maturities for the remainder of 2002 and 2003.

The Companys outstanding utilization under its accounts receivable and
backlog securitization facilities was approximately $860 million as of
September 30, 2002 and $718 million as of December 31, 2001. The Company has
either renewed or extended the maturity dates of certain securitization
facilities with $500 million of committed capacity that were scheduled to
mature during the third quarter of 2002. Total committed capacity under the
Companys accounts receivable and backlog securitization facilities as of
September 30, 2002 was approximately $800 million, of which, approximately $50
million is scheduled to mature in the fourth quarter of 2002.

As discussed in more detail below, management believes that TWEs
operating cash flow, cash and equivalents, borrowing capacity under
the 2002 Credit Agreements and
availability under its commercial paper program are sufficient to fund its
capital and liquidity needs for the foreseeable future.

12



---



##### Table of Contents



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

Cash Flows

Operating Activities

Cash provided by operations increased to $3.373 billion for the first nine
months of 2002 as compared to $1.997 billion in 2001. This year over year
growth in cash flow from operations compared to 2001 was driven primarily by
over $1.1 billion of improvements in working capital, an increase in EBITDA,
lower income taxes and interest payments. The improvements in working capital
are related to reduced working capital needs in the current period compared to
increased working capital needs in the prior period. Working capital needs are
subject to wide fluctuations based on the timing of cash transactions related
to production schedules, the acquisition of programming, collection of sales
proceeds and similar items. The current period benefits are largely expected to
reverse in future periods. The increase in cash provided by
operations was
offset in part by the consolidation of losses at Road Runner.

During the first nine months of 2002, cash provided by operations of
$3.373 billion reflected $2.720 billion of EBITDA, less $333 million of net
interest payments and $119 million of net income taxes paid. Cash flow from
operations also reflects a reduction in other working capital requirements of
$1.105 billion.

Investing Activities

Cash used by investing activities was $1.565 billion in the first nine
months of 2002, compared to $2.242 billion in 2001. The decrease in cash used by
investing activities compared to 2001 reflects lower capital expenditures,
offset in part by lower investment proceeds and the reclassification of cash
funding of Road Runners operations from investing activities to the components
of Road Runners cash activities, effective upon the consolidation of Road
Runner.

During the first nine months of 2002, cash used by investing activities of
$1.565 billion reflects $262 million of cash used for acquisitions and
investments and $1.341 billion of total capital expenditures, offset in part by
investment proceeds of $38 million.

Financing Activities

Cash used by financing activities was $1.111 billion for the first nine
months of 2002 compared to cash provided by financing activities of $268
million in 2001. The increase in cash used by financing activities reflects
the previously discussed variances.

During the first nine months of 2002, cash used by financing activities of
$1.111 billion resulted from approximately $667 million of net payments on
borrowings and total capital distributions of $427 million.

TWE Cash Flow Restrictions

The assets and cash flows of TWE are restricted by certain borrowing and
partnership agreements and are unavailable to AOL Time Warner except through
the payment of certain fees, reimbursements, cash distributions and loans,
which are subject to limitations. Under the 2002 Credit Agreements, TWE is
permitted to incur additional indebtedness to make loans, advances,
distributions and other cash payments to AOL Time Warner, subject to its
individual compliance with the leverage ratio covenant
contained therein.

13



---



##### Table of Contents



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

$10 Billion Revolving Credit Facilities

In July 2002, AOL Time Warner, together with certain of its consolidated
subsidiaries, including TWE, entered into two new, senior unsecured long-term
revolving bank credit agreements with an aggregate borrowing capacity of $10
billion (the 2002 Credit Agreements) and terminated three existing bank
credit facilities with an aggregate borrowing capacity of $12.6 billion (the
Old Credit Agreements), which were scheduled to expire during 2002. The 2002
Credit Agreements are comprised of a $6 billion five-year revolving credit
facility and a $4 billion 364-day revolving credit facility, borrowings under
which may be extended for a period up to two years following the initial term.
The borrowers under the 2002 Credit Agreements are AOL Time Warner, TWE,
TWE-A/N and AOL Time Warner Finance Ireland. Borrowings bear interest at
specific rates, generally based on the credit rating for each of the borrowers,
which is currently equal to LIBOR plus .625%, including facility fees of .10%
and .125% on the total commitments of the 364-day and five-year facilities,
respectively. The obligations of each of AOL Time Warner and AOL Time
Warner Finance Ireland are guaranteed by America Online, Time Warner,
TBS and TW Companies, directly or indirectly. The obligation of AOL
Time Warner Finance Ireland is guaranteed by AOL Time Warner. In addition,
the Company is required to pay an additional usage
fee of .0625% if the two facilities in the aggregate have more than
33% outstanding and
..125% if the facilities have more than 66% outstanding. Currently, the Company is paying
the additional .0625% usage fee. The 2002 Credit Agreements provide same-day funding,
multi-currency capability and letter of credit availability. They contain
maximum leverage ratio and minimum GAAP net worth covenants of 4.5 times and $50
billion, respectively, for AOL Time Warner and maximum leverage ratio covenant of 5.0
times for each of TWE and TWE-A/N, but do not contain any ratings-based
defaults or covenants, nor an ongoing covenant or representation specifically
relating to a material adverse change in the AOL Time Warners financial
condition or results of operations. Borrowings may be used for general business
purposes and unused credit is available to support commercial paper
borrowings (Note 6).

Capital Expenditures

TWEs total capital expenditures and product development costs were $1.341
billion and $1.442 billion for the nine months ended September 30, 2002 and
2001, respectively. Capital expenditures from continuing operations were $1.135
billion in 2002 compared to $1.144 billion in 2001. Capital expenditures from
continuing operations principally relate to the Companys Cable segment, which
had capital expenditures of
$1.043 billion in 2002 compared to
$1.064 billion in
2001. The Cable segment, over the past several years, has been engaged in a
plan to upgrade the technological capability and reliability of its cable
television systems and develop new services.

TWEs Cable segment generally capitalizes expenditures for tangible fixed
assets having a useful life of greater than one year. Capitalized costs
typically include direct material, direct labor, overhead and interest. Sales
and marketing costs, as well as the costs of repairing or maintaining existing
fixed assets, are expensed as incurred. Types of capitalized expenditures at
the Cable segment include plant upgrades, drops (i.e. customer installations),
converters and cable modems. With respect to customer premise
equipment, including converters and cable modems, the
Cable segment capitalizes direct installation charges only upon the initial
deployment of such assets. All costs incurred in subsequent disconnects and
reconnects are expensed as incurred. Depreciation on these assets is provided
generally using the straight-line method over their estimated useful life. For
converters and modems, such life is generally 3-5 years and for plant upgrades,
such useful life is up to 16 years. As of September 30, 2002, the total net
book value of capitalized labor and overhead costs associated with the
installation of converters and modems was approximately
$130 million. As of
that same date, the net book value of all capitalized costs associated with
converters and modems, including equipment costs, was approximately
$1.2 billion.

14



---



##### Table of Contents



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

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 Warner
Bros. was approximately $3.2 billion at September 30, 2002, compared to
approximately $3.5 billion at December 31, 2001 (including amounts relating to
the licensing of film product to TWEs Networks segment of approximately $266
million at September 30, 2002 and approximately $433 million at December 31,
2001).

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Securities and Exchange Commission (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 contains such forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, particularly statements
anticipating future growth in revenues, EBITDA and cash flow. Words such as
anticipates, estimates, 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 based on
managements present expectations about future events. As with any projection
or forecast, they are inherently susceptible to uncertainty and changes in
circumstances, and TWE is under no obligation to (and expressly disclaims any
such obligation to) update or alter its forward-looking statements whether as a
result of such changes, new information, future events or otherwise.

TWE operates in highly competitive, consumer driven and rapidly changing
media and entertainment businesses that are dependent on government regulation,
economic, strategic, political and social conditions, consumer response to new
and existing 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. Other factors and
risks could adversely affect the operations, business or financial results of
TWE or its business segments in the future and could also cause actual results
to differ from those contained in the forward-looking statements, including
those identified in TWEs other filings with the SEC and the following:



| |  |  | 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, open access or common carrier
requirements); government regulation of other services, such as
broadband cable modem service; increased difficulty in obtaining
franchise renewals; the failure of new equipment (such as digital
set-top boxes) or services (such as digital cable, high-speed online
services, telephony over cable or video-on-demand) to appeal to enough
consumers or to be available at prices consumers are willing to pay,
to function as expected and to be delivered in a timely fashion; theft
of service from interception of cable transmissions; fluctuations in
spending levels by advertisers and consumers; the ability to enter
into new program vendor advertising arrangements; and greater than
expected increases in programming or other costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | For TWEs filmed entertainment businesses generally, their ability to
continue to attract and select desirable talent and scripts at
manageable costs; general increases in production costs; 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;
the potential repeal of the Sonny Bono Copyright Term Extension Act;
the uncertain impact of technological developments, which may                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15



---



##### Table of Contents



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



| |   |  | facilitate piracy of the Companys copyrighted works; and risks associated
with foreign currency exchange rates. With respect to feature films, the
increasing marketing costs associated with theatrical film releases in a
highly competitive marketplace; with respect to television programming, a
decrease in demand for television programming provided by non-affiliated
producers; and with respect to home video, the ability to maintain
relationships with significant customers in the rental and sell-through
markets.                                                                                                                                                                                                                                                                                                                                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | For TWEs network businesses, greater than expected programming or
production costs; public or 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 network advertising to economic
cyclicality and to new media technologies; the impact of consolidation
among cable and satellite distributors; piracy of programming by means
of interception of cable and satellite transmissions or Internet
peer-to-peer file sharing; the impact of personal video recorder
ad-stripping functions on advertising sales; the development of new
technologies that alter the role of programming networks and services;
and greater than expected fragmentation of consumer viewership due to
an increased number of programming services or the increased
popularity of alternatives to television.
|
| |  |  | For TWE generally, the risk that lower than expected valuations
associated with the cash flows and revenues at the TWE segments may
result in the inability of the Company to realize the value of
recorded intangible and goodwill at those segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

In addition, TWEs overall financial strategy, including growth in
operations, maintaining its financial ratios and strong balance sheet, could be
adversely affected by increased interest rates, decreased liquidity in the
capital markets (including any reduction in its ability to access either the
capital markets for debt securities or bank financings), failure to meet
earnings expectations, significant acquisitions or other transactions, economic
slowdowns and changes in TWEs plans, strategies and intentions.

Item 4.   Controls and Procedures

Within the 90-day period prior to the filing of this report, the Company,
under the supervision and with the participation of its management, including
the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934 (the Exchange Act)). Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective in timely making known to them material
information relating to the Company and the Companys consolidated subsidiaries
required to be disclosed in the Companys reports filed or submitted under the
Exchange Act. The Company has investments in certain unconsolidated entities.
As the Company does not control or manage these entities, its disclosure
controls and procedures with respect to such entities are necessarily
substantially more limited than those it maintains with respect to its
consolidated subsidiaries. There have been no significant changes in the
Companys internal controls or in other factors that could significantly affect
the internal controls subsequent to the date the Company completed its
evaluation.

16



---



##### Table of Contents






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

|                                                                                                                          |  |               |         |              |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------ | -
|                                                                                                                          |  | September 30, |         | December 31,
|                                                                                                                          |  | 2002          |         | 2001        
|                                                                                                                          |  |               |         |             
|                                                                                                                          |  | (millions)   
|ASSETS                                                                                                                    |  |               |         |              |  |   |        |  
|Current assets                                                                                                            |  |               |         |              |  |   |        |  
|Cash and equivalents                                                                                                      |  | $             | 947     |              |  | $ | 250    |  
|Receivables, including $558 and $501 million due from AOL
Time Warner, less allowances of $1.101 billion and $910 million |  |               | 2,909   |              |  |   | 3,480  |  
|Inventories                                                                                                               |  |               | 845     |              |  |   | 852    |  
|Prepaid expenses                                                                                                          |  |               | 401     |              |  |   | 326    |  
|                                                                                                                          |  |               |         |              |  |   |        |  
|                                                                                                                         
|Total current assets                                                                                                      |  |               | 5,102   |              |  |   | 4,908  |  
|                                                                                                                         
|Noncurrent inventories and film costs                                                                                     |  |               | 2,149   |              |  |   | 2,187  |  
|Investments, including available-for-sale securities                                                                      |  |               | 2,279   |              |  |   | 2,308  |  
|Property, plant and equipment                                                                                             |  |               | 7,440   |              |  |   | 8,573  |  
|Intangible assets subject to amortization                                                                                 |  |               | 2,362   |              |  |   | 2,464  |  
|Intangible assets not subject to amortization                                                                             |  |               | 22,828  |              |  |   | 22,356 |  
|Goodwill                                                                                                                  |  |               | 12,481  |              |  |   | 41,004 |  
|Other assets                                                                                                              |  |               | 1,227   |              |  |   | 1,258  |  
|                                                                                                                          |  |               |         |              |  |   |        |  
|Total assets                                                                                                              |  | $             | 55,868  |              |  | $ | 85,058 |  
|                                                                                                                          |  |               |         |              |  |   |        |  
|LIABILITIES AND PARTNERS CAPITAL                                                                                         |  |               |         |              |  |   |        |  
|Current liabilities                                                                                                       |  |               |         |              |  |   |        |  
|Accounts payable                                                                                                          |  | $             | 2,327   |              |  | $ | 2,218  |  
|Participations payable                                                                                                    |  |               | 1,217   |              |  |   | 1,014  |  
|Programming costs payable                                                                                                 |  |               | 540     |              |  |   | 455    |  
|Debt due within one year                                                                                                  |  |               | 11      |              |  |   | 2      |  
|Other current liabilities, including $1.348 and $1.022 billion due
to AOL Time Warner                                     |  |               | 2,582   |              |  |   | 2,616  |  
|                                                                                                                          |  |               |         |              |  |   |        |  
|Total current liabilities                                                                                                 |  |               | 6,677   |              |  |   | 6,305  |  
|                                                                                                                         
|Long-term debt, including $1.606 and $1.734 billion due to
AOL Time Warner                                                |  |               | 6,585   |              |  |   | 8,049  |  
|Other long-term liabilities, including $2 and $446 million due to
AOL Time Warner                                         |  |               | 2,507   |              |  |   | 3,108  |  
|Minority interests                                                                                                        |  |               | 693     |              |  |   | 2,191  |  
|                                                                                                                         
|Partners capital                                                                                                         |  |               |         |              |  |   |        |  
|Contributed capital                                                                                                       |  |               | 59,936  |              |  |   | 66,793 |  
|Accumulated other comprehensive income (loss), net                                                                        |  |               | 34      |              |  |   | (6     | )
|Partnership deficit                                                                                                       |  |               | (20,564 | )            |  |   | (1,382 | )
|                                                                                                                          |  |               |         |              |  |   |        |  
|Total partners capital                                                                                                   |  |               | 39,406  |              |  |   | 65,405 |  
|                                                                                                                          |  |               |         |              |  |   |        |  
|Total liabilities and partners capital                                                                                   |  | $             | 55,868  |              |  | $ | 85,058 |  
|                                                                                                                          |  |               |         |              |  |   |        |  

See accompanying notes.

17



---



##### Table of Contents






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

|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |       | 
|----------------------------------------------------------------------------------------------------------- | ------------------------ | - | ------------------ | ----- | ----------------- | - | ---------- | ----- | ---- | - | ------- | ----- |  | - | ------ | ----- | 
|                                                                                                            |                          |   | Three Months Ended |       | Nine Months Ended
|                                                                                                            |                          |   | September 30,      |       | September 30,    
|                                                                                                            |                          |   |                    |       |                  
|                                                                                                            |                          |   | 2002               |       | 2001              |   | 2002       |       | 2001
|                                                                                                            |                          |   |                    |       |                   |   |            |       |     
|                                                                                                            |                          |   |                    |       |                   |   | (millions) |       |      |   |        
|Revenues:                                                                                                   |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|                                                                                                            | Subscriptions            |   | $                  | 1,892 |                   |   | $          | 1,650 |      |   | $       | 5,619 |  |   | $      | 4,854 | 
|                                                                                                            | Advertising and commerce |   |                    | 271   |                   |   |            | 288   |      |   |         | 827   |  |   |        | 852   | 
|                                                                                                            | Content and other        |   |                    | 1,772 |                   |   |            | 1,621 |      |   |         | 5,453 |  |   |        | 4,569 | 
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Total revenues(a)                                                                                           |                          |   | 3,935              |       |                   |   | 3,559      |       |      |   | 11,899  |       |  |   | 10,275 |      
|                                                                                                           
|Cost of revenues(a)                                                                                         |                          |   | (2,859             | )     |                   |   | (2,317     | )     |      |   | (8,229  | )     |  |   | (6,639 | )    
|Selling, general and administrative(a)                                                                      |                          |   | (428               | )     |                   |   | (560       | )     |      |   | (1,770  | )     |  |   | (1,767 | )    
|Amortization of goodwill and other intangible assets                                                        |                          |   | (36                | )     |                   |   | (663       | )     |      |   | (111    | )     |  |   | (1,990 | )    
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Operating income (expense)                                                                                  |                          |   | 612                |       |                   |   | 19         |       |      |   | 1,789   |       |  |   | (121   | )    
|Interest expense, net(a)                                                                                    |                          |   | (103               | )     |                   |   | (129       | )     |      |   | (310    | )     |  |   | (413   | )    
|Other income (expense), net(a)                                                                              |                          |   | 5                  |       |                   |   | (101       | )     |      |   |        |       |  |   | (218   | )    
|Minority interest income (expense)                                                                          |                          |   | (6                 | )     |                   |   | 8          |       |      |   | (19     | )     |  |   | 22     |      
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Income (loss) before income tax expense, discontinued
operations and cumulative effect of accounting change |                          |   | 508                |       |                   |   | (203       | )     |      |   | 1,460   |       |  |   | (730   | )    
|Income tax expense                                                                                          |                          |   | (32                | )     |                   |   | (31        | )     |      |   | (124    | )     |  |   | (69    | )    
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Income (loss) before discontinued operations and
cumulative effect of accounting change                     |                          |   | 476                |       |                   |   | (234       | )     |      |   | 1,336   |       |  |   | (799   | )    
|Discontinued operations, net of tax                                                                         |                          |   | 1,179              |       |                   |   | (7         | )     |      |   | 1,182   |       |  |   | (24    | )    
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Income (loss) before cumulative effect of accounting
change                                                 |                          |   | 1,655              |       |                   |   | (241       | )     |      |   | 2,518   |       |  |   | (823   | )    
|Cumulative effect of accounting change                                                                      |                          |   |                   |       |                   |   |           |       |      |   | (21,763 | )     |  |   |       |      
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      
|Net income (loss)                                                                                           |                          | $ | 1,655              |       |                   | $ | (241       | )     |      | $ | (19,245 | )     |  | $ | (823   | )    
|                                                                                                            |                          |   |                    |       |                   |   |            |       |      |   |         |       |  |   |        |      



---

|(a) |  | Includes the following income (expenses) resulting from transactions with
the partners of TWE and other related companies:
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|                                    |  |   |     |   |  |   |     |   |  |   |      |   |  |   |      |   | 
|----------------------------------- |  | - | --- | - |  | - | --- | - |  | - | ---- | - |  | - | ---- | - | 
|Revenues                            |  | $ | 291 |   |  | $ | 306 |   |  | $ | 780  |   |  | $ | 747  |  
|Cost of revenues                    |  |   | 39  |   |  |   | (91 | ) |  |   | (255 | ) |  |   | (346 | )
|Selling, general and administrative |  |   | 32  |   |  |   | 51  |   |  |   | (63  | ) |  |   | (30  | )
|Interest expense, net               |  |   | (2  | ) |  |   | (2  | ) |  |   | 6    |   |  |   | 5    |  
|Other expense, net                  |  |   |    |   |  |   | 3   |   |  |   |     |   |  |   | (2   | )

See accompanying notes.

18



---



##### Table of Contents






TIME WARNER ENTERTAINMENT
COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited)

|                                                                                                                            |                                                            |   |            |        |      |   |        |       | 
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | - | ---------- | ------ | ---- | - | ------ | ----- | 
|                                                                                                                            |                                                            |   | 2002       |        | 2001
|                                                                                                                            |                                                            |   |            |        |     
|                                                                                                                            |                                                            |   | (millions)
|OPERATIONS                                                                                                                  |                                                            |   |            |        |      |   |        |      
|Net income (loss)(a)                                                                                                        |                                                            | $ | (19,245    | )      |      | $ | (823   | )    
|Adjustments for noncash and nonoperating items:                                                                             |                                                            |   |            |        |      |   |        |      
|                                                                                                                            | Cumulative effect of accounting change                     |   |            | 21,763 |      |   |        |      | 
|                                                                                                                            | Depreciation and amortization                              |   |            | 931    |      |   |        | 2,623 | 
|                                                                                                                            | Amortization of film costs                                 |   |            | 1,362  |      |   |        | 1,322 | 
|                                                                                                                            | Equity in losses of investee companies after distributions |   |            | 1      |      |   |        | 235   | 
|Changes in operating assets and liabilities                                                                                 |                                                            |   | (635       | )      |      |   | (1,753 | )    
|Adjustments for noncash and nonoperating items, and changes in operating
assets and liabilities for discontinued operations |                                                            |   | (804       | )      |      |   | 393    |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|Cash provided by operations                                                                                                 |                                                            |   | 3,373      |        |      |   | 1,997  |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|INVESTING ACTIVITIES                                                                                                        |                                                            |   |            |        |      |   |        |      
|Investments and acquisitions                                                                                                |                                                            |   | (262       | )      |      |   | (832   | )    
|Capital expenditures from continuing operations                                                                             |                                                            |   | (1,135     | )      |      |   | (1,144 | )    
|Capital expenditures from discontinued operations                                                                           |                                                            |   | (206       | )      |      |   | (298   | )    
|Investment proceeds                                                                                                         |                                                            |   | 38         |        |      |   | 32     |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|Cash used by investing activities                                                                                           |                                                            |   | (1,565     | )      |      |   | (2,242 | )    
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|FINANCING ACTIVITIES                                                                                                        |                                                            |   |            |        |      |   |        |      
|Borrowings                                                                                                                  |                                                            |   | 3,046      |        |      |   | 3,279  |      
|Debt repayments                                                                                                             |                                                            |   | (3,713     | )      |      |   | (2,535 | )    
|Redemption of preferred securities of subsidiary                                                                            |                                                            |   |           |        |      |   |       |      
|Partnership distributions
from discontinued operations, net                                                                 |                                                            |   | (11        | )      |      |   | (51    | )    
|Capital and other distributions from continuing operations                                                                  |                                                            |   | (416       | )      |      |   | (425   | )    
|Other                                                                                                                       |                                                            |   | (17        | )      |      |   |       |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|Cash provided (used) by financing activities                                                                                |                                                            |   | (1,111     | )      |      |   | 268    |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|INCREASE IN CASH AND EQUIVALENTS                                                                                            |                                                            |   | 697        |        |      |   | 23     |      
|                                                                                                                           
|CASH AND EQUIVALENTS AT BEGINNING OF PERIOD                                                                                 |                                                            |   | 250        |        |      |   | 306    |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      
|CASH AND EQUIVALENTS AT END OF PERIOD                                                                                       |                                                            | $ | 947        |        |      | $ | 329    |      
|                                                                                                                            |                                                            |   |            |        |      |   |        |      



---

|(a) |  | Includes net income (loss) from discontinued operations of $1.182 billion
in 2002 and $(24) million in 2001.
|--- |  | ------------------------------------------------------------------------------------------------------------

See accompanying notes.

19



---



##### Table of Contents



TIME WARNER ENTERTAINMENT COMPANY, L.P.




CONSOLIDATED STATEMENT OF
PARTNERSHIP CAPITAL


Nine Months Ended September 30,
(Unaudited)


|                                                                                                                                                       |  |            |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------- | ------- | ---- |  | - | ------ | -
|                                                                                                                                                       |  | 2002       |         | 2001
|                                                                                                                                                       |  |            |         |     
|                                                                                                                                                       |  | (millions)
|BALANCE AT BEGINNING OF PERIOD                                                                                                                         |  | $          | 65,405  |      |  | $ | 6,926  |  
|                                                                                                                                                      
|                                                                                                                                                      
|                                                                                                                                                      
|                                                                                                                                                      
|                                                                                                                                                       |  |            |         |      |  |   |        |  
|Allocation of a portion of the purchase price in connection with America Online-Time
Warner merger to TWE                                              |  |            |        |      |  |   | 59,518 |  
|Reallocation of TWE goodwill to other segments of AOL Time Warner upon adoption of
FAS 142                                                             |  |            | (6,857  | )    |  |   |       |  
|                                                                                                                                                       |  |            |         |      |  |   |        |  
|Balance at beginning of period, adjusted to give effect to the America Online-Time Warner
merger and reallocation of goodwill upon adoption of FAS 142 |  |            | 58,548  |      |  |   | 66,444 |  
|                                                                                                                                                      
|Net loss                                                                                                                                               |  |            | (19,245 | )    |  |   | (823   | )
|Other comprehensive income                                                                                                                             |  |            | 40      |      |  |   | 2      |  
|                                                                                                                                                       |  |            |         |      |  |   |        |  
|Comprehensive loss                                                                                                                                     |  |            | (19,205 | )    |  |   | (821   | )
|                                                                                                                                                       |  |            |         |      |  |   |        |  
|Distributions                                                                                                                                          |  |            | 57      |      |  |   | (199   | )
|Other                                                                                                                                                  |  |            | 6       |      |  |   | 87     |  
|                                                                                                                                                       |  |            |         |      |  |   |        |  
|BALANCE AT END OF PERIOD                                                                                                                               |  | $          | 39,406  |      |  | $ | 65,511 |  
|                                                                                                                                                       |  |            |         |      |  |   |        |  

See accompanying notes.

20



---



##### Table of Contents



TIME WARNER ENTERTAINMENT COMPANY, L.P.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1. DESCRIPTION OF BUSINESS AND
BASIS OF PRESENTATION

Description of Business

AOL Time Warner Inc. (AOL Time Warner) is the worlds leading media and
entertainment company. The Company was formed in connection with the merger of
America Online, Inc. (America Online) and Time Warner Inc. (Time Warner)
which was consummated on January 11, 2001 (the Merger). As a result of the
Merger, America Online and Time Warner each became a wholly-owned subsidiary of
AOL Time Warner.

A majority of AOL Time Warners interests in the Filmed Entertainment and
Cable segments, and a portion of its interests in the Networks segment, are
held through Time Warner Entertainment Company, L.P. (TWE). As of September
30, 2002, AOL Time Warner owned general and limited partnership interests in
TWE consisting of 72.36% 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 27.64% limited partnership
interests in the Series A Capital and Residual Capital of TWE were held by
MediaOne TWE Holdings, Inc., a subsidiary of AT&T Corp. (AT&T).

During the second quarter of 2002, AT&T exercised a one-time option to
increase its ownership in the Series A Capital and Residual Capital of TWE. As
a result, on May 31, 2002, AT&Ts interest in the Series A Capital and Residual
Capital of TWE increased by approximately 2.13% to approximately 27.64% and AOL
Time Warners corresponding interest in the Series A and Residual Capital of
TWE decreased by approximately 2.13% to approximately 72.36%. This transaction
had no impact on the TWE financial statements as it represents a transaction
between its partners.

In August 2002, AOL Time Warner and AT&T announced that they had agreed to
restructure TWE. As part of the restructuring, AOL Time Warner will acquire
complete ownership of TWEs content assets, including Warner Bros. and Home Box
Office, as well as TWEs interests in The WB Network, Comedy Central and Court
TV. In addition, almost all of AOL Time Warners interests in TWE and all of
its interests in cable television systems held through wholly-owned
subsidiaries will be contributed to an existing subsidiary of AT&T that will
become a subsidiary of AOL Time Warner and be renamed Time Warner Cable Inc.
In connection with the restructuring, AT&T will receive $2.1 billion in cash
and AOL Time Warner common stock valued at $1.5 billion at the time of the
closing of the restructuring and will retain both a 17.9% economic stake in Time
Warner Cable Inc. and a 4.7% economic stake in TWE. AT&Ts combined interests
in Time Warner Cable Inc. and TWE will result in AT&T holding an approximately
21% economic interest in the business of Time Warner Cable Inc. AT&Ts 17.9%
economic stake in Time Warner Cable Inc. will represent approximately a 10.7%
voting interest in Time Warner Cable Inc. The Company anticipates that the
restructuring will be completed in early 2003, upon the receipt of local cable
franchise approvals, where required, and other required regulatory approvals.
Clearance under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 has been
received.

Based upon its controlling voting interest in Time Warner Cable Inc., AOL
Time Warner will consolidate the results of Time Warner Cable Inc. for
accounting purposes. At the closing of the restructuring, it is anticipated
that Time Warner Cable Inc. will have approximately $8.1 billion in
consolidated net debt and preferred equity. Subject to market conditions, AOL
Time Warner plans to conduct an initial public offering of Time Warner Cable
Inc. soon after the restructuring. It is anticipated that the first $2.1
billion raised in any such offering would be used
to repay Time Warner Cable Inc.s debt incurred to fund the $2.1 billion
cash payment to AT&T. Thereafter, AT&T will have certain priority registration
rights with respect to its stake in Time Warner Cable Inc.

21



---



##### Table of Contents



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

TWE, a Delaware limited partnership, classifies its business interests
into three fundamental areas: Cable,consisting principally of interests in
cable television systems; Filmed Entertainment,consisting principally of
interests in filmed entertainment and television production; and Networks,
consisting principally of interests in cable television and broadcast network
programming.

Each of the business interests within Cable, Filmed Entertainment and
Networks 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) Time Warner Cable,
currently the second largest operator of cable television systems in the U.S.,
(2) the unique and extensive film, television and animation libraries of Warner
Bros. and trademarks such as the Looney Tunescharacters and Batman,(3) HBO
and Cinemax, the leading pay-television services and (4) 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.

TWE-A/N Transaction Description

As of June 30, 2002, the TWE-Advance/Newhouse Partnership (TWE-A/N) was
owned approximately 64.8% by TWE, the managing partner, 33.3% by the
Advance/Newhouse Partnership (Advance/Newhouse) and 1.9% indirectly by AOL
Time Warner. Prior to the restructuring of TWE-A/N, as discussed in more
detail below, the financial position and operating results of TWE-A/N were
consolidated by AOL Time Warner and TWE, and the partnership interest owned by
Advance/Newhouse was reflected in the consolidated financial statements of AOL
Time Warner and TWE as minority interest. In addition, Road Runner, a
high-speed cable modem Internet service provider, was owned by TWI Cable Inc.
(a wholly-owned subsidiary of AOL Time Warner), TWE and TWE-A/N, with AOL Time
Warner owning approximately 65% on a fully attributed basis (i.e., after
considering the portion attributable to the minority partners of TWE and
TWE-A/N). AOL Time Warners interest in Road Runner was previously accounted
for using the equity method of accounting prior to the restructuring because of
certain approval rights held by Advance/Newhouse, a partner in TWE-A/N.

On June 24, 2002, TWE and Advance/Newhouse agreed to restructure TWE-A/N,
which, on August 1, 2002 (the Debt Closing Date), resulted in
Advance/Newhouse assuming responsibility for the day-to-day operations of
certain TWE-A/N cable systems serving approximately 2.1 million subscribers
located primarily in Florida (the Advance/Newhouse Systems). The
restructuring is anticipated to be completed by the end of 2002, upon the
receipt of certain regulatory approvals. On the Debt Closing Date,
Advance/Newhouse and its affiliates arranged for a new credit facility to
support the Advance/Newhouse Systems and assumed and repaid approximately $780
million of TWE-A/Ns senior indebtedness. As of the Debt Closing Date,
Advance/Newhouse assumed responsibility for the day-to-day
operations of the
Advance/Newhouse Systems. As a result, AOL Time Warner and TWE have deconsolidated the financial
position and operating results of these systems. Additionally, all prior
period results associated with the Advance/Newhouse Systems, including the
historical minority interest allocated to Advance/Newhouses interest in
TWE-A/N, have been reflected as a discontinued operation for all periods
presented. Under the new TWE-A/N Partnership Agreement, effective as of the
Debt Closing Date, Advance/Newhouses partnership interest tracks only the
economic performance of the Advance/Newhouse Systems, including associated
liabilities, while AOL Time Warner retains all of the economic interests in the other
TWE-A/N assets and liabilities.

22



---



##### Table of Contents



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

As part of the restructuring of TWE-A/N, on the Debt Closing Date, AOL
Time Warner acquired Advance/Newhouses interest in Road Runner, thereby
increasing its ownership to approximately 82% on a fully attributed basis. As
a result of the termination of Advance/Newhouses minority rights in Road
Runner, TWE has consolidated the financial position and results of operations
of Road Runner with the financial position and results of operations of TWEs
Cable segment. As permitted under generally accepted accounting principles,
the Company has consolidated the results of Road Runner retroactive to the
beginning of the year.

In connection with the TWE-A/N restructuring, TWE recognized a noncash
pretax gain of approximately $1.2 billion related to the difference between the
carrying value of AT&Ts interest in the Advance/Newhouse Systems and the fair
value of AT&Ts additional interest acquired in the remaining TWE-A/N systems.
This gain is included as part of discontinued operations in the accompanying
consolidated statement of operations. Additionally, there is no impact on TWEs
consolidated net income of consolidating Road Runner since the Company had
previously accounted for its interest in Road Runner under the equity method of
accounting.

Basis of Presentation

Discontinued Operations

The Companys results of operations have been adjusted to reflect the
results of the Advance/Newhouse Systems as a discontinued operation for all
periods presented. For the six months ended June 30, 2002, the net impact of the deconsolidation of these systems was a
reduction of the Cable segments previously reported revenues, EBITDA and operating income of $715 million, $333 million and
$206 million, respectively. For the three months ended September 30, 2001, the
net impact of the deconsolidation of the Advance/Newhouse Systems was a
reduction of the Cable segments reported revenues, EBITDA and operating income of $316
million, $141 million and $74 million, respectively. For the nine months ended
September 30, 2001, the net impact was a reduction of the Cable
segments reported
revenues, EBITDA and operating income of $912 million, $412 million and $225
million, respectively. In addition, as of December 31, 2001, the
Advance/Newhouse Systems had current assets and total assets of approximately
$64 million and $2.7 billion, respectively, and current liabilities and total
liabilities of approximately $210 million and $963 million,
respectively, including debt assumed in the restructuring.

Interim Financial Statements

The accompanying consolidated financial statements are unaudited but, in
the opinion of management, contain all the adjustments (consisting of those of
a normal recurring nature) considered necessary to present fairly the financial
position and the results of operations and cash flows for the periods presented
in conformity with generally accepted accounting principles applicable to
interim periods. The accompanying consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of TWE,
included in its Form 10-K for the year ended December 31, 2001, filed on March
27, 2002 (the 2001 Form 10-K).

Basis of Consolidation

The consolidated financial statements of TWE include 100% of the assets,
liabilities, revenues, expenses, income, loss and cash flows of all companies
in which TWE has a controlling voting interest, as if TWE and its subsidiaries
were a single company. Intercompany transactions between the consolidated
companies have been eliminated.

23



---



##### Table of Contents



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

Revenue Classification Changes

In January 2002, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No.
01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires that
reimbursements received for out-of-pocket expenses be classified as revenue on
the income statement and was effective for TWE in the first quarter of 2002.
The new guidance requires retroactive restatement of all periods presented to
reflect the new accounting provisions. This change in revenue classification
will impact TWEs Cable segment, resulting in an increase in both revenues and
costs of approximately $49 million for the three months ended September 30,
2001 and an increase in both revenues and costs of approximately $142 million
for the nine months ended September 30, 2001.

Accounting for Business Combinations

In July 2001, the FASB issued Statements of Financial Accounting Standards
(Statement) No. 141, Business Combinations and No. 142, Goodwill and Other
Intangible Assets (FAS 142). These standards change the accounting for
business combinations by, among other things, prohibiting the prospective use
of pooling-of-interests accounting and requiring companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life. Instead,
goodwill and intangible assets deemed to have an indefinite useful life will be
subject to an annual review for impairment. The new standards generally were
effective for TWE in the first quarter of 2002 and for purchase business
combinations consummated after June 30, 2001. Upon adoption of FAS 142 in the
first quarter of 2002, TWE recorded a one-time, noncash charge of approximately
$22 billion to reduce the carrying value of its goodwill. Such charge is
nonoperational in nature and is reflected as a cumulative effect of an
accounting change in the accompanying consolidated statement of operations.
For additional discussion on the impact of adopting FAS 142, see Note 3.

Reclassifications

Certain reclassifications have been made to the prior years financial
information to conform to the September 30, 2002 presentation.

2. MERGER AND RESTRUCTURING COSTS

America Online-Time Warner Merger

In connection with the Merger, TWE has reviewed its operations and
implemented several plans to restructure its operations (restructuring
plans). As part of the restructuring plans, TWE recorded a restructuring
liability of approximately $301 million during 2001. The restructuring accruals
relate to costs to exit and consolidate certain activities at TWE, as well as
costs to terminate employees across various business units. Such amounts were
recognized as liabilities assumed in the purchase business combination and
included in the allocation of the cost to acquire Time Warner. Accordingly,
such amounts resulted in additional goodwill being recorded in connection with
the Merger.

24



---



##### Table of Contents



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

Of the total restructuring costs, $107 million related to work force
reductions and represented employee termination benefits and
relocation costs. Employee termination
costs occurred across most TWE business units and ranged from senior
executives to line personnel. The number of employees initially identified to
be involuntarily terminated or relocated approximated
1,600. As of September 30, 2002,
approximately 600 of the terminations and relocations had occurred.
The remaining 1,000 terminations and relocations are anticipated to
occur during the fourth quarter of 2002 or are no longer expected to
occur. In accordance with EITF Issue No. 95-3, Recognition of
Liabilities in Connection with a Purchase Business Combination,
the accruals associated with any termination or relocation that does
not occur by the end of 2002 will be reversed against goodwill
established in purchase accounting.
Because certain employees can defer receipt of termination benefits for up to
24 months, cash payments will continue after the employee has been terminated.
Termination payments of approximately $19 million were made in 2001 ($4 million
of which was in the third quarter and $14 million was made for the first nine
months of 2001), an additional $4 million was made in the third quarter of 2002
and approximately $22 million was made for the first nine months of 2002. As
of September 30, 2002, the remaining liability of approximately $66 million was
classified as a current liability in the accompanying consolidated balance
sheet.

The restructuring charge also includes approximately $194 million
associated with exiting certain activities. Specifically, TWE has exited
certain under-performing operations, including the Studio Store operations
included in the Filmed Entertainment segment. The restructuring accrual
associated with exiting activities specifically includes incremental costs and
contractual termination obligations for items such as leasehold termination
payments and other facility exit costs incurred as a direct result of these
plans, which will not have future benefits. Payments related to exiting
activities were approximately $88 million in 2001 ($25 million of which was
paid in the third quarter of 2001 and $45 million for the first nine months of
2001), an additional $9 million was paid in the third quarter of 2002 and
approximately $58 million was paid for the first nine months of 2002. In
addition, for the third quarter and the first nine months of 2002, there were
non-cash reductions in the restructuring accrual of approximately $15 million,
as actual termination payments were less than amounts originally estimated. As
of September 30, 2002, the remaining liability of $33 million was primarily
classified as a current liability in the accompanying consolidated balance
sheet.

Selected information relating to the restructuring plans follows (in
millions):

|                                                 |  |             |     |            |  |       |     |   |  |   |      |  
|------------------------------------------------ |  | ----------- | --- | ---------- |  | ----- | --- | - |  | - | ---- | -
|                                                 |  | Employee    |     |            |  |       |     |   |  |  
|                                                 |  | Termination |     | Exit Costs |  | Total
|                                                 |  |             |     |            |  |      
|Initial accruals                                 |  | $           | 107 |            |  | $     | 194 |   |  | $ | 301  |  
|                                                
|Cash paid - 2001                                 |  |             | (19 | )          |  |       | (88 | ) |  |   | (107 | )
|                                                 |  |             |     |            |  |       |     |   |  |   |      |  
|Restructuring liability as of December 31, 2001  |  | $           | 88  |            |  | $     | 106 |   |  | $ | 194  |  
|                                                
|Cash paid - 2002                                 |  |             | (22 | )          |  |       | (58 | ) |  |   | (80  | )
|                                                
|Noncash reductions (a)   2002                   |  |             |    |            |  |       | (15 | ) |  |   | (15  | )
|                                                 |  |             |     |            |  |       |     |   |  |   |      |  
|Restructuring liability as of September 30,
2002 |  | $           | 66  |            |  | $     | 33  |   |  | $ | 99   |  
|                                                 |  |             |     |            |  |       |     |   |  |   |      |  



---

|(a) |  | Noncash reductions represent adjustments to the restructuring accrual,
and a corresponding reduction in goodwill, as actual costs related to
employee terminations and other exit costs were less than originally
estimated.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. GOODWILL AND INTANGIBLE ASSETS

As discussed in Note 1, in January 2002, TWE adopted FAS 142, which
requires companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. Instead, FAS 142 requires that goodwill and
intangible assets deemed to have an indefinite useful life be reviewed for
impairment upon adoption of FAS 142 (January 1, 2002) and annually thereafter.
The Company will perform its annual impairment review during the fourth quarter
of each year, commencing with the fourth quarter of 2002.

25



---



##### Table of Contents



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

Under FAS 142, goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. The Companys
reporting units are generally consistent with the operating segments underlying
the segments identified in Note 7  Segment Information. This methodology
differs from TWEs previous policy, as permitted under accounting standards
existing at that time, of using undiscounted cash flows on an enterprisewide
basis to determine if goodwill is recoverable.

Upon adoption of FAS 142 in the first quarter of 2002, TWE recorded a
one-time, noncash charge of approximately $22 billion to reduce the carrying
value of its goodwill. Such charge is nonoperational in nature and is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations. In calculating the impairment charge,
the fair value of the impaired reporting units underlying the segments were
estimated using either a discounted cash flow methodology or recent comparable
transactions.

The FAS 142 goodwill impairment is associated solely with goodwill
resulting from the Merger. The amount of the impairment primarily reflects the
decline in AOL Time Warners stock price since the Merger was announced and
valued for accounting purposes in January of 2000. Prior to performing the
review for impairment, FAS 142 required that all goodwill deemed to be related
to the entity as a whole be assigned to all of the Companys reporting units,
including the reporting units of the acquirer. This differs from the previous
accounting rules where goodwill was assigned only to the businesses of the
company acquired. As a result, effective January 1, 2002, $6.857 billion of the
goodwill generated in the Merger, which was previously allocated to the TWE
segments, has been reallocated to other segments of AOL Time Warner.

A summary of changes in the Companys goodwill during the first nine
months of 2002, and total assets at September 30, 2002, by business segment is
as follows (in millions):

|                     |  |            |        |                |  |             |    |      |  |               |         |               |  |   |        |  |  |   |        | 
|-------------------- |  | ---------- | ------ | -------------- |  | ----------- | -- | ---- |  | ------------- | ------- | ------------- |  | - | ------ |  |  | - | ------ | 
|                     |  | Goodwill   |        | Total Assets  
|                     |  |            |        |               
|                     |  | January 1, |        | Acquisitions & |  |             |    |      |  | September 30, |         | September 30,
|                     |  | 2002(1)(2) |        | Adjustments    |  | Impairments |    | 2002 |  | 2002         
|                     |  |            |        |                |  |             |    |      |  |              
|Cable                |  | $          | 19,048 |                |  | $           | 69 |      |  | $             | (16,768 | )             |  | $ | 2,349  |  |  | $ | 32,274 | 
|Filmed Entertainment |  |            | 6,165  |                |  |             | 6  |      |  |               | (2,851  | )             |  |   | 3,320  |  |  |   | 12,752 | 
|Networks(3)          |  |            | 8,934  |                |  |             | 22 |      |  |               | (2,144  | )             |  |   | 6,812  |  |  |   | 10,104 | 
|Corporate            |  |            |       |                |  |             |   |      |  |               |        |               |  |   |       |  |  |   | 738    | 
|                     |  |            |        |                |  |             |    |      |  |               |         |               |  |   |        |  |  |   |        | 
|Total                |  | $          | 34,147 |                |  | $           | 97 |      |  | $             | (21,763 | )             |  | $ | 12,481 |  |  | $ | 55,868 | 
|                     |  |            |        |                |  |             |    |      |  |               |         |               |  |   |        |  |  |   |        | 



---

|(1) |  | Reflects the reallocation of goodwill of $6.857 billion to other segments
of AOL Time Warner under FAS 142.                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | In addition to the goodwill identified above, AOL Time Warner has
recognized goodwill associated with deferred tax liabilities related to
TWEs assets and liabilities. Neither the deferred tax liabilities nor the
corresponding goodwill are recorded in TWEs standalone financial
statements because TWE is not subject to U.S. Federal income taxation.
|(3) |  | Includes impairments at HBO ($1.933 billion) and The WB Network ($211
million).                                                                                                                                                                                                                                                                              

While the
Companys overall goodwill impairment analysis will not be completed until the
fourth quarter, based on the current market capitalization of AOL Time Warner
as implied by AOL Time Warners stock price and current market conditions in
the Cable industry, management believes that it is probable that a substantial
overall goodwill impairment has occurred as of September 30, 2002. At this
time, management is unable to reasonably estimate the magnitude of such an
impairment. The factors that will affect the magnitude of impairment include
the results of the Companys overall current budgeting and long-term plan
process, and a valuation of assets (including unrecognized intangible assets)
and liabilities, all of which will be completed in the fourth quarter.
Additionally, the magnitude of any impairment will take into consideration

26



---



##### Table of Contents



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

AOL Time Warners overall market capitalization as well as the extent to
which the stock price of comparable companies in the cable industry continue to
experience a sustained decline in values. Any charge would be noncash in nature
and, therefore, is not expected to affect the Companys liquidity or result in
the non-compliance of any debt covenants, including the covenant to
maintain at least $50 billion of GAAP net worth contained in the
2002 credit agreements. In addition, the Company would record
any such noncash charge as a component of operating income.

As of September 30, 2002 and December 31, 2001, the Companys intangible
assets and related accumulated amortization consisted of the following (in
millions):

|                                               |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|---------------------------------------------- |  | ------------------------ | ------ | ----------------------- |  | ----------- | ------ | ----- |  | ------------ | ------ | --- |  | - | ------ | ----------- |  | - | ------ | - |  | - | ------ | 
|                                               |  | As of September 30, 2002 |        | As of December 31, 2001
|                                               |  |                          |        |                        
|                                               |  |                          |        |                         |  | Accumulated |        |       |  |              |        |     |  |   |        | Accumulated |  |   |        |  
|                                               |  | Gross                    |        | Amortization            |  | Net         |        | Gross |  | Amortization |        | Net
|                                               |  |                          |        |                         |  |             |        |       |  |              |        |    
|Intangible assets subject to amortization:     |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|Film library                                   |  | $                        | 2,529  |                         |  | $           | (242   | )     |  | $            | 2,287  |     |  | $ | 2,529  |             |  | $ | (138   | ) |  | $ | 2,391  | 
|Customer lists and other intangible
assets     |  |                          | 152    |                         |  |             | (77    | )     |  |              | 75     |     |  |   | 204    |             |  |   | (131   | ) |  |   | 73     | 
|                                               |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|Total                                          |  | $                        | 2,681  |                         |  | $           | (319   | )     |  | $            | 2,362  |     |  | $ | 2,733  |             |  | $ | (269   | ) |  | $ | 2,464  | 
|                                               |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|Intangible assets not subject to amortization: |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|Cable television franchises                    |  | $                        | 22,023 |                         |  | $           | (1,284 | )     |  | $            | 20,739 |     |  | $ | 21,911 |             |  | $ | (1,644 | ) |  | $ | 20,267 | 
|Brands, trademarks and other intangible
assets |  |                          | 2,150  |                         |  |             | (61    | )     |  |              | 2,089  |     |  |   | 2,150  |             |  |   | (61    | ) |  |   | 2,089  | 
|                                               |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 
|Total                                          |  | $                        | 24,173 |                         |  | $           | (1,345 | )     |  | $            | 22,828 |     |  | $ | 24,061 |             |  | $ | (1,705 | ) |  | $ | 22,356 | 
|                                               |  |                          |        |                         |  |             |        |       |  |              |        |     |  |   |        |             |  |   |        |   |  |   |        | 

The Company recorded amortization expense of $36 million during the third
quarter of 2002 compared to $663 million during the third quarter of 2001. The
Company recorded amortization expense of $111 million for the first nine months
of 2002 compared to $1.990 billion for the first nine months of 2001. Based on
the current amount of intangible assets subject to amortization, the estimated
amortization expense for each of the succeeding 5 years are as follows: 2003:
$148 million; 2004: $143 million; 2005: $143 million; 2006: $143 million; and
2007: $143 million. As acquisitions and dispositions occur in the future and
as purchase price allocations are finalized, these amounts may vary.

During the first nine months of 2002, the Company acquired the following
intangible assets (in millions):

|                                                                   |  |   |       |  |  |                     |  | 
|------------------------------------------------------------------ |  | - | ----- |  |  | ------------------- |  | 
|                                                                   |  |   |       |  |  | Weighted Average   
|                                                                   |  |   |       |  |  | Amortization Period
|                                                                   |  |   |       |  |  |                    
|Customer lists and other intangible assets subject to amortization |  | $ | 19    |  |  | 10-15 years        
|Cable television franchises not subject to amortization (a)        |  |   | 1,192 |  |  | Indefinite         
|                                                                   |  |   |       |  |  |                     |  | 
|Total                                                              |  | $ | 1,211 |  |  |                     |  | 
|                                                                   |  |   |       |  |  |                     |  | 



---

|(a) |  | The increase in cable television franchises primarily relates to the
increase in the carrying value of AT&Ts interest in the TWE-
Advance/Newhouse Partnership as part of a restructuring of that
partnership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27



---



##### Table of Contents



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

The 2001 results on a historical basis do not reflect the provisions of
FAS 142. Had TWE adopted FAS 142 on January 1, 2001, the historical net income
(loss) would have been changed to the adjusted amounts indicated below:

|                                           |  |                    |      |                    |  |   |       |  
|------------------------------------------ |  | ------------------ | ---- | ------------------ |  | - | ----- | -
|                                           |  | Three Months Ended |      | Nine Months Ended 
|                                           |  | September 30, 2001 |      | September 30, 2001
|                                           |  |                    |      |                   
|                                           |  | (millions)        
|                                           |  | Net income         |      | Net income        
|                                           |  | (loss)             |      | (loss)            
|                                           |  |                    |      |                   
|As reported  historical basis             |  | $                  | (241 | )                  |  | $ | (823  | )
|Add: Goodwill amortization                 |  |                    | 422  |                    |  |   | 1,266 |  
|Add: Intangible amortization               |  |                    | 205  |                    |  |   | 616   |  
|Add: Equity investee goodwill amortization |  |                    | 33   |                    |  |   | 103   |  
|Discontinued operations                    |  |                    | 10   |                    |  |   | 34    |  
|                                           |  |                    |      |                    |  |   |       |  
|Adjusted                                   |  | $                  | 429  |                    |  | $ | 1,196 |  
|                                           |  |                    |      |                    |  |   |       |  

4. INVENTORIES

Inventories and film costs consist of:

|                                            |                                |   |                    |     |                   |   |       |     | 
|------------------------------------------- | ------------------------------ | - | ------------------ | --- | ----------------- | - | ----- | --- | 
|                                            |                                |   | September 30, 2002 |     | December 31, 2001
|                                            |                                |   |                    |     |                  
|                                            |                                |   | (millions)        
|Programming costs, less amortization        |                                | $ | 1,231              |     |                   | $ | 1,285 |    
|Merchandise                                 |                                |   | 196                |     |                   |   | 158   |    
|Film costs-Theatrical:                      |                                |   |                    |     |                   |   |       |    
|                                            | Released, less amortization    |   |                    | 546 |                   |   |       | 650 | 
|                                            | Completed and not released     |   |                    | 251 |                   |   |       | 285 | 
|                                            | In production                  |   |                    | 444 |                   |   |       | 346 | 
|                                            | Development and pre-production |   |                    | 56  |                   |   |       | 36  | 
|Film costs-Television:                      |                                |   |                    |     |                   |   |       |    
|                                            | Released, less amortization    |   |                    | 60  |                   |   |       | 123 | 
|                                            | Completed and not released     |   |                    | 175 |                   |   |       | 95  | 
|                                            | In production                  |   |                    | 31  |                   |   |       | 59  | 
|                                            | Development and pre-production |   |                    | 4   |                   |   |       | 2   | 
|                                            |                                |   |                    |     |                   |   |       |    
|Total inventories and film costs(a)         |                                |   | 2,994              |     |                   |   | 3,039 |    
|Less current portion of inventory(b)        |                                |   | 845                |     |                   |   | 852   |    
|                                            |                                |   |                    |     |                   |   |       |    
|Total noncurrent inventories and film costs |                                | $ | 2,149              |     |                   | $ | 2,187 |    
|                                            |                                |   |                    |     |                   |   |       |    



---

|(a) |  | Does not include $2.287 billion and $2.391 billion of net film library
costs as of September 30, 2002 and December 31, 2001, respectively, which
are included in intangible assets subject to amortization on the
accompanying consolidated balance sheet (Note 3).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Current inventory as of
September 30, 2002 is comprised
of programming inventory for the Networks segment ($649 million)
and videocassettes and DVDs for the Film Entertainment segment ($196 million).                                                            

5. 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 AOL Time Warner for stock options granted to employees of TWE
based on the amount by which the market price of AOL Time Warner common stock
exceeds the option exercise price on the exercise date. TWE accrues a stock
option distribution and a corresponding liability with respect to unexercised
options when the market price of AOL Time Warner common stock increases during
the accounting period, and reverses previously accrued stock option
distributions and the corresponding liability when the market price of AOL Time
Warner common stock declines.

During the nine months ended September 30, 2002, TWE accrued $361 million
of tax-related distributions and reversed previous stock option distribution
accruals of $418 million, based on closing prices of AOL Time

28



---



##### Table of Contents



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

Warner common stock of $11.70 at September 30, 2002 and $32.10 at December
31, 2001. During the nine months ended September 30, 2001, TWE accrued $50
million of tax-related distributions and $149 million of stock option
distributions as a result of an increase at that time in the market price of
AOL Time Warner common stock. During the nine months ended September 30, 2002,
TWE paid distributions to the AOL Time Warner General Partners in the amount of
$385 million, consisting of $361 million of tax-related distributions and $24
million of stock option related distributions. During the nine months ended
September 30, 2001, TWE paid the AOL Time Warner General Partners distributions
in the amount of $404 million, consisting of $50 million of tax-related
distributions and $354 million of stock option related distributions.

6. LONG-TERM DEBT

In July 2002, AOL Time Warner, together with certain of its consolidated
subsidiaries, including TWE, entered into two new, senior unsecured long-term
revolving bank credit agreements with an aggregate borrowing capacity of $10
billion (the 2002 Credit Agreements) and terminated three financing
arrangements under certain previously existing bank credit facilities with an
aggregate borrowing capacity of $12.6 billion (the Old
Credit Agreements),
which were to expire during 2002. The 2002 Credit Agreements are comprised of a
$6 billion five-year revolving credit facility and a $4 billion 364-day
revolving credit facility, borrowings under which may be extended for a period
up to two years following the initial term. The borrowers under the 2002
Credit Agreement include AOL Time Warner, TWE, TWE-A/N and AOL Time Warner
Finance Ireland. The obligations of each of AOL Time Warner and AOL Time Warner
Finance Ireland are guaranteed by America Online, Time Warner, TBS and TW
Companies, directly or indirectly. The obligation of AOL Time Warner Finance
Ireland is guaranteed by AOL Time Warner. The obligations of TWE and TWE-A/N
are not guaranteed. Borrowings bear interest at specific rates, generally
based on the credit rating for each of the borrowers, currently equal to LIBOR
plus .625% including facility fees of .10% and .125% on the total commitments
of the 364-day and five-year facility, respectively. In addition, the Company
is required to pay an additional usage fee of .0625% if the two facilities in
the aggregate have more than 33% outstanding and .125% if the
facilities have more than 66%
outstanding. Currently, the Company is paying the additional .0625%
usage fee. The 2002 Credit
Agreements provide same-day funding, multi-currency capability and letter of
credit availability. They contain maximum leverage and minimum GAAP net worth
covenants of 4.5 times and $50 billion, respectively, for AOL Time Warner and
maximum leverage covenant of 5.0 times for TWE and TWE-A/N, but do not contain
any ratings-based defaults or covenants, nor an ongoing covenant or
representation specifically relating to a material adverse change in the AOL
Time Warners financial condition or results of operations. Borrowings may be
used for general business purposes and unused credit is available to
support commercial paper borrowings.

7. SEGMENT INFORMATION

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

The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies under Note 1 in the
2001 Form 10-K. Intersegment sales are accounted for at fair value as if the
sales were with third parties.

29



---



##### Table of Contents



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

|                         |       |   |                                  |       |                                 |   |            |       |      |   |       |        |  |   |       |        | 
|------------------------ | ----- | - | -------------------------------- | ----- | ------------------------------- | - | ---------- | ----- | ---- | - | ----- | ------ |  | - | ----- | ------ | 
|                         |       |   | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                         |       |   |                                  |       |                                
|                         |       |   | 2002                             |       | 2001                            |   | 2002       |       | 2001
|                         |       |   |                                  |       |                                 |   |            |       |     
|                         |       |   |                                  |       |                                 |   | (millions) |       |      |   |      
|Revenues(a)              |       |   |                                  |       |                                 |   |            |       |      |   |       |        |  |   |       |       
|Cable(b)                 |       | $ | 1,471                            |       |                                 | $ | 1,258      |       |      | $ | 4,363 |        |  | $ | 3,631 |       
|Filmed Entertainment     |       |   | 1,745                            |       |                                 |   | 1,689      |       |      |   | 5,481 |        |  |   | 4,882 |       
|Networks                 |       |   | 824                              |       |                                 |   | 726        |       |      |   | 2,452 |        |  |   | 2,195 |       
|Intersegment elimination |       |   | (105                             | )     |                                 |   | (114       | )     |      |   | (397  | )      |  |   | (433  | )     
|                         |       |   |                                  |       |                                 |   |            |       |      |   |       |        |  |   |       |       
|                         | Total |   | $                                | 3,935 |                                 |   | $          | 3,559 |      |   | $     | 11,899 |  |   | $     | 10,275 | 
|                         |       |   |                                  |       |                                 |   |            |       |      |   |       |        |  |   |       |       



---

|(a) |  | Revenues reflect the provisions of EITF 01-14 that were adopted by the
Company in the first quarter of 2002, which require retroactive
restatement of 2001 to reflect the new accounting provisions. As a result,
the impact of EITF 01-14 was to increase revenues and costs by equal
amounts of approximately $49 and $142 million for the three months and
nine months ended September 30, 2001, respectively.                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The Cable segments results reflect the restructuring of TWE-A/N, which resulted in
the deconsolidation of the operating results of the Advance/Newhouse
Systems for all periods presented. For the three and nine months ended
September 30, 2001 and the six months ended June 30, 2002, the net impact
of the deconsolidation of these systems was a reduction of the Cable segments
reported revenues of $316 million, $912 million and $715 million,
respectively. In addition, the Cable segments results reflect the consolidation of
Road Runners operating results effective January 1, 2002.

Intersegment Revenues

In the normal course of business, the TWE segments enter into transactions
with one another. The most common types of intercompany transactions include:



| |  | The Filmed Entertainment segment generating content revenue by
licensing television and theatrical programming to the Networks
segment;      
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The Networks segment generating subscription revenues by selling cable
network programming to the Cable segment; and                         
| 
| |  | The Cable and Networks segments generating advertising and commerce
revenue by cross-promoting the products and services of all TWE
segments.

These intercompany transactions are recorded by each segment at fair value
as if the transactions were with third parties and, therefore, impact segment
performance. While intercompany transactions are treated like third-party
transactions to determine segment performance, the revenues (and corresponding
expenses recognized by the segment that is counterparty to the transaction) are
eliminated in consolidation and, therefore, do not themselves impact
consolidated results. Revenues recognized by TWEs segments on intercompany
transactions are as follows:

|                      |                             |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |     | 
|--------------------- | --------------------------- | - | -------------------------------- | --- | ------------------------------- | - | ---------- | --- | ---- | - | --- | --- |  | - | --- | --- | 
|                      |                             |   | Three Months Ended September 30, |     | Nine Months Ended September 30,
|                      |                             |   |                                  |     |                                
|                      |                             |   | 2002                             |     | 2001                            |   | 2002       |     | 2001
|                      |                             |   |                                  |     |                                 |   |            |     |     
|                      |                             |   |                                  |     |                                 |   | (millions) |     |      |   |    
|Intercompany
Revenues |                             |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    
|Cable                 |                             | $ | 1                                |     |                                 | $ | 1          |     |      | $ | 4   |     |  | $ | 1   |    
|Filmed Entertainment  |                             |   | 45                               |     |                                 |   | 49         |     |      |   | 217 |     |  |   | 236 |    
|Networks              |                             |   | 59                               |     |                                 |   | 64         |     |      |   | 176 |     |  |   | 196 |    
|                      |                             |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    
|                      | Total intercompany revenues |   | $                                | 105 |                                 |   | $          | 114 |      |   | $   | 397 |  |   | $   | 433 | 
|                      |                             |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    

30



---



##### Table of Contents



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

|                     |              |   |                                  |     |                                 |   |            |     |      |   |       |       |  |   |       |       | 
|-------------------- | ------------ | - | -------------------------------- | --- | ------------------------------- | - | ---------- | --- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                     |              |   | Three Months Ended September 30, |     | Nine Months Ended September 30,
|                     |              |   |                                  |     |                                
|                     |              |   | 2002                             |     | 2001                            |   | 2002       |     | 2001
|                     |              |   |                                  |     |                                 |   |            |     |     
|                     |              |   |                                  |     |                                 |   | (millions) |     |      |   |      
|EBITDA(a)            |              |   |                                  |     |                                 |   |            |     |      |   |       |       |  |   |       |      
|Cable(b)             |              | $ | 582                              |     |                                 | $ | 540        |     |      | $ | 1,692 |       |  | $ | 1,597 |      
|Filmed Entertainment |              |   | 170                              |     |                                 |   | 204        |     |      |   | 528   |       |  |   | 465   |      
|Networks             |              |   | 207                              |     |                                 |   | 184        |     |      |   | 564   |       |  |   | 498   |      
|Corporate            |              |   | (24                              | )   |                                 |   | (19        | )   |      |   | (64   | )     |  |   | (58   | )    
|                     |              |   |                                  |     |                                 |   |            |     |      |   |       |       |  |   |       |      
|                     | Total EBITDA |   | $                                | 935 |                                 |   | $          | 909 |      |   | $     | 2,720 |  |   | $     | 2,502 | 
|                     |              |   |                                  |     |                                 |   |            |     |      |   |       |       |  |   |       |      



---

|(a) |  | EBITDA represents operating income (loss) before noncash depreciation of
tangible assets and amortization of intangible assets. After deducting
depreciation and amortization, TWEs operating income for the three months
ended September 30 was $612 million in 2002 and $19 million in 2001. After
deducting depreciation and amortization, TWEs operating income for the
nine months ended September 30 was $1.789 billion in 2002 and an
operating loss of $121 million in 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | The Cable segments results reflect the restructuring of TWE-A/N, which resulted in
the deconsolidation of the operating results of the Advance/Newhouse
Systems for all periods presented. For the three and nine months ended
September 30, 2001 and six months ended June 30, 2002, the net impact of
the deconsolidation of these systems was a reduction of the Cable segments reported
EBITDA of $141 million, $412 million and $333 million, respectively. In
addition, the Cable segments results reflect the consolidation of Road Runners
operating results effective January 1, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              |                    |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |     | 
|--------------------------------------------- | ------------------ | - | -------------------------------- | --- | ------------------------------- | - | ---------- | --- | ---- | - | --- | --- |  | - | --- | --- | 
|                                              |                    |   | Three Months Ended September 30, |     | Nine Months Ended September 30,
|                                              |                    |   |                                  |     |                                
|                                              |                    |   | 2002                             |     | 2001                            |   | 2002       |     | 2001
|                                              |                    |   |                                  |     |                                 |   |            |     |     
|                                              |                    |   |                                  |     |                                 |   | (millions) |     |      |   |    
|Depreciation of Property, Plant and Equipment |                    |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    
|Cable                                         |                    | $ | 260                              |     |                                 | $ | 197        |     |      | $ | 740 |     |  | $ | 543 |    
|Filmed Entertainment                          |                    |   | 17                               |     |                                 |   | 19         |     |      |   | 53  |     |  |   | 61  |    
|Networks                                      |                    |   | 7                                |     |                                 |   | 8          |     |      |   | 20  |     |  |   | 24  |    
|Corporate                                     |                    |   | 3                                |     |                                 |   | 3          |     |      |   | 7   |     |  |   | 5   |    
|                                              |                    |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    
|                                              | Total depreciation |   | $                                | 287 |                                 |   | $          | 227 |      |   | $   | 820 |  |   | $   | 633 | 
|                                              |                    |   |                                  |     |                                 |   |            |     |      |   |     |     |  |   |     |    

|                                     |                    |   |                                  |    |                                 |   |            |     |      |   |     |     |  |   |       |       | 
|------------------------------------ | ------------------ | - | -------------------------------- | -- | ------------------------------- | - | ---------- | --- | ---- | - | --- | --- |  | - | ----- | ----- | 
|                                     |                    |   | Three Months Ended September 30, |    | Nine Months Ended September 30,
|                                     |                    |   |                                  |    |                                
|                                     |                    |   | 2002                             |    | 2001                            |   | 2002       |     | 2001
|                                     |                    |   |                                  |    |                                 |   |            |     |     
|                                     |                    |   |                                  |    |                                 |   | (millions) |     |      |   |    
|Amortization of Intangible Assets(a) |                    |   |                                  |    |                                 |   |            |     |      |   |     |     |  |   |       |      
|Cable                                |                    | $ | 1                                |    |                                 | $ | 473        |     |      | $ | 4   |     |  | $ | 1,414 |      
|Filmed Entertainment                 |                    |   | 33                               |    |                                 |   | 97         |     |      |   | 100 |     |  |   | 292   |      
|Networks                             |                    |   | 2                                |    |                                 |   | 93         |     |      |   | 7   |     |  |   | 284   |      
|                                     |                    |   |                                  |    |                                 |   |            |     |      |   |     |     |  |   |       |      
|                                     | Total amortization |   | $                                | 36 |                                 |   | $          | 663 |      |   | $   | 111 |  |   | $     | 1,990 | 
|                                     |                    |   |                                  |    |                                 |   |            |     |      |   |     |     |  |   |       |      



---

|(a) |  | Includes amortization relating to business combinations accounted for by
the purchase method, substantially all of which arose in the merger of
America Online and Time Warner in 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As discussed in Note 3, when FAS 142 was initially applied, all goodwill
recognized on the Companys consolidated balance sheet on that date was
reviewed for impairment using the new guidance. Before performing the review
for impairment, the new guidance required that all goodwill deemed to relate to
the entity as a whole be assigned to all of the Companys reporting units
(generally, the AOL Time Warner operating segments), including the reporting
units of the acquirer. This differs from the previous accounting rules, which
required goodwill to be assigned only to the businesses of the company
acquired. As a result, $6.857 billion of the goodwill generated in the Merger
originally allocated to the TWE segments was reallocated on January 1, 2002, to
other segments of AOL Time Warner resulting in a change in segment assets.
Following are TWEs assets by business segment, reflecting the January 1, 2002
reallocation of goodwill in accordance with FAS 142:

31



---



##### Table of Contents



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

|                     |              |   |               |        |              |   |        |        | 
|-------------------- | ------------ | - | ------------- | ------ | ------------ | - | ------ | ------ | 
|                     |              |   | September 30, |        | December 31,
|                     |              |   | 2002          |        | 2001        
|                     |              |   |               |        |             
|                     |              |   | (millions)   
|Assets               |              |   |               |        |              |   |        |       
|Cable                |              | $ | 32,274        |        |              | $ | 56,760 |       
|Filmed Entertainment |              |   | 12,752        |        |              |   | 16,394 |       
|Networks             |              |   | 10,104        |        |              |   | 11,225 |       
|Corporate            |              |   | 738           |        |              |   | 679    |       
|                     |              |   |               |        |              |   |        |       
|                     | Total assets |   | $             | 55,868 |              |   | $      | 85,058 | 
|                     |              |   |               |        |              |   |        |       

8. COMMITMENTS AND CONTINGENCIES

In Six Flags Over Georgia LLC et al. v. Time Warner Entertainment Company et
al.,following a trial in December 1998, the jury returned a verdict for
plaintiffs and against defendants, including TWE, on plaintiffs claims for
breaches of fiduciary duty. The jury awarded plaintiffs approximately $197
million in compensatory damages and $257 million in punitive damages, and
interest began accruing on those amounts at the Georgia annual statutory rate
of twelve percent. The Company paid the compensatory damages with accrued
interest during the first quarter of 2001. Payment of the punitive damages
portion of the award with accrued interest was stayed by the United States
Supreme Court on March 1, 2001 pending the disposition of a certiorari petition
with that Court, which was filed by TWE on June 15, 2001. On October 1, 2001,
the United States Supreme Court granted TWEs petition, vacated the decision by
the Georgia Court of Appeals affirming the punitive damages award, and remanded
the matter to the Georgia Court of Appeals for further consideration. The
Georgia Court of Appeals affirmed and reinstated its earlier decision regarding
the punitive damage award on March 29, 2002. On September 16, 2002, the Georgia
Supreme Court denied TWEs petition for a writ of certiorari seeking review of
the decision of the Georgia Court of Appeals and subsequently denied TWEs
motion for reconsideration of its September 16th ruling. Plaintiffs have
agreed not to pursue payment of the punitive damages award and accrued interest
until the resolution of TWEs petition for writ of certiorari to the United
States Supreme Court, which TWE intends to file.

On April 8, 2002, three former employees of certain subsidiaries of AOL
Time Warner Inc. filed Henry Spann et al. v. AOL Time Warner Inc. et al.,a
purported class action, in the United States District Court for the Central
District of California. Plaintiffs have named as defendants, among others, AOL
Time Warner Inc., the Company, Warner-Elektra-Atlantic Corporation, WEA
Manufacturing Inc., Warner Bros. Records, Atlantic Recording Corporation,
various pension plans sponsored by the companies and the administrative
committees of those plans. Plaintiffs allege that defendants miscalculated the
proper amount of pension benefits owed to them and other class members as
required under the plans in violation of the Employee Retirement Income
Security Act (ERISA). The lawsuit has been transferred to the United States
District Court for the Southern District of New York. The Company believes
the lawsuit has no merit and intends to defend against it vigorously. Due to
its preliminary status, the Company is unable to predict the outcome of the
case or reasonably estimate a range of possible loss.

TWE is also 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.

32



---



##### Table of Contents



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

9. ADDITIONAL FINANCIAL INFORMATION

Cash Flows

Additional financial information with respect to cash (payments) and
receipts are as follows:

|                                    |  |                                 |      |      |  |   |      |  
|----------------------------------- |  | ------------------------------- | ---- | ---- |  | - | ---- | -
|                                    |  | Nine Months Ended September 30,
|                                    |  |                                
|                                    |  | 2002                            |      | 2001
|                                    |  |                                 |      |     
|                                    |  | (millions)                     
|Cash payments made for interest     |  | $                               | (349 | )    |  | $ | (437 | )
|Interest income received            |  |                                 | 16   |      |  |   | 21   |  
|                                    |  |                                 |      |      |  |   |      |  
|Cash interest expense, net          |  | $                               | (333 | )    |  | $ | (416 | )
|                                    |  |                                 |      |      |  |   |      |  
|Cash payments made for income taxes |  | $                               | (123 | )    |  | $ | (142 | )
|Income tax refunds received         |  |                                 | 4    |      |  |   | 3    |  
|                                    |  |                                 |      |      |  |   |      |  
|Cash taxes, net                     |  | $                               | (119 | )    |  | $ | (139 | )
|                                    |  |                                 |      |      |  |   |      |  

Interest Expense, net

Interest expense, net, consists of:

|                 |                             |   |                                  |      |                                 |   |            |      |      |   |      |      |   |   |      |      |  
|---------------- | --------------------------- | - | -------------------------------- | ---- | ------------------------------- | - | ---------- | ---- | ---- | - | ---- | ---- | - | - | ---- | ---- | -
|                 |                             |   | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                 |                             |   |                                  |      |                                
|                 |                             |   | 2002                             |      | 2001                            |   | 2002       |      | 2001
|                 |                             |   |                                  |      |                                 |   |            |      |     
|                 |                             |   |                                  |      |                                 |   | (millions) |      |      |   |     
|Interest income  |                             | $ | 5                                |      |                                 | $ | 6          |      |      | $ | 16   |      |   | $ | 19   |     
|Interest expense |                             |   | (108                             | )    |                                 |   | (135       | )    |      |   | (326 | )    |   |   | (432 | )   
|                 |                             |   |                                  |      |                                 |   |            |      |      |   |      |      |   |   |      |     
|                 | Total interest expense, net |   | $                                | (103 | )                               |   | $          | (129 | )    |   | $    | (310 | ) |   | $    | (413 | )
|                 |                             |   |                                  |      |                                 |   |            |      |      |   |      |      |   |   |      |     

Other Expense, Net

Other expense, net, consists of:

|                                                                          |                          |   |                                  |   |                                 |   |            |      |      |   |     |   |  |   |      |      |  
|------------------------------------------------------------------------- | ------------------------ | - | -------------------------------- | - | ------------------------------- | - | ---------- | ---- | ---- | - | --- | - |  | - | ---- | ---- | -
|                                                                          |                          |   | Three Months Ended September 30, |   | Nine Months Ended September 30,
|                                                                          |                          |   |                                  |   |                                
|                                                                          |                          |   | 2002                             |   | 2001                            |   | 2002       |      | 2001
|                                                                          |                          |   |                                  |   |                                 |   |            |      |     
|                                                                          |                          |   |                                  |   |                                 |   | (millions) |      |      |   |    
|Other investment-related activity, principally
losses on equity investees |                          | $ | 12                               |   |                                 | $ | (100       | )    |      | $ | 15  |   |  | $ | (243 | )   
|Gains related to the exchange of unconsolidated
cable television systems  |                          |   |                                 |   |                                 |   |           |      |      |   |    |   |  |   | 39   |     
|Losses on asset securitization programs                                   |                          |   | (5                               | ) |                                 |   | (7         | )    |      |   | (14 | ) |  |   | (18  | )   
|Miscellaneous                                                             |                          |   | (2                               | ) |                                 |   | 6          |      |      |   | (1  | ) |  |   | 4    |     
|                                                                          |                          |   |                                  |   |                                 |   |            |      |      |   |     |   |  |   |      |     
|                                                                          | Total other expense, net |   | $                                | 5 |                                 |   | $          | (101 | )    |   | $   |  |  |   | $    | (218 | )
|                                                                          |                          |   |                                  |   |                                 |   |            |      |      |   |     |   |  |   |      |     

33



---



##### Table of Contents



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

Other Current Liabilities

Other current liabilities consist of:

|                     |       |   |               |       |              |   |       |       | 
|-------------------- | ----- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                     |       |   | September 30, |       | December 31,
|                     |       |   | 2002          |       | 2001        
|                     |       |   |               |       |             
|                     |       |   | (millions)   
|Accrued expenses     |       | $ | 1,972         |       |              | $ | 1,940 |      
|Accrued compensation |       |   | 241           |       |              |   | 275   |      
|Deferred revenues    |       |   | 314           |       |              |   | 350   |      
|Accrued income taxes |       |   | 55            |       |              |   | 51    |      
|                     |       |   |               |       |              |   |       |      
|                     | Total |   | $             | 2,582 |              |   | $     | 2,616 | 
|                     |       |   |               |       |              |   |       |      

34



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

INTRODUCTION

Managements discussion and analysis of results of operations and
financial condition (MD&A) is provided as a supplement to the accompanying
consolidated financial statements and footnotes to help provide an
understanding of Warner Communications Inc. (WCI) and American Television and
Communications Corporation (ATC), (collectively, the General Partners)
financial condition, changes in financial condition and results of operations.
The MD&A is organized as follows:



| |  | Overview.This section provides a general description of the General
Partners businesses, as well as recent developments that the General
Partners believe are important in understanding their results of
operations, as well as to anticipate future trends in those
operations.                                                                                                                                                                                                                                                                            
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Results of operations.This section provides an analysis of WCIs
results of operations for the three and nine months ended September
30, 2002 relative to the comparable periods of 2001. WCI is the only
General Partner with independent business operations, therefore, the
results of ATC are not discussed. In addition, a brief description is
provided of transactions and events that impact the comparability of
the results being analyzed.                                                                                                         
| 
| |  | Financial condition and liquidity.This section provides an analysis
of WCIs financial condition as of September 30, 2002 and cash flows
for the nine months ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | Caution concerning forward-looking statements and risk factors.This
section discusses how certain forward-looking statements made by the
General Partners in this report, including throughout MD&A and in the
consolidated financial statements, are based on managements current
expectations about future events and are inherently susceptible to
uncertainty and changes in circumstances. In addition, a description
is provided of the risk factors that could adversely affect the
operations, business or financial results of the General Partners.

OVERVIEW

Description of Business

On June 30, 1992, thirteen direct or indirect subsidiaries of Time Warner
Companies, Inc. (TW Companies) contributed the assets and liabilities or the
rights to the cash flows of substantially all of TW Companies Filmed
Entertainment, Cable Networks and Cable businesses to Time Warner Entertainment
Company, L.P., a Delaware limited partnership (TWE), for general partnership
interests, and each general partner guaranteed a pro rata portion of
substantially all of TWEs debt and accrued interest based on the relative fair
value of the net assets each contributed to TWE (the General Partner
Guarantees) (Note 8). Since then, eleven of the thirteen original general
partners have been merged or dissolved into the other two. WCI and ATC are the
two remaining general partners of TWE. They have succeeded to the general
partnership interests and have assumed the General Partner Guarantees of the
eleven former general partners.

WCI conducts substantially all of AOL Time Warners music operations,
including interests in recorded music, music publishing and DVD manufacturing.
These music operations include 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. In addition, WCI has
investments in TWE, TW Companies, IPC Group Limited, Turner Broadcasting
System, Inc. (TBS) and Time

35



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

Warner Telecom Inc. (Time Warner Telecom). The financial position and
results of operations of ATC are principally derived from its investments in
TWE, TW Companies, TBS and Time Warner Telecom.

On January 11, 2001, America Online, Inc. (America Online) and Time
Warner Inc. (Time Warner) merged to form AOL Time Warner, the worlds leading
media and entertainment company (the Merger). As a result of the Merger,
America Online and Time Warner each became a wholly owned subsidiary of AOL
Time Warner and WCI and ATC each became an indirect, wholly owned, subsidiary
of AOL Time Warner.

Use of EBITDA

WCI evaluates operating performance based on several factors, including
its primary financial measure of operating income (loss) before noncash
depreciation of tangible assets and amortization of intangible assets
(EBITDA). WCI considers EBITDA an important indicator of the operational
strength and performance of its businesses, including the ability to provide
cash flows to service debt and fund capital expenditures. In addition, EBITDA
eliminates the effect of considerable amounts of noncash depreciation of
tangible assets and amortization of certain intangible assets deemed to have
finite useful lives that were recognized in business combinations accounted for
by the purchase method. As such, the following comparative discussion of the
results of operations of WCI includes, among other measures, an analysis of
changes in EBITDA. However, EBITDA should be considered in addition to, not as
a substitute for, operating income (loss), net income (loss) and other measures
of financial performance reported in accordance with generally accepted
accounting principles. In addition, EBITDA should not be used as a substitute
for the Companys various cash flow measures (e.g., operating cash flow), which
are discussed in detail beginning on page 42.

Recent Developments

Investment in TWE

As of March 31, 2002, the General Partners in the aggregate held 63.27% of
the pro rata priority capital (Series A Capital) and residual equity capital
(Residual Capital) of TWE and 100% of the junior priority capital (Series B
Capital) of TWE. TW Companies held, directly or indirectly, 11.22% of the
Series A Capital and Residual Capital limited partnership interests. The
remaining 25.51% limited partnership interests in the Series A Capital and
Residual Capital of TWE were held by MediaOne TWE Holdings, Inc., a subsidiary
of AT&T Corp. (AT&T).

During the second quarter of 2002, AT&T exercised a one-time option to
increase its ownership in the Series A Capital and Residual Capital of TWE. As
a result, on May 31, 2002, AT&Ts interest in the Series A Capital and Residual
Capital of TWE increased by approximately 2.13% to approximately 27.64%. This
resulted in a decrease in WCIs and ATCs corresponding interest in the Series
A Capital and Residual Capital of TWE of approximately 1.07% and 0.74%,
respectively, to approximately 36.43% and 25.03%, respectively. Similarly, TW
Companies interest in the Series A Capital and Residual Capital of TWE
decreased by approximately 0.32% to approximately 10.90%. In accordance with
Staff Accounting Bulletin No. 51, Accounting For Sales of Stock of a
Subsidiary, WCI and ATC have reflected the pretax impact of the dilution of
their interests in TWE of approximately $365 million and $240 million,
respectively, as an adjustment to paid-in-capital (Note 7).

In August 2002, AOL Time Warner and AT&T announced that they had agreed to
restructure TWE. As part of the restructuring, WCI will acquire
complete ownership of TWEs content assets, including Warner Bros. and Home Box
Office, as well as TWEs interests in The WB Network, Comedy
Central and Court

36



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

TV.     In addition, all
of WCI's and almost all of ATC's interests in TWE and all
of AOL Time Warner's interests in cable television systems held through wholly-owned
subsidiaries will be contributed to an existing subsidiary of AT&T that will
become a subsidiary of AOL Time Warner and be renamed Time Warner Cable Inc.
In connection with the restructuring, AT&T will receive $2.1 billion in cash
and AOL Time Warner common stock valued at $1.5 billion at the time of the
closing of the restructuring and will retain both a 17.9% economic stake in
Time Warner Cable Inc. and a 4.7% economic stake in TWE. AT&Ts combined
interest in Time Warner Cable Inc. and TWE will result in AT&T holding an
approximately 21% economic interest in Time Warner Cable Inc. AT&Ts 17.9%
economic stake in Time Warner Cable Inc. will represent approximately a 10.7%
voting interest in Time Warner Cable Inc. The Company anticipates that the
restructuring will be completed in early 2003, upon the receipt of local cable
franchise approvals, where required, and other required regulatory approvals.
Clearance under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 has been
received.

Based upon its controlling voting interest in Time Warner Cable Inc., AOL
Time Warner will consolidate the results of Time Warner Cable Inc. for
accounting purposes. WCI will account for its interest in Time Warner
Cable under the equity method of accounting. ATC will account for its
common and preferred interests in TWE as cost method investments. At the closing of the restructuring, it is anticipated
that Time Warner Cable Inc. will have approximately $8.1 billion in
consolidated net debt and preferred equity. Subject to market conditions, AOL
Time Warner plans to conduct an initial public offering of Time Warner Cable
Inc. soon after the closing of the restructuring. It is anticipated that the
first $2.1 billion raised in any such offering would be used to pay off Time
Warner Cable Inc. debt incurred to fund the $2.1 billion cash payment to AT&T.
Thereafter, AT&T will have certain priority registration rights with respect to
its stake in Time Warner Cable Inc. (Note 7).

Sale of Columbia House

In June 2002, AOL Time Warner and Sony Corporation of America reached a
definitive agreement to each sell 85% of its 50% interest in the Columbia House
Company Partnerships (Columbia House) to Blackstone Capital Partners III LP
(Blackstone), an affiliate of The Blackstone Group, a private investment
bank. The sale has resulted in WCI recognizing a pretax gain of approximately
$96 million, which is included in other expense, net, in the accompanying
consolidated statement of operations. In addition, WCI has deferred an
approximate $6 million gain on the sale. The deferred gain primarily relates to
the estimated fair value of the portion of the proceeds received as a note
receivable, which will be deferred until such time as the realization of such
note becomes more fully assured. As part of the transaction, AOL Time Warner,
including WCI, will continue to license music and video product to Columbia
House for a five-year period (Note 5).

Acquisition of Word Entertainment

In January 2002, WCI completed its purchase of Word Entertainment (Word)
from Gaylord Entertainment Company for approximately $84 million in cash. Word
is a leader in the multi-faceted contemporary Christian music industry with
over 30 active artists on several record labels, approximately 45 songwriters
under contract and a catalog containing more than 75,000 masters. The
acquisition was accounted for using the purchase method of accounting for
business combinations. During the third quarter of 2002, WCI exchanged 20% of its
interest in Word to Curb Records for noncash consideration of equal
value.

37



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

RESULTS OF OPERATIONS
Transactions Affecting Comparability of Results of Operations

New Accounting Standards

In the first quarter of 2002, the General Partners adopted new accounting
guidance in several areas that require retroactive restatement of all periods
presented to reflect the new accounting provisions.

Reimbursement of Out-of-Pocket Expenses

In January 2002, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No.
01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires that
reimbursements received for out-of-pocket expenses be classified as revenue on
the income statement and was effective for the General Partners in the first
quarter of 2002. The new guidance requires retroactive restatement of all
periods presented to reflect the new accounting provisions. This change in
revenue classification impacts WCI, resulting in an increase in both revenues
and costs of approximately $33 million in the third quarter of 2001 and $115
million for the first nine months of 2001.

EITF Issue No. 01-09

In April 2001, the FASBs EITF reached a final consensus on EITF Issue No.
00-25, Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendors Products, which was later codified along with other
similar issues, into EITF 01-09, Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendors Products (EITF 01-09).
EITF 01-09 was effective for the General Partners in the first quarter of 2002.
EITF 01-09 clarifies the income statement classification of costs incurred by a
vendor in connection with the resellers purchase or promotion of the vendors
products, resulting in certain cooperative advertising and product placement
costs previously classified as selling expenses to be reflected as a reduction
of revenues earned from that activity. The new guidance impacts WCI and
requires retroactive restatement of all periods presented to reflect the new
accounting provisions. As a result of applying the provisions of EITF 01-09,
WCIs revenues and costs each were reduced by an equal amount of approximately
$10 million in the third quarter of 2001 and $29 million for the first nine
months of 2001.

38



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

Other Significant Transactions and Nonrecurring Items

As more fully described herein and in the related footnotes to the
accompanying consolidated financial statements, the comparability of WCIs and
ATCs operating results has been affected by certain significant transactions
and nonrecurring items in each period.

2002 Other Significant Transactions and Nonrecurring Items

The General Partners operating results for the nine months ended
September 30, 2002 included (i) merger and restructuring costs of approximately
$4 million ($0 in the third quarter) at WCI (Note 3), (ii) noncash pretax
charges of approximately $372 million ($16 million in the third quarter) at WCI
and approximately $244 million ($7 million in the third quarter) at ATC to
reduce the carrying value of certain investments that experienced
other-than-temporary declines in market value (Note 4) and (iii) an approximate
$96 million gain in the second quarter on the sale of a portion of WCIs
interest in Columbia House (Note 5).

2001 Other Significant Transactions and Nonrecurring Items

For the nine months ended September 30, 2001, WCIs operating results
included a noncash pretax charge of approximately $13 million
($4 in the third
quarter) to reduce the carrying value of certain investments that experienced
other-than-temporary declines in market value.

FAS 142

In addition, the
General Partners adopted, effective January 1, 2002, Statement
of Financial Accounting Standards No. 142 Goodwill and Other
Intangible Assets (FAS 142), which requires that
goodwill, including the goodwill included in the carrying value of
investments accounted for using the equity method of accounting, and
certain other intangible assets deemed to have an indefinite useful
life, cease amortizing. The new rules also require that goodwill and certain intangible assets be
assessed for impairment using fair value measurement techniques. During the
first quarter of 2002, the General Partners individually completed their
impairment reviews, resulting in WCI recording an approximate $19 billion
noncash charge and ATC recording an approximate $10 billion noncash charge for
the impairment of goodwill, all of which was generated in the Merger.
Approximately $14 billion of WCIs charge and all of ATCs charge was the
result of goodwill impairment charges recorded at TWE and certain AOL Time
Warner consolidated subsidiaries, which are accounted for by the General
Partners under the equity method of accounting. These charges reflect overall
market declines since the Merger was announced in January 2000, are
non-operational in nature and are reflected as a cumulative effect of an
accounting change in the accompanying consolidated financial statements (Note
6).

The General Partners will perform their annual impairment review during
the fourth quarter of each year, commencing in the fourth quarter of 2002.
While the General Partners overall goodwill impairment analysis will not be
completed until the fourth quarter, management of TWE believes that based on
current market conditions in the cable industry, it is probable that a
substantial overall goodwill impairment has occurred at TWE as of September 30,
2002. At this time, TWEs management is unable to reasonably estimate the
magnitude of such an impairment. The magnitude of any impairment will take into
consideration the extent to which the stock price of comparable companies in
the cable industry continue to experience a sustained decline in values. The
factors that will affect the magnitude of any impairment charge recognized by
the General Partners include the magnitude of any impairment charge recorded by
the equity investees of the General Partners, including TWE, and a valuation of
assets (including unrecognized intangible assets) and liabilities, all of which
will be completed in the fourth quarter. Any impairment charge would be noncash
in nature and, therefore, is not expected to affect the General Partners
liquidity. The Company would record any impairment charge related to the
intangible assets of the General Partners as a component of operating income.
In addition, the General Partners would record a corresponding portion of the
charge recorded by its equity investees as other income (expense).

39



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

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 transactions and
nonrecurring 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 that have occurred in each period.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

WCI had revenues of
$983 million and net income of $200 million in 2002,
compared to revenues of $962 million and a net loss of $355 million in 2001.
EBITDA increased 9% to $95 million in 2002 from $87 million in 2001. Operating
income was $21 million in 2002 compared to an operating loss of $149 million in
2001. Revenues increased primarily due to the impact of the acquisition of Word
Entertainment in January 2002, lower provisions for returns due to improved
historical experience, the positive effect of changes in foreign currency
exchange rates on international revenues and increases in DVD manufacturing
volume, partially offset by declines in recorded music shipments related to the
ongoing weakness in the worldwide music industry and lower DVD manufacturing
prices. Industry-wide worldwide sales continue to be negatively impacted by the
effects of piracy. In addition, downward pressure on DVD
manufacturing pricing could negatively affect future manufacturing
profits. The increase in EBITDA is due primarily to the revenue
increase, the impact of various cost-saving and restructuring programs and
lower marketing and bad debt expense, offset in part by higher artist and
repertoire costs. The increase in operating income is due primarily to higher
EBITDA and decreased amortization expense resulting from the adoption of FAS
142. As of September 30, 2002, WCIs music operations had year-to-date domestic
album market share of 17.2% compared 16.8% at December 31, 2001.

Equity in Pretax Income (Loss) of TWE.WCIs equity in the pretax income
(loss) of TWE was income of $262 million in 2002, compared to a loss of $107
million in 2001. TWEs pretax income (loss) increased in 2002 as compared to
2001 principally as a result of a decrease in amortization expense resulting
from the adoption of FAS 142 and improved operating results related to TWEs
businesses.

Interest Expense, Net.WCIs interest expense, net, was $6 million in
2002, compared to $8 million in 2001. The decrease was principally the result
of the sale of Columbia House in June 2002, which historically accounted for
the majority of WCIs interest expense.

Other Income (Expense), Net.WCIs other income (expense), net, was
income of $23 million in 2002, compared to expense of $44 million in 2001.
Excluding the significant transactions and nonrecurring items previously
discussed, other income (expense), net, was $39 million of income in 2002,
compared to expense of $44 million in 2001. The increase in other income
(expense), net, was principally the result of a decrease in losses from certain
investments accounted for under the equity method of accounting. In 2001,
these losses primarily related to the amortization of goodwill and intangible
assets associated with these investments. In 2002, under FAS 142, the
amortization of goodwill and indefinite lived intangible assets associated with
these investments ceased.

Income Tax
Expense.WCI and ATC had income tax expense of $100 million and
$67 million, respectively, in 2002, compared to income tax expense of $43
million and $41 million, respectively, in 2001. The effective tax rate in each
period differs from the 35% U.S. federal statutory rate as a result of
several factors, including the General Partners pretax income relative to the
amount of non-temporary difference (i.e., certain financial statement expenses
that are not deductible for income tax purposes), foreign income taxed at
different rates and state and local

40



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

income taxes. The most significant non-temporary difference in 2002
relates to foreign losses with no tax benefit and in 2001 relates to
nondeductible amortization of goodwill.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September
30, 2001

WCI had revenues of
$2.902 billion
and income before the cumulative effect
of an accounting change of $402 million in 2002, compared to revenues of $2.801
billion and a loss of $1.132 billion in 2001. EBITDA, excluding the $4 million
of merger and restructuring charges in 2002, increased 9% to $291 million in
2002 from $267 million in 2001. Operating income was $69 million in 2002
compared to an operating loss of $429 million in 2001. Revenues increased
primarily due to the impact of the acquisition of Word Entertainment in January
2002, lower provisions for returns due to improved historical experience and
increases in DVD manufacturing volume, offset in part by declines in recorded
music shipments related to the ongoing weakness in the worldwide music
industry, the negative effect of changes in foreign currency exchange rates on
international revenues and lower DVD manufacturing prices. Industry-wide
worldwide music sales continue to be negatively impacted by the effects of
piracy. In addition, downward pressure on DVD manufacturing pricing
could negatively affect future manufacturing profits. The increase in EBITDA is due primarily to the higher revenues, the
impact of various cost-saving and restructuring programs and lower marketing
and bad debt expense, partially offset by higher artist and repertoire costs.
The increase in operating income is due primarily to higher EBITDA and
decreased amortization expense resulting from the adoption of FAS 142. As of
September 30, 2002, WCIs music operations had year-to-date domestic album
market share of 17.2%, compared to 16.8% at, December 31, 2001.

Equity in Pretax Income (Loss) of TWE.WCIs equity in the pretax income
(loss) of TWE was income of $763 million in 2002, compared to a loss of $334
million in 2001. TWEs pretax income increased in 2002 as compared to 2001
principally as a result of a decrease in amortization expense resulting from
the adoption of FAS 142 and improved operating results related to TWEs
businesses.

Interest Expense, Net.WCIs interest expense, net, was $48 million in
2002 compared to $19 million in 2001. The increase was principally the result
of interest expense associated with a note payable to AOL Time Warner.

Other Income
(Expense), Net.WCIs other income (expense), net, was $195 million
of expense in 2002, compared to $276 million of expense in 2001. Excluding the significant
transactions and nonrecurring items previously discussed, other
income (expense), net
was $81 million of income in 2002, compared to expense of $263 million in
2001. The increase in other income (expense), net, was principally the result of a
decrease in losses from certain investments accounted for under the equity
method of accounting. In 2001, these losses primarily related to the
amortization of goodwill and intangible assets associated with these
investments. In 2002, under FAS 142, the amortization of goodwill and
indefinite lived intangible assets associated with these investments ceased.

Income Tax
Expense.WCI and ATC had income tax expense of $187 million and
$93 million, respectively, in 2002, compared to $74 million and $56 million,
respectively, in 2001. The effective tax rate in each period differs from the
35% U.S. federal statutory rate as a result of several factors, including
the General Partners pretax income relative to the amount of non-temporary
differences (i.e., certain financial statement expenses that are not deductible
for income tax purposes), foreign income taxed at different rates and state and
local

41



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

income taxes. The most significant non-temporary difference in 2002
relates to foreign losses with no tax benefit and in 2001 relates to
nondeductible amortization of goodwill.

FINANCIAL CONDITION AND LIQUIDITY
September 30, 2002

Current Financial Condition

WCI had $28.0 billion of equity at September 30, 2002, compared to $57.4
billion of equity at December 31, 2001. Cash and equivalents decreased to $19
million at September 30, 2002, compared to $40 million at December 31, 2001.
As of September 30, 2002, WCI had an $856 million note payable outstanding to
AOL Time Warner.

ATC had $15.4 billion of equity at September 30, 2002, compared to $28.3
billion of equity at December 31, 2001. Although ATC has no independent operations, it
is expected that additional tax-related and other distributions from TWE, as
well as availability under ATCs revolving credit agreement with TW Companies,
will continue to be sufficient to satisfy ATCs obligations with respect to its
tax sharing agreement with TW Companies for the foreseeable future.

Cash Flows

In the first nine months of 2002, WCIs cash provided by operations
amounted to $61 million and reflected $287 million of EBITDA, $228 million of
distributions from TWE, less $37 million of payments made under WCIs asset
securitization program, $86 million of net income tax payments (including $73
million received from TW Companies under a tax sharing agreement), $36 million
of net interest payments and $295 million related to an increase in other
working capital requirements.

In the first nine months of 2001, cash provided by WCIs operations of
$219 million reflected $267 million of EBITDA, $240 million of distributions
from TWE, less $148 million of payments made under WCIs asset securitization
program, $62 million of net income tax payments (net of $12 million received
from TW Companies under a tax sharing agreement), $5 million of net interest
payments and $73 million related to an increase in other working capital
requirements.

Cash used by investing activities decreased to $212 million in the first
nine months of 2002, compared to $225 million in the first nine months of 2001
primarily due to a decrease in capital expenditures and $34 million of
investment proceeds received in 2002 related to the Columbia House sale, offset
in part by an increase in investments and acquisitions, including the
acquisition of Word.

Cash provided by (used by) financing activities was $130 million of cash
provided by financing activities in the first nine months of 2002, compared to
$30 million of cash used by financing activities in the first nine months of
2001 primarily as a result of a decrease in stock option related
distributions and activity with AOL Time Warner. In addition, in
September 2002, a subsidiary of WCI repaid to AOL Time Warner an $857 million note payable and WCI entered into a comparable loan agreement to borrow $857 million directly from AOL Time Warner.

42



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)

Management believes that WCIs operating cash flow and borrowing
availability under its revolving credit agreement with TW Companies are
sufficient to fund its capital and liquidity needs for the foreseeable future
without cash distributions from TWE above those permitted by existing
agreements.

WCI and ATC have no claims on the assets and cash flows of TWE except
through the payment of certain reimbursements and cash distributions. During
the nine months ended September 30, 2002, the General Partners received an
aggregate $385 million of distributions from TWE, consisting of $361 million of
tax-related distributions and $24 million of stock option related
distributions. During the nine months ended September 30, 2001, the General
Partners received an aggregate $404 million of distributions from TWE,
consisting of $50 million of tax-related distributions and $354 million of
stock option related distributions. Of such aggregate distributions, WCI
received $228 million during the nine months ended September 30, 2002 and $240
million in 2001 and ATC received $157 million during the nine months ended
September 30, 2002 and $164 million in 2001.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Securities and Exchange Commission (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 contains such forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, particularly statements
anticipating future growth in revenues, EBITDA and cash flow. Words such as
anticipates, estimates, 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 based on
managements present expectations and beliefs about future events. As with any
projection or forecast, they are inherently susceptible to uncertainty and
changes in circumstances, and the General Partners are under no obligation to
(and expressly disclaim any such obligation to) update or alter its
forward-looking statements whether as a result of such changes, new
information, future events or otherwise.

The General Partners operate in highly competitive, consumer-driven and
rapidly changing media and entertainment businesses. These businesses are
affected by government regulation, economic, strategic, political and social
conditions, consumer response to new and existing products and services,
technological developments and, particularly in view of new technologies, the
continued ability to protect intellectual property rights. The General
Partners actual results could differ materially from managements expectations
because of changes in such factors. Other factors and risks could adversely
affect the operations, business or financial results of the General Partners in
the future and could also cause actual results to differ from those contained
in the forward-looking statements, including those identified in other filings
with the SEC and the following, which includes factors and risks inherent in
the General Partners investment in TWE:



| |  | 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, open access or common carrier
requirements); government regulation of other services, such as
broadband cable modem service; increased difficulty in obtaining
franchise renewals; the failure of new equipment (such as digital
set-top boxes) or services (such as digital cable, high-speed online
services, telephony over cable or video-on-demand) to appeal to enough
consumers or to be available at prices consumers are willing to pay,
to function as expected and to be delivered in a timely fashion; theft
of service from interception of cable transmissions; fluctuations in
spending levels by advertisers and consumers; the ability to enter
into new program vendor advertising arrangements; and greater than
expected increases in programming or other costs.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43



---



##### Table of Contents



TWE GENERAL PARTNERS
MANAGEMENTS DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION- (Contd)



| |  | For TWEs filmed entertainment businesses generally, their ability to
continue to attract and select desirable talent and scripts at
manageable costs; general increases in production costs; 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;
the potential repeal of the Sonny Bono Copyright Term Extension Act;
the uncertain impact of technological developments which may
facilitate piracy of the TWEs copyrighted works; and risks associated
with foreign currency exchange rates. With respect to feature films,
the increasing marketing costs associated with theatrical film
releases in a highly competitive marketplace; with respect to
television programming, a decrease in demand for television
programming provided by non-affiliated producers; and with respect to
home video, the ability to maintain relationships with significant
customers in the rental and sell-through markets.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | For TWEs network businesses, greater than expected programming or
production costs; increased news gathering costs in the event of a
war; public or 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 network advertising to economic cyclicality and to new
media technologies; the impact of consolidation among cable and
satellite distributors; piracy of programming by means of interception
of cable and satellite transmissions or Internet peer-to-peer file
sharing; the impact of personal video recorder ad-stripping
functions on advertising sales; the development of new technologies
that alter the role of programming networks and services; and greater
than expected fragmentation of consumer viewership due to an increased
number of programming services or the increased popularity of
alternatives to television.                                                                                          
| 
| |  | For WCIs music business, its ability to continue to attract and
select desirable talent at manageable costs; the popular demand for
particular artists and albums; the timely completion of albums by
major artists; its ability to continue to enforce its intellectual
property rights in digital environments; piracy of music by means of
Internet peer-to-peer file sharing; its ability to develop a
successful business model applicable to a digital online environment;
the potential repeal of Subsection (6) of California Labor Code
Section 2855 regarding the maximum length of personal service
contracts; the potential repeal of the Sonny Bono Copyright Term
Extension Act; risks associated with foreign currency exchange rates;
its ability to utilize DVD manufacturing capacity fully and to
maintain current DVD manufacturing pricing; and the overall strength of global music sales.                                                                                                                                                                            
| 
| |  | For the General Partners generally, the risk that lower than expected
valuations associated with their cash flows and revenues may result in
the inability of the General Partners to realize the value of recorded
intangibles and goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

In addition, the General Partners overall financial strategy, including
growth in operations, maintaining its financial ratios and a strong balance
sheet, could be adversely affected by increased interest rates, decreased
liquidity in the capital markets (including any reduction in its
ability to access either the capital markets for debt securities or
bank financings), failure to meet earnings expectations, significant
acquisitions or other transactions, economic slowdowns and changes in the
General Partners plans, strategies and intentions.

Item 4. Controls and Procedures

Within the 90-day
period prior to the filing of this report, each of the General
Partners, under the supervision and with the participation of its
management, including the Chief Executive Officer and Chief Financial
Officer of such General Partner, evaluated the effectiveness of the
design and operation of such General Partners disclosure
controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934 (the Exchange Act)).
Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer of each General Partner concluded that such General
Partners disclosure controls and procedures are effective in
timely making known to them material information relating to such General
Partner and such General Partners consolidated subsidiaries
required to be disclosed in the General Partners reports filed
or submitted under the Exchange Act. The General Partners have
investments in certain unconsolidated entities. As the General
Partners do not control or manage these entities, their disclosure
controls and procedures with respect to such entities are necessarily
substantially more limited than those maintained with respect to
consolidated subsidiaries. There have been no significant changes in
the General Partners internal controls or in other factors that
could significantly affect the internal controls subsequent to the
date the General Partners completed their respective evaluations.

44



---



##### Table of Contents



TWE GENERAL PARTNERS
CONSOLIDATED BALANCE SHEETS

|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ------------ |  | ------------- | ------ | ------------ |  | - | ------- | - |  | - | ------ | -
|                                                                                                         |  | WCI           |         | ATC         
|                                                                                                         |  |               |         |             
|                                                                                                         |  | September 30, |         | December 31, |  | September 30, |        | December 31,
|                                                                                                         |  | 2002          |         | 2001         |  | 2002          |        | 2001        
|                                                                                                         |  |               |         |              |  |               |        |             
|                                                                                                         |  | (unaudited)   |         |              |  |               |        | (unaudited)  |  |   |         |  
|                                                                                                         |  | (millions)   
|ASSETS                                                                                                   |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Current assets                                                                                           |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Cash and equivalents                                                                                     |  | $             | 19      |              |  | $             | 40     |              |  | $ |        |   |  | $ |       |  
|Receivables, less allowances of $267 and
$355 million                                                    |  |               | 628     |              |  |               | 944    |              |  |   |        |   |  |   |       |  
|Inventories                                                                                              |  |               | 131     |              |  |               | 121    |              |  |   |        |   |  |   |       |  
|Prepaid expenses                                                                                         |  |               | 804     |              |  |               | 708    |              |  |   |        |   |  |   |       |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Total current assets                                                                                     |  |               | 1,582   |              |  |               | 1,813  |              |  |   |        |   |  |   |       |  
|                                                                                                        
|Investments in and amounts due to and from TWE                                                           |  |               | 20,021  |              |  |               | 36,834 |              |  |   | 13,737  |   |  |   | 25,292 |  
|Investments in TW Companies                                                                              |  |               | 103     |              |  |               | 103    |              |  |   | 59      |   |  |   | 60     |  
|Other investments                                                                                        |  |               | 4,481   |              |  |               | 6,084  |              |  |   | 1,355   |   |  |   | 3,047  |  
|Intangible assets subject to amortization                                                                |  |               | 2,909   |              |  |               | 2,926  |              |  |   |        |   |  |   |       |  
|Intangible assets not subject to amortization                                                            |  |               | 1,643   |              |  |               | 1,643  |              |  |   |        |   |  |   |       |  
|Goodwill                                                                                                 |  |               | 1,094   |              |  |               | 11,799 |              |  |   | 262     |   |  |   | 262    |  
|Other assets, primarily property, plant and
equipment                                                    |  |               | 636     |              |  |               | 621    |              |  |   |        |   |  |   |       |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Total assets                                                                                             |  | $             | 32,469  |              |  | $             | 61,823 |              |  | $ | 15,413  |   |  | $ | 28,661 |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                     |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Current liabilities                                                                                      |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Accounts payable                                                                                         |  | $             | 207     |              |  | $             | 222    |              |  | $ |        |   |  | $ |       |  
|Royalties payable                                                                                        |  |               | 883     |              |  |               | 891    |              |  |   |        |   |  |   |       |  
|Debt due within one year                                                                                 |  |               | 3       |              |  |               | 3      |              |  |   |        |   |  |   |       |  
|Other current liabilities                                                                                |  |               | 625     |              |  |               | 891    |              |  |   |        |   |  |   |       |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Total current liabilities                                                                                |  |               | 1,718   |              |  |               | 2,007  |              |  |   |        |   |  |   |       |  
|                                                                                                        
|Deferred income taxes                                                                                    |  |               | 1,442   |              |  |               | 1,656  |              |  |   | 26      |   |  |   | 124    |  
|Long-term
debt, including $856 due to AOL Time Warner from WCI at
September 30, 2002                     |  |               | 861     |              |  |               | 15     |              |  |   |        |   |  |   |       |  
|Other long-term liabilities, including $1, $264,
$19 and $199 million, respectively,
due to TW Companies |  |               | 429     |              |  |               | 721    |              |  |   | 19      |   |  |   | 199    |  
|Minority interest                                                                                        |  |               | 10      |              |  |               |       |              |  |   |        |   |  |   |       |  
|                                                                                                        
|Shareholders equity                                                                                     |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Common stock                                                                                             |  |               | 1       |              |  |               | 1      |              |  |   | 1       |   |  |   | 1      |  
|Preferred stock of WCI, $.01 par value, 90,000
shares outstanding and $90 million liquidation
preference |  |               |        |              |  |               |       |              |  |   |        |   |  |   |       |  
|Paid-in capital                                                                                          |  |               | 49,347  |              |  |               | 60,162 |              |  |   | 26,261  |   |  |   | 29,773 |  
|Retained deficit                                                                                         |  |               | (20,768 | )            |  |               | (1,969 | )            |  |   | (10,015 | ) |  |   | (657   | )
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|                                                                                                         |  |               | 28,580  |              |  |               | 58,194 |              |  |   | 16,247  |   |  |   | 29,117 |  
|Due to (from) TW Companies, net                                                                          |  |               | 15      |              |  |               | (184   | )            |  |   | (543    | ) |  |   | (443   | )
|Reciprocal interest in TW Companies stock                                                                |  |               | (586    | )            |  |               | (586   | )            |  |   | (336    | ) |  |   | (336   | )
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Total shareholders equity                                                                               |  |               | 28,009  |              |  |               | 57,424 |              |  |   | 15,368  |   |  |   | 28,338 |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  
|Total liabilities and shareholders equity                                                               |  | $             | 32,469  |              |  | $             | 61,823 |              |  | $ | 15,413  |   |  | $ | 28,661 |  
|                                                                                                         |  |               |         |              |  |               |        |              |  |   |         |   |  |   |        |  

See accompanying notes.

45



---



##### Table of Contents



TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
(Unaudited)

|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  
|---------------------------------------------- |  | ---------- | ---- | ---- |  | ---- | ---- | ---- |  | - | --- | - |  | - | ---- | -
|                                               |  | WCI        |      | ATC 
|                                               |  |            |      |     
|                                               |  | 2002       |      | 2001 |  | 2002 |      | 2001
|                                               |  |            |      |      |  |      |      |     
|                                               |  | (millions)
|Content and other revenues(a)                  |  | $          | 983  |      |  | $    | 962  |      |  | $ |    |   |  | $ |     |  
|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  
|Cost of revenues(a)                            |  |            | (567 | )    |  |      | (488 | )    |  |   |    |   |  |   |     |  
|Selling, general and administrative(a)         |  |            | (350 | )    |  |      | (412 | )    |  |   |    |   |  |   |     |  
|Amortization of goodwill and other intangibles |  |            | (45  | )    |  |      | (211 | )    |  |   |    |   |  |   |     |  
|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  
|Operating income (loss)                        |  |            | 21   |      |  |      | (149 | )    |  |   |    |   |  |   |     |  
|Equity in pretax income (loss) of TWE(a)       |  |            | 262  |      |  |      | (107 | )    |  |   | 180 |   |  |   | (75  | )
|Interest expense, net                          |  |            | (6   | )    |  |      | (8   | )    |  |   |    |   |  |   | (1   | )
|Other income (expense), net(a)                 |  |            | 23   |      |  |      | (48  | )    |  |   | (4  | ) |  |   | 14   |  
|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  
|Income (loss) before income taxes              |  |            | 300  |      |  |      | (312 | )    |  |   | 176 |   |  |   | (62  | )
|Income tax expense(a)                          |  |            | (100 | )    |  |      | (43  | )    |  |   | (67 | ) |  |   | (41  | )
|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  
|Net income (loss)                              |  | $          | 200  |      |  | $    | (355 | )    |  | $ | 109 |   |  | $ | (103 | )
|                                               |  |            |      |      |  |      |      |      |  |   |     |   |  |   |      |  



---

|(a) |  | Includes the following income (expenses) resulting from transactions with
AOL Time Warner, TW Companies, TWE or equity investees of the General
Partners:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |   |     |   |  |   |     |   |  |   |     |   |  |   |    |  
|----------------------------------- |  | - | --- | - |  | - | --- | - |  | - | --- | - |  | - | -- | -
|Content and other revenues          |  | $ | 86  |   |  | $ | 47  |   |  | $ |    |   |  | $ |   |  
|Cost of revenues                    |  |   | (2  | ) |  |   | (1  | ) |  |   |    |   |  |   |   |  
|Selling, general and administrative |  |   | (9  | ) |  |   | (5  | ) |  |   |    |   |  |   |   |  
|Equity in pretax loss of TWE        |  |   | (35 | ) |  |   | (19 | ) |  |   |    |   |  |   |   |  
|Other income (expense), net         |  |   | (1  | ) |  |   | 1   |   |  |   |    |   |  |   |   |  
|Income tax benefit (expense)        |  |   | (78 | ) |  |   | (27 | ) |  |   | (60 | ) |  |   | (7 | )

See accompanying notes.

46



---



##### Table of Contents



TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,
(Unaudited)

|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|---------------------------------------------------------------------------- |  | ---------- | ------- | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ---- | -
|                                                                             |  | WCI        |         | ATC 
|                                                                             |  |            |         |     
|                                                                             |  | 2002       |         | 2001 |  | 2002 |        | 2001
|                                                                             |  |            |         |      |  |      |        |     
|                                                                             |  | (millions)
|Content and other revenues(a)                                                |  | $          | 2,902   |      |  | $    | 2,801  |      |  | $ |       |   |  | $ |     |  
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|Cost of revenues(a)                                                          |  |            | (1,675  | )    |  |      | (1,352 | )    |  |   |       |   |  |   |     |  
|Selling, general and administrative(a)                                       |  |            | (1,025  | )    |  |      | (1,252 | )    |  |   |       |   |  |   |     |  
|Amortization of goodwill and other intangibles                               |  |            | (133    | )    |  |      | (626   | )    |  |   |       |   |  |   |     |  
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|Operating income (loss)                                                      |  |            | 69      |      |  |      | (429   | )    |  |   |       |   |  |   |     |  
|Equity in pretax income (loss) of TWE(a)                                     |  |            | 763     |      |  |      | (334   | )    |  |   | 523    |   |  |   | (230 | )
|Interest expense, net                                                        |  |            | (48     | )    |  |      | (19    | )    |  |   |       |   |  |   | (1   | )
|Other income (expense), net(a)                                               |  |            | (195    | )    |  |      | (276   | )    |  |   | (236   | ) |  |   | (132 | )
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|Income (loss) before income taxes and cumulative effect of
accounting change |  |            | 589     |      |  |      | (1,058 | )    |  |   | 287    |   |  |   | (363 | )
|Income tax expense(a)                                                        |  |            | (187    | )    |  |      | (74    | )    |  |   | (93    | ) |  |   | (56  | )
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|Income (loss) before cumulative effect of accounting change                  |  |            | 402     |      |  |      | (1,132 | )    |  |   | 194    |   |  |   | (419 | )
|Cumulative effect of accounting change                                       |  |            | (18,962 | )    |  |      |       |      |  |   | (9,603 | ) |  |   |     |  
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  
|Net loss                                                                     |  | $          | (18,560 | )    |  | $    | (1,132 | )    |  | $ | (9,409 | ) |  | $ | (419 | )
|                                                                             |  |            |         |      |  |      |        |      |  |   |        |   |  |   |      |  



---

|(a) |  | Includes the following income (expenses) resulting from transactions with
AOL Time Warner, TW Companies, TWE or equity investees of the General
Partners:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |            |      |      |  |      |     |      |  |   |     |   |  |   |   | 
|----------------------------------- |  | ---------- | ---- | ---- |  | ---- | --- | ---- |  | - | --- | - |  | - | - | 
|                                    |  | WCI        |      | ATC 
|                                    |  |            |      |     
|                                    |  | 2002       |      | 2001 |  | 2002 |     | 2001
|                                    |  |            |      |      |  |      |     |     
|                                    |  | (millions)
|Content and other revenues          |  | $          | 251  |      |  | $    | 158 |      |  | $ |    |   |  | $ |  | 
|Cost of revenues                    |  |            | (4   | )    |  |      | (3  | )    |  |   |    |   |  |   |  | 
|Selling, general and administrative |  |            | (21  | )    |  |      | (14 | )    |  |   |    |   |  |   |  | 
|Equity in pretax loss of TWE        |  |            | (101 | )    |  |      | (69 | )    |  |   |    |   |  |   |  | 
|Other
income (expense), net         |  |            | 15   |      |  |      | 17  |      |  |   |    |   |  |   |  | 
|Income tax benefit (expense)        |  |            | (80  | )    |  |      | 12  |      |  |   | (51 | ) |  |   | 2 | 

See accompanying notes.

47



---



##### Table of Contents



TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited)

|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |     | 
|--------------------------------------------------------- | ------------------------------------------------------------------------- | - | ---------- | ------ | ---- | - | ------ | --- | ---- | - | ------ | ----- | - | - | ---- | --- | 
|                                                          |                                                                           |   | WCI        |        | ATC 
|                                                          |                                                                           |   |            |        |     
|                                                          |                                                                           |   | 2002       |        | 2001 |   | 2002   |     | 2001
|                                                          |                                                                           |   |            |        |      |   |        |     |     
|                                                          |                                                                           |   | (millions)
|OPERATIONS                                                |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Net loss                                                  |                                                                           | $ | (18,560    | )      |      | $ | (1,132 | )   |      | $ | (9,409 | )     |   | $ | (419 | )  
|Adjustments for noncash and nonoperating items:           |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|                                                          | Cumulative effect of accounting change                                    |   |            | 18,962 |      |   |        |    |      |   |        | 9,603 |   |   |      |    | 
|                                                          | Depreciation and amortization                                             |   |            | 218    |      |   |        | 696 |      |   |        |      |   |   |      |    | 
|                                                          | Loss on writedown of investments                                          |   |            | 372    |      |   |        |    |      |   |        | 244   |   |   |      |    | 
|                                                          | Excess (deficiency) of distributions over equity in pretax
income of TWE  |   |            | (535   | )    |   |        | 574 |      |   |        | (366  | ) |   |      | 394 | 
|                                                          | Equity in losses (income) of other investee companies after
distributions |   |            | (85    | )    |   |        | 265 |      |   |        | (9    | ) |   |      | 132 | 
|Changes in operating assets and liabilities               |                                                                           |   | (317       | )      |      |   | (184   | )   |      |   | 47     |       |   |   | 26   |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Cash provided by operations                               |                                                                           |   | 55         |        |      |   | 219    |     |      |   | 110    |       |   |   | 133  |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|INVESTING ACTIVITIES                                      |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Investments and acquisitions                              |                                                                           |   | (152       | )      |      |   | (109   | )   |      |   |       |       |   |   |     |    
|Capital expenditures                                      |                                                                           |   | (94        | )      |      |   | (126   | )   |      |   |       |       |   |   |     |    
|Investment proceeds                                       |                                                                           |   | 34         |        |      |   | 10     |     |      |   |       |       |   |   |     |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Cash used by investing activities                         |                                                                           |   | (212       | )      |      |   | (225   | )   |      |   |       |       |   |   |     |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|FINANCING ACTIVITIES                                      |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Repayment
of loan to AOL Time Warner                      |                                                                           |   | (857       | )      |      |   |       |     |      |   |       |       |   |   |     |    
|Borrowings
from AOL Time Warner                           |                                                                           |   | 857        |        |      |   |       |     |      |   |       |       |   |   |     |    
|Other
borrowings                                          |                                                                           |   | 1          |        |      |   |       |     |      |   |       |       |   |   |     |    
|Other
debt repayments                                     |                                                                           |   | (10        | )      |      |   |       |     |      |   |       |       |   |   |     |    
|Dividends                                                 |                                                                           |   | (54        | )      |      |   | (215   | )   |      |   | (10    | )     |   |   | (144 | )  
|(Increase) decrease in amounts due from TW Companies, net |                                                                           |   | 199        |        |      |   | 185    |     |      |   | (100   | )     |   |   | 11   |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|Cash provided by (used by) financing activities           |                                                                           |   | 136        |        |      |   | (30    | )   |      |   | (110   | )     |   |   | (133 | )  
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|DECREASE IN CASH AND EQUIVALENTS                          |                                                                           |   | (21        | )      |      |   | (36    | )   |      |   |       |       |   |   |     |    
|                                                         
|CASH AND EQUIVALENTS AT BEGINNING OF PERIOD               |                                                                           |   | 40         |        |      |   | 36     |     |      |   |       |       |   |   |     |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    
|CASH AND EQUIVALENTS AT END OF PERIOD                     |                                                                           | $ | 19         |        |      | $ |       |     |      | $ |       |       |   | $ |     |    
|                                                          |                                                                           |   |            |        |      |   |        |     |      |   |        |       |   |   |      |    

See accompanying notes.

48



---



##### Table of Contents



TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Nine Months Ended September 30,
(Unaudited)

|                                                                                                                                                       |  |            |         |      |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------- | ------- | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                                       |  | WCI        |         | ATC 
|                                                                                                                                                       |  |            |         |     
|                                                                                                                                                       |  | 2002       |         | 2001 |  | 2002 |        | 2001
|                                                                                                                                                       |  |            |         |      |  |      |        |     
|                                                                                                                                                       |  | (millions)
|BALANCE AT BEGINNING OF PERIOD                                                                                                                         |  | $          | 57,424  |      |  | $    | 8,776  |      |  | $ | 28,338 |   |  | $ | 2,075  |  
|Allocation of a portion of the purchase price of the America
Online-Time Warner merger to WCI and ATC                                                  |  |            |        |      |  |      | 52,112 |      |  |   |       |   |  |   | 27,685 |  
|Reallocation of goodwill among AOL Time Warner segments upon
adoption of FAS 142                                                                       |  |            | (10,815 | )    |  |      |       |      |  |   | (3,512 | ) |  |   |       |  
|                                                                                                                                                       |  |            |         |      |  |      |        |      |  |   |        |   |  |   |        |  
|Balance at beginning of period, adjusted to give effect to the
America Online-Time Warner Merger and reallocation of
goodwill upon adoption of FAS 142 |  |            | 46,609  |      |  |      | 60,888 |      |  |   | 24,826 |   |  |   | 29,760 |  
|                                                                                                                                                      
|Net loss                                                                                                                                               |  |            | (18,560 | )    |  |      | (1,132 | )    |  |   | (9,409 | ) |  |   | (419   | )
|Other comprehensive income (loss)                                                                                                                      |  |            | 117     |      |  |      | (15    | )    |  |   | 15     |   |  |   | 3      |  
|                                                                                                                                                       |  |            |         |      |  |      |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                                                                                                                                     |  |            | (18,443 | )    |  |      | (1,147 | )    |  |   | (9,394 | ) |  |   | (416   | )
|                                                                                                                                                      
|(Increase) decrease in stock option distribution liability to
TW Companies                                                                             |  |            | 262     |      |  |      | (88    | )    |  |   | 180    |   |  |   | (61    | )
|Dilution
of interest in Time Warner Entertainment Company, L.P. (net of $146
and $96 million income tax impact for WCI and ATC,
respectively)          |  |            | (219    | )    |  |      |       |      |  |   | (144   | ) |  |   |       |  
|Dividends                                                                                                                                              |  |            | (400    | )    |  |      | (5     | )    |  |   |       |   |  |   |       |  
|Transfers (to) from TW Companies, net                                                                                                                  |  |            | 199     |      |  |      | 185    |      |  |   | (100   | ) |  |   | 11     |  
|Other                                                                                                                                                  |  |            | 1       |      |  |      | 2      |      |  |   |       |   |  |   | 1      |  
|                                                                                                                                                       |  |            |         |      |  |      |        |      |  |   |        |   |  |   |        |  
|BALANCE AT END OF PERIOD                                                                                                                               |  | $          | 28,009  |      |  | $    | 59,835 |      |  | $ | 15,368 |   |  | $ | 29,295 |  
|                                                                                                                                                       |  |            |         |      |  |      |        |      |  |   |        |   |  |   |        |  

See accompanying notes.

49



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

On June 30, 1992, thirteen direct or indirect subsidiaries of Time Warner
Companies, Inc. (TW Companies) contributed the assets and liabilities or the
rights to the cash flows of substantially all of TW Companies Filmed
Entertainment, Networks and Cable businesses to Time Warner Entertainment
Company, L.P., a Delaware limited partnership (TWE), for general partnership
interests, and each general partner guaranteed a pro rata portion of
substantially all of TWEs debt and accrued interest based on the relative fair
value of the net assets each contributed to TWE (the General Partner
Guarantees, see Note 8). Since then, eleven of the thirteen original general
partners have been merged or dissolved into the other two. Warner
Communications Inc. (WCI) and American Television and Communications
Corporation (ATC) are the two remaining general partners of TWE. They have
succeeded to the general partnership interests and have assumed the General
Partner Guarantees of the eleven former general partners. WCI, ATC and, where
appropriate, the former general partners are referred to herein as the General
Partners.

WCI conducts
substantially all of TW Companies music operations, including
interests in recorded music, music publishing and DVD manufacturing.
These music operations include 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. In addition, WCI has investments in TWE, TW Companies, IPC
Group Limited, Turner Broadcasting System, Inc (TBS) and Time Warner Telecom
Inc. (Time Warner Telecom). ATC does not conduct operations independent of
its ownership interests in TWE and certain other investments, including
investments in TW Companies, TBS and Time Warner Telecom.

On January 11, 2001, America Online, Inc. (America Online) and Time
Warner Inc. (Time Warner) merged to form AOL Time Warner Inc. (AOL Time
Warner), the worlds leading media and entertainment company (the Merger).
As a result of the Merger, America Online and Time Warner each became a wholly
owned subsidiary of AOL Time Warner, and WCI and ATC each became an indirect,
wholly owned subsidiary of AOL Time Warner.

Basis of Presentation

Interim Financial Statements

The accompanying consolidated financial statements are unaudited but, in
the opinion of management, contain all the adjustments (consisting of those of
a normal recurring nature) considered necessary to present fairly the financial
position and the results of operations and cash flows for the periods presented
in conformity with accounting principles generally accepted in the United
States applicable to interim periods. The accompanying consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements of the General Partners included in TWEs Annual Report on
Form 10-K for the year ended December 31, 2001.

50



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

Revenue Classification Changes

Reimbursement of Out-of-Pocket Expenses

In January 2002, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No.
01-04, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires that
reimbursements received for out-of-pocket expenses be classified as revenue on
the income statement and was effective for the General Partners in the first
quarter of 2002. The new guidance requires retroactive restatement of all
periods presented to reflect the new accounting provisions. This change in
revenue classification impacts WCI, resulting in an increase in both revenues
and costs of approximately $33 million in the third quarter of 2001 and $115
million for the first nine months of 2001.

EITF Issue No. 01-09

In April 2001, the FASBs EITF reached a final consensus on EITF Issue No.
00-25, Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendors Products, which was later codified along with other
similar issues, into EITF 01-09, Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendors Products (EITF 01-09).
EITF 01-09 was effective for the General Partners in the first quarter of 2002.
EITF 01-09 clarifies the income statement classification of costs incurred by a
vendor in connection with the resellers purchase or promotion of the vendors
products, resulting in certain cooperative advertising and product placement
costs previously classified as selling expenses to be reflected as a reduction
of revenues earned from that activity. The new guidance impacts WCI and
requires retroactive restatement of all periods presented to reflect the new
accounting provisions. As a result of applying the provisions of EITF 01-09,
WCIs revenues and costs each were reduced by an equal amount of approximately
$10 million in the third quarter of 2001 and $29 million for the first nine
months of 2001.

Accounting for Business Combinations

In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, Business Combinations and No. 142, Goodwill and Other Intangible
Assets (FAS 142). These standards change the accounting for business
combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting and requiring companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life. Instead,
goodwill and intangible assets deemed to have an indefinite useful life will be
subject to an annual review for impairment. The new standards generally were
effective for the General Partners in the first quarter of 2002 and for
purchase business combinations consummated after June 30, 2001. Upon adoption
of FAS 142 in the first quarter of 2002, WCI and ATC recorded one-time, noncash
charges of approximately $19 billion and $10 billion, respectively, for the
impairment of goodwill, substantially all of which was generated in the Merger.
Approximately $14 billion of WCIs charge and all of ATCs charge was the
result of goodwill impairment charges recorded at TWE and certain AOL Time
Warner consolidated subsidiaries, which are accounted for by the General
Partners under the equity method of accounting. These charges are
non-operational in nature and are reflected as a cumulative effect of an
accounting change in the accompanying consolidated statements of operations.
For additional discussion on the impact of adopting FAS 142 (Note 6).

The General Partners will perform their annual impairment review during
the fourth quarter of each year, commencing in the fourth quarter of 2002.
While the General Partners overall goodwill impairment analysis will not be
completed until the fourth quarter, based on current market conditions in the
cable industry, management believes that it is probable that a substantial
overall goodwill impairment has occurred as of September 30, 2002. At

51



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

this time, management is unable to reasonably estimate the magnitude of such an
impairment. The factors that will affect the magnitude of impairment include
the impairment charge recorded by the equity investees of the General Partners
process, and a valuation of assets (including unrecognized intangible assets)
and liabilities, all of which will be completed in the fourth quarter.
Additionally, the magnitude of any impairment will also take into consideration
the extent to which the stock price of comparable companies in the cable
industry continue to experience a sustained decline in values. Any write-off
would be noncash in nature and, therefore, is not expected to affect the
General Partners liquidity. The Company would record any such charge as it
relates to the intangible assets of the General Partners as a component of
operating income. In addition, the General Partners would record a
corresponding portion of the charge recorded by its equity investees as other
income (expense).

Reclassifications

Certain reclassifications have been made to the prior years financial
statements to conform to the September 30, 2002 presentation.

2. WORD ENTERTAINMENT ACQUISITION

In January 2002, WCI completed its purchase of Word Entertainment (Word)
from Gaylord Entertainment Company for approximately $84 million in cash. Word
is a leader in the multi-faceted contemporary Christian music industry with
over 30 active artists on several record labels, approximately 45 songwriters
under contract and a catalog containing more than 75,000 masters. The
acquisition was accounted for using the purchase method of accounting for
business combinations. As a result of the subsequent purchase price allocation, approximately $10 million has been allocated to copyrights,
approximately $20 million has been allocated to music catalogues and
the remaining $27 million of the purchase price has been
allocated to the underlying tangible net assets of Word as of
September 30, 2002.

During the third
quarter of 2002, WCI exchanged 20% of its
interest in Word to Curb Records for noncash consideration of equal
value.

3. MERGER-RELATED COSTS

Merger Costs

In accordance with generally accepted accounting principles, WCI generally
treats merger costs relating to business combinations accounted for using the
purchase method of accounting as additional purchase price paid. However,
certain merger costs do not meet the criteria for capitalization and are
expensed as incurred. Merger costs both capitalized and expensed are discussed
in more detail in the following paragraphs.

52



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

Merger Costs Capitalized as a Cost of Acquisition

In connection with the Merger, WCI has reviewed its operations and
implemented several plans to restructure its operations (restructuring
plans). As part of the restructuring plans, WCI accrued an initial
restructuring liability of approximately $312 million during the first quarter
of 2001. WCI adjusted these restructuring liabilities downward by $3 million
during 2001 as it refined its restructuring plans. The restructuring accruals
relate to costs to exit and consolidate certain activities at WCI, as well as
costs to terminate employees of WCI. Such amounts were recognized as
liabilities assumed in the purchase business combination and, accordingly,
resulted in additional goodwill being recorded in connection with the Merger.

Of the total restructuring accruals, $261 million related to work force
reductions and represented employee termination benefits and
relocation costs. The total number of
employees initially identified to be involuntarily terminated or relocated
approximated 2,500. As of September 30, 2002, approximately 2,400 of
the terminations and relocations had occurred. The remaining 100
terminations and relocations are anticipated to occur during the
fourth quarter of 2002. Because certain employees can defer
receipt of termination benefits for up to 24 months, cash payments will
continue after the employee has been terminated. Termination payments of
approximately $52 million were made in 2001 ($17 million of which was in the
third quarter and $32 million for the first nine months of 2001) and an
additional $75 million was paid in the first nine months of 2002 ($19 million
of which was in the third quarter). As of September 30, 2002, the remaining
liability of approximately $134 million was primarily classified as a current
liability in WCIs accompanying balance sheet.

The restructuring accrual also includes approximately $48 million
associated with exiting certain activities. The restructuring accrual
associated with exiting activities specifically includes incremental costs and
contractual obligations for items such as leasehold termination payments and
other facility exit costs incurred as a direct result of these plans, which
will not have future benefits. Payments related to exiting activities were
approximately $7 million in 2001 ($1 million of which was in the third quarter
and $7 million for the first nine months of 2001) and an additional $11 million
was paid in the first nine months of 2002 ($2 million of which was paid in the
third quarter). As of September 30, 2002, the remaining liability of $30
million was primarily classified as a long-term liability in WCIs accompanying
consolidated balance sheet.

Selected information relating to the restructuring costs included in the
allocation of the cost to acquire Time Warner follows (in millions):

|                                                 |  |             |     |            |  |       |     |   |  |   |     |  
|------------------------------------------------ |  | ----------- | --- | ---------- |  | ----- | --- | - |  | - | --- | -
|                                                 |  | Employee    |     | Other      |  |       |     |  
|                                                 |  | Termination |     | Exit Costs |  | Total
|                                                 |  |             |     |            |  |      
|Initial accruals                                 |  | $           | 261 |            |  | $     | 48  |   |  | $ | 309 |  
|Cash paid  2001                                 |  |             | (52 | )          |  |       | (7  | ) |  |   | (59 | )
|                                                 |  |             |     |            |  |       |     |   |  |   |     |  
|Restructuring liability as of December 31, 2001  |  |             | 209 |            |  |       | 41  |   |  |   | 250 |  
|Cash paid  2002                                 |  |             | (75 | )          |  |       | (11 | ) |  |   | (86 | )
|                                                 |  |             |     |            |  |       |     |   |  |   |     |  
|Restructuring liability as of September 30, 2002 |  | $           | 134 |            |  | $     | 30  |   |  | $ | 164 |  
|                                                 |  |             |     |            |  |       |     |   |  |   |     |  

53



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

Merger Costs Expensed as Incurred

During 2002, the restructuring plans included approximately $4 million of
merger costs that were expensed as incurred in the first quarter, all of which
were paid by June 30, 2002, and are included in operating income (loss) in the
accompanying consolidated statement of operations.

During 2001, the restructuring plans included approximately $37 million of
merger costs, relating to the renegotiation of various contractual commitments,
that were expensed as incurred and included in operating income (loss) in the
accompanying consolidated statement of operations (none of which was recognized
in the third quarter). As of September 30, 2002, approximately $11 million of
the $37 million had not been paid and is primarily classified as a current
liability in the accompanying consolidated balance sheet.

4. INVESTMENTS

The United States economy has experienced a broad decline in the public
equity markets including investments held in WCIs and ATCs portfolios.
Similarly, certain privately held investments, restricted securities and
investments accounted for using the equity method of accounting of WCI and ATC
have experienced significant declines in value. As a result, WCI and ATC
recorded noncash pretax charges to reduce the carrying value of certain
investments that experienced other-than-temporary declines of approximately $16
million and $7 million, respectively, in the third quarter of 2002 and $372
million and $244 million, respectively, for the nine months ended September 30,
2002. Similarly, WCI recorded a noncash pretax charge of
approximately $13
million for the nine months ended September 30, 2001 to reduce the carrying
value of certain investments that experienced other-than-temporary declines in
value.

Included in the 2002 charge is a charge of approximately $11 million and
$356 million for the three and nine months ended September 30, 2002,
respectively, at WCI, and $7 million and $244 million for the three and nine
months ended September 30, 2002, respectively, at ATC, to reduce the General
Partners respective investments in Time Warner Telecom for declines deemed to
be other-than-temporary. Time Warner Telecom is a leading fiber
facilities-based provider of metropolitan and regional optical broadband
networks and services to business customers. The value of both WCIs and ATCs
investment in Time Warner Telecom was adjusted upward in the Merger by
approximately $992 million and $682 million, respectively, to their estimated
fair values. Since the date of the Merger, Time Warner Telecoms share price
has declined significantly, resulting in impairment charges of approximately
$542 million for WCI and $372 million for ATC in 2001 and approximately $356
million for WCI and $244 million for ATC in 2002.

As of September 30, 2002, Time Warner Telecom was owned 44% by AOL Time
Warner, including approximately 20% by WCI and approximately 14% by ATC, 14% by
the Advance/Newhouse Partnership and 42% by other third parties. The General
Partners interests in Time Warner Telecom are being accounted for under the
equity method of accounting. For the three months ended September 30, 2002,
Time Warner Telecom had revenues, operating loss and net loss of approximately
$167 million, $22 million and $48 million, respectively. For the nine months
ended September 30, 2002, Time Warner Telecom had revenues, operating loss and
net loss of approximately $520 million, $44 million and $122 million,
respectively.

54



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

5. SALE OF COLUMBIA HOUSE

The Columbia House Company Partnerships (Columbia House) was a 50-50
joint venture between AOL Time Warner and Sony Corporation of America (Sony).
In June 2002, AOL Time Warner and Sony reached a definitive agreement to each
sell 85% of their 50% interest in Columbia House to Blackstone Capital Partners
III LP (Blackstone), an affiliate of The Blackstone Group, a private
investment bank. WCI holds 20% of AOL Time Warners interest in the Columbia
House domestic operations and 100% of AOL Time Warners interest in the
Columbia House foreign operations. Under the terms of the sale agreement, WCI
received proceeds of approximately $34 million in cash and a subordinated note
receivable from Columbia House Holdings, Inc., a majority owned subsidiary of
Blackstone, with a face amount of approximately $7 million. The sale has
resulted in the WCI recognizing a pretax gain of approximately $96 million,
which is included in other income (expense), net, in the accompanying
consolidated statement of operations. In addition, WCI has deferred an
approximate $6 million gain on the sale. The deferred gain primarily relates
to the estimated fair value of the portion of the proceeds received as a note
receivable, which will be deferred until such time as the realization of such
note becomes more fully assured. As part of the transaction, AOL Time Warner,
including WCI, will continue to license music and video product to Columbia
House for a five-year period.

6. GOODWILL AND INTANGIBLE ASSETS

As discussed in Note 1, in January 2002, the General Partners adopted FAS
142, which requires companies to stop amortizing goodwill and certain
intangible assets with an indefinite useful life. Instead, FAS 142 requires
that goodwill and intangible assets deemed to have an indefinite useful life be
reviewed for impairment upon adoption of FAS 142 (January 1, 2002) and annually
thereafter. The General Partners will perform their annual impairment review
during the fourth quarter of each year, commencing with the fourth quarter of
2002.

Under FAS 142, goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. For purposes of
applying the provisions of FAS 142, both WCI and ATC are considered one
reporting unit. This methodology differs from the General Partners previous
policy, as permitted under accounting standards existing at that time, of using
undiscounted cash flows on an enterprise-wide basis to determine if goodwill is
recoverable.

Upon adoption of FAS 142 in the first quarter of 2002, WCI recorded an
approximate $19 billion noncash charge and ATC recorded an approximate $10
billion noncash charge relating to the impairment of goodwill, all of which was
generated in the Merger. Approximately $5 billion of WCIs charge related to
its wholly owned music business, while the remaining approximate $14 billion of
WCIs charge and all of ATCs charge were the result of goodwill impairment
charges recorded at TWE and other AOL Time Warner consolidated subsidiaries,
which are accounted for by the General Partners under the equity method of
accounting. Such charges are nonoperational in nature and are reflected as a
cumulative effect of accounting change in the accompanying consolidated
statement of operations. In calculating the impairment charge, the fair value
of WCIs music business and the reporting units underlying the General
Partners investments in TWE and certain AOL Time Warner consolidated
subsidiaries accounted for under the equity method of accounting, were
estimated using either the expected present value of future cash flows of the
reporting unit, recent comparable transactions or a combination thereof.

The FAS 142 goodwill impairment is associated solely with goodwill
resulting from the AOL Time Warner Merger. The amount of the impairment
primarily reflects the overall market declines since the AOL Time Warner Merger
was announced and valued for accounting purposes in January of 2000. Prior to
performing the review for impairment, FAS 142 required that all goodwill deemed
to be related to AOL Time Warner as a whole be assigned

55



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

to all of AOL Time Warners reporting units, including the reporting units
of the acquirer. This differs from the previous accounting rules where
goodwill was assigned only to the businesses of the company acquired. As a
result, a portion of the goodwill generated in the Merger has been reallocated
from WCIs music business and the reporting units underlying the General
Partners investments in TWE and certain AOL Time Warner consolidated
subsidiaries accounted for under the equity method of accounting to other
segments of AOL Time Warner.

A summary of changes in WCIs goodwill during the first nine months of
2002 is as follows (in millions):

|      |  |            |       |                |  |               |    |      |  |               |        |   |  |   |       | 
|----- |  | ---------- | ----- | -------------- |  | ------------- | -- | ---- |  | ------------- | ------ | - |  | - | ----- | 
|      |  | Goodwill  
|      |  |           
|      |  | January 1, |       | Acquisitions & |  |               |    |      |  | September 30,
|      |  | 2002(1)    |       | Adjustments(2) |  | Impairment(3) |    | 2002
|      |  |            |       |                |  |               |    |     
|Total |  | $          | 5,857 |                |  | $             | 33 |      |  | $             | (4,796 | ) |  | $ | 1,094 | 
|      |  |            |       |                |  |               |    |      |  |               |        |   |  |   |       | 



---

|(1) |  | Reflects the reallocation of $5.942 billion of goodwill to other segments
of AOL Time Warner under FAS 142.                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Acquisitions primarily relate to WCIs preliminary purchase price
allocation for the acquisition of Word Entertainment. In addition, the
ultimate goodwill associated with certain acquisitions continues to be
adjusted as the value of the assets and liabilities acquired are
finalized.
|   
|(3) |  | The impairment charge does not include approximately $14 billion related
to goodwill impairments associated with investments accounted for under
the equity method of accounting.                                                                                                          

As of September 30, 2002 and December 31, 2001, WCIs intangible assets
and related accumulated amortization consisted of the following (in millions):

|                                                |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |       | 
|----------------------------------------------- | ----- | - | ------------------------ | ----- | ----------------------- | - | ----------- | ---- | ----- | - | ------------ | ----- | --- | - | ----- | ----- | ----------- | - | ---- | ---- | - | - | ----- | ----- | 
|                                                |       |   | As of September 30, 2002 |       | As of December 31, 2001
|                                                |       |   |                          |       |                        
|                                                |       |   |                          |       |                         |   | Accumulated |      |       |   |              |       |     |   |       |       | Accumulated |   |      |      |  
|                                                |       |   | Gross                    |       | Amortization            |   | Net         |      | Gross |   | Amortization |       | Net
|                                                |       |   |                          |       |                         |   |             |      |       |   |              |       |    
|Intangible assets subject to amortization:      |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |      
|Music catalogues and copyrights(1)              |       | $ | 3,193                    |       |                         | $ | (290        | )    |       | $ | 2,903        |       |     | $ | 3,079 |       |             | $ | (153 | )    |   | $ | 2,926 |      
|Other intangible assets subject to amortization |       |   | 6                        |       |                         |   |            |      |       |   | 6            |       |     |   |      |       |             |   |     |      |   |   |      |      
|                                                |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |      
|                                                | Total |   | $                        | 3,199 |                         |   | $           | (290 | )     |   | $            | 2,909 |     |   | $     | 3,079 |             |   | $    | (153 | ) |   | $     | 2,926 | 
|                                                |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |      
|Intangible assets not subject to amortization:  |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |      
|Brands and trademarks(1)                        |       | $ | 1,700                    |       |                         | $ | (57         | )    |       | $ | 1,643        |       |     | $ | 1,700 |       |             | $ | (57  | )    |   | $ | 1,643 |      
|                                                |       |   |                          |       |                         |   |             |      |       |   |              |       |     |   |       |       |             |   |      |      |   |   |       |      



---

|(1) |  | Amount represents intangible assets related to WCIs music operations.
|--- |  | ----------------------------------------------------------------------

WCI recorded
amortization expense of $45 million during the third quarter
of 2002 compared to $211 million during the third quarter of 2001. WCI recorded
amortization expense of $133 million for the first nine months of 2002 compared
to $626 million for the first nine months of 2001. Based on the current amount
of intangible assets subject to amortization, the estimated amortization
expense for each of the succeeding 5 years are as follows: 2003: $172 million;
2004: $172 million; 2005: $172 million; 2006: $158 million; and 2007: $158
million. As acquisitions and dispositions occur in the future and as purchase
price allocations are finalized, these amounts may vary.

During the first nine months of 2002, WCI acquired the following
intangible assets (in millions):

|                                |  |   |    |  |  |                     |  | 
|------------------------------- |  | - | -- |  |  | ------------------- |  | 
|                                |  |   |    |  |  | Weighted Average   
|                                |  |   |    |  |  | Amortization Period
|                                |  |   |    |  |  |                    
|Music catalogues and copyrights |  | $ | 70 |  |  | 15 years           
|Other
intangible assets         |  |   | 6  |  |  | 6 years            

56



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

The 2001 results do not reflect the provisions of FAS 142. Had WCI and
ATC adopted FAS 142 on January 1, 2001, the net income (loss) would have been
changed to the adjusted amounts indicated below:

|                                              |  |                    |        |     |  |   |      |  
|--------------------------------------------- |  | ------------------ | ------ | --- |  | - | ---- | -
|                                              |  | Nine Months Ended 
|                                              |  | September 30, 2001
|                                              |  |                   
|                                              |  | (millions)        
|                                              |  | WCI                |        | ATC
|                                              |  |                    |        |    
|As reported  historical basis                |  | $                  | (1,132 | )   |  | $ | (419 | )
|Add: Goodwill amortization                    |  |                    | 448    |     |  |   |     |  
|Add: Intangible amortization                  |  |                    | 63     |     |  |   |     |  
|Add: TWE goodwill and intangible amortization |  |                    | 1,215  |     |  |   | 834  |  
|Add: Equity investee goodwill amortization    |  |                    | 244    |     |  |   | 150  |  
|Income tax impact                             |  |                    | (609   | )   |  |   | (394 | )
|                                              |  |                    |        |     |  |   |      |  
|Adjusted                                      |  | $                  | 229    |     |  | $ | 171  |  
|                                              |  |                    |        |     |  |   |      |  

7. INVESTMENT IN TWE

The General Partners investment in and amounts due to and from TWE at
September 30, 2002 and December 31, 2001 consists of the following:

|                                                |  |            |        |     |  |   |        | 
|----------------------------------------------- |  | ---------- | ------ | --- |  | - | ------ | 
|September 30, 2002                              |  | WCI        |        | ATC
|                                                |  |            |        |    
|                                                |  | (millions)
|Investment in TWE                               |  | $          | 19,943 |     |  | $ | 13,736 | 
|Stock option related distributions due from TWE |  |            | 1      |     |  |   | 1      | 
|Other net receivables due from TWE              |  |            | 77     |     |  |   |       | 
|                                                |  |            |        |     |  |   |        | 
|Total                                           |  | $          | 20,021 |     |  | $ | 13,737 | 
|                                                |  |            |        |     |  |   |        | 

|                                                |  |            |        |     |  |   |        | 
|----------------------------------------------- |  | ---------- | ------ | --- |  | - | ------ | 
|December 31, 2001                               |  | WCI        |        | ATC
|                                                |  |            |        |    
|                                                |  | (millions)
|Investment in TWE                               |  | $          | 36,490 |     |  | $ | 25,110 | 
|Stock option related distributions due from TWE |  |            | 264    |     |  |   | 182    | 
|Other net assets due from TWE                   |  |            | 80     |     |  |   |       | 
|                                                |  |            |        |     |  |   |        | 
|Total                                           |  | $          | 36,834 |     |  | $ | 25,292 | 
|                                                |  |            |        |     |  |   |        | 

The General Partners respective investments in TWE declined significantly
during the quarter, primarily the result of the General Partners share of
TWEs $21.763 billion cumulative effect of an accounting change relating to the
adoption of FAS 142. In addition, upon the adoption of FAS 142, $6.857 billion
of goodwill at TWE generated in the Merger was reallocated to other segments of
AOL Time Warner thereby reducing TWEs net assets. For a more comprehensive
description of the impact of these items on TWE, see the accompanying TWE
consolidated financial statements.

Partnership Structure and Allocation of Income

TWE is a Delaware limited partnership that was capitalized on June 30,
1992 and currently owns and operates substantially all of the Filmed
Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses previously
owned by the General Partners. The General Partners in the aggregate hold
63.27% of the pro rata priority capital (Series A Capital) and residual
equity capital (Residual Capital) of TWE and 100% of the junior priority
capital (Series B Capital) of TWE. TW Companies, directly or indirectly,
holds 11.22% of the Series A Capital and Residual Capital limited partnership
interests. The remaining 25.51% limited partnership interests in the Series A
Capital and Residual Capital of TWE are held by MediaOne TWE Holdings, Inc., a
subsidiary of AT&T Corp (AT&T).

57



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

During the second quarter of 2002, AT&T exercised a one-time option to
increase its ownership in the Series A Capital and Residual Capital of TWE. As
a result, on May 31, 2002, AT&Ts interest in the Series A Capital and Residual
Capital of TWE increased by approximately 2.13% to approximately 27.64%. This
resulted in a decrease in WCIs and ATCs corresponding interest in the Series
A Capital and Residual Capital of TWE of approximately 1.07% and 0.74%,
respectively, to approximately 36.43% and 25.03%, respectively. Similarly, TW
Companies interest in the Series A Capital and Residual Capital decreased by
approximately 0.32% to approximately 10.90%. In accordance with Staff
Accounting Bulletin No. 51, Accounting For Sales of Stock of a Subsidiary;
WCI and ATC have reflected the pretax impact of the dilution of its interest in
TWE of approximately $365 million and $240 million, respectively, as an
adjustment to paid-in-capital.

In August 2002, AOL Time Warner and AT&T announced that they had agreed to
restructure TWE. As part of the restructuring, WCI will acquire
complete ownership of TWEs content assets, including Warner Bros. and Home Box
Office, as well as TWEs interests in The WB Network, Comedy Central and Court
TV. In addition, all of WCIs and almost all of ATCs interests in TWE and all of
AOL Time Warners interests in cable television systems held through wholly-owned
subsidiaries, will be contributed to an existing subsidiary of AT&T that will
become a subsidiary of AOL Time Warner and will be renamed Time Warner Cable
Inc. In connection with the restructuring, AT&T will receive $2.1 billion in
cash and AOL Time Warner common stock valued at $1.5 billion at the time of the
closing of the restructuring and will retain a 17.9% economic stake in Time
Warner Cable Inc. and a 4.7% economic stake in TWE. AT&Ts combined interests
in Time Warner Cable Inc. and TWE will result in AT&T holding an approximately
21% economic interest in the business of Time Warner Cable Inc. AT&Ts 17.9%
economic stake in Time Warner Cable Inc. will represent approximately a 10.7%
voting interest in Time Warner Cable Inc. The Company anticipates that the
restructuring will be completed in early 2003, upon the receipt of local cable
franchise approvals, where required, and other required regulatory approvals.
Clearance under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 has been
received.

Based upon its controlling voting interest in Time Warner Cable Inc., AOL
Time Warner will consolidate the results of Time Warner Cable Inc. for
accounting purposes. WCI will account for its interest in Time Warner
Cable under the equity method of accounting. ATC will account for its
common and preferred
interests in TWE as cost method investments. At the closing of the restructuring, it is anticipated
that Time Warner Cable Inc. will have approximately $8.1 billion in
consolidated net debt and preferred equity. Subject to market conditions, AOL
Time Warner plans to conduct an initial public offering of Time Warner Cable
Inc. soon after the closing of the restructuring. It is anticipated that the
first $2.1 billion raised in any such offering would be used to pay down Time
Warner Cable Inc.s debt incurred to fund the $2.1 billion cash payment to
AT&T. Thereafter, AT&T will have certain priority registration rights with
respect to its stake in Time Warner Cable Inc.

58



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

The TWE partnership agreement provides for special allocations of income, loss
and distributions of partnership capital, including priority distributions in
the event of liquidation. A portion of TWEs net income has been allocated to
the limited partnership interests.

Summarized Financial Information of TWE

TWEs summarized financial information for 2002 includes the impact of the
adoption of FAS 142 effective January 1, 2002, which causes the 2002 summarized
financial information to not be comparable to 2001. Accordingly, in order to
enhance comparability and make an analysis of 2002 more meaningful, pro forma
financial information for 2001 has been provided supplementally as if FAS 142
had been in effect beginning January 1, 2001. In addition, TWEs historical
financial information for 2001 has been restated for the impact of
EITF 01-14
and EITF 01-09. For a more comprehensive description of the impact of these
items on TWE, see the accompanying TWE consolidated financial statements.

|                                                                                                      |  |                                  |       |                                 |  |            |       |            |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- |  | ---------- | ----- | ---------- |  | - | ------- | - |  | - | ------ | -
|                                                                                                      |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                                                                                                      |  |                                  |       |                                
|                                                                                                      |  | 2002                             |       | 2001                            |  | 2002       |       | 2001      
|                                                                                                      |  | Historical                       |       | Historical                      |  | Historical |       | Historical
|                                                                                                      |  |                                  |       |                                 |  |            |       |           
|                                                                                                      |  | (millions)                      
|Operating Statement Information                                                                       |  |                                  |       |                                 |  |            |       |            |  |   |         |   |  |   |        |  
|Revenues                                                                                              |  | $                                | 3,935 |                                 |  | $          | 3,559 |            |  | $ | 11,899  |   |  | $ | 10,275 |  
|Operating income                                                                                      |  |                                  | 612   |                                 |  |            | 19    |            |  |   | 1,789   |   |  |   | (121   | )
|Interest expense, net                                                                                 |  |                                  | (103  | )                               |  |            | (129  | )          |  |   | (310    | ) |  |   | (413   | )
|Other income (expense), net                                                                           |  |                                  | 5     |                                 |  |            | (101  | )          |  |   |        |   |  |   | (218   | )
|Minority interest                                                                                     |  |                                  | (6    | )                               |  |            | 8     |            |  |   | (19     | ) |  |   | 22     |  
|Income (loss) before income taxes, discontinued
operations and cumulative effect of
accounting change |  |                                  | 508   |                                 |  |            | (203  | )          |  |   | 1,460   |   |  |   | (730   | )
|Income (loss) before discontinued operations and
cumulative effect of accounting change               |  |                                  | 476   |                                 |  |            | (234  | )          |  |   | 1,336   |   |  |   | (799   | )
|Income (loss) before cumulative effect of
accounting change                                           |  |                                  | 1,655 |                                 |  |            | (241  | )          |  |   | 2,518   |   |  |   | (823   | )
|Net income (loss)                                                                                     |  |                                  | 1,655 |                                 |  |            | (241  | )          |  |   | (19,245 | ) |  |   | (823   | )

|                                                           |  |                                 |        |            |  |   |        |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | ---------- |  | - | ------ | -
|                                                           |  | Nine Months Ended September 30,
|                                                           |  |                                
|                                                           |  | 2002                            |        | 2001      
|                                                           |  | Historical                      |        | Historical
|                                                           |  |                                 |        |           
|                                                           |  | (millions)                     
|Cash Flow Information                                      |  |                                 |        |            |  |   |        |  
|Cash provided by operations                                |  | $                               | 3,373  |            |  | $ | 1,997  |  
|Investments and acquisitions                               |  |                                 | (262   | )          |  |   | (832   | )
|Capital expenditures from continuing operations            |  |                                 | (1,135 | )          |  |   | (1,144 | )
|Capital expenditures from discontinued operations          |  |                                 | (206   | )          |  |   | (298   | )
|Borrowings                                                 |  |                                 | 3,046  |            |  |   | 3,279  |  
|Debt repayments                                            |  |                                 | (3,713 | )          |  |   | (2,535 | )
|Partnership distributions from discounted operations, net  |  |                                 | (11    | )          |  |   | (51    | )
|Capital and other distributions from continuing operations |  |                                 | (416   | )          |  |   | (425   | )
|Increase (decrease) in cash and equivalents                |  |                                 | 697    |            |  |   | 23     |  

59



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

|                          |  |               |        |              |  |   |        | 
|------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|                          |  | September 30, |        | December 31,
|                          |  | 2002          |        | 2001        
|                          |  | Historical    |        | Historical  
|                          |  |               |        |             
|                          |  | (millions)   
|Balance Sheet Information |  |               |        |              |  |   |        | 
|Cash and equivalents      |  | $             | 947    |              |  | $ | 250    | 
|Total current assets      |  |               | 5,102  |              |  |   | 4,908  | 
|Total assets              |  |               | 55,868 |              |  |   | 85,058 | 
|Total current liabilities |  |               | 6,677  |              |  |   | 6,305  | 
|Long-term debt            |  |               | 6,585  |              |  |   | 8,049  | 
|Minority interests        |  |               | 693    |              |  |   | 2,191  | 
|Partners capital         |  |               | 39,406 |              |  |   | 65,405 | 

Capital Distributions

The assets and cash flows of TWE are restricted by the TWE partnership and
credit agreements and are unavailable for use by the partners except through
the payment of certain fees, reimbursements, cash distributions and loans,
which are subject to limitations. At September 30, 2002 and December 31, 2001,
the General Partners had recorded $2 million and $446 million, respectively, of
stock option related distributions due from TWE, based on closing prices of AOL
Time Warner stock of $11.70 at September 30, 2002 and $32.10 as of December 31,
2001. The General Partners are paid when the options are exercised. The General
Partners also receive tax-related distributions from TWE on a current basis.
During the nine months ended September 30, 2002, the General Partners received
cash distributions from TWE in the amount of $385 million, consisting of $361
million of tax-related distributions and $24 million of stock option related
distributions. During the nine months ended September 30, 2001, the General
Partners received cash distributions from TWE in the amount of $404 million,
consisting of $50 million of tax-related distributions and $354 million of
stock option related distributions. Of such aggregate distributions, WCI
received $228 million during the first nine months of 2002 and $240 million in
2001 and ATC received $157 million during the first nine months of 2002 and
$164 million in 2001.

8. GENERAL PARTNER GUARANTEES

Each General Partner has guaranteed a pro rata portion of approximately
$3.6 billion of TWEs public debt, borrowings under its commercial paper
program and certain bank debt, including accrued interest at September 30,
2002, based on the relative fair value of the net assets each General Partner
(or its predecessor) contributed to TWE. Such indebtedness is recourse to each
General Partner only to the extent of its guarantee. There are no restrictions
on the ability of the General Partner guarantors to transfer assets, other than
TWE assets, to parties that are not guarantors.

The portion of TWE debt and accrued interest at September 30, 2002 that
was guaranteed by each General Partner is set forth below:

|                |  |                       |        |        |  |   |         | 
|--------------- |  | --------------------- | ------ | ------ |  | - | ------- | 
|                |  | Total Guaranteed by  
|                |  | Each General Partner 
|                |  |                      
|General Partner |  | %                     |        | Amount
|                |  |                       |        |       
|                |  | (dollars in millions)
|WCI             |  |                       | 59.27  |        |  | $ | 2,161.9 | 
|ATC             |  |                       | 40.73  |        |  |   | 1,485.6 | 
|                |  |                       |        |        |  |   |         | 
|Total           |  |                       | 100.00 |        |  | $ | 3,647.5 | 
|                |  |                       |        |        |  |   |         | 

60



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

9.     COMMITMENTS AND CONTINGENCIES

In Six Flags Over Georgia LLC et al. v. Time Warner Entertainment Company
et al., following a trial in December 1998, the jury returned a verdict for
plaintiffs and against defendants, including TWE, on plaintiffs claims for
breaches of fiduciary duty. The jury awarded plaintiffs approximately $197
million in compensatory damages and $257 million in punitive damages, and
interest began accruing on those amounts at the Georgia annual statutory rate
of twelve percent. TWE paid the compensatory damages with accrued
interest during the first quarter of 2001. Payment of the punitive damages
portion of the award with accrued interest was stayed by the United States
Supreme Court on March 1, 2001 pending the disposition of a certiorari petition
with that Court, which was filed by TWE on June 15, 2001. On October 1, 2001,
the United States Supreme Court granted TWEs petition, vacated the decision by
the Georgia Court of Appeals affirming the punitive damages award, and remanded
the matter to the Georgia Court of Appeals for further consideration. The
Georgia Court of Appeals affirmed and reinstated its earlier decision regarding
the punitive damage award on March 29, 2002. On September 16, 2002, the Georgia
Supreme Court denied TWEs petition for a writ of certiorari seeking review of
the decision of the Georgia Court of Appeals and subsequently denied TWEs
motion for reconsideration of its September 16th ruling. Plaintiffs have
agreed not to pursue payment of the punitive damages award and accrued interest
until the resolution of TWEs petition for writ of certiorari to the United
States Supreme Court, which TWE intends to file.

On April 8, 2002, three former employees of certain subsidiaries of AOL Time Warner filed Henry Spann et al. v. AOL Time Warner Inc. et al., a purported
class action, in the United States District Court for the Central District of
California. Plaintiffs have named as defendants, among others, AOL Time Warner,
TWE, Warner-Elektra-Atlantic Corporation,
WEA Manufacturing Inc., Warner Bros. Records Inc., Atlantic Recording
Corporation, various pension plans sponsored by the companies and the
administrative committees of those plans. Plaintiffs allege that defendants
miscalculated the proper amount of pension benefits owed to them and other
class members as required under the plans in violation of the
Employee Retirement Income Security Act (ERISA). The lawsuit
has been transferred to the United States District Court for the Southern
District of New York. WCI believes the lawsuit has no merit and
intends to defend against it vigorously. Due to its preliminary
status, WCI is unable to predict the outcome of the case or reasonably estimate a
range of possible loss.

WCI is subject to a number of state and federal class action
lawsuits, as well as an action brought by a number of state Attorneys General
alleging unlawful horizontal and vertical agreements to fix the prices of
compact discs by the major record companies. The parties to the federal action
commenced by the Attorneys General have entered into a settlement agreement on
terms that will not have a material impact on the WCIs financial
statements or results of operations. The settlement has been preliminarily
approved by the Court, but is subject to its final approval. In the remaining
lawsuits, AOL Time Warner has entered into memoranda of understanding to settle
these actions on terms that will not have a material impact on WCIs
financial statements or results of operations. The settlement of these
remaining actions is also subject to Court approval.

The costs and other effects of pending or future litigation, governmental
investigations, legal and administrative cases and proceedings (whether civil
or criminal), settlements, judgments and investigations, claims and changes in
those matters (including those matters described above), and developments or
assertions by or against WCI or TWE relating to intellectual property rights
and intellectual property licenses, could have a material adverse
effect on WCI's business, financial condition and operating results.

61



---



##### Table of Contents



TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

10. ADDITIONAL FINANCIAL INFORMATION

Cash Flows

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

|                                             |  |                                |     |      |  |     |     |     |  |   |    |  |  |   |    | 
|-------------------------------------------- |  | ------------------------------ | --- | ---- |  | --- | --- | --- |  | - | -- |  |  | - | -- | 
|                                             |  | Nine Months Ended September 30
|                                             |  |                               
|                                             |  | 2002                           |     | 2001
|                                             |  |                                |     |     
|                                             |  | WCI                            |     | ATC  |  | WCI |     | ATC
|                                             |  |                                |     |      |  |     |     |    
|                                             |  | (millions)                    
|Cash payments made for interest              |  | $                              | 42  |      |  | $   |    |     |  | $ | 12 |  |  | $ |   | 
|Interest income received                     |  |                                | 6   |      |  |     |    |     |  |   | 7  |  |  |   |   | 
|Net cash payments (refunds) for income taxes |  |                                | 86  |      |  |     | 51  |     |  |   | 62 |  |  |   | 27 | 
|Tax-related distributions received from TWE  |  |                                | 214 |      |  |     | 147 |     |  |   | 30 |  |  |   | 20 | 
|Noncash capital distributions, net           |  |                                | 248 |      |  |     | 170 |     |  |   |   |  |  |   |   | 

Noncash financing activities in 2002 include the settlement of a WCI
receivable from TW Companies through a WCI dividend of
$360 million. Noncash investing activities in 2002 include the
exchange of 20% of WCIs interest in Word to Curb Records for noncash
consideration of equal value.

Interest Expense, Net

Interest expense, net, consists of:

|                 |                             |   |                                 |     |      |   |     |   |     |   |     |     |   |   |    |    |  
|---------------- | --------------------------- | - | ------------------------------- | --- | ---- | - | --- | - | --- | - | --- | --- | - | - | -- | -- | -
|                 |                             |   | Nine Months Ended September 30,
|                 |                             |   |                                
|                 |                             |   | 2002                            |     | 2001
|                 |                             |   |                                 |     |     
|                 |                             |   | WCI                             |     | ATC  |   | WCI |   | ATC
|                 |                             |   |                                 |     |      |   |     |   |    
|                 |                             |   | (millions)                     
|Interest Income  |                             | $ | 5                               |     |      | $ |    |   |     | $ | 7   |     |   | $ |   |   
|Interest Expense |                             |   | (53                             | )   |      |   |    |   |     |   | (26 | )   |   |   | (1 | ) 
|                 |                             |   |                                 |     |      |   |     |   |     |   |     |     |   |   |    |   
|                 | Total interest expense, net |   | $                               | (48 | )    |   | $   |  |     |   | $   | (19 | ) |   | $  | (1 | )
|                 |                             |   |                                 |     |      |   |     |   |     |   |     |     |   |   |    |   

62



---



##### Table of Contents






Part II. Other Information

Item 1. Legal Proceedings.

Reference is made to Six Flags Over Georgia LLC et al. v. Time Warner
Entertainment Company, L.P. et al.,described on page 25 of the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 (the 2001 Form
10-K) and page 48 of the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (the March 31, 2002 Form 10-Q). On September
16, 2002, the Georgia Supreme Court denied the Companys petition for a writ of
certiorari and subsequently denied its motion for reconsideration of its
September 16th ruling. Plaintiffs have agreed not to pursue payment of the
punitive damages award and accrued interest until the resolution of the
Companys petition for writ of certiorari to the United States Supreme Court,
which the Company intends to file.

Reference is made to Henry Spann et al. v. AOL Time Warner Inc., et al.,
described on page 48 of the March 31, 2002 Form 10-Q. The lawsuit has been
transferred to the United States District Court for the Southern District of
New York.

Reference is made to the several class action lawsuits brought by direct
and/or indirect purchasers of compact discs alleging unlawful horizontal and
vertical agreements to fix the prices of compact discs by the major record
companies described on page 25 of the 2001 Form 10-K. The parties to the
federal action commenced by the Attorneys General have signed a settlement
agreement on terms that will not have a material impact on the Companys
financial statements or results of operations. The settlement has been
preliminarily approved by the Court, but is subject to its final approval. In
the remaining lawsuits, the Company has entered into memoranda of understanding
to settle these actions on terms that will not have a material impact on the
Companys financial statements or results of operations. The settlement of
these remaining actions is also subject to Court approval.

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.

|    |  |        |  |                                                                                                                                                                                                                                                                    |  |               
|--- |  | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|    |  | Item # |  | Description                                                                                                                                                                                                                                                        |  | Date          
|    |  |        |  |                                                                                                                                                                                                                                                                    |  |               
|   
|(i) |  | 2, 7   |  | Reporting (i) events related to the
restructuring of the Time Warner
Entertainment-Advance/Newhouse
Partnership on August 1, 2002 (Item
2) and (ii) unaudited pro forma
consolidated condensed financial
statements illustrating effects of
restructuring (Item 7) |  | August 1, 2002

63



---



##### Table of Contents



|      |  |        |  |                                                                                                                                                                                                                                                                                                 |  |                
|----- |  | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|      |  | Item # |  | Description                                                                                                                                                                                                                                                                                     |  | Date           
|      |  |        |  |                                                                                                                                                                                                                                                                                                 |  |                
|      |  |        |  |                                                                                                                                                                                                                                                                                                 |  |                
|(ii)  |  | 9      |  | Furnishing certification of each of
Companys and Companys general
partners Principal Executive
Officer and Principal Financial
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 with
respect to Companys Quarterly
Report on Form 10-Q for the quarter
ended June 30, 2002 |  | August 14, 2002
|      |  |        |  |                                                                                                                                                                                                                                                                                                 |  |                
|(iii) |  | 5      |  | Reporting entry by Company, AOL
Time Warner Inc., AT&T Corp.,
Comcast Corporation and certain
other parties into a Restructuring
Agreement dated as of August 20,
2002 related to the Company                                                                                                   |  | August 21, 2002

64



---



##### Table of Contents



TIME WARNER ENTERTAINMENT COMPANY,
L.P.

AND TWE GENERAL PARTNERS


SIGNATURES

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



| |                                        
| | ---------------------------------------
| | TIME WARNER ENTERTAINMENT COMPANY, L.P.

| |     |                                               
| | --- | ----------------------------------------------
| | By: | Warner Communications Inc., as General Partner

| |  |        |                                                         
| |  | ------ | --------------------------------------------------------
| |  | By     | /s/  Wayne H. Pace                                      
| |  |        |                                                         
| |  | Name:  | Wayne H. Pace                                           
| |  | Title: | Executive Vice President and Chief Financial
    Officer



| |                                                   
| | --------------------------------------------------
| | AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION
| | WARNER COMMUNICATIONS INC.                        

| |  |        |                                                         
| |  | ------ | --------------------------------------------------------
| |  | By     | /s/  Wayne H. Pace                                      
| |  |        |                                                         
| |  | Name:  | Wayne H. Pace                                           
| |  | Title: | Executive Vice President and Chief Financial
    Officer

Dated: November  14,
2002



---



##### Table of Contents



CERTIFICATIONS

I, Richard D. Parsons, certify that:



|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|1. |  | I have reviewed this quarterly
report on Form 10-Q of Time Warner Entertainment Company, L.P.
and its General Partners, American Television and Communications
Corporation and Warner Communications Inc.;                                                                                                                                                                               
|  
|  
|  
|  
|2. |  | Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this quarterly
report;                                                           
|  
|  
|  
|  
|3. |  | Based on my knowledge, the financial
statements, and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly
report;                                                                              
|  
|  
|  
|  
|4. |  | The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
|  
|  
|  
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | c.                                                                                                                                                                                                                                                                                                                                                                                       
|5. |  | The registrants other certifying
officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function);                                                                                                                                           
|  
|  
|  
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|6. |  | The registrants other certifying
officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date:     November  14, 2002



| |        |                                                   
| | ------ | --------------------------------------------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |        | /s/ Richard D. Parsons                            
| | Name:  | Richard D. Parsons                                
| | Title: | Chief Executive Officer                           
| |        | Time Warner Entertainment Company, L.P.           
| |        | American Television and Communications Corporation
| |        | Warner Communications Inc.                        



---



##### Table of Contents



CERTIFICATIONS

I, Wayne H. Pace, certify that:



|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|1. |  | I have reviewed this quarterly
report on Form 10-Q of Time Warner Entertainment Company, L.P.
and its General Partners, American Television and Communications
Corporation and Warner Communications Inc.;                                                                                                                                                                               
|  
|  
|  
|  
|2. |  | Based on my knowledge, this quarterly
report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this quarterly
report;                                                           
|  
|  
|  
|  
|3. |  | Based on my knowledge, the financial
statements, and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly
report;                                                                              
|  
|  
|  
|  
|4. |  | The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
|  
|  
|  
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | c.                                                                                                                                                                                                                                                                                                                                                                                       
|5. |  | The registrants other certifying
officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants
board of directors (or persons performing the equivalent function);                                                                                                                                           
|  
|  
|  
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                                       
|  
|  
|  
|  
|6. |  | The registrants other certifying
officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

Date:     November  14, 2002



| |        |                                                   
| | ------ | --------------------------------------------------
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |        | /s/ Wayne H. Pace                                 
| | Name:  | Wayne H. Pace                                     
| | Title: | Chief Financial Officer                           
| |        | Time Warner Entertainment Company, L.P.           
| |        | American Television and Communications Corporation
| |        | Warner Communications Inc.                        



---



##### Table of Contents



EXHIBIT INDEX

Pursuant to Item 601 of Regulation S-K

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.1        |  | Restructuring Agreement dated as of August 20, 2002 by and among Time
Warner Entertainment Company, L.P. (TWE), AT&T Corp. (AT&T), MediaOne
of Colorado, Inc. (MediaOne), MediaOne TWE Holdings, Inc. (Holdings),
Comcast Corporation, AT&T Comcast Corporation, AOLTW, TWI Cable Inc.,
Warner Communications Inc. (WCI), and American Television and
Communications Corporation (ATC) (the Restructuring Agreement)
(incorporated herein by reference to Exhibit 99.1 to AOL Time Warner
Inc.s (AOLTW) Current Report on Form 8-K dated
August 21, 2002 (File No. 1-15062)).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.2        |  | Form of Restated Certificate of Incorporation of Holdings, related to the
Restructuring Agreement (incorporated herein by reference to Exhibit 10.3
to AOLTWs Quarterly Report on Form 10-Q for the quarter ended September
30, 2002 (File No. 1-15062) (the AOLTW September 30,
2002 10-Q)).                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.3        |  | Form of Amended and Restated Agreement of Limited Partnership of TWE, by
and among Time Warner Cable Inc. (TWC), MediaOne, ATC, AT&T and AOLTW,
related to the Restructuring Agreement (incorporated herein by reference
to Exhibit 10.4 to the AOLTW September 30, 2002 10-Q).                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.4        |  | Form of By-laws of TWC, related to the Restructuring Agreement
(incorporated herein by reference to Exhibit 10.5 to the AOLTW September 30,
2002 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.5        |  | Form of Registration Rights Agreement by and between AOLTW and TWC,
related to the Restructuring Agreement (incorporated herein by reference
to Exhibit 10.6 to the AOLTW September 30, 2002 10-Q).                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.6        |  | Form of Registration Rights Agreement by and among MediaOne, AOLTW and
TWC, related to the Restructuring Agreement (incorporated herein by
reference to Exhibit 10.7 to the AOLTW September 30, 2002
10-Q).                                                                                                                                                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.7        |  | Form of Parent Agreement among TWC, AOLTW and AT&T, related to the
Restructuring Agreement (incorporated herein by reference to Exhibit 10.8
to the AOLTW September 30, 2002 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8        |  | Form of Partnership Interest Sale Agreement among TWC, AOLTW, AT&T and
MediaOne, related to the Restructuring Agreement (incorporated herein by
reference to Exhibit 10.9 to the AOLTW September 30, 2002
10-Q).                                                                                                                                                                                                                                                                                                                                                                              





---



##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Form of Reimbursement Agreement by and among TWC, AOLTW, WCI, ATC and
TWE, related to the Restructuring Agreement (incorporated herein by
reference to Exhibit 10.10 to the AOLTW September 30, 2002 10-Q).                                                                 
|      |  |                                                                                                                                                                                                                                                                             
|10.10 |  | Form of Brand License Agreement by and between WCI and TWC, related to
the Restructuring Agreement (incorporated herein by reference to Exhibit
10.11 to the AOLTW September 30, 2002 10-Q).                                                                                
|      |  |                                                                                                                                                                                                                                                                             
|10.11 |  | Form of Tax Matters Agreement among AOLTW and TWC, related to the
Restructuring Agreement (incorporated herein by reference to Exhibit 10.12
to the AOLTW September 30, 2002 10-Q).                                                                                         
|      |  |                                                                                                                                                                                                                                                                             
|10.12 |  | Form of Brand and Trade Name License Agreement by and among Time Warner
Inc. and TWC, related to the Restructuring Agreement (incorporated herein
by reference to Exhibit 10.13 to the AOLTW September 30, 2002 10-Q).                                                      
|      |  |                                                                                                                                                                                                                                                                             
|10.13 |  | Registration Rights Agreement dated as of August 20, 2002 by and between
MediaOne and AOLTW, related to the Restructuring Agreement (incorporated
herein by reference to Exhibit 10.14 to the AOLTW September 30, 2002 10-Q).                                               
|      |  |                                                                                                                                                                                                                                                                             
|10.14 |  | Distribution Agreement dated as of August 20, 2002 by and among TWE, WCI
and AOLTW, related to the Restructuring Agreement (incorporated herein by
reference to Exhibit 10.15 to the AOLTW September 30, 2002 10-Q).                                                        
|      |  |                                                                                                                                                                                                                                                                             
|10.15 |  | Intellectual Property Agreement dated as of August 20, 2002 by and
between TWE and WCI, related to the Restructuring Agreement (incorporated
herein by reference to Exhibit 10.16 to the AOLTW September 30, 2002 10-Q).                                                    
|      |  |                                                                                                                                                                                                                                                                             
|10.16 |  | Contribution Agreement dated as of August 20, 2002 by and among
Holdings, WCI and AOLTW, related to the Restructuring Agreement
(incorporated herein by reference to Exhibit 10.17 to the AOLTW September 30,
2002 10-Q).                                                   
|      |  |                                                                                                                                                                                                                                                                             
|10.17 |  | Intellectual Property Agreement dated as of August 20, 2002 by and
between Holdings and WCI, related to the Restructuring Agreement
(incorporated herein by reference to Exhibit 10.18 to the AOLTW September 30,
2002 10-Q).                                               
|      |  |                                                                                                                                                                                                                                                                             
|10.18 |  | Demand Promissory Note dated August 19, 2002 issued by Holdings to
MediaOne in the original principal amount of $2.1 billion, related to the
Restructuring Agreement (incorporated herein by reference to Exhibit 10.19
to the AOLTW September 30, 2002 10-Q).              
|      |  |                                                                                                                                                                                                                                                                             
|99.1  |  | Certification of Principal Executive Officer and Principal Financial
Officer of TWE pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, with respect to TWE's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2002.                                
|      |  |                                                                                                                                                                                                                                                                             
|99.2  |  | Certification of Principal Executive Officer and
Principal Financial Officer of each of the general partners of TWE pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
with respect to TWE's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002.