SECURITIES AND EXCHANGE
  COMMISSION

Washington, D. C. 20549

FORM 10-Q

| | [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT of 1934 for the quarterly period ended June
      30, 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
      (State or other jurisdiction of
      incorporation or organization) |  | 13-3666692
      (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 [  ]

---

TIME WARNER ENTERTAINMENT COMPANY, L.P.AND TWE GENERAL PARTNERS
INDEX TO FORM 10-Q
PageTWE
    
    TWE
      General PartnersPART I. FINANCIAL INFORMATIONManagements
      discussion and analysis of results of operations and financial
      condition
    
    
    1
    
    
    30Consolidated
      balance sheet at June 30, 2002 and December 31, 2001
    
    
    13
    
    
    39Consolidated
      statement of operations for the three and six months ended June 30, 2002
      and       2001
    
    
    14
    
    
    40Consolidated
      statement of cash flows for the six months ended June 30, 2002 and
      2001
    
    
    15
    
    
    42Consolidated statement
      of partnership capital and shareholders equity for the six months ended
      June 30, 2002 and 2001
    
    
    16
    
    
    43Notes to
      consolidated financial statements
    
    
    17
    
    
    44PART II. OTHER INFORMATION
    
    
    54


TIME WARNER ENTERTAINMENT COMPANY, L.P.MANAGEMENTS DISCUSSION AND ANALYSISOF 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 six months ended June
    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 and cash flows as of and for the
    six months ended June 30, 2002.Caution concerning forward-looking statements and risk factors.This section discusses
    how certain forward-looking statements made by the Company 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.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.
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,
1
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
EBITDA eliminates the uneven effect across all business
  segments of considerable amounts of noncash depreciation of tangible assets
  and amortization of intangible assets 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 factors, 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.
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.
AT&T has the right, during 60-day exercise periods occurring once every
  18 months, to request that TWE incorporate and register its stock in an initial
  public offering. If AT&T exercises such right, TWE can decline to incorporate
  and register its stock, in which case AT&T may cause TWE to purchase AT&Ts
  interest at the price at which an appraiser believes such stock could be sold
  in an initial public offering, subject to certain adjustments. In February 2001,
  AT&T delivered to TWE a notice requesting that TWE reconstitute itself as
  a corporation and register AT&Ts partnership interests for public
  sale. In June 2002, AT&T and TWE engaged Banc of America Securities LLC
  (Banc of America) to perform appraisals and make other determinations under the TWE
  Partnership Agreement. In July 2002,
  AOL Time Warner and AT&T agreed to temporarily suspend the registration
  rights process so that they can pursue discussion of an alternative transaction.
  For the time being, AOL Time Warner and AT&T have asked Banc of America
  not to deliver the determinations. The Company cannot
  at this time predict the outcome or effect, if any, of these discussions or the registration rights process, if resumed.
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. As of
  June 30, 2002, TWE-A/N owned cable television systems (or interests therein)
  serving approximately 7.0 million subscribers, of which 5.9 million subscribers
  were served by consolidated, wholly owned cable television systems and 1.1 million
  subscribers were served by unconsolidated, partially owned cable television
  systems. The financial position and operating results of TWE-A/N are currently
  consolidated by TWE, and the partnership interest owned by Advance/Newhouse
  is reflected in the consolidated financial statements of TWE as minority interest.
As of June 30, 2002, 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 TWE owning approximately 67% on a fully attributed
  basis (i.e., after considering the portion attributable to the minority partners
  of TWE-A/N). TWEs interest in Road Runner is accounted for using the equity
  method of accounting because of certain approval rights currently held by Advance/Newhouse,
  a partner in TWE-A/N.
2
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
On June 24, 2002, TWE and Advance/Newhouse agreed to restructure TWE-A/N which
  will result in Advance/Newhouse taking a more active role in 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 August 1, 2002 (the Debt Closing
  Date), Advance/Newhouse and its affiliates arranged for a new credit facility
  to support the Advance/Newhouse Systems and repaid approximately $780 million
  of TWE-A/Ns senior indebtedness. As of the Debt Closing Date, Advance/Newhouse
  assumed management responsibilities for the Advance/Newhouse Systems, to the extent permitted under applicable government regulations, and accordingly,
  TWE will deconsolidate the financial position and operating results of these
  systems effective in the third quarter of 2002. Additionally, all prior period
  results associated with the Advance/Newhouse Systems will be reflected as a
  discontinued operation beginning in the third quarter of 2002. Under the new
  TWE-A/N Partnership Agreement, effective as of the Debt Closing Date, Advance/Newhouses
  partnership interest tracks only the performance of the Advance/Newhouse Systems,
  including associated liabilities, while TWE retains substantially all of the
  interests in the other TWE-A/N assets and liabilities. 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. As a result, beginning in the third quarter of 2002,
  TWE will consolidate the financial position and results of operations of Road
  Runner with the financial position and results of operations of TWEs Cable
  segment, retroactive to the beginning of the year. See footnote 4 to the accompanying
  consolidated financial statements for more information regarding the impact
  of the deconsolidation of the Advance/Newhouse Systems and the consolidation
  of Road Runner on the revenues, EBITDA and operating income of the Cable segment
  and consolidated TWE.
Exclusive of any gain or loss associated with these transactions, the impact
  of the TWE-A/N restructuring on TWEs consolidated net income will be substantially
  mitigated because the earnings of TWE-A/N attributable to Advance/Newhouses
  current one-third interest are reflected as minority interest expense in the
  accompanying consolidated statement of operations. Additionally, because TWE
  had previously accounted for its investment in Road Runner using the equity
  method of accounting, and TWE will not acquire an additional ownership in Road Runner as part of the restructuring, the consolidation of Road Runner will not impact TWEs net income.
As of June 30, 2002, the Advance/Newhouse Systems had total assets of approximately
  $2.7 billion and had been allocated approximately $780 million of debt, which,
  upon the deconsolidation of the Advance/Newhouse Systems, will no longer be
  included in the consolidated assets and liabilities of TWE. Additionally, as
  of June 30, 2002, Road Runner had total assets of approximately $180 million
  and no debt, which, upon the consolidation of Road Runner, will be included
  in the consolidated assets of TWE.
RESULTS OF OPERATIONS
Transactions Affecting Comparability of Results
  of Operations
Pro Forma Item
TWEs results for 2002 have been impacted by certain transactions and events
  that cause them not to be comparable to the results reported in 2001. In order
  to make the 2001 operating results more comparable to the 2002 presentation
  and make an analysis of 2002 and 2001 more meaningful, the following discussion
  of results of operations and changes in financial condition and liquidity is
  based on pro forma financial information for 2001 that has been adjusted for
  the item discussed in the following paragraph.
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). FAS 142 does not require retroactive restatement
    for all periods presented, however, the pro forma information for 2001 assumes
    that FAS 142 was in effect beginning January 1, 2001.3
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 pro forma adjustment 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;
  therefore, this adjustment impacts both pro forma and historical results. This
  adjustment is discussed below.
Reimbursement of Out-of-Pocket Expenses
In
  November 2001, the FASB Staff issued as interpretive guidance Emerging Issues
  Task Force (EITF) Topic No. D-103, Income Statement Characterization
  of Reimbursements Received for Out-of-Pocket Expenses Incurred
  (Topic D-103). Topic D-103 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 $61 million
  on both a pro forma and historical basis in the second quarter of 2001 and $120
  million on both a pro forma and historical basis for the first six months of
  2001.
4
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
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). In order to enhance comparability, the Company compares current year
  results to the prior year exclusive of this charge.
Revenue and EBITDA by business segment are as follows (in millions):
Three
      months Ended June 30Revenues
    
    EBITDA2002Historical
    
    2001(a)
      (b)Pro Forma
    
    2001(b)Historical
    
    2002Historical
    
    2001(a)Pro Forma
    
    2001HistoricalCable
    
    $
    1,812
    
    $
    1,523
    
    $
    1,523
    
    $
    768
    
    $
    667
    
    $
    667Filmed Entertainment
    
    
    2,063
    
    
    1,590
    
    
    1,590
    
    
    220
    
    
    161
    
    
    161Networks
    
    
    846
    
    
    745
    
    
    745
    
    
    188
    
    
    156
    
    
    156Corporate
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    (20
    )
    
    (20
    )Intersegment elimination
    
    
    (154
    )
    
    (169
    )
    
    (169
    )
    
    
    
    
    
    
    
    Total revenues and EBITDA
    
    $
    4,567
    
    $
    3,689
    
    $
    3,689
    
    $
    1,156
    
    $
    964
    
    $
    964Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    (366
    )
    
    (301
    )
    
    (931
    )Total revenues and operating income
    
    $
    4,567
    
    $
    3,689
    
    $
    3,689
    
    $
    790
    
    $
    663
    
    $
    33
Six
      months Ended June 30Revenues
    
    EBITDA2002Historical
    
    2001(a)
      (b)Pro Forma
    
    2001(b)Historical
    
    2002Historical
    
    2001(a)Pro Forma
    
    2001HistoricalCable
    
    $
    3,548
    
    $
    2,969
    
    $
    2,969
    
    $
    1,496
    
    $
    1,328
    
    $
    1,328Filmed Entertainment
    
    
    3,736
    
    
    3,193
    
    
    3,193
    
    
    358
    
    
    261
    
    
    261Networks
    
    
    1,628
    
    
    1,469
    
    
    1,469
    
    
    357
    
    
    314
    
    
    314Corporate
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    (39
    )
    
    (39
    )Intersegment elimination
    
    
    (318
    )
    
    (341
    )
    
    (341
    )
    
    
    
    
    
    
    
    Total revenues and EBITDA
    
    $
    8,594
    
    $
    7,290
    
    $
    7,290
    
    $
    2,171
    
    $
    1,864
    
    $
    1,864Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    (710
    )
    
    (578
    )
    
    (1,853
    )Total revenues and operating income
    
    $
    8,594
    
    $
    7,290
    
    $
    7,290
    
    $
    1,461
    
    $
    1,286
    
    $
    11______________

(a)
    
    In order to enhance comparability, pro forma financial
      information for 2001 assumes that the adoption of FAS 142 had occurred at
      the beginning of 2001.(b)
    
    Revenues reflect the provisions of Topic D-103
      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 Topic D-103 was to increase revenues and costs
      by equal amounts of approximately $61 million for the second quarter of
      2001 and $120 million for the first six months of 2001.5
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Three Months Ended June 30, 2002 Compared to Three
  Months Ended June 30, 2001
Consolidated Results
TWE had revenues of $4.567 billion and net income of $483 million in 2002, compared
  to revenues of $3.689 billion and net income of $434 million on a pro forma
  basis in 2001 (revenues of $3.689 billion and net loss of $232 million on a
  historical basis).
Revenues. TWEs revenues increased to $4.567 billion
  in 2002, compared to $3.689 billion on both a pro forma and historical basis
  in 2001. This increase was driven by an increase in Subscription revenues of
  15% to $2.176 billion, an increase in Advertising and Commerce revenues of 6%
  to $333 million and an increase in Content and Other revenues of 39% to $2.058
  billion.
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. The increase in Advertising and
  Commerce revenues was primarily due to increases at the Cable and Networks segments,
  offset in part by lower results due to the closure of the Studio Stores at the
  Filmed Entertainment segment. The increase in Content and Other revenues was
  principally due to improved theatrical and worldwide home video results at the
  Filmed Entertainment segment.
Depreciation and Amortization. Depreciation and amortization increased
  to $366 million in 2002 from $301 million on a pro forma basis in 2001 ($931
  million on a historical basis). This increase was due to an increase in depreciation,
  primarily due to higher capital spending at the Cable segment related to the
  roll-out of digital services over the past three years, as well as increased
  capital spending that varies based on the number of new subscribers, which is
  depreciated over a shorter useful life.
Interest Expense, Net. Interest expense, net, decreased to
  $100 million in 2002, compared to $142 million on both a pro forma and historical
  basis in 2001, principally as a result of lower market interest rates in 2002
  and lower levels of outstanding long-term debt.
Other Expense, Net. Other expense, net, increased to $49 million in 2002,
  compared to $13 million on a pro forma basis in 2001 ($47 million on a historical
  basis). Other expense, net, increased primarily due to the absence of prior
  year pretax gains on the exchange of various unconsolidated cable television systems
  on a pro forma and historical basis in 2001.
Minority Interest. Minority interest expense increased to $105 million
  in 2002, compared to $68 million in 2001 ($70 million on a historical basis).
  Minority interest expense increased principally due to the allocation of higher
  income to TWEs minority partners which was partially offset by the absence
  in 2002 of an allocation of pretax gains
  related to the exchange of various
  unconsolidated cable television systems in 2001 at TWE-A/N attributable to
  the minority owners of TWE-A/N.
Income Tax Expense. As a U.S. partnership, TWE is not subject to U.S. federal
  income taxation. Income and withholding taxes of $53 million in 2002 and $6
  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). TWEs net income increased to $483 million in 2002,
  compared to $434 million on a pro forma basis in 2001 (net loss of $232 million
  on a historical basis). TWEs net income increased due to higher EBITDA
  and decrease in interest expense, net, offset in part by increases in depreciation
  expense, minority interest, other expense, net and taxes.
Business Segment Results
Cable. Revenues increased 19% to $1.812 billion in 2002, compared to $1.523
  billion on both a pro forma and historical basis in 2001. EBITDA increased 15%
  to $768 million in 2002 from $667 million on both a pro forma and historical
  basis in 2001.
6
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Revenues increased due to a 16% increase in Subscription revenues (from $1.402
  billion to $1.630 billion) and a 50% increase in Advertising and Commerce revenues
  (from $121 million to $182 million). The increase in Subscription revenues was
  due to higher basic cable rates, an increase in subscribers to high-speed data
  services, an increase in digital cable subscribers and, to a lesser degree,
  the increase in basic cable subscribers. Digital cable subscribers managed by
  TWE increased by 54% to 3.9 million and high-speed data subscribers managed
  by TWE increased by 75% to 2.5 million in 2002 over the prior year comparable
  period. The increase in Advertising and Commerce revenues was related to advertising
  purchased by programming vendors to promote their channels, including new channel
  launches, ($42 million in 2002 versus none in 2001) and the sale of advertising
  to business segments of AOL Time Warner ($30 million in 2002 versus $8 million
  in 2001). The Company expects advertising sales to programming vendors to sequentially
  decline, resulting in declines in such advertising in the second half of 2002
  as compared to the prior year.
EBITDA increased principally as a result of the revenue gains, offset in part
  by increases in programming and other operating costs. The increase in video
  programming costs of 23% relates 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. Other operating costs increased as a result of increased
  costs associated with the roll out of new services and higher property taxes
  associated with the upgrade of cable plants.
Filmed Entertainment. Revenues increased 30% to $2.063 billion
  in 2002, compared to $1.590 billion on both a pro forma and historical basis
  in 2001. EBITDA increased 37% to $220 million in 2002, compared to $161 million
  on both a pro forma and historical basis in 2001.
The revenue increase was primarily related to the worldwide home video release
  of Harry Potter and the Sorcerers Stone, the domestic home video
  release of Oceans Eleven, as well as the continued international
  theatrical success of those films and the theatrical success of the second quarter
  release of Scooby Doo, offset in part by reduced commerce revenues related
  to the closure of its Studio Stores.
EBITDA increased principally due to the strong revenue growth.
Networks. Revenues increased 14% to $846 million in 2002, compared to $745
  million on both a pro forma and historical basis in 2001. EBITDA increased 21%
  to $188 million in 2002 from $156 million on both a pro forma and historical
  basis in 2001.
Revenues grew primarily due to an increase in Subscription revenues and Content
  and Other revenues at HBO, as well as an increase in Advertising and Commerce
  revenues 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
  $122 million to $141 million) was driven by higher rates.
EBITDA increased due to improved results at both HBO and The WB Network. 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 (Adelphia), and the write-off
  of development costs. For The WB Network, the improvement in EBITDA was principally
  due to the increase in revenues, offset in part by higher programming costs.
7
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Six Months Ended June 30, 2002 Compared to
  Six Months Ended June 30, 2001
Consolidated Results
TWE had revenues of $8.594 billion, income before the cumulative effect of an
  accounting change of $863 million and a net loss of $20.900 billion in 2002,
  compared to revenues of $7.290 billion and net income of $767 million on a pro
  forma basis in 2001 (revenues of $7.290 billion and net loss of $582 million
  on a historical basis).
Revenues. TWEs revenues increased to $8.594 billion in 2002,
  compared to $7.290 billion in 2001. This increase was driven by an increase
  in Subscription revenues of 15% to $4.285 billion, an increase in Advertising
  and Commerce revenues of 2% to $628 million and an increase in Content and Other
  revenues of 25% to $3.681 billion.
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. 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.
Depreciation and Amortization. Depreciation and amortization increased
  to $710 million in 2002 from $578 million on a pro forma basis in 2001 ($1.853
  billion on a historical basis). This increase was due to an increase in depreciation,
  primarily due to higher capital spending at the Cable segment related to the
  roll-out of digital services over the past three years, as well as increased
  capital spending that varies based on the number of new subscribers, which is
  depreciated over a shorter useful life.
Interest Expense, Net. Interest expense, net, decreased
  to $210 million in 2002, compared to $295 million on both a pro forma and historical
  basis in 2001, principally as a result of lower market interest rates in 2002
  and lower levels of outstanding long-term debt.
Other Expense, Net. Other expense, net, increased to $82 million in
  2002, compared to $17 million on a pro forma basis in 2001 ($87 million on a
  historical basis). Other expense, net, increased primarily due to the absence
  of prior year pretax gains on the exchange of various unconsolidated cable television
  systems on a pro forma and historical basis in 2001.
Minority Interest. Minority interest expense increased to $214 million
  in 2002, compared to $169 million in 2001 ($173 million on a historical basis).
  Minority interest expense increased principally due to the allocation of higher
  net income to TWEs minority partners, which was partially offset by the
  absence in 2002 of an allocation of pretax gains related to the exchange of
  various unconsolidated cable television systems in 2001 at TWE-A/N attributable
  to the minority owners of TWE-A/N.
Income Tax Expense. As a U.S. partnership, TWE is not subject to U.S. federal
  income taxation. Income and withholding taxes of $92 million in 2002 and $38
  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 $863 million in 2002, compared to $767 million on a pro forma basis in 2001
  (net loss of $582 million on a historical basis). TWEs net income before
  the cumulative effect of an accounting change increased due to higher EBITDA
  and decrease in interest expense, net, offset in part by increases in depreciation
  expense, minority interest, other expense, net and taxes.
Business Segment Results
Cable. Revenues increased 20% to $3.548 billion in 2002, compared to $2.969
  billion on both a pro forma and historical basis in 2001. EBITDA increased 13%
  to $1.496 billion in 2002 from $1.328 billion on both a pro forma and historical
  basis in 2001. Revenues increased due to a 17% increase in Subscription revenues
  (from $2.748
8
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
billion to $3.204 billion) and a 56% increase in Advertising
  and Commerce revenues (from $221 million to $344 million).
The increase in Subscription revenues was due to higher basic cable rates, an
  increase in subscribers to high-speed data services, an increase in digital
  cable subscribers and, to a lesser degree, the increase in basic cable subscribers.
  Similarly, digital cable subscribers managed by TWE increased by 54% to 3.9
  million and high-speed data subscribers managed by TWE increased by 75% to 2.5
  million in 2002 over the prior year comparable period. The increase in Advertising
  and Commerce revenues was primarily related to advertising purchased by programming
  vendors to promote their channels, including new channel launches ($84 million
  in 2002 versus $17 million in 2001) and the sale of advertising to business
  segments of AOL Time Warner ($58 million in 2002 versus $11 million in 2001).
  The Company expects advertising sales to programming vendors to sequentially
  decline, resulting in declines in such advertising in the second half of 2002
  as compared to the prior year.
EBITDA increased principally as a result of the revenue gains, offset in part
  by increases in programming and other operating costs. The increase in video
  programming costs of 27% relates 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. Other operating costs increased as a result of increased
  costs associated with the roll out of new services and higher property taxes
  associated with the upgrade of cable plants.
Filmed Entertainment. Revenues increased 17% to $3.736 billion
  in 2002, compared to $3.193 billion on both a pro forma and historical basis
  in 2001. EBITDA increased 37% to $358 million in 2002, compared to $261 million
  on both a pro forma and historical basis in 2001.
The revenue increase was primarily related to the worldwide theatrical and home
  video release of Harry Potter and the Sorcerers Stoneand the
  worldwide theatrical and domestic home video release of Oceans Eleven.
  Warner Bros. revenues also benefited from higher worldwide consumer products
  licensing results, offset in part by reduced commerce revenues related to the
  closure of its Studio Stores.
EBITDA increased principally due to improvements in the mix of theatrical product,
  primarily the profitability of Harry Potter and the Sorcerers Stone.
Networks. Revenues increased 11% to $1.628 billion in 2002, compared to
  $1.469 billion on both a pro forma and historical basis in 2001. EBITDA increased
  14% to $357 million in 2002 from $314 million on both a pro forma and historical
  basis 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 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 and the
  write-off of development costs. For The WB Network, the EBITDA decline was principally
  due to higher program license fees, offset in part by higher Advertising and
  Commerce revenues and a slight decrease in marketing costs.
9
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
FINANCIAL CONDITION AND LIQUIDITYJune 30, 2002
Current Financial Condition
At June 30, 2002, TWE had $7.2 billion of debt, $249 million of cash and equivalents
  (net debt of $7.0 billion, defined as total debt less cash and cash equivalents)
  and $37.8 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. The Company’s outstanding
  utilization under its accounts receivable and backlog securitization facilities
  was approximately $859 million as of June 30, 2002 and $718 million as of December
  31, 2001. The Companys total committed capacity at June 30, 2002, under its
  securitization facilities was approximately $1.3 billion. Approximately $535 million
  of committed capacity under the Companys
  securitization facilities will mature in the third quarter of 2002. The Company
  intends to renew these securitization facilities prior to their maturity but
  there can be no assurance that it will be able to do so.
       As
  discussed in more detail below, management believes that TWEs operating
  cash flow, cash and equivalents, borrowing capacity under committed bank credit
  agreements (including agreements with AOL Time Warner) and availability under
  its commercial paper program are sufficient to fund its capital and liquidity
  needs for the foreseeable future.
Cash Flows
Operating Activities
During the first six months of 2002, TWEs cash provided by operations
  amounted to $2.308 billion as compared to $1.017 billion on both a pro forma
  and historical basis in 2001. This year over year growth in cash flow from operations
  was driven primarily by $883 million of improvements in working capital, an
  increase in EBITDA and 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 the second half of the year.
During the first six months of 2002, cash provided by operations of $2.308 billion
  reflected $2.171 billion of EBITDA, less $212 million of net interest payments
  and $78 million of net income taxes paid. Cash flow from operations also reflects
  a reduction in other working capital requirements of $427 million.
During the first six months of 2001, cash provided by operations of $1.017 billion
  on a pro forma basis reflected $1.864 billion of EBITDA, less $295 million of
  net interest payments and $96 million of net income taxes paid. Cash flow from
  operations also reflects an increase in other working capital requirements of
  $456 million.
Investing Activities
Cash used by investing activities was $1.165 billion in the first six months
  of 2002, compared to $1.673 billion on both a pro forma and historical basis
  in 2001. The decrease in cash used by investing activities reflects lower acquisition
  spending and capital expenditures.
During the first six months of 2002, cash used by investing activities of $1.165
  billion reflects $281 million of cash used for acquisitions and investments
  and $905 million of capital expenditures, offset in part by investment proceeds
  of $21 million.
During
  the first six months of 2001, cash used by investing activities of $1.673 billion
  in 2001 reflected $702 million of cash used for acquisitions and investments
  and $1.003 billion of capital expenditures, offset in part by $32 million of
  investment proceeds.
10
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Financing Activities
Cash
  used by financing activities was $1.144 billion for the first six months of
  2002, compared to cash provided by financing activities of $643 million on both
  a pro forma and historical basis in 2001. The reduction in cash from financing
  activities reflects net repayments on borrowings in 2002.
During the first six months of 2002, cash used by financing activities of $1.144
  billion resulted from approximately $827 million of net payments on borrowings
  and capital distributions of $317 million.
During the first six months of 2001, cash provided by financing activities of
  $643 million in 2001 primarily resulted from approximately $1.105 billion of
  net incremental borrowings, offset in part by $462 million of capital distributions.
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 its bank 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 cash
  flow coverage and leverage ratio covenants contained therein.

$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 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 Agreements include AOL
  Time Warner, TWE, TWE-A/N and AOL Time Warner Finance Ireland. Borrowings will
  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 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 will be available to support commercial paper borrowings (Note 7).

Capital Expenditures
TWEs capital expenditures amounted to $905 million for the six months
  ended June 30, 2002, compared to $1.003 billion on a pro forma and historical
  basis in 2001. Capital expenditures principally relate to the Companys
  Cable segment ($851 million in 2002 as compared to $954 million in 2001), which
  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, initial drops, converters and cable modems. With respect
  to converters and cable modems, the Cable segment capitalizes direct installation
  charges only upon the initial deployment of such assets. All costs incurred
  in the re-deployment of these assets are expensed as incurred. Similarly, once
  a given household has been wired, all costs incurred in subsequent disconnects
  and reconnects applicable to that household 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 June
  30, 2002, the total net book value of capitalized labor and overhead costs associated
  with the installation of converters and modems was approximately $175 million.


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 $3.3 billion at June 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 $293 million at June
  30, 2002 and approximately $433 million at December 31, 2001).

CAUTION CONCERNING FORWARDLOOKONG 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)
11
TIME WARNER ENTERTAINMENT COMPANY, L.P.
  MANAGEMENTS DISCUSSION AND ANALYSIS
  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION(Continued)
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
  demand for their products and services, technological developments and (particularly
  in view of technological changes) protection of their intellectual property
  rights. TWEs actual results could differ materially from managements
  expectations because of changes in such factors. 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; 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 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 and cable operator resistance to price increases
    (and the negative impact on premium programmers of increases in basic cable
    rates); increased regulation of distribution agreements; the sensitivity of
    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 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.
12TIME WARNER ENTERTAINMENT COMPANY, L.P.CONSOLIDATED BALANCE SHEET

June 30,2002Historical

  

  December 31,2001Historical(unaudited)(millions)ASSETSCurrent assetsCash
and equivalents

  

  $249

  

  $250Receivables, including $533 and $501 million due from AOL Time Warner, less    
allowances of $1.120 billion and $910 million

  

  3,136

  

  3,480Inventories

  

  881

  

  852Prepaid
expenses

  

  340

  

  326Total current
assets

  

  4,606

  

  4,908Noncurrent inventories
and film costs

  

  2,153

  

  2,187Investments, including available-for-sale securities

  

  2,188

  

  2,308Property, plant and
equipment

  

  8,830

  

  8,573Intangible assets subject to amortization

  

  2,415

  

  2,464Intangible assets not
subject to amortization

  

  22,352

  

  22,356Goodwill

  

  12,412

  

  41,004Other assets

  

  1,284

  

  1,258Total assets

  

  $56,240

  

  $85,058LIABILITIES AND PARTNERS CAPITALCurrent liabilitiesAccounts
payable

  

  $2,129

  

  $2,218Participations payable

  

  1,151

  

  1,014Programming costs payable
  
    546

  

  455Debt
due within one year

  

  11

  

  2Other current
liabilities, including $937 million and $1.022 billion due to   AOL Time
Warner

  

  2,585

  

  2,616Total current
liabilities

  

  6,422

  

  6,305Long-term debt, including $1.240
      and $1.734 billion due to AOL Time Warner

  

  7,206

  

  8,049Other long-term
liabilities, including $28 million and $446 million due to   AOL Time
Warner

  

  2,486

  

  3,108Minority interests

  

  2,278

  

  2,191Partners capitalContributed
capital

  

  
    59,936

  

  66,793Accumulated other comprehensive income (loss), net

  

  15

  

  (6

  )Partnership
deficit

  

  
    (22,103

  )

  (1,382

  )Total partners
capital

  

  37,848

  

  65,405Total liabilities and
partners capital

  

  $56,240

  

  $85,058See accompanying notes.



13TIME WARNER ENTERTAINMENT COMPANY, L.P.CONSOLIDATED STATEMENT OF OPERATIONS(Unaudited)

Three Months Ended June 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma(a)

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma(a)

  

  2001Historical(millions)Revenues:Subscriptions

  

  $2,176

  

  $1,899

  

  $1,899

  

  $4,285

  

  $3,729

  

  $3,729Advertising and commerce

  

  333

  

  314

  

  314

  

  628

  

  613

  

  613Content and other

  

  2,058

  

  1,476

  

  1,476

  

  3,681

  

  2,948

  

  2,948Total
revenues(b)

  

  4,567

  

  3,689

  

  3,689

  

  8,594

  

  7,290

  

  7,290Cost of
revenues(b)

  

  (3,003

  )

  (2,319

  )

  (2,319

  )

  (5,659

  )

  (4,636

  )

  (4,636

  )Selling, general and
   administrative(b)

  

  (736

  )

  (671

  )

  (671

  )

  (1,399

  )

  (1,296

  )

  (1,296

  )Amortization of goodwill and    other intangible
assets

  

  (38

  )

  (36

  )

  (666

  )

  (75

  )

  (72

  )

  (1,347

  )Operating income

  

  790

  

  663

  

  33

  

  1,461

  

  1,286

  

  11Interest expense,
net(b)

  

  (100

  )

  (142

  )

  (142

  )

  (210

  )

  (295

  )

  (295

  )Other
expense, net(b)

  

  (49

  )

  (13

  )

  (47

  )

  (82

  )

  (17

  )

  (87

  )Minority
interest

  

  (105

  )

  (68

  )

  (70

  )

  (214

  )

  (169

  )

  (173

  )Income (loss) before
income    taxes and cumulative effect of
   accounting change

  

  536

  

  440

  

  (226

  )

  955

  

  805

  

  (544

  )Income
taxes

  

  (53

  )

  (6

  )

  (6

  )

  (92

  )

  (38

  )

  (38

  )Income (loss) before
cumulative    effect of accounting change

  

  483

  

  434

  

  (232

  )

  863

  

  767

  

  (582

  )Cumulative effect of accounting
   change

  

  

  

  

  

  

  

  (21,763

  )

  

  

  Net
income (loss)

  

  $483

  

  $434

  

  $(232

  )

  $(20,900

  )

  $767

  

  $(582

  )______________

(a)

In order to enhance comparability, pro forma
statements for 2001 are presented supplementally as if FAS 142 had been
applied at the beginning of 2001 (Note 1).(b)

Includes the following income (expenses)
resulting from transactions with the partners of TWE and other related
companies:Revenues
    
    $
    266
    
    $
    234
    
    $
    234
    
    $
    489
    
    $
    441
    
    $
    441Cost of revenues
    
    
    (167
    )
    
    (132
    )
    
    (132
    )
    
    (294
    )
    
    (255
    )
    
    (255
    )Selling, general and
      administrative
    
    
    (60
    )
    
    (45
    )
    
    (45
    )
    
    (95
    )
    
    (81
    )
    
    (81
    )Interest expense,
      net
    
    
    4
    
    
    4
    
    
    4
    
    
    8
    
    
    7
    
    
    7Other expense, net
    
    
    
    
    
    (10
    )
    
    (10
    )
    
    
    
    
    (5
    )
    
    (5
    )See accompanying notes.
14TIME WARNER ENTERTAINMENT COMPANY, L.P.CONSOLIDATED STATEMENT OF CASH FLOWSSix Months
Ended June 30,(Unaudited)

2002Historical
    
    2001Pro Forma(a)
    
    2001Historical(millions)OPERATIONSNet income (loss)
    
    $
    (20,900
    )
    $
    767
    
    $
    (582
    )Adjustments for noncash and nonoperating
      items:Cumulative effect of accounting change
    
    
    21,763
    
    
    
    
    
    Depreciation and amortization
    
    
    710
    
    
    578
    
    
    1,853Amortization of film costs
    
    
    847
    
    
    830
    
    
    830Equity in losses of investee companies after distributions
    
    
    86
    
    
    72
    
    
    142Changes in operating assets and
      liabilities
    
    
    (198
    )
    
    (1,230
    )
    
    (1,226
    )Cash provided by operations
    
    
    2,308
    
    
    1,017
    
    
    1,017INVESTING ACTIVITIESInvestments and acquisitions
    
    
    (281
    )
    
    (702
    )
    
    (702
    )Capital expenditures
    
    
    (905
    )
    
    (1,003
    )
    
    (1,003
    )Investment proceeds
    
    
    21
    
    
    32
    
    
    32Cash used by investing activities
    
    
    (1,165
    )
    
    (1,673
    )
    
    (1,673
    )FINANCING ACTIVITIESBorrowings
    
    
    2,301
    
    
    3,633
    
    
    3,633Debt repayments
    
    
    (3,128
    )
    
    (2,528
    )
    
    (2,528
    )Capital and other distributions
    
    
    (317
    )
    
    (462
    )
    
    (462
    )Cash provided (used) by financing
      activities
    
    
    (1,144
    )
    
    643
    
    
    643DECREASE IN CASH AND EQUIVALENTS
    
    
    (1
    )
    
    (13
    )
    
    (13
    )CASH AND EQUIVALENTS AT BEGINNING
      OF PERIOD
    
    
    250
    
    
    306
    
    
    306CASH AND EQUIVALENTS AT END
      OF PERIOD
    
    $
    249
    
    $
    293
    
    $
    293______________

(a)

In order to enhance comparability, pro forma
statements for 2001 are presented supplementally as if FAS 142 had been
applied at the beginning of 2001 (Note 1).See accompanying notes.



15TIME WARNER ENTERTAINMENT COMPANY, L.P.CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITALSix
Months Ended June 30,(Unaudited)

2002Historical

  

  2001Historical(millions)BALANCE AT
BEGINNING OF PERIOD

  

  $65,405

  

  $6,926Allocation of a portion
of the purchase price in connection with America Online-Time
   Warner merger to TWE

  

  

  

  59,518Reallocation 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

  

  66,444Net
loss

  

  (20,900

  )

  (582

  )Other comprehensive
income (loss)

  

  21

  

  (14

  )Comprehensive loss

  

  (20,879

  )

  (596

  )Distributions

  

  174

  

  (867

  )Other

  

  5

  

  83BALANCE AT END OF
PERIOD

  

  $37,848

  

  $65,064See accompanying notes.



16TIME WARNER ENTERTAINMENT COMPANY, L.P.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

1.   ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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
  June 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 an 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.

AT&T
  has the right, during 60-day exercise periods occurring once every 18 months,
  to request that TWE incorporate and register its stock in an initial public
  offering. If AT&T exercises such right, TWE can decline to incorporate and
  register its stock, in which case AT&T may cause TWE to purchase AT&Ts
  interest at the price at which an appraiser believes such stock could
  be sold in an initial public offering, subject to certain adjustments. In February
  2001, AT&T delivered to TWE a notice requesting that TWE reconstitute itself
  as a corporation and register AT&Ts partnership interests for public
  sale. In June 2002, AT&T and TWE engaged Banc of America Securities LLC
  (Banc of America) to perform appraisals and make other determinations under
  the TWE Partnership Agreement. In July 2002,
  AOL Time Warner and AT&T agreed to temporarily suspend the registration
  rights process so that they can pursue discussion of an alternative transaction.
  For the time being, AOL Time Warner and AT&T have asked Banc of America
  not to deliver the determinations. The Company cannot
  at this time predict the outcome or effect, if any, of these discussions or the registration rights process, if resumed.

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 Tunes characters and Batman, (3) HBO and Cinemax, the leading pay-television services and (4) The WB
  Network, a national broadcasting network launched in 1995 as

17TIME WARNER ENTERTAINMENT COMPANY,
L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



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.

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 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.

Revenue Classification Changes

In
  November 2001, the Emerging Issues Task Force (EITF) of the Financial
  Accounting Standards Board (FASB) issued as interpretive guidance
  EITF Topic No. D-103, Income Statement Characterization of Reimbursements
  Received for Out-of-Pocket Expenses Incurred (Topic
  D-103). Topic D-103 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 $61 million
  on both a pro forma and historical basis for the three months ended June 30,
  2001 and an increase in both revenues and costs of approximately $120 million
  on both a pro forma and historical basis for the six months ended June 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 June 30, 2002 presentation.



18TIME WARNER ENTERTAINMENT COMPANY,
L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)


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.

Of
  the total restructuring costs, $107 million related to work force reductions
  and represented employee termination benefits. 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 ($10 million of which was in the second quarter
  and for the first six months of 2001), an additional $5 million was made in
  the second quarter of 2002 and approximately $18 million was made for the first
  six months of 2002. As of June 30, 2002, the remaining liability of approximately
  $70 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 ($15 million
  of which was paid in the second quarter of 2001 and $20 million for the first
  six months of 2001), an additional $24 million was paid in the second quarter
  of 2002 and approximately $49 million was paid for the first six months of 2002.
  In addition, for the second quarter and the first six 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 June 30, 2002, the remaining liability of $42 million was primarily classified
  as a current liability in the accompanying consolidated balance sheet.

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

EmployeeTermination

  

  Exit Costs

  

  TotalInitial
accruals

  

  $107

  

  $194

  

  $301Cash paid 
2001

  

  (19

  )

  (88

  )

  (107

  )Restructuring liability as of December 31, 2001

  

  $88

  

  $106

  

  $194Cash paid 
2002

  

  (18

  )

  (49

  )

  (67

  )Noncash
reductions(a)  2002

  

  

  

  (15

  )

  (15

  )Restructuring liability
as of June 30, 2002

  

  $70

  

  $42

  

  $112______________

(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

19TIME WARNER ENTERTAINMENT COMPANY,
L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



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.

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 8  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 six
months of 2002, and total assets at June 30, 2002, by business segment is
as follows (in millions):

Goodwill

  

    Total AssetsJanuary 1,2002(1) (2)

  

    Acquisitions &Adjustments

  

    Impairments

    

    June 30,2002

  

    June 30,2002Cable
  
    $
    19,048

  

    $
    

  

    $
    (16,768

  )

    $
    2,280

  

    $
    32,625Filmed Entertainment

  

    
    6,165

  

    
    6

  

    
    (2,851

  )

    
    3,320

  

    
    12,756Networks(3)

  

    
    8,934

  

    
    22

  

    
    (2,144

  )

    
    6,812

  

    
    10,187Corporate

  

    
    

  

    
    

  

    
    

    

    
    

  

    
    672Total

  

    $
    34,147

  

    $
    28

  

    $
    (21,763

  )

    $
    12,412

  

    $
    56,240______________

(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).20TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



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

As of June 30, 2002

  

    As of December 31,
      2001Gross

  

    AccumulatedAmortization

    

    Net

  

    Gross

  

    AccumulatedAmortization

    

    NetIntangible assets subject to amortization:Film library

  

    $
    2,529

  

    $
    (207

  )

    $
    2,322

  

    $
    2,529

  

    $
    (138

    )

    $
    2,391Customer lists and other intangible assets

  

    
    230

  

    
    (137

  )

    
    93

  

    
    204

  

    
    (131

    )

    
    73Total

  

    $
    2,759

  

    $
    (344

  )

    $
    2,415

  

    $
    2,733

  

    $
    (269

    )

    $
    2,464Intangible assets not subject to 
         amortization:Cable television franchises

  

    $
    21,907

  

    $
    (1,644

  )

    $
    20,263

  

    $
    21,911

  

    $
    (1,644

    )

    $
    20,267Brands, trademarks and
      other intangible 
         assets

  

    
    2,150

  

    
    (61

  )

    
    2,089

  

    
    2,150

  

    
    (61

    )

    
    2,089Total

  

    $
    24,057

  

    $
    (1,705

  )

    $
    22,352

  

    $
    24,061

  

    $
    (1,705

    )

    $
    22,356The
  Company recorded amortization expense of $38 million during the second quarter
  of 2002 compared to $36 million on a pro forma basis ($666 million on a historical
  basis) during the second quarter of 2001. The Company recorded amortization
  expense of $75 million for the first six months of 2002 compared to $72 million
  on a pro forma basis ($1.347 billion on a historical basis) for the first six
  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: 2002: $156 million; 2003: $156 million; 2004: $150 million;
  2005: $150 million; and 2006: $150 million. As acquisitions and dispositions
  occur in the future and as purchase price allocations are finalized, these amounts
  may vary.

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

Weighted Average Amortization PeriodCustomer lists and other intangible assets subject to
amortization

  

  $26

  

  10-15 yearsCable television
franchises not subject to amortization

  

  9

  

  IndefiniteTotal

  

  $3521TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (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 MonthsEndedJune 30, 2001

  

  Six MonthsEndedJune 30, 2001(millions)Net income(loss)

  

  Net income(loss)As
reported  historical basis

  

  $(232

  )

  $(582

  )Add: Goodwill
amortization

  

  451

  

  864Add:
Intangible amortization

  

  179

  

  411Add: Equity investee
goodwill amortization

  

  34

  

  70Minority interest impact

  

  2

  

  4Income tax
impact

  

  

  

  Adjusted

  

  $434

  

  $7674.   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.
  As of June 30, 2002, TWE-A/N owned cable television systems (or interests therein)
  serving approximately 7.0 million subscribers, of which 5.9 million subscribers
  were served by consolidated, wholly owned cable television systems and 1.1 million
  subscribers were served by unconsolidated, partially owned cable television
  systems. The financial position and operating results of TWE-A/N are currently
  consolidated by TWE, and the partnership interest owned by Advance/Newhouse
  is reflected in the consolidated financial statements of TWE as minority interest.

As
  of June 30, 2002, 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 TWE owning approximately 67% on a fully attributed basis
  (i.e., after considering the portion attributable to the minority partners of
  TWE-A/N). TWEs interest in Road Runner is accounted for using the equity
  method of accounting because of certain approval rights currently 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
  will result in Advance/Newhouse taking a more active role in 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 August 1, 2002 (the Debt Closing
  Date), Advance/Newhouse and its affiliates arranged for a new credit facility
  to support the Advance/Newhouse Systems and repaid approximately $780 million
  of TWE-A/Ns senior indebtedness. As of the Debt Closing Date, Advance/Newhouse
  assumed management responsibilities for the Advance/Newhouse Systems, to the
  extent permitted under applicable government regulations, and accordingly, AOL
  Time Warner and TWE will deconsolidate the financial position and operating
  results of these systems effective in the third quarter of 2002. Additionally,
  all prior period results associated with the Advance/Newhouse Systems will be
  reflected as a discontinued operation beginning in the third quarter of 2002.
  Under the new TWE-A/N Partnership Agreement, effective as of the Debt Closing
  Date, Advance/Newhouses partnership interest tracks only the performance
  of the Advance/Newhouse Systems, including associated liabilities, while TWE
  retains substantially all of the interests in the other TWE-A/N assets and liabilities.
  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. As a result,
  beginning in the third quarter of 2002, TWE will consolidate the financial position
  and results of operations of Road Runner with the financial position and results
  of operations of TWEs Cable segment, retroactive to the beginning of the
  year.

The
  impact on the TWE Cable segment of consolidating Road Runner is affected by
  certain transactions between Road Runner and the TWE Cable segment. Specifically,
  a substantial portion of Road Runners revenues are derived from transactions
  with TWEs Cable segment. As a result, upon consolidation of Road Runners
  results of operations with the results of operations of the TWE Cable segment, a
  substantial portion of Road Runners revenues

22TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



will be eliminated. The deconsolidation of the
Advance/Newhouse Systems and consolidation of Road Runner will impact the
results of operations of TWEs Cable segment, as follows (in
millions):

Cable Segment

Three Months Ended June 302002

  

  2001 Pro FormaRevenue

  

  EBITDA

  

  OperatingIncome

  

  Revenue

  

  EBITDA

  

  OperatingIncomeCable
Segment

  

  $1,812

  

  $768

  

  $464

  

  $1,523

  

  $667

  

  $432TWE-A/N Impact

  

  (363

  )

  (172

  )

  (107

  )

  (304

  )

  (137

  )

  (85

  )Road Runner Impact

  

  73

  

  (25

  )

  (38

  )

  54

  

  (42

  )

  (59

  )Intercompany Impact

  

  (44

  )

  

  

  

  

  (27

  )

  

  

  Pro
Forma Cable Segment

  

  $1,478

  

  $571

  

  $319

  

  $1,246

  

  $488

  

  $288Six Months Ended June 302002

  

  2001 Pro FormaRevenue

  

  EBITDA

  

  OperatingIncome

  

  Revenue

  

  EBITDA

  

  OperatingIncomeCable
Segment

  

  $3,548

  

  $1,496

  

  $911

  

  $2,969

  

  $1,328

  

  $882TWE-A/N Impact

  

  (715

  )

  (333

  )

  (205

  )

  (596

  )

  (271

  )

  (171

  )Road Runner Impact

  

  142

  

  (53

  )

  (79

  )

  107

  

  (90

  )

  (127

  )Intercompany Impact

  

  (83

  )

  

  

  

  

  (51

  )

  

  

  Pro
Forma Cable Segment

  

  $2,892

  

  $1,110

  

  $627

  

  $2,429

  

  $967

  

  $584The
  impact on TWEs consolidated operating results of deconsolidating the Advance/Newhouse
  Systems and consolidating Road Runner is affected by the intercompany transaction
  between Road Runner and the TWE Cable segment, as noted above, as well as certain
  transactions with other segments of TWE. For example, TWEs consolidated
  results will also be impacted by certain transactions with the Advance/Newhouse
  Systems that were previously eliminated in consolidation. For example, the Advance/Newhouse
  Systems purchase cable programming from HBO. Once the Advance/Newhouse Systems
  are deconsolidated, these programming revenues recognized by the Networks segment
  will no longer need to be eliminated in consolidation. The impact of the deconsolidation
  of the Advance/Newhouse Systems and the consolidation of Road Runner, including
  the impact of the intercompany transactions discussed above, is as follows (in
  millions):



23TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



TWE

Three Months Ended June 302002

  

  2001 Pro FormaRevenue

  

  EBITDA

  

  OperatingIncome

  

  Revenue

  

  EBITDA

  

  OperatingIncomeTWE

  

  $4,567

  

  $1,156

  

  $790

  

  $3,689

  

  $964

  

  $663TWE-A/N Impact

  

  (363

  )

  (172

  )

  (107

  )

  (304

  )

  (137

  )

  (85

  )Road Runner Impact

  

  73

  

  (25

  )

  (38

  )

  54

  

  (42

  )

  (59

  )Intercompany Impact

  

  (31

  )

  

  

  

  

  (16

  )

  

  

  Pro
Forma TWE

  

  $4,246

  

  $959

  

  $645

  

  $3,423

  

  $785

  

  $519Six Months Ended June 302002

  

  2001 Pro FormaRevenue

  

  EBITDA

  

  OperatingIncome

  

  Revenue

  

  EBITDA

  

  OperatingIncomeTWE

  

  $8,594

  

  $2,171

  

  $1,461

  

  $7,290

  

  $1,864

  

  $1,286TWE-A/N Impact

  

  (715

  )

  (333

  )

  (205

  )

  (596

  )

  (271

  )

  (171

  )Road Runner Impact

  

  142

  

  (53

  )

  (79

  )

  107

  

  (90

  )

  (127

  )Intercompany Impact

  

  (57

  )

  

  

  

  

  (29

  )

  

  

  Pro
Forma TWE

  

  $7,964

  

  $1,785

  

  $1,177

  

  $6,772

  

  $1,503

  

  $988Exclusive
  of any gain or loss associated with these transactions, the impact of the TWE-A/N
  restructuring on TWEs consolidated net income will be substantially mitigated
  because the earnings of TWE-A/N attributable to Advance/Newhouses current
  one-third interest are reflected as minority interest expense in the accompanying
  consolidated statement of operations. Additionally, because TWE had previously
  accounted for its investment in Road Runner using the equity method of accounting,
  and TWE will not acquire an additional interest in Road Runner as part of the
  restructuring, the consolidation of Road Runner will not impact TWEs net income.

As
  of June 30, 2002, the Advance/Newhouse Systems had total assets of approximately
  $2.7 billion and had been allocated approximately $780 million of debt, which,
  upon the deconsolidation of the Advance/Newhouse Systems, will no longer be
  included in the consolidated assets and liabilities of AOL Time Warner. Additionally,
  as of June 30, 2002, Road Runner had total assets of approximately $180 million
  and no debt, which, upon the consolidation of Road Runner, will be included
  in the consolidated assets of TWE.



24TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



5.   INVENTORIES

Inventories
  and film costs consist of:

June 30,2002

  

  December 31,2001(millions)Programming costs, less amortization

  

  $1,302

  

  $1,285Merchandise

  

  165

  

  158Film costs - Theatrical:Released, less amortization

  

  626

  

  650Completed and not released

  

  154

  

  285In
production

  

  535

  

  346Development and pre-production

  

  48

  

  36Film costs - Television:Released, less amortization

  

  171

  

  123Completed and not released

  

  26

  

  95In production

  

  1

  

  59Development and pre-production

  

  6

  

  2Total
inventories and film costs(a)

  

  3,034

  

  3,039Less current portion of
inventory

  

  881

  

  852Total
noncurrent inventories and film costs

  

  $2,153

  

  $2,187_____________

(a)

Does not include $2.322 billion and $2.391
billion of net film library costs as of June 30, 2002 and December 31,
2001, respectively, which are included in intangible assets subject to
amortization on the accompanying consolidated balance sheet (Note 3).6.   PARTNERS
CAPITAL

TWE
  is required to make distributions to reimburse the partners for income taxes
  at statutory rates based on their allocable share of taxable income, and to
  reimburse 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 six months ended June 30, 2002, TWE accrued $222 million of tax-related
  distributions and reversed previous stock option distribution accruals of $396
  million, based on closing prices of AOL Time Warner common stock of $14.71 at
  June 30, 2002 and $32.10 at December 31, 2001. During the six months ended June
  30, 2001, TWE accrued $50 million of tax-related distributions and $817 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 six months ended June
  30, 2002, TWE paid distributions to the AOL Time Warner General Partners in
  the amount of $244 million, consisting of $222 million of tax-related distributions
  and $22 million of stock option related distributions. During the six months
  ended June 30, 2001, TWE paid the AOL Time Warner General Partners distributions
  in the amount of $391 million, consisting of $50 million of tax-related distributions
  and $341 million of stock option related distributions.

7.   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 will
  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 facilities,
  respectively. 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 will be available
  to support commercial paper borrowings.


25TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



8.   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.

TWEs
  results for 2002 have been impacted by certain transactions and events that
  cause them not to be comparable to the results reported in 2001. In order to
  make the 2001 operating results more comparable to the 2002 presentation and
  make an analysis of 2002 and 2001 more meaningful, supplemental pro forma operating
  results for 2001 have been presented as if FAS 142 had been applied at the beginning
  of 2001.

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.

Three Months Ended June 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma

  

  2001Historical(millions)Revenues(a)Cable

  

  $1,812

  

  $1,523

  

  $1,523

  

  $3,548

  

  $2,969

  

  $2,969Filmed
Entertainment.

  

  2,063

  

  1,590

  

  1,590

  

  3,736

  

  3,193

  

  3,193Networks

  

  846

  

  745

  

  745

  

  1,628

  

  1,469

  

  1,469Intersegment elimination

  

  (154

  )

  (169

  )

  (169

  )

  (318

  )

  (341

  )

  (341

  )Total

  

  $4,567

  

  $3,689

  

  $3,689

  

  $8,594

  

  $7,290

  

  $7,290___________________

(a)

Revenues reflect the provisions of Topic D-103
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 Topic D-103 was to increase revenues
and costs by equal amounts of approximately $61 and $120 million for the
three months and six months ended June 30, 2001,
respectively.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; andThe 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:



26TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



Three Months Ended June 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma

  

  2001Historical(millions)Intercompany RevenuesCable

  

  $2

  

  $

  

  $

  

  $3

  

  $1

  

  $1Filmed
Entertainment

  

  75

  

  93

  

  93

  

  172

  

  187

  

  187Networks

  

  77

  

  76

  

  76

  

  143

  

  153

  

  153Total intercompany revenues

  

  $154

  

  $169

  

  $169

  

  $318

  

  $341

  

  $341

Three Months Ended June 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma

  

  2001Historical(millions)EBITDA(a)Cable

  

  $768

  

  $667

  

  $667

  

  $1,496

  

  $1,328

  

  $1,328Filmed
Entertainment

  

  220

  

  161

  

  161

  

  358

  

  261

  

  261Networks

  

  188

  

  156

  

  156

  

  357

  

  314

  

  314Corporate

  

  (20

  )

  (20

  )

  (20

  )

  (40

  )

  (39

  )

  (39

  )Total
EBITDA

  

  $1,156

  

  $964

  

  $964

  

  $2,171

  

  $1,864

  

  $1,864______________

(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 June 30 was $790
million in 2002 and $663 million in 2001 ($33 million on a historical
basis). After deducting depreciation and amortization, TWEs operating
income for the six months ended June 30 was $1.461 billion in 2002 and
$1.286 billion in 2001 ($11 million on a historical
basis).Three Months Ended June 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma
  
  2001Historical(millions)Depreciation of Property, Plant and    EquipmentCable

  

  $302

  

  $235

  

  $235

  

  $582

  

  $446

  

  $446Filmed
Entertainment

  

  18

  

  21

  

  21

  

  36

  

  42

  

  42Networks

  

  6

  

  8

  

  8

  

  13
  
  16

  

  16Corporate

  

  2

  

  1

  

  1

  

  4

  

  2

  

  2Total
depreciation

  

  $328

  

  $265

  

  $265

  

  $635

  

  $506

  

  $506

Three Months EndedJune 30,

  

  Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical

  

  2002Historical

  

  2001Pro Forma

  

  2001Historical(millions)Amortization of Intangible Assets(a)Cable

  

  $2

  

  $

  

  $473

  

  $3

  

  $

  

  $961Filmed
Entertainment

  

  33

  

  33

  

  97

  

  67

  

  67

  

  195Networks

  

  3

  

  3

  

  96

  

  5

  

  5

  

  191Total amortization

  

  $38

  

  $36

  

  $666

  

  $75

  

  $72

  

  $1,347______________

(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
2001.27TIME WARNER ENTERTAINMENT COMPANY, L.P.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (Unaudited)



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 thereview
  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:

June 30,2002Historical

  

  December 31,2001Historical(millions)AssetsCable

  

  $32,625

  

  $56,760Filmed
Entertainment

  

  12,756

  

  16,394Networks

  

  10,187

  

  11,225Corporate

  

  672

  

  679Total
assets

  

  $56,240

  

  $85,0589.   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 April 18, 2002, the defendants filed a petition
  of certiorari to the Georgia Supreme Court seeking review of the decision of
  the Georgia Court of Appeals and a decision on whether the court will hear the
  appeal is expected later in 2002.

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 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.



2810.   ADDITIONAL
FINANCIAL INFORMATION

Cash Flows

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

Six Months Ended June 30,2002Historical

  

  2001Pro Forma

  

  2001Historical(millions)Cash
payments made for interest

  

  $(217

  )

  $(310

  )

  $(310

  )Interest income
received

  

  5

  

  15

  

  15Cash
interest expense, net

  

  $(212

  )

  $(295

  )

  $(295

  )Cash payments made for
income taxes

  

  $(80

  )

  $(98

  )

  $(98

  )Income
tax refunds received

  

  2

  

  2

  

  2Cash taxes, net

  

  $(78

  )

  $(96

  )

  $(96

  )Other Expense, Net

Other
  expense, net, consists of:

Three Months Ended
      June 30,

    

    Six Months Ended
      June 30,2002Historical

    

    2001Pro Forma

    

    2001Historical

    

    2002Historical

    

    2001Pro Forma

    

    2001Historical(millions)Other investmentrelated
      
         activity, principally
   losses on equity
   investees

  

    $
    (39

  )

    $
    (46

    )

    $
    (80

  )

    $
    (72

  )

    $
    (75

  )

    $
    (145

  )Gains related to the
      exchange 
         of unconsolidated cable television systems

  

    
    

  

    
    39

    

    
    39

  

    
    

  

    
    71

  

    
    71Losses on asset 
         securitization programs

  

    
    (5

  )

    
    (5

    )

    
    (5

  )

    
    (9

  )

    
    (11

  )

    
    (11

  )Miscellaneous

  

    
    (5

  )

    
    (1

    )

    
    (1

  )

    
    (1

  )

    
    (2

  )

    
    (2

  )

Total other expense,
      net

  

    $
    (49

  )

    $
    (13

    )

    $
    (47

  )

    $
    (82

  )

    $
    (17

  )

    $
    (87

  )Other Current Liabilities

Other
  current liabilities consist of:

June 30,2002Historical

  

  December 31,2001HistoricalAccrued
expenses

  

  $2,007

  

  $1,940Accrued
compensation

  

  195

  

  275Deferred revenues

  

  309

  

  350Accrued income
taxes

  

  74

  

  51Total

  

  $2,585

  

  $2,61629TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF 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 six months ended June 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 and cash flows as of and for the six
  months ended June 30, 2002.Caution concerning forward-looking statements and risk factors.This section
  discusses how certain forward-looking statements made by the General Partners
  throughout MD&A are based on managements current expectations about
  future events and are inherently susceptible to uncertainty and changes in
  circumstances.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, which
  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 investment in TWE, TW Companies, IPC
  Group Limited, Turner Broadcasting System, Inc. (TBS) and Time Warner
  Telecom Inc. (Time Warner Telecom). The financial position
30TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
and results of operations of ATC are principally derived from its investments
  in TWE, TW Companies, TBS and Time Warner Telecom, Inc.
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.
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 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).
AT&T
  also has the right, during 60-day exercise periods occurring once every 18 months,
  to request that TWE incorporate and register its stock in an initial public
  offering. If AT&T exercises such right, TWE can decline to incorporate and
  register its stock, in which case AT&T may cause TWE to purchase AT&Ts
  interest at the price at which an appraiser believes such stock could be sold
  in an initial public offering, subject to certain adjustments. In February 2001,
  AT&T delivered to TWE a notice requesting that TWE reconstitute itself as
  a corporation and register AT&Ts partnership interests for public
  sale. In June 2002, AT&T and TWE engaged Banc of America Securities LLC
  (“Banc of America) to perform appraisals and make other determinations
  under the TWE Partnership Agreement. In July 2002, TWE and AT&T agreed to
  temporarily suspend the registration rights process so that they can pursue
  discussing an alternative transaction. For the time being, AOL Time
31TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
Warner and AT&T have asked Banc of America not to deliver the determinations.
  TWE cannot at this time predict the outcome or effect, if any, of these discussions
  or the registration rights process, if resumed.
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. 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.
RESULTS OF OPERATIONSTransactions
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, some of which require retroactive restatement of all periods
presented to reflect the new accounting provisions.
Reimbursement of Out-of-Pocket Expenses
In
  November 2001, the Emerging Issues Task Force (“EITF”) of the Financial
  Accounting Standards Board (“FASB”) issued as interpretive guidance
  EITF Topic No. D-103, Income Statement Characterization of Reimbursements
  Received for ‘Out-of-Pocket’ Expenses Incurred (“Topic
  D-103”). Topic D-103 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 $51 million in the second
  quarter of 2001 and $82 million for the first six months of 2001.

32TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
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 $11 million in the second quarter of 2001 and $19 million for
  the first six months of 2001.
Other Significant Transactions and Nonrecurring
  Items
As
  more fully described herein and in the related footnotes, the comparability
  of WCIs and ATCs operating results has been affected by certain
  significant transactions and nonrecurring items in each period.
The
  General Partners operating results for the six months ended June 30, 2002
  included (i) merger and restructuring costs of approximately $4 million ($0
  in the second quarter) at WCI (Note 3), (ii) noncash pretax charges of approximately
  $356 million ($98 million in the second quarter) at WCI and approximately $237
  million ($62 million in the second 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).
For
  the six months ended June 30, 2001, WCIs operating results included a
  noncash pretax charge of approximately $9 million ($0 in the second quarter)
  to reduce the carrying value of certain investments that experienced other-than-temporary
  declines in market value.
In
addition, the General Partners 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 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).

33TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
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. As such, the
  following discussion and analysis focuses on amounts and trends adjusted to
  exclude the impact of these unusual items. However, unusual items may occur
  in any period. Accordingly, investors and other financial statement users individually
  should consider the types of events and transactions for which adjustments have
  been made.
Three Months Ended June 30, 2002 Compared to Three
  Months Ended June 30, 2001
WCI
  had revenues of $972 million and net income of $190 million in 2002, compared
  to revenues of $935 million and a net loss of $389 million in 2001. EBITDA increased
  15% to $100 million in 2002 from $87 million in 2001. Operating income was $27
  million in 2002 compared to an operating loss of $146 million in 2001. Revenues
  increased primarily due to increases in DVD manufacturing and merchandising
  sales, and the impact of the acquisition of Word Entertainment in January 2002,
  offset in part by the negative effect of changes in foreign currency exchange
  rates on international revenues and lower industry-wide domestic recorded music
  sales. The increase in EBITDA is due primarily to higher revenues and the impact
  of various cost-saving and restructuring programs. The increase in operating
  income is due primarily to higher EBITDA and decreased amortization expense
  resulting from the adoption of FAS 142. As of June 30, 2002, WCIs music
  operations had increased its domestic album market share to 17.6%, compared
  to 17.1% at June 30, 2001.
Equity in Pretax Income (Loss) of TWE.WCIs equity in the pretax
  income (loss) of TWE was income of $273 million in 2002, compared to a loss
  of $91 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 $34 million
  in 2002, compared to $11 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 income of $41 million in 2002, compared to expense of $120 million in 2001.
  Excluding the significant transactions and nonrecurring items previously discussed,
  other income (expense), net, was $43 million of income in 2002, compared to
  expense of $120 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.The relationship between income before income taxes
  and income tax expense for the General Partners is principally affected by certain
  financial statement expenses that are not deductible for income tax purposes
  and foreign income taxed at different rates. Income tax expense for each of
  the General Partners includes all income taxes related to its allocable share
  of partnership income and its equity in the income tax expense of corporate
  subsidiaries of TWE. Income tax expense was $117 million in 2002, compared to
  $21 million in 2001. The increase in income tax expense is primarily due to
  the previously discussed improved operating results.
Six Months Ended June 30, 2002 Compared to Six Months
  Ended June 30, 2001
WCI
  had revenues of $1.919 billion and income before the cumulative effect of an
  accounting change of $202 million in 2002, compared to revenues of $1.839 billion
  and a loss of $777 million in 2001. EBITDA, excluding
  the $4 million of merger and restructuring charges in 2002,
34TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
increased 8% to $196 million in 2002 from $181 million in 2001. Operating
  income was $48 million in 2002 compared to an operating loss of $280 million
  in 2001. Revenues increased primarily due to increases in DVD manufacturing
  and merchandising sales, increases in WCIs music operations worldwide
  recorded music sales and the impact of the acquisition of Word Entertainment
  in January 2002, offset in part by the negative effect of changes in foreign
  currency exchange rates. The increase in EBITDA is due primarily to the higher
  revenues and the impact of various cost-saving and restructuring programs. The
  increase in operating income is due primarily to higher EBITDA and decreased
  amortization expense resulting from the adoption of FAS 142. As of June 30,
  2002, WCIs music operations had increased its domestic album market share
  to 17.6%, compared to 17.1% at June 30, 2001.
Equity in Pretax Income (Loss) of TWE.WCIs equity in the pretax
  income (loss) of TWE was income of $501 million in 2002, compared to a loss
  of $227 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 $42 million
  in 2002 compared to $11 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 $218 million of expense in 2002, compared to $228 million of expense in
  2001. Excluding the significant transactions and nonrecurring items previously
  discussed, other income (expense), net, was $42 million of income in 2002, compared
  to expense of $219 million in 2001. The increase in other income (expense),
  net, 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.The relationship between income before income
  taxes and income tax expense for the General Partners is principally affected
  by certain financial statement expenses that are not deductible for income tax
  purposes and foreign income taxed at different rates. Income tax expense for
  each of the General Partners includes all income taxes related to its allocable
  share of partnership income and its equity in the income tax expense of corporate
  subsidiaries of TWE. Income tax expense was $87 million in 2002, compared to
  $31 million in 2001. The increase in income tax expense is primarily due to
  the previously discussed improved operating results.
FINANCIAL CONDITION AND LIQUIDITYJune 30, 2002
Current Financial Condition
WCI
  had $27.6 billion of equity at June 30, 2002, compared to $57.4 billion of equity
  at December 31, 2001. Cash and equivalents decreased to zero at June 30, 2002,
  compared to $40 million at December 31, 2001. As of June 30, 2002, WCI had an
  $844 million note payable outstanding to AOL Time Warner.
ATC
  had $15.2 billion of equity at June 30, 2002, compared to $28.3 billion 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.
35
TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)

Cash Flows
In
  the first six months of 2002, WCIs cash provided by operations amounted
  to $117 million and reflected $192 million of EBITDA, $145 million of distributions
  from TWE, less $20 million of payments made under WCIs asset securitization
  program, $10 million of net income tax payments (including $2 million received
  from TW Companies under a tax sharing agreement), $6 million of net interest
  payments and $184 million related to an increase in other working capital requirements.
In
the first six months of 2001, cash provided by WCIs operations of $405 million
reflected $181 million of EBITDA, $232 million of distributions from TWE, $40
million of proceeds received under WCIs asset securitization program, less $21
million of net income tax payments (including $39 million paid to TW Companies
under a tax sharing agreement), $1 million of net interest payments and $26
million related to an increase in other working capital requirements.
Cash
used by investing activities increased to $145 million in the first six months
of 2002, compared to $138 million in the first six months of 2001 primarily due
to an increase in investments and acquisitions, including the acquisition of
Word, offset in part by $34 million of investment proceeds received in 2002
related to the Columbia House sale.
Cash
  used by financing activities decreased to $12 million in the first six months
  of 2002, compared to $260 million in the first six months of 2001 primarily
  as a result of a decrease in dividends.
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 six months
ended June 30, 2002, the General Partners received an aggregate $244 million of
distributions from TWE, consisting of $222 million of tax-related distributions
and $22 million of stock option related distributions. During the six months
ended June 30, 2001, the General Partners received an aggregate $391 million of
distributions, consisting of $50 million of tax-related distributions and $341
million of stock option related distributions. Of such aggregate distributions,
WCI received $145 million during the six months ended June 30, 2002 and $232
million in 2001 and ATC received $99 million during the six months ended June
30, 2002 and $159 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
36TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)
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; 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 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; public and cable operator resistance to price increases (and
  the negative impact on premium programmers of increases in basic cable rates);
  increased regulation of distribution agreements; the sensitivity of 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 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 programming by means of Internet peer-to-peer file sharing; its
    ability to develop a successful business model applicable to a digital online37TWE GENERAL PARTNERSMANAGEMENTS
DISCUSSION AND ANALYSISOF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
(Continued)

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; 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
  of capital markets (including access to both debt capital markets and bank financing),
  failure to meet earnings expectations, significant acquisitions or other transactions,
  economic slowdowns and changes in the General Partners plans, strategies
  and intentions.
38TWE GENERAL PARTNERSCONSOLIDATED
BALANCE SHEETS

WCI
    
    ATCJune 30,2002
    
    December 31,2001
    
    June 30,2002
    
    December 31,2001(unaudited)
    
    
    
    (unaudited)(millions)ASSETSCurrent assetsCash and equivalents
    
    $
    
    
    $
    40
    
    $
    
    
    $
    Receivables, less allowances of
      $281 and $355 million
    
    
    583
    
    
    944
    
    
    
    
    
    Inventories
    
    
    133
    
    
    121
    
    
    
    
    
    Prepaid expenses
    
    
    700
    
    
    708
    
    
    
    
    
    Total current assets
    
    
    1,416
    
    
    1,813Investments in and amounts due
      to and from TWE
    
    
    19,880
    
    
    36,834
    
    
    13,619
    
    
    25,292Investments in TW
      Companies
    
    
    103
    
    
    103
    
    
    59
    
    
    60Other investments
    
    
    4,435
    
    
    6,084
    
    
    1,357
    
    
    3,047Intangible assets subject to
      amortization
    
    
    2,938
    
    
    2,926
    
    
    
    
    
    Intangible assets not subject to
      amortization
    
    
    1,643
    
    
    1,643
    
    
    
    
    
    Goodwill
    
    
    1,090
    
    
    11,799
    
    
    262
    
    
    262Other assets, primarily
      property, plant and equipment
    
    
    620
    
    
    621
    
    
    
    
    
    Total assets
    
    $
    32,125
    
    $
    61,823
    
    $
    15,297
    
    $
    28,661LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    231
    
    $
    222
    
    $
    
    
    $
    Royalties payable
    
    
    825
    
    
    891
    
    
    
    
    
    Debt due within one year, including
      $844 million due to AOL Time Warner 
         from WCI at June 30, 2002
    
    
    846
    
    
    
    
    
    
    
    
    Other current
    liabilities
    
    
    687
    
    
    894
    
    
    
    
    
    Total current
    liabilities
    
    
    2,589
    
    
    2,007Deferred income taxes
    
    
    1,461
    
    
    1,656
    
    
    29
    
    
    124Other long-term liabilities, including
        $16, $264, $29 and 
           $199 million,
      respectively, due to TW Companies
    
    
    494
    
    
    736
    
    
    29
    
    
    199Shareholders equityCommon stock
    
    
    1
    
    
    1
    
    
    1
    
    
    1Preferred stock of WCI, $.01 par
      value, 90,000 shares 
         outstanding and $90 million
      liquidation preference
    
    
    
    
    
    
    
    
    
    
    
    Paid-in capital
    
    
    49,347
    
    
    60,162
    
    
    26,261
    
    
    29,773Retained deficit
    
    
    (21,027
    )
    
    (1,969
    )
    
    (10,151
    )
    
    (657
    )28,321
    
    
    58,194
    
    
    16,111
    
    
    29,117Due from TW Companies,
    net
    
    
    (154
    )
    
    (184
    )
    
    (536
    )
    
    (443
    )Reciprocal interest in TW
      Companies stock
    
    
    (586
    )
    
    (586
    )
    
    (336
    )
    
    (336
    )Total shareholders
    equity
    
    
    27,581
    
    
    57,424
    
    
    15,239
    
    
    28,338Total liabilities and
      shareholders equity
    
    $
    32,125
    
    $
    61,823
    
    $
    15,297
    
    $
    28,661See accompanying notes.
39TWE GENERAL PARTNERSCONSOLIDATED
STATEMENTS OF OPERATIONSThree Months Ended June 30,(Unaudited)
WCI
    
    ATC2002
    
    2001
    
    2002
    
    2001(millions)Content and other
        revenues(a)
    
    $
    972
    
    $
    935
    
    $
    
    
    $
    Cost of revenues(a)
    
    
    (565
    )
    
    (459
    )
    
    
    
    
    Selling, general and
      administrative(a)
    
    
    (335
    )
    
    (413
    )
    
    
    
    
    Amortization of goodwill
      and other intangibles
    
    
    (45
    )
    
    (209
    )
    
    
    
    
    Operating income (loss)
    
    
    27
    
    
    (146
    )
    
    
    
    
    Equity in pretax income
      (loss) of TWE(a)
    
    
    273
    
    
    (91
    )
    
    188
    
    
    (62
    )Interest expense, net
    
    
    (34
    )
    
    (11
    )
    
    
    
    
    Other income (expense),
      net(a)
    
    
    41
    
    
    (120
    )
    
    (60
    )
    
    (74
    )Income (loss) before
      income taxes
    
    
    307
    
    
    (368
    )
    
    128
    
    
    (136
    )Income tax expense(a)
    
    
    (117
    )
    
    (21
    )
    
    (48
    )
    
    (16
    )Net income (loss)
    
    $
    190
    
    $
    (389
    )
    $
    80
    
    $
    (152
    )__________________
(a)
    
    Includes the following income (expenses)
      resulting from transactions with AOL Time Warner, TW Companies, TWE or
      equity investees of the General Partners:Revenues
    
    $
    110
    
    $
    62
    
    $
    
    
    $
    Cost of revenues
    
    
    
    
    
    (1
    )
    
    
    
    
    Selling, general and
      administrative
    
    
    (8
    )
    
    (28
    )
    
    
    
    
    Equity in pretax loss
      of TWE
    
    
    (46
    )
    
    (28
    )
    
    
    
    
    Other expense, net
    
    
    (2
    )
    
    (2
    )
    
    
    
    
    Income tax benefit (expense)
    
    
    (75
    )
    
    7
    
    
    (27
    )
    
    (3
    )See accompanying notes.
40TWE GENERAL PARTNERSCONSOLIDATED
STATEMENTS OF OPERATIONSSix Months Ended June 30,(Unaudited)
WCI
    
    ATC2002
    
    2001
    
    2002
    
    2001(millions)Content and other
      revenues(a)
    
    $
    1,919
    
    $
    1,839
    
    $
    
    
    $
    Cost of revenues(a)
    
    
    (1,108
    )
    
    (864
    )
    
    
    
    
    Selling, general and
      administrative(a)
    
    
    (675
    )
    
    (840
    )
    
    
    
    
    Amortization of goodwill and
      other intangibles
    
    
    (88
    )
    
    (415
    )
    
    
    
    
    Operating income
(loss)
    
    
    48
    
    
    (280
    )Equity in pretax income (loss)
      of TWE(a)
    
    
    501
    
    
    (227
    )
    
    343
    
    
    (155
    )Interest expense, net
    
    
    (42
    )
    
    (11
    )
    
    
    
    
    Other expense, net(a)
    
    
    (218
    )
    
    (228
    )
    
    (232
    )
    
    (146
    )Income (loss) before income
      taxes and cumulative effect of    accounting
      change
    
    
    289
    
    
    (746
    )
    
    111
    
    
    (301
    )Income tax expense(a)
    
    
    (87
    )
    
    (31
    )
    
    (26
    )
    
    (15
    )Income (loss) before cumulative
      effect of accounting change
    
    
    202
    
    
    (777
    )
    
    85
    
    
    (316
    )Cumulative effect of accounting
      change
    
    
    (18,962
    )
    
    
    
    
    (9,603
    )
    
    Net loss
    
    $
    (18,760
    )
    $
    (777
    )
    $
    (9,518
    )
    $
    (316
    )______________
(a)
    
    Includes the following income (expenses)
      resulting from transactions with AOL Time Warner, TW Companies, TWE or
      equity investees of the General Partners:Revenues
    
    $
    165
    
    $
    111
    
    $
    
    
    $
    Cost of revenues
    
    
    (2
    )
    
    (2
    )
    
    
    
    
    Selling, general and
      administrative
    
    
    (12
    )
    
    (9
    )
    
    
    
    
    Equity in pretax loss
      of TWE
    
    
    (66
    )
    
    (50
    )
    
    
    
    
    Other income, net
    
    
    16
    
    
    16
    
    
    
    
    
    Income tax benefit
      (expense)
    
    
    (2
	    )
    
    39
    
    
    9
    
    
    9See accompanying notes.
41TWE GENERAL PARTNERSCONSOLIDATED
STATEMENTS OF CASH FLOWSSix Months Ended June 30,(Unaudited)
WCI
    
    ATC2002
    
    2001
    
    2002
    
    2001(millions)OPERATIONSNet loss
    
    $
    (18,760
    )
    $
    (777
    )
    $
    (9,518
    )
    $
    (316
    )Adjustments for noncash and
      nonoperating items:Cumulative
      effect of accounting change
    
    
    18,962
    
    
    
    
    
    9,603
    
    
    Depreciation
      and amortization
    
    
    144
    
    
    461
    
    
    
    
    
    Loss on
      writedown of investments
    
    
    356
    
    
    9
    
    
    237
    
    
    Excess
      (deficiency) of distributions over equity in pretax
            income of TWE
    
    
    (356
    )
    
    459
    
    
    (244
    )
    
    314Equity in
      losses (income) of other investee companies after distributions
    
    
    (127
    )
    
    224
    
    
    (5
    )
    
    146Changes in operating assets and
      liabilities
    
    
    (102
    )
    
    29
    
    
    29
    
    
    14Cash provided by
      operations
    
    
    117
    
    
    405
    
    
    102
    
    
    158INVESTING ACTIVITIESInvestments and
      acquisitions
    
    
    (129
    )
    
    (68
    )
    
    
    
    
    Capital expenditures
    
    
    (50
    )
    
    (70
    )
    
    
    
    
    Investment proceeds
    
    
    34
    
    
    
    
    
    
    
    
    Cash used by investing
      activities
    
    
    (145
    )
    
    (138
    )
    
    
    
    
    FINANCING ACTIVITIESDividends
    
    
    (42
    )
    
    (206
    )
    
    (9
    )
    
    (139
    )(Increase) decrease in amounts due from TW
      Companies, net
    
    
    30
    
    
    (54
    )
    
    (93
    )
    
    (19
    )Cash used by financing
      activities
    
    
    (12
    )
    
    (260
    )
    
    (102
    )
    
    (158
    )INCREASE (DECREASE) IN CASH
      AND EQUIVALENTS
    
    
    (40
    )
    
    7
    
    
    
    
    
    CASH AND EQUIVALENTS AT
      BEGINNING OF PERIOD
    
    
    40
    
    
    36
    
    
    
    
    
    CASH AND EQUIVALENTS AT END
      OF PERIOD
    
    $
    
    
    $
    43
    
    $
    
    
    $
    See accompanying notes.
42TWE GENERAL PARTNERSCONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITYSix Months Ended June 30,(Unaudited)
WCI
    
    ATC2002
    
    2001
    
    2002
    
    2001(millions)BALANCE AT BEGINNING OF
      PERIOD
    
    $
    57,424
    
    $
    8,776
    
    $
    28,338
    
    $
    2,075Allocation of a portion of the
      purchase price of the America   Online-Time Warner
      merger to WCI and ATC
    
    
    
    
    
    52,982
    
    
    
    
    
    28,253Reallocation 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
    
    
    61,758
    
    
    24,826
    
    
    30,328Net loss
    
    
    (18,760
    )
    
    (777
    )
    
    (9,518
    )
    
    (316
    )Other comprehensive income
      (loss)
    
    
    73
    
    
    (13
    )
    
    7
    
    
    (3
    )Comprehensive loss
    
    
    (18,687
    )
    
    (790
    )
    
    (9,511
    )
    
    (319
    )(Increase) decrease in stock
      option distribution liability to
    TW   Companies
    
    
    235
    
    
    (484
    )
    
    161
    
    
    (333
    )Dilution of interest in Time
      Warner Entertainment, L.P. (net of   $146 and $96
      million income tax impact for WCI and
      ATC,   respectively)
    
    
    (219
    )
    
    
    
    
    (144
    )
    
    Dividends
    
    
    (389
    )
    
    (4
    )
    
    
    
    
    Transfers (to) from TW Companies,
      net
    
    
    30
    
    
    (53
    )
    
    (93
    )
    
    (19
    )Other
    
    
    2
    
    
    2
    
    
    
    
    
    2BALANCE AT END OF PERIOD
    
    $
    27,581
    
    $
    60,429
    
    $
    15,239
    
    $
    29,659See accompanying notes.
43TWE GENERAL PARTNERSNOTES 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s music operations, which 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 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 the General
Partners included in TWEs Annual Report on Form 10-K for the year ended
December 31, 2001.
Revenue Classification Changes
Reimbursement of Out-of-Pocket Expenses
In
  November 2001, the Emerging Issues Task Force (EITF) of the Financial
  Accounting Standards Board (FASB) issued as interpretive guidance
  EITF Topic No. D-103, Income Statement Characterization of Reimbursements
  Received for Out-of-Pocket Expenses Incurred (Topic
  D-103). Topic D-103 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
44TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
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 $51 million in the second quarter of 2001 and $82 million for
  the first six 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 $11 million in
the second quarter of 2001 and $19 million for the first six 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).
Reclassifications
Certain
reclassifications have been made to the prior years financial statements to
conform to the June 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.
45TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
WCI
  is currently in the process of allocating the purchase price paid to acquire
  Word. Based upon a preliminary purchase price allocation, as of June 30, 2002,
  approximately $10 million has been allocated to copyrights, approximately $20
  million has been allocated to music catalogues and approximately $27 million
  of the purchase price has been allocated to goodwill.
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.
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. 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 ($15 million of which were paid in the second
  quarter and first six months of 2001) and an additional $56 million was paid
  in the first six months of 2002 ($24 million of which was paid in the second
  quarter). As of June 30, 2002, the remaining liability of approximately $153
  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
  ($6 million of which was paid in the second quarter and first six months of
  2001) and an additional $9 million was paid in the first six months of 2002
  ($3 million of which was paid in the second quarter). As of June 30, 2002, the
  remaining liability of $32 million was primarily classified as a long-term liability
  in WCIs accompanying consolidated balance sheet.
46TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
Selected
information relating to the restructuring costs included in the allocation of
the cost to acquire Time Warner follows (in millions):
EmployeeTermination
    
    OtherExit Costs
    
    TotalInitial accruals
    
    $
    261
    
    $
    48
    
    $
    309Cash paid  2001
    
    
    (52
    )
    
    (7
    )
    
    (59
    )Restructuring liability as of
      December 31, 2001
    
    
    209
    
    
    41
    
    
    250Cash paid  2002
    
    
    (56
    )
    
    (9
    )
    
    (65
    )Restructuring liability as of
      June 30, 2002
    
    $
    153
    
    $
    32
    
    $
    185Merger Costs Expensed as Incurred
During
  2002, the restructuring plans included approximately $4 million of merger costs
  that were expensed as incurred, all of which were paid by June 30, 2002 in the
  first quarter, 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 second quarter). As of June 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 $98 million and $62 million, respectively, in the
  second quarter of 2002 and $356 million and $237 million, respectively, for
  the six months ended June 30, 2002. Similarly, WCI recorded a noncash pretax
  charge of approximately $9 million for the first six months ended June 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 $90 million and $345 million
  for the three and six months ended June 30, 2002, respectively, at WCI, and
  $62 million and $237 million for the three and six months ended June 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
47TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
has declined significantly, resulting in impairment
  charges of approximately $542 million for WCI and $372 million for ATC in 2001
  and approximately $345 million for WCI and $237 million for ATC in 2002.
As
  of June 30, 2002, Time Warner Telecom was owned 44% by AOL Time Warner, including
  approximately 20% by WCI and approximately 14% by the ATC, 14% by the Advance/Newhouse
  Partnership and 42% by other third parties. TheGeneral
  Partners interests in Time Warner Telecom are being accounted for under
  the equity method of accounting. For the three months ended June 30, 2002, Time
  Warner Telecom had revenues, operating loss and net loss of approximately $185
  million, $4 million and $31 million, respectively. For the six months ended
  June 30, 2002, Time Warner Telecom had revenues, operating loss and net loss
  of approximately $353 million, $23 million and $74 million, respectively.
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
48TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
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 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 reportingunits 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 six months of 2002
  is as follows (in millions):
GoodwillJanuary
      1,2002(1)
    
    Acquisitions &Adjustments(2)
    
    Impairment(3)
    
    June 30,2002Total
    
    $
    5,857
    
    $
    29
    
    $
    (4,796
    )
    $
    1,090______________
(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 June 30, 2002 and December 31, 2001, WCIs intangible assets and related
accumulated amortization consisted of the following (in millions):
As of
      June 30, 2002
    
    As of
      December 31, 2001Gross
    
    AccumulatedAmortization
    
    Net
    
    Gross
    
    AccumulatedAmortization
    
    NetIntangible assets subject to
         amortization:Music catalogues and
         copyrights (1)
    
    $
    3,179
    
    $
    (241
    )
    $
    2,938
    
    $
    3,079
    
    $
    (153
    )
    $
    2,926Intangible 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 second quarter of 2002
  compared to $209 million during the second quarter of 2001. WCI recorded amortization
  expense of $88 million for the first six months of 2002 compared to $415 million
  for the first six 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: 2002: $176 million; 2003:
49TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
$172 million; 2004: $172 million; 2005: $172 million; and 2006: $158 million.
  As acquisitions and dispositions occur in the future and as purchase price allocations
  are finalized, these amounts may vary.
During
  the first six months of 2002, WCI acquired the following intangible assets (in
  millions):
Weighted AverageAmortization PeriodMusic catalogues and
      copyrights
    
    $
    100
    
    
    15 yearsThe
  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:
Six
      Months EndedJune 30, 2001(millions)WCI
    
    ATCAs reported  historical
      basis
    
    $
    (777
    )
    $
    (316
    )Add: Goodwill
    amortization
    
    
    298
    
    
    Add: Intangible
      amortization
    
    
    28
    
    
    Add: TWE goodwill and intangible
      amortization
    
    
    810
    
    
    556Add: Equity investee goodwill
      amortization
    
    
    214
    
    
    155Income tax impact
    
    
    (421
    )
    
    (284
    )Adjusted
    
    $
    152
    
    $
    1117.   INVESTMENT IN TWE
The
General Partners investment in and amounts due to and from TWE at June 30, 2002
and December 31, 2001 consists of the following:
June 30, 2002
    
    WCI
    
    ATC(millions)Investment in TWE
    
    $
      19,756
    
    $
    13,607Stock option related
      distributions due from TWE
    
    
    16
    
    
    12Other net assets due from
      TWE
    
    
      108
      
    
    Total
    
    $
    19,880
    
    $
    13,619December 31, 2001
    
    WCI
    
    ATC(millions)Investment in TWE
    
    $
    36,490
    
    $
    25,110Stock option related
      distributions due from TWE
    
    
    264
    
    
    182Other net assets due from
      TWE
    
    
    80
    
    
    Total
    
    $
    36,834
    
    $
    25,292The
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.
50TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
Partnership Structure and Allocation of Income
TWE
  is a Delaware limited partnership that was capitalized on June 30, 1992 to own
  and operate substantially all of the Filmed Entertainment-Warner Bros., Cable
  Networks-HBO and Cable businesses previously owned by 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).
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.
AT&T
  also has the right, during 60-day exercise periods occurring once every 18 months,
  to request that TWE incorporate and register its stock in an initial public
  offering. If AT&T exercises such right, TWE can decline to incorporate and
  register its stock, in which case AT&T may cause TWE to purchase AT&Ts
  interest at the price at which an appraiser believes such stock could be sold
  in an initial public offering, subject to certain adjustments. In February 2001,
  AT&T delivered to TWE a notice requesting that TWE reconstitute itself as
  a corporation and register AT&Ts partnership interests for public
  sale. In June 2002, AT&T and TWE engaged Banc of America Securities LLC
  (“Banc of America”) to perform appraisals and make other determinations
  under the TWE Partnership Agreement. In July 2002, TWE and AT&T agreed to
  temporarily suspend the registration rights process so that they can pursue
  discussing an alternative transaction. For the time being, AOL Time Warner and
  AT&T have asked Banc of America not to deliver the determinations. TWE cannot
  at this time predict the outcome or effect, if any, of these discussions or
  the registration rights process, if resumed.
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 Topic D-103 and EITF
01-09. For a more comprehensive description of the impact of these items on TWE,
see the accompanying TWE consolidated financial statements.
51TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
Three
      Months Ended June 30,
    
    Six
      Months Ended June 30,2002
    
    2001
    
    2001
    
    2002
    
    2001
    
    2001Historical
    
    Pro
      Forma
    
    Historical
    
    Historical
    
    Pro
      Forma
    
    Historical(millions)Operating Statement
      InformationRevenues
    
    $
    4,567
    
    $
    3,689
    
    $
    3,689
    
    $
    8,594
    
    $
    7,290
    
    $
    7,290Operating income
    
    
    790
    
    
    663
    
    
    33
    
    
    1,461
    
    
    1,286
    
    
    11Interest expense, net
    
    
    (100
    )
    
    (142
    )
    
    (142
    )
    
    (210
    )
    
    (295
    )
    
    (295
    )Other expense, net
    
    
    (49
    )
    
    (13
    )
    
    (47
    )
    
    (82
    )
    
    (17
    )
    
    (87
    )Minority interest
    
    
    (105
    )
    
    (68
    )
    
    (70
    )
    
    (214
    )
    
    (169
    )
    
    (173
    )Income (loss) before income
      taxes and    cumulative effect of accounting
      change
    
    
    536
    
    
    440
    
    
    (226
    )
    
    955
    
    
    805
    
    
    (544
    )Income (loss) before cumulative
      effect of    accounting change
    
    
    483
    
    
    434
    
    
    (232
    )
    
    863
    
    
    767
    
    
    (582
    )Net income (loss)
    
    
    483
    
    
    434
    
    
    (232
    )
    
    (20,900
    )
    
    767
    
    
    (582
    )Six
      Months Ended June 30,2002
    
    2001
    
    2001Historical
    
    Pro
      Forma
    
    Historical(millions)Cash Flow InformationCash provided by
      operations
    
    $
    2,308
    
    $
    1,017
    
    $
    1,017Investments and
      acquisitions
    
    
    (281
    )
    
    (702
    )
    
    (702
    )Capital expenditures
    
    
    (905
    )
    
    (1,003
    )
    
    (1,003
    )Borrowings
    
    
    2,301
    
    
    3,633
    
    
    3,633Debt repayments
    
    
    (3,128
    )
    
    (2,528
    )
    
    (2,528
    )Capital and other
      distributions
    
    
    (317
    )
    
    (462
    )
    
    (462
    )Decrease in cash and
      equivalents
    
    
    (1
    )
    
    (13
    )
    
    (13
    )June 30,2002Historical
    
    December
      31,2001Historical(millions)Balance Sheet InformationCash and equivalents
    
    $
    249
    
    $
    250Total current assets
    
    
    4,606
    
    
    4,908Total assets
    
    
    56,240
    
    
    85,058Total current
    liabilities
    
    
    6,422
    
    
    6,305Long-term debt
    
    
    7,206
    
    
    8,049Minority interests
    
    
    2,278
    
    
    2,191Partners capital
    
    
    37,848
    
    
    65,405Capital Distributions
The
  assets and cash flows of TWE are restricted by the TWE partnership and credit
  agreements and are unavailable for use by the partners except through the payment
  of certain fees, reimbursements, cash distributions and loans, which are subject
  to limitations. At June 30, 2002 and December 31, 2001, the General Partners
  had recorded $28 million and $446 million, respectively, of stock option related
  distributions due from TWE, based on closing prices of AOL Time Warner stock
  of $14.71 at June 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 six months ended June
  30, 2002, the General Partners received cash distributions from TWE in the amount
  of $244 million, consisting of $222 million of tax-related distributions and
  $22 million of stock option related distributions. During the six months ended
  June 30, 2001, the General Partners received cash distributions from TWE in
  the amount of $391 million, consisting of $50 million of tax-related distributions
  and $341 million of stock option related distributions. Of such aggregate distributions,
52TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)
WCI received $145 million during the first six months
  of 2002 and $232 million in 2001 and ATC received $99 million during the first
  six months of 2002 and $159 million in 2001.
8.   GENERAL PARTNER
GUARANTEES
Each
General Partner has guaranteed a pro rata portion of approximately $3.9 billion
of TWEs public debt, borrowings under its commercial paper program and certain
bank debt, including accrued interest at June 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 June 30, 2002 that was guaranteed by
each General Partner is set forth below:
Total
      Guaranteed byEach General PartnerGeneral Partner
    
    %
    
    Amount(dollars in millions)WCI
    
    
    59.27
    
    $
    2,306.4ATC
    
    
    40.73
    
    
    1,584.9Total
    
    
    100.00
    
    $
    3,891.39.   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 has been 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 April 18, 2002, the defendants filed a petition of
certiorari to the Georgia Supreme Court seeking review of the decision of the
Georgia Court of Appeals and a decision on whether the court will hear the
appeal is expected later in 2002.
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., 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 are required under the plans in violation of the
  Employee Retirement Income Security Act (ERISA). 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.
53TWE GENERAL PARTNERSNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(Unaudited)

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. Although WCI believes that, as to each of these actions,
the cases have no merit, adverse jury verdicts could result in a material loss.
WCI is unable to predict the outcomes of the litigation and cannot reasonably
estimate a range of possible loss given the current status of the cases. Two
competition investigations also are currently pending in Europe. WCI is
cooperating in these investigations, but is unable to predict their outcomes
given their current status.
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.
10.   ADDITIONAL FINANCIAL
INFORMATION
Additional
financial information with respect to cash flows is as follows:
Six
      Months Ended June 302002
    
    2001WCI
    
    ATC
    
    WCI
    
    ATC(millions)Cash payments made for
      interest
    
    $
    10
    
    $
    
    
    $
    6
    
    $
    Interest income
    received
    
    
    4
    
    
    
    
    
    5
    
    
    Net cash payments (refunds) for
      income taxes
    
    
    10
    
    
    (9
    )
    
    21
    
    
    (9
    )Tax-related distributions
      received from TWE
    
    
    132
    
    
    90
    
    
    30
    
    
    20Noncash capital distributions,
      net
    
    
    235
    
    
    161
    
    
    (484
    )
    
    (333
    )Noncash
financing activities in 2002 include the settlement of a WCI receivable from TW
Companies through a WCI dividend of $360 million.
54Part II. Other Information
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
  
  Date5
  
  Reporting entry into a Letter Agreement to restructure the Time Warner Entertainment- Advance/Newhouse Partnership
  
  June 24, 200255
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 PartnerBy:
    /s/ Wayne H. PaceName: Wayne H. PaceTitle:
       Executive Vice President
      and           Chief
      Financial OfficerAMERICAN TELEVISION
      AND COMMUNICATIONS CORPORATIONWARNER COMMUNICATIONS INC.By:
    /s/ Wayne H. PaceName: Wayne H. PaceTitle:
        Executive Vice President
      and            Chief
      Financial OfficerDated: August 14, 2002

EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No
    
    Description
      of Exhibit10.1
    
    Master Transaction Agreement, dated as of August 1, 2002, by and among Time
Warner Entertainment-Advance/Newhouse Partnership, (TWEAN), Time Warner
Entertainment Company, L.P. (TWE), Paragon
Communications (Paragon), and Advance/Newhouse
Partnership (Advance/Newhouse).10.2
    
    Second Amended and Restated Partnership Agreement, dated as of August 1, 2002,
by and among TWEAN, TWE and Paragon.10.3
    
    $6 Billion Five-Year Revolving Credit
      Agreement, dated as of July 8, 2002, among AOL Time Warner Inc. (AOLTW),
      Time Warner Entertainment Company, L.P., Time Warner Entertainment-Advance/Newhouse
      Partnership, AOL Time Warner Finance Ireland, as Borrowers, the Lenders
      party thereto from time to time, JPMorgan Chase Bank, as Administrative
      Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents,
      and ABN AMRO Bank N.V. and BNP Paribas, as Co-Documentation Agents, with
      associated Guarantees (incorporated herein by reference to Exhibit 99.1
      to AOLTWs Current Report on Form 8-K dated July 8, 2002 (File No.1-15062)
      (the AOLTW July 2002 Form 8-K)).10.4
    
    $4 Billion 364-Day Revolving Credit
      Agreement, dated as of July 8, 2002, among AOL Time Warner Inc., Time Warner
      Entertainment Company, L.P., Time Warner Entertainment-Advance/Newhouse
      Partnership, AOL Time Warner Finance Ireland, as Borrowers, the Lenders
      party thereto from time to time, JPMorgan Chase Bank, as Administrative
      Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents,
      and ABN AMRO Bank N.V. and BNP Paribas, as Co-Documentation Agents, with
      associated Guarantees (incorporated herein by reference to Exhibit 99.2
      to the AOLTW July 2002 Form 8-K).