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HomeMy WebLinkAbout1999-11-17 Time Warner Cable's Response to the Ithaca Area Cable Consortium's Formal RERP Volume IITIME WARNER CABLE'S RESPONSE TO THE ITHACA AREA CABLE CONSORTIUM'S FORMAL RFRP NOVEMBER 17, 1999 VOLUME II LIST OF EXHIBITS Exhibit No. Description 1 Customer Survey Results - 2 Family Trees of TWE and TWEAN 3 Annual Report 4 SEC Forms 10-K 5 SEC Forms 10-Q 6 Agreement and Plan of Merger by and among AT&T Corp., Meteor Acquisition Inc. and MediaOne Group, Inc. 7 Litigation List 8 Franchise List 9 Plant Miles 10 Social Contract (Upgrade) Status Report 11 Subscriber Count 12 Rate Cards/Channel Line Up Cards 13 Financial Pro -Forma• 14 Leased Access Rate Card 15 I -Net Proposal 16 Privacy Notice 17 Customer Complaint Procedures 18 Customer Handbook 19 FCC Customer Service Obligations (FCC Rules§76.309) 20 Quarterly Reports on Customer Service Standards for Past Four Quarters 21 Customer Bill 22 FCC Technical Standards (FCC Rules §76.605) EXHIBIT 5 The most recent SEC Forms 10-Q of Time Warner Inc. and Time Warner Entertainment Company, L.P. are attached. There is no Form 10-Q filed for the Time Warner Entertainment- Advance/Newhouse Partnership ("TWEAN"). • SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 for the quarterly period ended June 30, 1999, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 for the transition period from to Commission file number 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) American Television and Communications Corporation Warner Communications Inc. (Exact name of registrant as specified in its charter) 13-3666692 (I.R.S. Employer Identification Number) Delaware Delaware (State or other jurisdiction of incorporation or organization) 75 Rockefeller Plaza New York, New York 10019 (212) 484-8000 (Address, including zip code, and telephone numbe4 including area code, of each registrant's principal executive offices) 4'• 13-2922502 13-2696809 (I.RS. Employer Identification Number) 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 Page TWE General TWE Partners PART I. FINANCIAL INFORMATION Management's discussion and analysis of results of operations and financial condition 1 22 Consolidated balance sheets at June 30, 1999 and December 31, 1998 12 29 Consolidated statements of operations for the three months and six months ended June 30, 1999 and 1998 13 30 Consolidated statements of cash flows for the six months ended June 30, 1999 and 1998 14 32 Consolidated statements of partnership capital and shareholders' equity for the six months ended June 30, 1999 and 1998 15 33 Notes to consolidated financial statements -16 34 PART II. OTHER INFORMATION 39 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Description of Business Time Warner Entertainment Company, L.P. ("TWE" or the "Company") classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. TWE also manages the cable properties owned by Time Warner and the combined cable television operations are conducted under the name of Time Warner Cable. Use of EBITA TWE evaluates operating performance based on several factors, including its primary financial measure of operating income before noncash amortization of intangible assets ("EBITA"). Consistent with management's financial focus on controlling capital spending, EBITA measures operating performance after charges for depreci- ation. In addition, EBITA eliminates the uneven effect across all business segments of considerable amounts of non- cash amortization of intangible assets recognized in business combinations accounted for by the purchase method. These business- combinations, including Time Warner's $14 billion acquisition of Warner Communications Inc. in 1989 and $1.3 billion acquisition of the minority interest in American Television and Communications Corporation in 1992, created over $10 billion of intangible assets that generally are being amortized over a twenty to forty year period. The exclusion of noncash amortization charges also is consistent with management's belief that TWE's intangible assets, such as cable television franchises, film and television libraries and the goodwill associated with its brands, generally are increasing in value and importance to TWE's business objective of creating, extending and distributing recognizablebrands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of TWE includes, among other factors, an analysis of changes in business segment EBITA. However; EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles. AT&T/MediaOne Acquisition At the time of this filing, MediaOne Group, Inc. ("MediaOne"), a limited partner in TWE, had agreed to be acquired by AT&T Corp. ("AT&T"). On August 3, 1999, TWE received a notice from MediaOne concerning the termination of its covenant not to compete with TWE. As a result of the termination notice and the operation of the partnership agreement governing TWE, MediaOne's rights to participate in the management of TWE's businesses have terminated immediately and irrevocably. MediaOne has retained only certain protective governance rights pertaining to certain limited matters affecting TWE as a whole. In addition, in connection with the proposed acquisition of MediaOne by AT&T, Time Warner and AT&T are engaged in discussions concerning the overall relationship of the companies following that acquisition. Among the subjects included in those discussions are the structure of TWE, the structure of AT&T/MediaOne's investment in TWE, as well as potential changes to the proposed cable telephony joint venture discussed on page F-8 of TWE's Annual Report on Form 10-K for the year ended December 31, 1998. 1 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) The proposed acquisition of MediaOne by AT&T is subject to customary closing conditions, including regulatory approvals. Accordingly, there is no assurance that it will occur Transactions Affecting Comparability of Results of Operations As more fully described herein, the comparability of TWE's operating results has been affected by certain significant transactions and nonrecurring items in each period. In 1999, these nonrecurring items consisted of (i) an approximate $215 million net pretax gain recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement and (ii) net pretax gains in the amount of $760 million in the second quarter of 1999 relating to the sale or exchange of various cable television systems and investments. This compares to net pretax gains in the first half of 1998 of $84 million also relating to the sale or exchange of cable television systems. In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of these significant nonrecurring gains. As such, the _following discussion and analysis focuses on. amounts andtrends adjusted to exclude the impactof. these .. unusual items. However; unusual items may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions for which adjustments have been made. In addition, the comparability of TWE's Cable division results has been affected further by certain cable - related transactions, as described more fully in Note 8 to the accompanying consolidated financial statements. While these transactions had a significant effect on the comparability of the Cable division's EBITA and operating income principally due to the deconsolidation of the related operations, they did not have a significant effect on the comparability of TWE's net income. RESULTS OF OPERATIONS EBITA and operating income are as follows: Three Months Ended June 30. Six Months Ended June 30. Operating Operating EBITA _ Income EBITA Income 1999 1998 1999 1998 1999 1998 1999 1998 (millions) Filmed Entertainment -Warner Bros.(') $ 132 $121 $ 101 $ 88 $ 478 $ 240 $ 417 $174 Broadcasting -The WB Network (30) (23) (31) (24) (71) (61) (73) (63) Cable Networks -HBO 131 113 131 113 256 222 256 222 Cable(2) 1,099 374 1,011 278 1,436 681 1,263 491 Total $1,332 $585 $1,212 $455 $2,099 $1,082 $1,863 $824 (1) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. (2) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of $760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. 2 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30, 1998 TWE had revenues of $3.060 billion and net income of $767 million for the three months ended June 30, 1999, compared to revenues of $2.850 billion and net income of $155 million for the three months ended June 30, 1998. As previously described, the comparability of TWE's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of $760 million of net pretax gains in 1999, compared to $70 million of net pretax gains in 1998. TWE's net income increased to $767 million in 1999, compared to $155 million in 1998. However excluding the effect of the nonrecurring items referred to earlier net income increased by $65 million to $165 million in 1999 from $100 million in 1998. As discussed more fully below, this improvement principally resulted from an overall increase in TWE's business segment operating income. As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $27 million and $17 million for the three months ended June 30, 1999 and 1998, respectively, have been provided for the operations of TWE's domestic and foreign subsidiary corporations. Filmed Entertainment -Warner Bros. Revenues increased to $1.446 billion, compared to $1.327 billion in the second quarter of 1998. EBITA increased to $132 million from $121 million. Operating income increased to $101 million from $88 million. Revenues benefited from increases in worldwide theatrical and television distribution operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were marginally higher revenues from worldwide home video operations, which benefited from increased sales of DVDs. EBITA and operating income benefited principally from improved results from worldwide theatrical and television distribution operations, offset in part by lower gains on the sale of assets and lower results from consumer products operations. Broadcasting - The WB Network. Revenues increased to $83 million, compared to $61 million in the second quarter of 1998. EBITA decreased to a loss of $30 million from a loss of $23 million. Operating losses increased to $31 million from $24 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $546 million, compared to $509 million in the second quarter of 1998. EBITA and operating income increased to $131 million from $113 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, increased cost savings and higher income from Comedy Central, a 50% -owned equity investee. • Cable. Revenues increased to $1.114 billion, compared to $1.084 billion in the second quarter of 1998. EBITA increased to $1.099 billion from $374 million. Operating income increased to $1.011 billion from $278 3 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) million. The Cable division's 1999 operating results were affected by certain cable -related transactions that occurred in 1998 (the "1998 Cable Transactions") and by net pretax gains of $760 million in 1999 and $70 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 8 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, an increase in advertising revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, decreased to an expense of $167 million in the second quarter of 1999, compared to an expense of $183 million in the second quarter of 1998. Interest expense increased to $136 million, compared to $132 million in the second quarter of 1998, principally due to higher average debt levels. Other expense, net, decreased to $31 million in the second quarter of 1999, compared to $51 million in the second quarter of 1998. The decrease principally related to lower losses from certain investments accounted for under the equity method of accounting and a gain on the sale of an investment. Minority Interest. Minority interest expense increased to $233 million, compared to $82 million in the second quarter of 1998. Minority interest expense increased primarily due to the allocation of a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by the TWE- Advance/Newhouse Partnership ("TWE-A/N"), a majority owned partnership of TWE, to the minority owners of that partnership. Excluding the significant effect of the gains recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998 TWE had revenues of $5.994 billion and net income of $1.079 billion for the six months ended June 30, 1999, compared to revenues of $5.760 billion and net income of $263 million for the six months ended June 30, 1998. As previously described, the comparability of TWE's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of approximately $1 billion of net pretax gains in 1999, compared to $84 million of net pretax gains in 1998. TWE's net income increased to $1.079 billion in 1999, compared to $263 million in 1998. Howeve; excluding the significant effect of the nonrecurring items referred to earlier net income increased by $63 million to $262 million in 1999 from $199 million in 1998. This improvement principally resulted from an overall increase in TWE's business segment operating income, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting. Filmed Entertainment -Warner Bros. Revenues increased to $2.826 billion, compared to $2.637 billion in the first six months of 1998. EBITA increased to $478 million from $240 million. Operating income increased to $417 million from $174 million. Revenues benefited from increases in worldwide theatrical and television distribution 4 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were higher revenues from worldwide home video operations, which benefited from increased sales of DVDs. EBITA and operating income increased primarily from the inclusion of an approximate $215 million net pretax gain recognized in the first quarter of 1999 in connection with the early termination and settlement of a long- term home video distribution agreement. In addition, EBITA and operating income benefited principally from improved results from worldwide theatrical and home video operations and an increase in investment -related income, offset in part by lower results from consumer products operations. Broadcasting - The WB Network. Revenues increased to $162 million, compared to $106 million in the first six months of 1998. EBITA decreased to a loss of $71 million from a loss of $61 million. Operating losses increased to $73 million from $63 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule, a lower allocation of losses to a minority partner in the network and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $1.072 billion, compared to $1.021 billion in the first six months of 1998. EBITA and operating income increased to $256 million from $222 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, increased cost savings, one-time gains from the sale of certain investments and higher income from Comedy Central, a 50%-ownedequity investee. These increases were offset in part by higher marketing expenses. Cable. Revenues decreased to $2.188 billion, compared to $2.237 billion in the first six months of 1998. EBITA increased to $1.436 billion from $681 million. Operating income increased to $1.263 billion from $491 million. The Cable division's 1999 operating results were affected by the 1998 Cable Transactions and by net pretax gains of $760 million in 1999 and $84 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 8 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, increases in advertising and pay-per-view revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, increased to an expense of $392 million in the first six months of 1999, compared to an expense of $347 million in the first six months of 1998. Interest expense was $273 million in both periods. Other expense, net, increased to $119 million in the first six months of 1999, compared to $74 million in the first six months of 1998. This increase principally related to higher losses from certain investments accounted for under the equity method of accounting, offset in part by a gain on the sale of an investment. Minority Interest. Minority interest expense was $301 million in the first six months of 1999, compared to $146 million in the first six months of 1998. Minority interest expense increased primarily due to the allocation of 5 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by TWE-A/N to the minority owners of that partnership. Excluding the significant effect of the gains recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. FINANCIAL CONDITION AND LIQUIDITY June 30, 1999 Financial Condition At June 30, 1999, TWE had $6.5 billion of debt, $117 million of cash and equivalents (net debt of $6.4 billion), $627 million of Time Warner General Partners' senior priority capital and $5.7 billion of partners' capital. This compares to $6.6 billion of debt, $87 million of cash and equivalents (net debt of $6.5 billion), $217 million of preferred stock of a subsidiary, $603 million of Time Warner General Partners' senior priority capital and $5.1 billion of partners' capital at December 31, 1998. Senior Capital Distributions In July 1999, TWE paid a $627 million distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Wamer used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. Redemption of REIT Preferred Stock In March 1999, a subsidiary of TWE (the "REIT") redeemed all of its shares of preferred stock ("REIT Preferred Stock") at an aggregate cost of $217 million, which approximated net book value. The redemption was funded with borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of proposed changes to federal tax regulations that substantially increased the likelihood that dividends paid by the REIT or interest paid to the REIT under a mortgage note of TWE would not be fully deductible for federal income tax purposes. Cash Flows During the first six months of 1999, TWE's cash provided by operations amounted to $1.519 billion and reflected $2.099 billion of EBITA from its Filmed Entertainment -Warner Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $406 million of noncash depreciation expense and $21 million of pro- ceeds from TWE's asset securitization program, less $242 million of interest payments, $49 million of income taxes, $36 million of corporate expenses, and $680 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $586 million in the first six months of 1998 reflected $1.082 billion of EBITA from its Filmed Entertainment-Wamer Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $469 million of noncash depreciation expense and $135 million of proceeds from TWE's asset securitization program, less $260 million of interest payments, $39 million 6 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) of income taxes, $36 million of corporate expenses and $765 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash used by investing activities was $662 million in the first six months of 1999, compared to $493 million in the first six months of 1998. The increase principally resulted from a $296 million decrease in investment proceeds relating to the 1998 sale of TWE's remaining interest in Six Flags Entertainment Corporation. The decrease in investment proceeds was partially offset by lower capital expenditures. Capital expenditures decreasedto $649 million in the first six months of 1999, compared to $734 million in the first six months of 1998. Cash used by financing activities was $827 million in the first six months of 1999, compared to $343 million in the first six months of 1998. The use of cash in 1999 principally resulted from the redemption of REIT Preferred Stock at an aggregate cost of $217 million, the payment of $280 million of capital distributions to Time Warner and $229 million of debt reduction. The use of cash in 1998 principally resulted from the payment of $298 million of capital distributions to Time Warnes offset in part by an $11 million increase in net borrowings. Management believes that TWE's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient_ tofund its capital and liquidity needs for the foreseeable future. Cable Capital Spending Time Warner Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which it believes will position the business for sustained, long- term growth. Capital spending by TWE's Cable division amounted to $587 million in the six months ended June 30, 1999, compared to $666 million in the six months ended June 30, 1998. Cable capital spending is expected to approximate $700 million for the remainder of 1999. Capital spending by TWE's Cable division is expected to continue to be funded by cable operating cash flow. Filmed Entertainment Backlog represents the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog of TWE's Filmed Entertainment-Wamer Bros. division amounted to $2.663 billion at June 30, 1999 (including amounts relating to the licensing of film product to TWE's cable television networks of $359 million and to Time Wamer's cable television networks of $655 million). This compares to $2.298 billion at December 31, 1998 (including amounts relating to the licensing of film product to TWE's cable television networks of $199 million and to Time Warner's cable television networks of $570 million). Because backlog generally relates to contracts for the licensing of theatrical and television productwhich have already been produced, the recognition of revenue for such completed product principally is dependent only upon the commencement of the availability period for telecast under the terms of the related licensing agreement. Cash licensing fees are collected periodically over the term of the related licensing agreements or on an accelerated basis using TWE's $500 million securitization facility. The portion of backlog for which cash has not already been received has significant off-balance sheet asset value as a source of future funding. The backlog excludes advertising 7 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) barter contracts, which are also expected to result in the future realization of revenues and cash through the sale of advertising spots received under such contracts. Year 2000 Technology Preparedness TWE, like most large companies, depends on many different computer systems and other chip -based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip -based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced. TWE's exposure to potential Year 2000 problems arises both in technological operations under the control of the Company and in those dependent on one or more third parties. These technological operations include information technology ("IT") systems and non -IT systems, including those with embedded technology, hardware and software. Most of TWE's potential Year 2000 exposures are dependent to some degree on one or more third parties. Failure to achieve high levels of Year 2000 compliance could have a material adverse impact on TWE and its financial statements. The Company's Year 2000 initiative is being conducted at the operational level by divisional project managers and senior technology executives overseen by senior divisional executives, with assistance internally as well as from outside professionals. The progress of each division through the different phases of remediation -- inventorying, assessment, remediation planning, implementation and final testing --is actively overseen and reviewed on a regular basis by an executive.oversight group. The Company has generally completed the process of identifying, assessing and planning the remediation of potential Year 2000 difficulties in its technological operations, including IT applications, IT technology and support, desktop hardware and software, non -IT systems and important third party operations, and distinguishing those that are "mission critical" from those that are not. An item is considered "mission critical" if its Year 2000 - related failure would significantly impair the ability of one of the Company's major business units to (1) produce, market and distribute the products or services that generate significant revenues for that business, (2) meet its obligations to pay its employees, artists, vendors and others or (3) meet its obligations under regulatory requirements and intemal accounting controls. The Company and its divisions have identified approximately 600 worldwide, "mission critical" potential exposures. Of these, as of June 30, 1999, approximately 72% have been identified by the divisions as Year 2000 compliant and approximately 28% as in the remediation implementation or final testing stages. The Company currently expects that remediation with respect to well over 90% of all these identified operations will be substantially completed in all material respects by the end of the third quarter of 1999. The Company, however could experience unexpected delays. The Company is currently planning to impose a "quiet" period at some point during the fourth quarter of 1999 during which any remaining remediation involving installation or modification of systems that interface with other systems will be minimized to permit the Company to conduct testing in a stable environment and to focus on its contingency and transition plans, as necessary. As stated above, however; the Company's business is heavily dependent on third parties and these parties are themselves heavily dependent on technology. For example, in a situation endemic to the cable industry, much of the Company's headend equipment that controls cable set-top boxes was not Year 2000 compliant. The box 8 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) manufacturers and cable industry groups together developed solutions that the Company has been installing in its headend equipment at its various geographic locations. The few remaining installations are currently scheduled during the third quarter of 1999. In addition, if a television broadcaster or cable programmer encounters Year 2000 problems that impede its ability to deliver its programming, the Company will be unable to provide that programming to its cable customers. Because the Company is also a programming supplier, third -party signal delivery problems would affect its ability to deliver its programming to its customers. The Company has attempted to include in its "mission critical" inventory significant service providers, vendors, suppliers, customers and governmental entities that are believed to be critical to business operations and is in various stages of completing its determination of their state of Year 2000 readiness through various means, including questionnaires, interviews, on-site visits, system interface testing and industry group participation. The Company continues to monitor these situations. Moreover TWE is dependent, like all large companies, on the continued functioning, domestically and internationally, of basic, heavily computerized services such as banking, telephony, water and power, and various distribution mechanisms ranging from the mail, railroads and trucking to high-speed data transmission. TWE is taking steps to attempt to satisfy itself that the third parties on which it is heavily reliant are Year 2000 compliant, are developing satisfactory contingency plans or that alternate means of meeting its requirements are available, but cannot predict the likelihood of such compliance nor the direct or indirect costs to the Company of non-compliance by those third parties or of securing such services from alternate compliant third parties. In areas in which the Company is uncertain about the anticipated. Year 2000 readiness of a significant third party, the Company is investigating available altematives, if any. The Company currently estimates that the aggregate cost of its Year 2000 remediation program, which started in 1996, will be approximately $50 to $85 million, of which an estimated 65% to 75% has been incurred through June 30, 1999. These costs include estimates of the costs of assessment, replacement, repair and upgrade, both planned and unplanned, of certain IT and non -IT systems and their implementation and testing. The Company anticipates that its remediation program, and related expenditures, may continue into 2001 as temporary solutions to Year 2000 problems are replaced with upgraded equipment. These expenditures have been and are expected to continue to be funded from the Company's operating cash flow and have not and are not expected to impact materially the Company's financial statements. Management believes that it has established an effective program to resolve all significant Year 2000 issues in its control in a timely manner As noted above, however the Company has not yet completed all phases of its program and is dependent on third parties whose progress is not within its control. In the event that the Company experiences unanticipated failures of the systems within its control, management believes that the Company could experience significant difficulty in producing and delivering its products and services and conducting its business in the Year 2000 as it has in the past. More importantly, disruptions experienced by third parties with which the Company does business as well as by the economy generally could materially adversely affect the Company. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company continues to focus its efforts on remediation of its Year 2000 exposures. Simultaneously, it is examining its existing standard business interruption strategies to evaluate whether they would satisfactorily meet the demands of failures arising from Year -2000 related problems. It is also developing and refining specific transition schedules and contingency plans in the event it does not successfully complete its remaining remediation as anticipated or experiences unforeseen problems outside the scope of these standard strategies. The Company intends to examine its status periodically to determine the necessity of implementing such contingency plans or additional 9 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) strategies, which could involve, among other things, manual workarounds, adjusting staffing strategies and sharing resources across divisions. Caution Concerning Forward -Looking Statements The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document, together with management's public commentary related thereto, contains such "forward-looking state- ments" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITA and cash flow. Words such as "anticipate", "estimate", "expects", "projects", "intends", "plans", "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward- looking statements are management's present expectations of future events. As with any projection or forecast, they are inherently susceptible to changes in circumstances, and TWE is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of such changes, new information, future events or otherwise. TWE operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political, social conditions in the countries in which they operate, consumer demand for their products and services, technological developments and (particularly in view of technological changes) protection of their intellectual property rights. TWE's actual results could differ materially from management's expectations because of changes in such factors. Some of the other factors that also could cause actual results to differ from those contained in the forward-looking statements include those identified in TWE's other filings and: • For TWE's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS; increases in government regulation of cable or equipment rates or other terms of service (such as "digital must -carry" or "unbundling" requirements); increased difficulty in obtaining franchise renewals; the failure of new equipment (such as digital set-top boxes) or services (such as high-speed on-line services or telephony over cable or video on demand) to function properly, to appeal to enough consumers or to be available at reasonable prices and to be delivered in a timely fashion; and greater than expected increases in programming or other costs. • For TWE's cable programming and television businesses, greater than expected programming or production costs; public and cable operator resistance to price increases (and the negative impact on premium programmers of increases in basic cable rates); increased regulation of distribution agreements; the sensitivity of advertising to economic cyclicality; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television. • For TWE's film and television businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; increases in production costs generally; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant 10 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. •MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments such as DVD and the Internet. For TWE's digital media businesses, their ability to develop products and services that are attractive, accessible and commercially viable in terms of content, technology and cost, their ability to manage costs and generate revenues, aggressive competition from existing and developing technologies and products, the resolution of issues concerning commercial activities via the Internet, including security, reliability, cost, ease of use and access, and the possibility of increased government regulation of new media services. The ability of the Company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Year 2000 issue, including their ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of the Company's remediation plans and the ability of third parties to address adequately their own Year 2000 issues. In addition, TWE's overall financial strategy, including growth in operations, maintaining its financial ratios and strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, consequences of the euro conversion and changes in TWE's plans, strategies and intentions. 11 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS Current assets Cash and equivalents $ 117 $ 87 Receivables, including $469 and $765 million due from Time Warne; less allowances of $476 and $506 million 2,639 2,618 Inventories 1,247 1,312 Prepaid expenses 220 166 Total current assets 4,223 4,183 Noncurrent inventories 2,114 2,327 Loan receivable from Time Wamer 400 400 Investments 903 886 Property, plant and equipment 6,302 6,041 Cable television franchises 4,527 3,773 Goodwill 3,795 3,854 Other assets 625 766 June 30, December 31, 1999 1998 (millions) Total assets $22,889 $22,230 LIABILITIES AND PARTNERS' CAPITAL Current liabilities Accounts payable $ 1,400 $ 1,473 Participations and programming costs payable 1,494 1,515 Debt due within one year 6 6 Other current liabilities, including $365 and $370 million due to Time Warner 1,845 1.942 Total current liabilities 4,745 4,936 Long-term debt 6,535 6,578 Other long-term liabilities, including $1.347 and $1.130 billion due to Time Warner 3,527 3,267 Minority interests 1,744 1,522 Preferred stock of subsidiary holding solely a mortgage note of its parent - 217 Time Wamer General Partners' Senior Capital 627 603 Partners' capital Contributed capital 7,341 7,341 Undistributed partnership deficit (1,630) (2,234) Total partners' capital 5,711 5,107 Total liabilities and partners' capital $22,889 $22,230 See accompanying notes. 12 • • TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 1999 1998 1999 1998 (millions) Revenues (a) $3.060 $2.850 $5.994 $5.760 Cost of revenues (a)(b) (1,985) (1,876) (3,904) (3,836) Selling, general and administrative (a)(b) (623) (589) (1,202) (1,184) Gain on sale or exchange of cable systems and investments 760 70 760 84 Gain on early termination of video distribution agreement 215 Business segment operating income 1,212 455 1,863 824 Interest and other, net (a) (167) (183) (392) (347) Minority interest (233) (82) (301) (146) Corporate services (a) (18) (18) (36) (36) Income before income taxes 794 172 1,134 295 Income taxes (27) (17) (55) (32) Net income $ 767 $ 155 $1,079 $ 263 (a) Includes the following income (expenses) resulting from transactions with the partners of TWE and other related companies for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year: revenues -$152 million and $272 million in 1999, $118 million and $247 million in 1998; cost of revenues -$(58) million and $(136) million in 1999, $(55) million and $(93) million in 1998; selling, general and administrative -$(12) million and $(16) million in 1999, $(3) million and $(2) million in 1998; interest and other, net -$8 million and $28 million in 1999, $3 million and $5 million in 1998; and corporate services -$(18) million and $(36) million in each of 1999 and 1998. (b) Includes depreciation and amortization expense of: $334 $356 $642 S727 See accompanying notes. 13 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1999 1998 (millions) OPERATIONS Net income $1,079 $263 Adjustments for noncash and nonoperating items: Depreciation and amortization 642 727 Changes in operating assets and liabilities (202) (404) Cash provided by operations 1,519 586 INVESTING ACTIVITIES Investments and acquisitions (223) (265) Capital expenditures (649) (734) Investment proceeds 210 506 Cash used by investing activities (662) (493) FINANCING ACTIVITIES Borrowings 1,310 503 Debt repayments (1,539) (492) Redemption of preferred stock of subsidiary (217) Capital distributions (280) (298) Other (101) (56) Cash used by financing activities (827) (343) INCREASE (DECREASE) IN CASH AND EQUIVALENTS 30 (250) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 87 322 CASH AND EQUIVALENTS AT END OF PERIOD $ 117 5 72 See accompanying notes. 14 d • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL (Unaudited) Six Months Ended June 30, 1999 1998 (millions) BALANCE AT BEGINNING OF PERIOD $5,107 $6,333 Net income 1,079 263 Other comprehensive income (loss) 47 (16) Comprehensive income(a) 1,126 247 Distributions (497) (552) Allocation of income to Time Wamer General Partners' Senior Capital (24) (45) Other BALANCE AT END OF PERIOD $5.711 $5.983 (a) Comprehensive income for the three months ended June 30, 1999 and 1998 was $773 million and S153 million, respectively. See accompanying notes. 15 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Time Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. Each of the business interests within Cable Networks, Entertainment and Cable is important to TWE's objective of increasing partner value through the creation, extension and distribution of recognizable brands and copyrights throughout the world. Such brands and copyrights include (1) HBO and Cinemax, the leading pay television services, (2) the unique and extensive film, television and animation libraries of Warner Bros. and trademarks such as the Looney Tunes characters and Batman, (3) The WB Network, a national broadcasting network launched in 1995 as an extension of the Warner Bros. brand and as an additional distribution outlet for Warner Bros.' collection of children's cartoons and television programming, and (4) Time Warner Cable, currently the largest operator of cable television systems in the U.S. The operating results of TWE's various business interests are presented herein as an indication of financial performance (Note 8). Except for start-up losses incurred in connection with The WB Network, TWE's principal business interests generate significant operating income and cash flow from operations. The cash flow from operations generated by such business interests is considerably greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized principally in Time Warner Companies, Inc.'s ("Time Warner") $14 billion acquisition of Warner Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority interest in American Television and Communications Corporation ("ATC") in 1992, a portion of which cost was allocated to TWE upon the capitalization of the partnership. Noncash amortization of intangible assets recorded by TWE's businesses amounted to $120 million and $130 million in the three months ended June 30, 1999 and 1998, respectively and $236 million and $258 million for the six months ended June 30, 1999 and 1998, respectively. Time Warner and certain of its wholly owned subsidiaries collectively own general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne"). Certain of Time Warner's subsidiaries are the general partners of TWE ("Time Warner General Partners"). Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly `,')the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial 16 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) statements should be read in conjunction with the audited consolidated financial statements of TWE included in its Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K"). Certain reclassifica- tions have been made to the prior year's financial statements to conform to the 1999 presentation. 2. GAIN ON TERMINATION OF MGM VIDEO DISTRIBUTION AGREEMENT In March 1999, Wamer Bros. and Metro-Goldwyn-Maye; Inc. ("MGM") terminated a long-term distribution agreement under which Warner Bros. had exclusive worldwide distribution rights for MGM/United Artists home video product. In connection with the early termination and settlement of this distribution agreement, Warner Bros. recognized a net pretax gain of approximately $215 million, which has been included in operating income in the accompanying consolidated statement of operations. 3. GAIN ON SALE OR EXCHANGE OF CABLE TELEVISION SYSTEMS AND INVESTMENTS In 1999 and 1998, largely in an effort to enhance their geographic clustering of cable television properties, TWE sold or exchanged various cable television systems and investments. The 1999 transactions included a large exchange of cable television systems serving approximately 450,000 subscribers for other cable television systems of comparable size owned by TCI Communications, Inc., a subsidiary of AT&T Corp. As a result of these transactions, the operating results of TWE's Cable division include net pretax gains for the second quarter of $760 million in 1999 and $70 million in 1998. Net pretax gains for the first half of the year amounted to $760 million in 1999 and $84 million in 1998. 4. INVESTMENT IN PRIMESTAR TWE owns an approximate 24% equity interest in Primestar Inc. ("Primestar"). In January 1999, Primestar an indirect wholly owned subsidiary of Primestar and the stockholders of Primestar entered into an agreement to sell Primestar's medium -power direct broadcast satellite business and assets to DirecTV a competitor of Primestar owned by Hughes Electronics Corp. In addition, a second agreement was entered into with DirecTV pursuant to which DirecTV agreed to purchase Primestar's rights with respect to the use or acquisition of certain high-power satellites from a wholly owned subsidiary of one of the stockholders of Primestat In April 1999, Primestar closed on the sale of its medium -power direct broadcast satellite business to DirecTV Then, in June 1999, Primestar completed the sale of its high-power satellite rights to DirecTV. As a result of those transactions, Primestar began to substantially wind down its operations during the first quarter of 1999. TWE recognized its share of Primestar's 1999 losses under the equity method of accounting. Such losses are included in interest and other net, in the accompanying consolidated statement of operations. Future wind - down losses are not expected to be material to TWE's operating results. 17 1 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 5. INVENTORIES TWE's inventories consist of: June 30, 1999 December 31. 1998 Current Noncurrent Current Noncurrent (millions) Film costs: Released, less amortization $ 529 $ 778 $ 614 $ 744 Completed and not released 224 64 179 76 In process and other 54 367 23 572 Library, less amortization - 534 560 Programming costs, less amortization 361 371 426 375 Merchandise 79 70 Total $1.247 52.114 $1,312 $2.327 6. PREFERRED STOCK OF SUBSIDIARY In February 1997, a newly formed, substantially owned subsidiary of TWE (the "REIT") issued 250,000 shares of preferred stock ("REIT Preferred Stock"). The REIT was intended to qualify as a real estate investment trust under the Intemal Revenue Code of 1986, as amended. In March 1999, the REIT redeemed all of its shares of REIT Preferred Stock at an aggregate cost of 5217 million, which approximated net book value. The redemption was funded with borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of proposed changes to federal tax regulations that substantially increased the likelihood that dividends paid by the REIT or interest paid to the REIT under a mortgage note of TWE would not be fully deductible for federal income tax purposes. 7. PARTNERS' CAPITAL TWE is required to make distributions to reimburse the partners for income taxes at statutory rates based on their allocable share of taxable income, and to reimburse Time Warner for stock options granted to employees of TWE based on the amount by which the market price of Time Warner Inc. common stock exceeds the option exercise price on the exercise date or, with respect to options granted prior to the TWE capitalization on June 30, 1992, the greater of the exercise price or the $13.88 market price of Time Warner Inc. common stock at the time of the TWE capitalization. TWE accrues a stock option distribution and a corresponding liability with respect to unexercised options when the market price of Time Warner Inc. common stock increases during the accounting period, and reverses previously accrued stock option distributions and the corresponding liability when the market price of Time Warner Inc. common stock declines. During the six months ended June 30, 1999, TWE accrued $138 million of tax -related distributions and $359 million of stock option distributions, based on closing prices of Time Warner Inc. common stock of $72.63 at June 30, 1999 and $62.06 at December 31, 1998. During the six months ended June 30, 1998, TWE accrued $138 million of tax -related distributions and $414 million of stock option distributions as a result of an increase at that time in the market price of Time Warner Inc. common stock. During the six months ended June 30, 1999, TWE paid distributions to the Time Warner General Partners in the amount of $280 million, consisting of $138 million of tax - related distributions and $142 million of stock option related distributions. During the six months ended June 30, 18 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 1998, TWE paid the Time Warner General Partners distributions in the amount of $298 million, consisting of $138 million of tax -related distributions and $160 million of stock option related distributions. In July 1999, TWE borrowed $627 million under its bank credit agreement and paid a distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Warner used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. 8. SEGMENT INFORMATION TWE classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, televisionproduction and televisionbroadcasting; and Cable, consisting principally of interests in cable television systems. Information as to the operations of TWE in different business segments is set forth below based on the nature of the products and services offered. TWE evaluates performance based on several factors, of which the primary financial measure is business segment operating income before noncash amortization of intangible assets ("EBITA"). The operating results of TWE's cable segment reflect: (i) the transfer of Time Warner Cable's direct broadcast satellite operations to Primestar; a separate holding company, effective as of April 1, 1998, (ii) the formation of the Road Runner joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed online businesses, effective as of June 30, 1998, (iii) the reorganization of Time Warner Cable's business telephony operations into a separate entity now named Time Warner Telecom Inc., effective as of July 1, 1998 and (iv) the formation of a joint venture in Texas that owns cable television systems serving approximately 1.1 million subscribers, effective as of December 31, 1998 (collectively, the "1998 Cable Transactions"). These transactions are described more fully in TWE's 1998 Form 10-K. Three Months Ended June 30, Six Months Ended June 30, 1999 1998 1999 1998 (millions) Revenues Filmed Entertainment -Warner Bros $1,446 $1,327 $2,826 $2,637 Broadcasting -The WB Network 83 61 162 106 Cable Networks -HBO 546 509 1,072 1,021 Cable 1,114 1,084 2,188 2,237 Intersegment elimination (129) (131) (254) (241) Total $3,060 $2,850 $5,994 $5,760 19 • EBITA') Filmed Entertainment -Warner Bros.(2) $ 132 $121 $ 478 $ 240 Broadcasting -The WB Network (30) (23) (71) (61) Cable Networks -HBO 131 113 256 222 Cablel3) 1,099 374 1,436 681 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 1999 1998 1999 1998 (millions) Total $1,332 $585 $2,099 $1,082 (1) EBITA represents business segment operating income before noncash amortization of intangible assets. After deducting amortization of intangible assets, TWE's business segment operating income for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year was $1.212 billion and $1.863 billion in 1999 and $455 million and $824 million in 1998. (2) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a Tong -term home video distribution agreement. (3) Includes net pretax gains relating to the sale or exchange of certain cable television systems of $760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. Three Months Six Months Ended June 30, . - - Ended June -30. 1999 1998 1999 1998 Depreciation of Property, Plant and Equipment Filmed Entertainment -Warner Bros $ 36 $ 38 $ 65 $ 78 Broadcasting -The WB Network 1 1 - Cable Networks -HBO 6 5 13 10 Cable 171 183 327 381 Total $214 $226 $406 $469 (millions) Amortization of Intangible Assets (1) Filmed Entertainment -Warner Bros $ 31 $ 33 $ 61 $ 66 Broadcasting -The WB Network 1 1 2 2 Cable Networks -HBO - Cable 88 96 173 190 Three Months Six Months Ended June 30, Ended June 30. 1999 1998 1999 1998 (millions) Total $120 $130 $236 $258 (1) Amortization includes amortization relating to all business combinations accounted for by the purchase method, including Time Warner's $14 billion acquisition of WCI in 1989 and $1.3 billion acquisition of the minority interest in ATC in 1992. 9. COMMITMENTS AND CONTINGENCIES TWE is subject to numerous legal proceedings. In management's opinion and considering established reserves, the resolution of these matters will not have a material effect, individually and in the aggregate, on TWE's consolidated financial statements. 20 • • • TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 10. ADDITIONAL FINANCIAL INFORMATION Six Months Ended June 30, 1999 1998 (millions) Interest expense $273 $273 Cash payments made for interest 242 260 Cash payments made for income taxes, net 49 39 Noncash capital distributions 359 414 Noncash investing activities included the exchange of certain cable television systems in 1999 and 1998 (see Note 3). Noncash investing activities in the first six months of 1998 also included the transfer of cable television systems (or interests therein) serving approximately 650,000 subscribers that were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, as well as certain related transactions (collectively, the "TWE-A/N Transfers"). For a more comprehensive description of the TWE-A/N Transfers, see TWE's 1998 Form 10-K. 21 • • • TWE GENERAL PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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's Filmed Entertainment -Warner Bros., Cable Networks -HBO 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"). 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 (collectively, the "General Partners"). They have succeeded to the general partnership interests and have assumed the General Partner Guarantees of the eleven former general partners. Set forth below is a discussion of the results of operations and financial condition of WCI, the only General Partner with independent business operations. 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. The financial position and results of operations of ATC are principally derived from its investments in TWE, TW Companies, Turner Broadcasting System, Inc. and Time Warner Telecom Inc. and its revolving credit agreement with TW Companies. Capitalized terms are as defined and described in the accompanying consolidated financial statements, or elsewhere herein. Columbia House-CDnow Merger In July 1999, Time Wamer Inc. '("Time Warner") announced an agreement with Sony Corporation of America ("Sony") to merge their jointly owned Columbia House operations with CDnow, Inc. ("CDnow"), a leading music and video e-commerce company. Time Warne; almost entirely through WCI, and Sony will each own 37% of the combined entity and the existing CDnow shareholders will own 26% of the combined entity. This investment is expected to be accounted for using the equity method of accounting. With a combined reach of nearly 10% of all Internet users*, the combined entity is expected to create a significant platform for Time Warner's music and video e-commerce initiatives and position WCI for incremental growth opportunities relating to online sales of music product and the digital distribution of music. In addition, management believes that the use of Columbia House's existing active club members and the cross -promotional opportunities to be offered by Time Warner and Sony will lower customer acquisition costs and increase the combined entity's customer base. As part of this transaction, Time Warner and Sony each have made certain strategic and financial commitments to the combined entity. Among the strategic commitments, which have a term of five years and are subject to certain conditions and qualifications, Time Warner and Sony will provide the combined entity with opportunities to purchase advertising and promotional support from their diverse media properties. In addition, as part of their commitment to make the combined entity their primary vehicle to pursue the packaged music e- commerce business, Time Wamer and Sony will link their own music -controlled web sites in the U.S. and Canada • As measured by MediaMetrix as of June 1999. 22 • TWE GENERAL PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) to .the combined entity's web sites. This will enable consumers to sample content from their favorite artists and genres and then immediately make a purchase. Time Warner and Sony have also each agreed to guarantee, for a three-year period, one-half of the borrowings under a new credit facility to be entered into by the combined entity upon the closing of the merger The credit facility is expected to provide for up to $450 million of borrowings, which will be used to support the ongoing growth and capital needs of the business and to refinance approximately $300 million of existing debt and liabilities of Columbia House. WCI will not guarantee any of such borrowings. The merger is expected to close by the end of 1999 and is subject to customary closing conditions, including regulatory approvals and approval by existing CDnow shareholders. There can be no assurance that such approvals will be obtained. Use of EBITA WCI evaluates operating performance based on several factors, including its primary financial measure of operating income before noncash amortization of intangible assets ("EBITA"). Consistent with management's finan- cial focus on controlling capital spending, EBITA measures operating performance after charges for depreciation. The exclusion of noncash amortization charges is consistent with management's belief that WCI's intangible assets, such as music catalogues and copyrights and the goodwill associated with its brands, are generally increasing in value and importance to WCI's business objective of creating, extending and distributing recognizable brands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of WCI includes, among other factors, an analysis of changes in business segment EBITA. However, EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles. RESULTS OF OPERATIONS Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30, 1998 WCI had revenues of $828 million and net income of $353 million for the three months ended June 30, 1999, compared to revenues of $905 million and net income of $77 million for the three months ended June 30, 1998. EBITA increased to $100 million from $94 million. Operating income increased to $33 million from $26 million. Revenues decreased primarily due to lower international recorded music sales and, to a lesser extent, lower domestic recorded music sales. The revenue decline principally related to lower sales of new releases in comparison to the prior yeas which benefited from popular releases by established artists, like Madonna and Eric Clapton. Despite the revenue decrease, EBITA and operating income increased due to higher results from domestic recorded music operations, which benefited from increased cost savings, lower artist royalty costs and improved results from joint ventures that had successful releases during the period. The improvements in domestic recorded music operations were offset in part by lower results from intemational recorded music operations relating to lower international sales. Management expects that the revenue decline relating to lower worldwide sales levels will continue into the third quarter of 1999, which could negatively affect operating results. WCI's equity in the pretax income of TWE was $470 million for the three months ended June 30, 1999, compared to $102 million for the three months ended June 30, 1998. TWE's pretax income increased in 1999 as 23 • TWE GENERAL PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) compared to 1998 because of the effect of certain significant nonrecurring items recognized in each period, as described more fully in Note 2 to the accompanying consolidated financial statements. These nonrecurring items consisted of $760 million of net pretax gains in 1999, compared to $70 million of net pretax gains in 1998. Excluding the effect of these nonrecurring items, TWE's pretax income increased to $192 million in 1999 from $117 million in 1998. This increase principally resulted from an overall increase in TWE's business segment operating income. Interest and other; net was income of $76 million in the second quarter of 1999, compared to income of $16 million in the second quarter of 1998. Interest expense was $6 million in 1998 and 1999. Other income, net, increased to $82 million in the second quarter of 1999, compared to $22 million in the second quarter of 1998. The increase principally related to the recognition of an approximate $53 million pretax gain in 1999 in connection with the initial public offering of a 20% interest in Time Warner Telecom Inc. (the "Time Wamer Telecom IPO"), a competitive local exchange carrier that provides telephony services to businesses. Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998 WCI had revenues of $1.764 billion and net income of $471 million for the six months ended June 30, 1999, compared to revenues of $1.793 billion and net income of $119 million for the six months ended June 30, 1998. EBITA increased to $194 million from $186 million. Operating income increased to $64 million from $54 million. Revenues decreasedprimarily due to lower international recorded music sales and a decline in music publishing reve- nues, offset in part by a marginal increase in domestic recorded music revenues. The international revenue decline principally related to lower sales of new releases in comparison to the prior yea; which benefited from popular releases by established artists, like Madonna and Eric Clapton. Despite the revenue decrease, EBITA and operating income increased due to higher results from domestic recorded music operations, which benefited from increased cost savings, lower artist royalty costs and improved results from joint ventures that had successful releases during the period. The improvements in domestic recorded music operations were offset in part by lower results from inter- national recorded music operations relating to lower international sales levels and less licensing income from direct - marketing activities. Management expects that the revenue decline relating to lower worldwide sales levels will continue into the third quarter of 1999, which could negatively affect operating results. WCI's equity in the pretax income of TWE was $672 million for the six months ended June 30, 1999, com- pared to $175 million for the six months ended June 30, 1998. TWE's pretax income increased in 1999 as compared to 1998 because of the effect of certain significant nonrecurring items recognized in each period, as described more fully in Note 2 to the accompanying consolidated financial statements. These nonrecurring items consisted of approximately $1 billion of net pretax gains in 1999, compared to $84 million of net pretax gains in 1998. Excluding the significant effect of these nonrecurring items, TWE's pretax income increased to $317 million in 1999 from $231 million in 1998. This improvement principally resulted from an overall increase in TWE's business segment operating income, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting. Interest and other, net was income of $80 million for the six months ended June 30, 1999, compared to income of $15 million for the six months ended June 30, 1998. Interest expense was $10 million in 1999 and 1998. There was other income, net, of $90 million in 1999, compared to other income, net, of $25 million in 1998, 24 • TWE GENERAL PARTNERS •MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) principally because of an approximate $53 million pretax gain recognized in connection with the Time Warner Telecom IPO. The relationship between income before income taxes and income tax expense for the General Partners is principally affected by the amortization of goodwill and certain other financial statement expenses that are not de- ductible for income tax purposes. 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. FINANCIAL CONDITION AND LIQUIDITY June 30, 1999 Financial Condition WCI had $8.0 billion of equity at June 30, 1999, compared to $7.7 billion of equity at December 31, 1998. Cash and equivalents decreased to $113 million at June 30, 1999, compared to $160 million at December 31, 1998. WCI had no long-term debt due to TW Companies under its revolving credit agreement at the. end of either period. ATC had $1.8 billion of equity at June 30, 1999, compared to $1.5 billion of equity at December 31, 1998. Senior Capital Distributions In July 1999, TWE paid a $627 million distribution to the General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Of the $627 million distribution, WCI and ATC received $372 million and $255 million, respectively. Cash Flows During the first six months of 1999, WCI's cash provided by operations amounted to $15 million and reflected $194 million of EBITA, $35 million of noncash depreciation expense, $166 million of distributions from TWE, $42 million of proceeds received under WCI's asset securitization program, less $6 million of interest payments, $352 million of income taxes ($284 million of which was paid to TW Companies under a tax sharing agreement) and $64 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. In the first six months of 1998, WCI's cash provided by operations of $115 million reflected $186 million of EBITA, $38 million of noncash depreciation expense and $177 million of distributions from TWE, less $5 million of interest payments, $103 million of income taxes ($71 million of which was paid to TW Companies under a tax sharing agreement), $172 million of proceeds repaid under WCI's asset securitization program and $6 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash used by investing activities was $55 million in the first six months of 1999, compared to $2 million in 1998, principally as a result of a decrease in investment proceeds and an increase in capital spending. 25 • • TWE GENERAL PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Cash used by financing activities was $7 million in the first six months of 1999, compared to $74 million in the first six months of 1998, principally as a result of lower advances to TW Companies and decreased dividend payments. The assets and cash flows of TWE are restricted by certain borrowing and partnership agreements and are unavailable to the General Partners except through the payment of certain reimbursements and cash distributions, which are subject to limitations. Under its bank credit agreement, TWE is permitted to incur additional indebtedness to make distributions and other cash payments to the General Partners subject to its individual compliance with the cash flow and leverage ratio covenants contained therein. Management believes that WCI's operating cash flow, cash and equivalents and additional borrowing capacityunder its revolving credit agreement with TW Companies are sufficient to fund its capital and liquidity needs for the foreseeable future without distributions from TWE above those permitted by existing agreements. 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. Year 2000 Technology Preparedness WCI, together with TWE and like most large companies, depends on many different computer systems and other chip -based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip -based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced. WCI's exposure to potential Year 2000 problems arises both in technological operations under the control of WCI and in those dependent on one or more third parties. These technological operations include information technology ("IT") systems and non -IT systems, including those with embedded technology, hardware and software. Most of WCI's potential Year 2000 exposures are dependent to some degree on one or more third parties. Failure to achieve high levels of Year 2000 compliance could have a material adverse impact on WCI and its financial statements. WCI's Year2000 project has several phases: inventorying, assessment, remediationplanning, implementation and final testing. WCI's progress through these phases is actively overseen by a senior technology executive who reports on a regular basis to the senior financial executive. Assistance is obtained, when appropriate, from both internal and outside professional sources. WCI has generally completed the process of identifying, assessing and planning the remediation of potential Year 2000 difficulties in its technological operations, including IT applications, IT technology and support, desktop hardware and software, non -IT systems and important third party operations, and distinguishing those that are "mission critical" from those that are not. An item is considered "mission critical" if its Year -2000 related failure would significantly impair the ability of one of WCI's major business units to (1) produce, market and distribute the products or services that generate significant revenues for that business, (2) meet its obligations to pay its employees, artists, vendors and others or (3) meet its obligations under regulatory requirements and internal accounting controls. 26 • • • TWE GENERAL PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) WCI has identified approximately 200 worldwide, "mission critical" potential exposures. Of these, as of June 30, 1999, approximately 82% have been identified as Year 2000 compliant and the remaining 18% as in the remediation implementation or final testing stages. WCI currently expects that remediation with respect to substantially all of all these identified operations will be substantially completed in all material respects by the end of the third quarter of 1999. WCI, however could experience unexpected delays. WCI is currently planning to impose a "quiet" period at some point during the fourth quarter of 1999 during which any remaining remediation involving installation or modification of systems that interface with other systems will be minimized to permit WCI to conduct testing in a stable environment and to focus on its contingency and transition plans, as necessary. As stated above, however WCI's business is dependent on third parties and these parties are themselves dependent on technology. hi some cases, WCI's third party dependence is on vendors of technology who are themselves working toward solutions to Year 2000 problems. WCI has attempted to include in its "mission critical" inventory significant service providers, vendors, suppliers, customers and governmental entities that are believed to be critical to business operations and is in various stages of completing its determination of their state of Year 2000 readiness through various means, including questionnaires, interviews, on-site visits, system interface testing and industry group participation. WCI continues to monitor these situations. Moreovei WCI is dependent, like all large companies, on the continued functioning, domestically and internationally, of basic, heavily computerized services .. such as banking, telephony, water and power, and various distribution mechanisms ranging from the mail, railroads and trucking to high-speed data transmission. WCI is taking steps to attempt to satisfy itself that the third parties on which it is heavily reliant are Year 2000 compliant, are developing satisfactory contingency plans or that alternate means of meeting its requirements are available, but cannot predict the likelihood of such compliance nor the direct or indirect costs to WCI of non-compliance by those third parties or of securing such services from alternate compliant third parties. In areas in which WCI is uncertain about the anticipated Year 2000 readiness of a significant third party, WCI is investigating available altematives, if any. WCI currently estimates that the aggregate cost of its Year 2000 remediation program, which started in 1996, will be approximately $25 to $40 million, of which an estimated 80% to 90% has been incurred through June 30, 1999. These costs include estimates of the costs of assessment, replacement, repair and upgrade, both planned and unplanned, of certain IT and non -IT systems and their implementation and testing. WCI anticipates that its remediation program, and related expenditures, may continue into 2001 as temporary solutions to Year2000 problems are replaced with upgraded equipment. These expenditures have been and are expected to continue to be funded from WCI's operating cash flow and have not and are not expected to impact materially WCI's financial statements. In addition to the foregoing areas, WCI is also exposed to potential Year 2000 problems encountered by TWE in technological operations under its control and those dependent on one or more third parties. ATC, while not having any independent operations, is similarly exposed to potential Year 2000 problems encountered by TWE. Although WCI and ATC anticipate that TWE will successfully complete its efforts to be Year 2000 compliant in all material respects in advance of January 1, 2000, failure by TWE to achieve high levels of Year 2000 compliance could have a material adverse impact on WCI and ATC. For a discussion of TWE's Year 2000 technology prepared- ness, see TWE's Management's Discussion and Analysis of Results of Operations and Financial Condition included elsewhere herein. 27 • • TWE GENERAL PARTNERS .MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Management believes that it has established an effective program to resolve all significant Year 2000 issues in its control in a timely manner As noted above, howeve>; WCI has not yet completed all phases of its program and is dependent on third parties whose progress is not within its control. In the event that WCI experiences unanticipated failures of systems within its control, management believes that WCI could experience significant difficulty in producing and delivering its products and services and conducting its business in the Year 2000 as it has in the past. More importantly, disruptions experienced by third parties with which WCI does business as well as by the economy generally could materially adversely affect WCI. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. WCI continues to focus its efforts on remediation of its Year 2000 exposures. Simultanteously, it is examining its existing standard business interruption strategies to evaluate whether they would satisfactorily meet the demands of failures arising from Year 2000 -related problems. It is also developing and refining specific transition schedules and contingency plans in the event it does not successfully complete its remaining remediation as anticipated or experiencesunforeseenproblems outside the scope of these standard strategies. WCI intends to examine its status periodically to determine the necessity of implementing such contingency plans or additional strategies, which could involve, among other things, manual workarounds, adjusting staffing strategies and sharing resources across divisions. The discussion of WCI's expectations with respect to its Year 2000 remediation plans is based on manage- ment's current expectations of future events. As with any projection, it is inherently susceptible to changes in circum- stances. WCI's actual results could differ materially from management's expectations as a result of such factors as the ability of WCI and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Year 2000 issue, including their ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of WCI's remediation plans and the ability of third parties to adequately address their own Year 2000 issues. 28 • • TWE GENERAL PARTNERS CONSOLIDATED BALANCE SHEETS (Unaudited) WCI ATC June 30, December 31, June 30, December 31, 1999 1998 1999 1998 (millions) ASSETS Current assets Cash and equivalents $ 113 $ 160 $ $ Receivables, less allowances of $235 and $278 million 856 1,454 Inventories 139 151 Prepaid expenses 755 670 Total current assets 1,863 2,435 - Investments in and amounts due to and from TWE 2,377 1,632 1,850 1,494 Investments in TW Companies 103 103 61 61 Other investments 1,435 1,350 441 404 Music catalogues, contracts and copyrights 824 876 Goodwill 3,445 3,509 Other assets, primarily property, plant and equipment 435 443 Total assets $10,482 $10,348 $2,352 $1,959 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts and royalties payable $ 950 $ 1,079 $ $ Other current liabilities 434 548 Total current liabilities 1,384 1,627 Long-term liabilities, including $799, $670, $565 and $477 million due to TW Companies 1,067 1,020 565 477 Shareholders' equity Common stock 1 1 1 1 Preferred stock of WCI, $.01 par value, 90,000 shares outstanding, $90 million liquidation preference - Paid -in capital 10,195 10,195 2.523 2,523 Retained earnings (accumulated deficit) 249 (1) (192) (360) 10,445 10,195 2,332 2,164 Due from TW Companies, net (1,828) (1,908) (209) (346) Reciprocal interest in TW Companies stock (586) (586) (336) (336) Total shareholders' equity 8,031 7,701 1,787 1,482 Total liabilities and shareholders' equity $10,482 $10,348 $2,352 $1,959 See accompanying notes. 29 • • • TWE GENERAL PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, (Unaudited) WCI ATC 1999 1998 1999 1998 (millions) Revenues (a) $828 $905 $ - $ - Cost of revenues (a)(b) 491 555 Selling, general and administrative (a)(b) 304 324 Operating expenses 795 879 Business segment operating income 33 26 Equity in pretax income of TWE (a) 470 102 324 70 Interest and other, net (a)(c) 76 16 44 9 Income before income taxes 579 144 368 79 Income taxes (a) _ (226) (67) (144) (33) Net income $353 $ 77 $224 $ 46 (a) Includes the following income (expenses) resulting from transactions with Time Warner, TW Companies, TWE or equity investees of the General Partners: Revenues $ 49 $ (2) $ - $ - Cost of revenues (7) (2) - Selling, general and administrative (9) (5) Equity in pretax income of TWE (9) (3) Interest and other, net 35 30 Income taxes (199) (36) (133) (26) (b) Includes depreciation and amortization expense of: $ 85 $ 87 $ - $ - (c) Includes an approximate $53 million pretax gain recognized by WCI and $36 million recognized by ATC in the second quarter of 1999 in connection with the initial public offering of a 20% interest in Time Warner Telecom, Inc. See accompanying notes. 30 • • TWE GENERAL PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended June 30, (Unaudited) WCI ATC 1999 1998 1999 1998 (millions) Revenues (a) $1,764 $1,793 $ - $ Cost of revenues (a)(b) 1,034 1,131 Selling, general and administrative (a)(b) 666 608 Operating expenses 1,700 1,739 Business segment operating income 64 54 Equity in pretax income of TWE (a) 672 175 462 120 Interest and other, net (a)(c) 80 15 48 14 Income before income taxes 816 244 510 134 Income taxes (a) (345) (125) (205) (60) Net income $ 471 $ 119 $ 305 $ 74 (a) Includes the following income (expenses) resulting from transactions with Time Warne; TW Companies, TWE or equity investees of the General Partners: Revenues $ 113 $ 46 $ - $ - Cost of revenues (12) (11) - Selling, general and administrative (10) (2) Equity in pretax income of TWE (25) (12) - Interest and other, net 65 38 - Income taxes (284) (71) (183) (47) (b) Includes depreciation and amortization expense of: $ 165 $170 $ - $ - (c) Includes an approximate $53 million pretax gain recognized by WCI and $36 million recognized by ATC in the second quarter of 1999 in connection with the initial public offering of a 20% interest in Time Warner Telecom, Inc. See accompanying notes. 31 1 TWE GENERAL PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (Unaudited) WCI ATC 1999 1998 1999 1998 (millions) OPERATIONS Net income $471 $119 $305 $ 74 Adjustments for noncash and nonoperating items: Depreciation and amortization 165 170 - Excess (deficiency) of distributions over equity in pretax income of TWE (506) 2 (348) 1 Equity in losses (income) of other investee companies after distributions (3) 48 (2) Changes in operating assets and liabilities (112) (224) (34) (1) Cash provided (used) by operations 15 115 (79) 74 INVESTING ACTIVITIES Investments and acquisitions (20) (22) Capital expenditures (60) (44) S Investment proceeds 25 64 Cash used by investing activities (55) _(2) • FINANCING ACTIVITIES Dividends (87) (98) (58) (65) Decrease (increase) in amounts due from TW Companies, net 80 24 137 j2) Cash provided (used) by financing activities 'f1) 79 (74) INCREASE (DECREASE) IN CASH AND EQUIVALENTS (47) 39 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 160 102 CASH AND EQUIVALENTS AT END OF PERIOD $113 $141 5 - $ - See accompanying notes. 32 • • • TWE GENERAL PARTNERS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Six Months Ended June 30, (Unaudited) WCI ATC 1999 1998 1999 1998 (millions) BALANCE AT BEGINNING OF PERIOD $7,701 $8,521 $1,482 $2,087 Net income 471 119 305 74 Other comprehensive income (loss) (6) (19) 9 (7) Comprehensive income (a) 465 100 314 67 Increase in stock option distribution liability to TW Companies (b) (213) (246) (146) (168) Dividends (3) (3) Transfers to TW Companies, net 80 24 137 (9) Other 1 1 BALANCE AT END OF PERIOD $8,031 $8,397 $1,787 $1,977 (a) Comprehensive income for WCI was $354 million and $76 million for the three months ended June 30, 1999 and 1998, respectively. Comprehensive income for ATC was $225 million and $43 million for the three months ended June 30, 1999 and 1998, respectively. (b) The General Partners record distributions to TW Companies and a corresponding receivable from TWE as a result of the stock option related distribution provisions of the TWE partnership agreement. Stock option distributions of $213 million and $246 million for WCI and $146 million and $168 million for ATC were accrued in the first six months of 1999 and 1998, respectively, because of an increase in the market price of Time Warner common stock (Note 2). See accompanying notes. 33 • • TWE GENERAL PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business On June 30, 1992, thirteen direct or indirect subsidiaries of Time Warner Companies, Inc. ("TW Companies") contributed the assets and liabilities or the rights to the cash flows of substantially all of TW Companies's Filmed Entertainment-Wamer Bros., Cable Networks -HBO 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 4). 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 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. ATC does not conduct operations independent of its ownership interests in TWE and certain other investments. Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the General Partners included in TWE's Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K"). Certain reclassifications have been made to the prior year's financial statements to conform to the 1999 presentation. 2. TWE The General Partners' investment in and amounts due to and from TWE at June 30, 1999 and December 31, 1998 consists of the following: June 30, 1999 WCI ATC (millions) Investment in TWE $1,846 $1,302 Stock option related distributions due from TWE 799 548 Other net liabilities due to TWE, principally related to home video distribution (268) Total $2,377 $1,850 34 • • • December 31, 1998 TWE GENERAL PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) WCI ATC (millions) Investment in TWE $1,457 $1,034 Stock option related distributions due from TWE 670 460 Other net liabilities due to TWE, principally related to home video distribution (495) - Total $1,632 $1,494 Partnership Structure and Allocation of Income TWE is a Delaware limited partnership that was capitalized on June 30, 1992 to own and operate substantial- ly all of the Filmed Entertainment -Warner Bros., Cable Networks -HBO and Cable businesses previously owned by the General Partners. The General Partners collectively own, directly or indirectly, 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 of TWE. TW Companies owns limited partnership interests in TWE of 11.22% of the Series A Capital and Residual Capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are owned by a subsidiary of MediaOne Group, Inc. ("MediaOne"). The TWE partnership agreement provides for special allocations of income, loss and distributions of partnership capital, including priority distributions in the event of liquidation. TWE reported net income of $1.079 billion and $263 million for the six months ended June 30, 1999 and 1998, respectively, no portion of which was allocated to the limited partnership interests. Summarized Financial Information of TWE Set forth below is summarized financial information of TWE. This information reflects (i) the transfer of Time Warner Cable's direct broadcast satellite operations to Primesta; Inc. ("Primestar"), a separate holding com- pany, effective as of April 1, 1998, (ii) the formation of the Road Runner joint venture to operate and expand Time Wamer Cable's and MediaOne's existing high-speed online businesses, effective as of June 30, 1998, (iii) the re- organization of Time Warner Cable's business telephony operations into a separate entity now named Time Warner Telecom Inc. effective as of July 1, 1998 and (iv) the formation of a joint venture in Texas that owns cable television systems serving approximately 1.1 million subscribers, effective as of December 31, 1998. These transactions are described more fully in TWE's 1998 Form 10-K. Operating Statement Information Revenues $3,060 $2,850 $5,994 $5,760 Depreciation and amortization (334) (356) (642) (727) Business segment operating income to 1,212 455 1,863 824 Interest and other, net (167) (183) (392) (347) Minority interest (233) (82) (301) (146) Income before income taxes 794 172 1,134 295 Net income 767 155 1,079 263 Three Months Six Months Ended June 30, Ended June 30. 1999 1998 1999 1998 (millions) (1) Includes a net pretax gain of approximately 5215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement and net pretax gains relating to the sale or exchange of certain cable television systems and investments of $760 million recognized in the second quarter of 1999, 570 million recognized in the second quarter of 1998, and 584 million for the six months ended June 30, 1998. 35 • • TWE GENERAL PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Six Months Ended June 30, 1999 1998 (millions) Cash Flow Information Cash provided by operations $1,519 $ 586 Capital expenditures (649) (734) Investments and acquisitions (223) (265) Investment proceeds 210 506 Borrowings 1,310 503 Debt repayments (1,539) (492) Redemption of preferred stock of subsidiary (217) - Capital distributions (280) (298) Other financing activities, net (101) (56) Increase (decrease) in cash and equivalents 30 (250) June 30, December 31, 1999 1998 (millions) Balance Sheet Information Cash and equivalents $ 117 $ 87 Total current assets 4,223 4,183 Total assets 22,889 22,230 Total current liabilities 4,745 4,936 Long-term debt 6,535 6,578 Minority interests 1,744 1,522 Preferred stock of subsidiary - 217 General Partners' Senior Capital 627 603 Partners' capital 5,711 5,107 Capital Distributions The assets and cash flows of TWE are restricted by the TWE partnership and credit agreements and are unavailable for use by the partners except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. At June 30, 1999 and December 31, 1998, the General Partners had recorded $1.347 billion and $1.130 billion, respectively, of stock option related distributions due from TWE, based on closing prices of Time Wamer common stock of $72.63 and $62.06, respectively. 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, 1999, the General Partners received distributions from TWE in the amount of $280 million, consisting of $138 million of tax -related distributions and $142 million of stock option related distributions. During the six months ended June 30, 1998, the General Partners received distributions from TWE in the amount of $298 million, consisting of $138 million of tax -related distributions and $160 million of stock option related distributions. Of such aggregate distributions in 1999 and 1998, WCI received $166 million and $177 million, respectively and ATC received $114 million and $121 million, respectively. In July 1999, TWE paid a $627 million distribution to the General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Of the $627 million distribution, WCI and ATC received $372 million and $255 million, respectively. 36 TWE GENERAL PARTNERS NOTES TO. CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Gain on Termination of MGM Video Distribution Agreement In March 1999, Warner Bros. and Metro -Goldwyn -Mayer Inc. ("MGM") terminated a long-term distribution agreement under which Warner Bros. had exclusive worldwide distribution rights for MGM/United Artists home video product. In connection with the early termination and settlement of this distribution agreement, Warner Bros. recognized a net pretax gain of approximately $215 million, of which $127 million has been included in WCI's equity in the pretax income of TWE and $88 million in ATC's equity in the pretax income of TWE in the accompanying consolidated statements of operations. Gain on Sale or Exchange of Cable Television Systems and Investments In 1999 and 1998, largely in an effort to enhance their geographic clustering of cable television properties, TWE sold or exchanged various cable television systems and investments. The 1999 transactions included an exchange of cable television systems serving approximately 450,000 subscribers for other cable television systems of comparable size owned by TCI Communications, Inc., a subsidiary of AT&T Corp. As a result of these transactions, the operating results of TWE's Cable division include net pretax gains for the second quarter of $760 million in 1999 compared to $70 million of net pretax gains recognized in the second quarter of 1998. Of such amounts, approximately $450 million and $41 million has been included in WCI's equity in the pretax income of TWE in the accompanying consolidated statements of operations for the second quarter of 1999 and 1998, respectively. In addition, approximately $310 million and $29 million related to these gains has been included in ATC's equity in the pretax income of TWE in the accompanying consolidated statements of operations for the second quarter of 1999 and 1998, respectively. Net pretax gains for the first half of 1998 amounted to $84 million, of which $50 million has been recognized by WCI and $34 million has been recognized by ATC. Primestar TWE owns an approximate 24% equity interest in Primestar In January 1999, Primestar an indirect wholly owned subsidiary of Primestar and the stockholders of Primestar entered into an agreement to sell Primestar's medium -power direct broadcast satellite business and assets to DirecTV a competitor of Primestar owned by Hughes Electronics Corp. In addition, a second agreement was entered into with DirecTV pursuant to which DirecTV agreed to purchase Primestar's rights with respect to the use or acquisition of certain high-power satellites from a wholly owned subsidiary of one of the stockholders of Primestar In April 1999, Primestar closed on the sale of its medium - power direct broadcast satellite business to DirecTV. Then, in June 1999, Primestar completed the sale of its high- power satellite rights to DirecTV As a result of those transactions, Primestar began to substantially wind down its operations during the first quarter of 1999. TWE recognized its share of Primestar's 1999 losses under the equity method of accounting. Such losses are included in interest and other net, in TWE's consolidated statement of operations. Future wind -down losses are not expected to be material to TWE's operating results. 37 TWE GENERAL PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 3. GAIN ON TIME WARNER TELECOM'S INITIAL PUBLIC OFFERING In May 1999, Time Warner Telecom Inc. ("Time Warner Telecom"), a competitive local exchange carrier that provides telephony services to businesses, completed an initial public offering of 20% of its common stock (the "Time Warner Telecom IPO"). Time Warner Telecom raised net proceeds of approximately $270 million, of which $180 million was paid to Time Warner and TWE in satisfaction of certain obligations. In turn, Time Warner and TWE used those proceeds principally to reduce its bank debt. In connection with the Time Warner Telecom IPO and certain related transactions, WCI's ownership interest in Time Warner Telecom was diluted from 27.70% to 21.55% and ATC's ownership interest in Time Wamer Telecom was diluted from 19.04% to 14.81%. As a result, WCI and ATC recognized pretax gains of approximately $53 million and $36 million, respectively. These gains have been included in interest and other, net, in the accompanying consolidated statements of operations. 4. GENERAL PARTNER GUARANTEES Each General Partner has guaranteed a pro rata portion of approximately $5.2 billion of TWE's debt and accrued interest at June 30, 1999, 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, 1999 that was guaranteed by each General Partner • is set forth below (dollars in millions): Total Guaranteed by Each General Partner General Partner % Amount WCI 59.27 $3,093 ATC 40.73 2,125 Total 100.00 55.218 5. COMMITMENTS AND CONTINGENCIES The General Partners are subject to numerous legal proceedings. In management's opinion and considering established reserves, the resolution of these matters will not have a material effect, individually and in the aggregate, on the consolidated financial statements of the General Partners. 6. ADDITIONAL FINANCIAL INFORMATION Additional financial information with respect to cash flows is as follows: Cash payments made for interest Cash payments made for income taxes, net Tax -related distributions received from TWE Noncash capital distributions, net 38 Six Months Ended June 30, 1999 1998 WCI ATC WCI ATC (millions) $6 $ - $ 5 $ - 352 183 103 82 56 82 (213) (146) (246) 47 56 (168) • • Part 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. (i) TWE filed a Current Report on Form 8-K dated August 3, 1999 reporting in Item 5 that MediaOne Group Inc.'s management and governance rights over all of TWE's businesses have terminated, resulting in Time Warner Inc. consolidating TWE's operating results and financial position for accounting purposes, which is expected to occur no later than the third quarter of this year 39 1 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. Dated: August 13, 1999 TIME WARNER ENTERTAINMENT COMPANY, L.P. By: Warner Communications Inc., as General Partner By: /s/ Joseph A. Ripp Name: Joseph A. Ripp Title: Executive Vice President and Chief Financial Officer AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION WARNER COMMUNICATIONS INC. By: /s/ Joseph A. Ripp Name: Joseph A. Ripp Title: Executive Vice President and Chief Financial Officer 40 EXHIBIT INDEX Pursuant to Item 601 of Regulations S -K Exhibit No. Description of Exhibit 27 Financial Data Schedule. • SECURITIES AND EXCHANGE COMMISSION _, Washington, D. C. 20549- FORM 0549 FORM 10-Q [ x ] QUARTERLY REPORT PURSUANT TO SECTIOI4 13 OR 15(d) OF THE SECURITIES.,EXCHANGE ACT of 1934 for the quarterly period ended June 30, 1999, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 for the transitionperiod from to Commission file number 1-12259 TIME WARNER INC. • (Exact name of registrant as specified in its charter) Delaware 13-3527249 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 75 Rockefeller Plaza New York, New York 10019 (212) 484-8000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _ x No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - $.01 par value 1,179,328,870 Series LMCN-V Common Stock - $.01 par value 114,123,884 Description of Class Shares Outstanding as of July 31, 1999 • • 1 1 TIME WARNER INC. AND TIME WARNER ENTERTAINMENT COMPANY, L.P. INDEX TO FORM 10-Q Page Time Warner TWE PART I. FINANCIAL INFORMATION Management's discussion and analysis of results of operations and financial condition 1 43 Consolidated balance sheet at June 30, 1999 and December 31, 1998 20 54 Consolidated statement of operations for the three and six months ended June 30, 1999 and 1998 21 55 Consolidated statement of cash flows for the six months ended June 30, 1999 and 1998 22 56 Consolidated statement of shareholders' equity and partnership capital 23 57 Notes to consolidated financial statements 24 58 Supplementary information 35 PART H. OTHER INFORMATION 1 • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Description of Business Time Warner Inc. ("Time Warner" or the "Company"), together with its consolidated and unconsolidated subsidiaries, is the world's largest media and entertainment company. Time Warner's principal business objective is to create and distribute branded information and entertainment copyrights throughout the world. Time Warner classifies its business interests into four fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, televisionproduction and television broadcasting; and Cable, consisting principally of interests in cable television systems. Investment in TWE A majority of Time Warner's interests in filmed entertainment, television production, television broadcasting and cable television systems, and a portion of its interests in cable television programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne"). Time Warner has not consolidated TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership approval rights held by MediaOne related to TWE's cable television business. At the time of this filing, MediaOne had agreed to be acquired by AT&T Corp. ("AT&T"). On August 3, 1999, TWE received a notice from MediaOne concerning the termination of its covenant not to compete with TWE. As a result of the termination notice and the operation of the partnership agreement governing TWE, MediaOne's rights to participate in the management of TWE's businesses have terminated immediately and irrevocably. MediaOne has retained only certain protective governance rights pertaining to certain limited matters affecting TWE as a whole. Because of this significant reduction in MediaOne's rights, Time Wamer will consolidate TWE's operating results, cash flows and financial position for accounting purposes beginning no later than the filing of the third quarter Form 10-Q. In addition, in connection with the proposed acquisition of MediaOne by AT&T, Time Warner and AT&T are engaged in discussions concerning the overall relationship of the companies following that acquisition. Among the subjects included in those discussions are the structure of TWE, the structure of AT&T/MediaOne's investment in TWE, as well as potential changes to the proposed cable telephony joint venture discussed on page F-17 of Time Warner's Annual Report on Form 10-K for the year ended December 31, 1998. The proposed acquisition of MediaOne by AT&T is subject to customary closing conditions, including regulatory approvals. Accordingly, there is no assurance that it will occur TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Columbia House-CDnow Merger In July 1999, Time Warner announced an agreement with Sony Corporation of America ("Sony") to merge their jointly owned Columbia House operations with CDnow, Inc. ("CDnow"), a leading music and video e- commerce company. Time Warner and Sony will each own 37% of the combined entity and the existing CDnow shareholders will own 26% of the combined entity. This investment is expected to be accounted for using the equity method of accounting. With a combined reach of nearly 10% of all Internet users('), the combined entity is expected to create a significant platform for Time Warner's music and video e-commerce initiatives and position the Company for incremental growth opportunities relating to online sales of music and video product and the digital distribution of music. In addition, management believes that the use of Columbia House's existing active club members and the cross -promotional opportunities to be offered by Time Warner and Sony will lower customer acquisition costs and increase the combined entity's customer base. As part of this transaction, Time Warner and Sony each have made certain strategic and financial commitments to the combined entity. Among the strategic commitments, which have a term of five years and are subject to certain conditions and qualifications, Time Warner and Sony will provide the combined entity with opportunities to purchase advertising and promotional support from their diverse media properties. In addition, as part of their commitment to make the combined entity their primary vehicle to pursue the packaged music e- commerce business, Time Warner and Sony will link their own music -controlled web sites in the U.S. and Canada to the combined entity's web sites. This will enable consumers to sample content from their favorite artists and genres and then immediately make a purchase. Time Warner and Sony have also each agreed to guarantee, for a three-year period, one-half of the borrowings under a new credit facility to be entered into by the combined entity upon the closing of the merger The credit facility is expected to provide for up to $450 million of borrowings, which will be used to support the ongoing growth and capital needs of the business and to refinance approximately $300 million of existing debt and liabilities of Columbia House. The merger is expected to close by the end of 1999 and is subject to customary closing conditions, including regulatory approvals and approval by existing CDnow shareholders. There can be no assurance that such approvals will be obtained. Use of EBITA Time Warner evaluates operating performance based on several factors, including its primary financial measure of operating income before noncash amortization of intangible assets ("EBITA"). Consistent with manage- ment's financial focus on controlling capital spending, EBITA measures operating performance after charges for depreciation. In addition, EBITA eliminates the uneven effect across all business segments of considerable amounts of noncash amortization of intangible assets recognized in business combinations accounted for by the purchase method. These business combinations, including the $14 billion acquisition of Warner Communications Inc. in 1989, the $6.2 billion acquisition of Turner Broadcasting System, Inc. ("TBS") in 1996 and the $2.3 billion of cable (I) As measured by MediaMetrix as of June 1999. 2 TIME WARNER INC. MANAGEMENT'S DISCUSSION ANI) ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) acquisitions in 1996 and 1995, created over $25 billion of intangible assets that generally are being amortized over a twenty to forty year period. The exclusion of noncash amortization charges also is consistent with management's belief that Time Warner's intangible assets, such as cable television and sports franchises, music catalogues and copyrights, film and television libraries and the goodwill associated with its brands, generally are increasing in value and importance to Time Warner's business objective of creating, extending and distributing recognizable brands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of Time Warner and the Entertainment Group includes, among other factors, an analysis of changes in business segment EBITA. However EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles. Transactions Affecting Comparability of Results of Operations As more fully described herein, the comparability of Time Warner's and the Entertainment Group's operating results has been affected by certain significant transactions and nonrecurring items in each period. In 1999, these nonrecurring items consisted of (i) an approximate $215 million net pretax gain recognized by TWE in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement, (ii) an approximate $115 million pretax gain recognized by Time Warner in the second quarter of 1999 in connection with the initial public offering of a 20% interest in Time Warner Telecom Inc. (the "Time Wamer Telecom IPO"), a competitive local exchange carrier that provides telephony services to businesses and (iii) net pretax gains in the amount of $771 million in the second quarter of 1999 relating to the sale or exchange of various cable television systems and investments by Time Warner and TWE. This compares to net pretax gains in the first half of 1998 of $84 million also relating to the sale or exchange of cable television systems by Time Warner and TWE. In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of these significant nonrecurring gains. As such, the following discussion and analysis focuses on amounts and trends adjusted to exclude the impact of these unusual items. However, unusual items may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions for which adjustments have been made. In addition, the comparability of Time Warner's and the Entertainment Group's Cable division results has been affected further by certain cable -related transactions, as described more fully under the caption "Summarized Financial Information of the Entertainment Group" in Note 2 to the accompanying consolidated financial statements. While these transactions had a significant effect on the comparability of the Cable division's EBITA and operating income principally due to the deconsolidation of the related operations, they did not have a significant effect on the comparability of Time Warner's net income and per share results. Finally, per common share amounts have been restated to give effect to a two-for-one common stock split that occurred on December 15, 1998. 3 1- • 1 1 • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) RESULTS OF OPERATIONS EBITA and operating income are as follows: Three Months Ended June 30, Six Months Ended June 30, EBITA Operating Income EBITA Operating Income 1999 1998 1999 1998 1999 1998 1999 1998 (millions) Time Warner: Publishing $ 196 $176 $ 186 $168 $ 290 $261 $ 270 $244 Music 101 96 31 25 203 189 66 50 Cable Networks -TBS 235 198 184 148 419 351 318 251 Filmed Entertainment -TBS 71 38 53 18 100 23 63 (17) Cabled) 81 74 39 26 147 148 61 46 Intersegment elimination 2 (1) 2 ID 12 (20) 12 (20) Total $ 686 $581 $ 495 $384 $1,171 $952 $ 790 $554 Entertainment Group: Filmed Entertainment -Warner Bros.(2) . $ 132 $122 $ 101 $ 89 $ 478 $ 241 $ 417 $175 Broadcasting -The WB Network (30) (23) (31) (24) (71) (61) (73) (63) Cable Networks -HBO 131 113 131 113 256 222 256 222 Cablei3) 1.099 374 1,011 278 1,436 681 1,263 491 Total $1,332 $586 $1,212 $456 $2,099 $1,083 $1,863 $825 (I) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of 511 million in the second quarter of 1999. (2) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. (3) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of $760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Time Warner had revenues of $3.574 billion and net income of $593 million for the three months ended June 30, 1999, compared to revenues of $3.672 billion and net income of $101 million for the three months ended June 30, 1998. After preferred dividend requirements, Time Wamer had basic net income per common share of $.46 in 1999, compared to $.02 per common share in 1998. On a diluted basis, net income per common share was $.43 in 1999, compared to $.02 per common share in 1998. As previously described, the comparability of Time Warner's and the Entertainment Group's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of approximately $886 million of net pretax gains in 1999, compared to $70 million of net pretax gains in 1998. The aggregate net effect of these items was an increase in basic net income per common share of $.34 in 1999, compared to an increase of $.03 in 1998. On a diluted basis, the net effect was an increase of $.31 per common share in 1999, compared to an increase of $.03 in 1998. 1 4 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Time Warner's net income increased to $593 million in 1999, compared to $101 million in 1998. However excluding the significant effect of the nonrecurring items referred to earlier net income increased by $94 million to $163 million in 1999 from $69 million in 1998. As discussed more fully below, this improvement principally resulted from an overall increase in Time Warner's business segment operating income and higher income from Time Warner's equity in the pretax income of the Entertainment Group, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting and higher income taxes due to the increase in Time Wamer's income. Similarly, excluding the effect of these nonrecurring items, normalized basic and diluted net income per common share increased to $.12 in 1999, compared to a net loss of $.01 per common share in 1998. In addition to the factors discussed above, the improvement in 1999 normalized per share results reflects a $60 million reduction in preferred dividend requirements principally relating to the redemption of Time Warner's Series M exchangeable preferred stock ("Series M Preferred Stock") in late 1998. Time Warner's equity in the pretax income of the Entertainment Group was $793 million for the three months ended June 30, 1999, compared to $166 million for the three months ended June 30, 1998. The Entertainment Group had revenues of $3.060 billion and net income of $767 million in 1999, compared to revenues of $2.853 billion and net income of $156 million in 1998. Similarly, excluding the portion of the nonrecurring items referred to above that was recognized by the Entertainment Group, net income increased by $64 million to $165 million in 1999 from $101 million in 1998. As discussed more fully below, this improvement principally resulted from an overall increase in operating income generated by its business segments. The relationship between income before income taxes and income tax expense of Time Warner is principally affected by the amortization of goodwill and certain other financial statement expenses that are not deductible for income tax purposes. Income tax expense of Time Warner includes all income taxes related to its allocable share of partnership income and its equity in the income tax expense of corporate subsidiaries of the Entertainment Group. Time Warner Publishing. Revenues increased to $1.153 billion, compared to $1.136 billion in the second quarter of 1998. EBITA increasedto $196 million from $176 million. Operating income increased to $186 million from $168 million. Revenues in 1999 were affected negatively by the deconsolidation of a direct -marketing operation, which is now being accounted for under the equity method of accounting. Excluding this change, revenues increasedprimarily from significant growth in magazine advertising revenues, offset in part by lower circulation revenues. The increase in advertising revenues was principally due to a strong overall advertising market for most of the division's magazines, primarily led by Sports Illustrated, In Style, Teen People, Money and Entertainment Weekly. The decline in circulation revenues was principally due to lower newsstand sales and lower net subscription revenues generated by third -party agencies. EBITA and operating income increasedprincipally as a result of the revenue gains and increased cost savings. These increases were offset in part by lower results from direct -marketing activities, including Book -of - the -Month Club and American Family Enterprises ("AFE"), a 50% owned equity investee. Music. Revenues decreasedto $828 million, compared to $905 million in the second quarter of 1998. EBITA increased to $101 million from $96 million. Operating income increased to $31 million from $25 million. Revenues decreased primarily due to lower international recorded music sales and, to a lesser extent, lower domestic recorded music sales. The revenue decline principally related to lower sales of new releases in comparison to the prior yea; 1 1 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) which benefited from popular releases by established artists, like Madonna and Eric Clapton. Despite the revenue decrease, EBITA and operating income increased due to higher results from domestic recorded music operations, which benefited from increased cost savings, lower artist royalty costs and improved results from joint ventures that had successful releases during the period. The improvements in domestic recorded music operations were offset in part by lower results from international recorded music operations relating to lower international sales. Management expects that the revenue decline relating to lower worldwide sales levels will continue into the third quarter of 1999, which could negatively affect operating results. Cable Networks -TBS. Revenues increased to $1.065 billion, compared to $906 million in the second quarter of 1998. EBITA increased to $235 million from $198 million. Operating income increased to $184 million from $148 million. Revenues benefited from increases in advertising and subscription revenues. The increase in advertising revenues was principally due to a strong overall advertising market for most of the division's networks, including CNN, TBS Superstation, TNT, Cartoon Network and Headline News. The increase in subscription revenues principally related to an increase in subscriptions and higher rates, primarily led by revenue increases at CNN, TBS Superstation, TNT and Turner Classic Movies. EBITA and operating income increased principally as a result of the revenue gains, offset in part by higher programming costs. Filmed Entertainment -TBS. Revenues decreased to $337 million, compared to $504 million in the second quarter of 1998. EBITA increased to $71 million from $38 million. Operating income increased to $53 million from $18 million. Revenues decreasedprincipally as a result of fewer theatrical releases and the absence of revenues from the sale of second -cycle broadcasting rights for Seinfeld in 1998. Despite the decline in revenues, EBITA and operating income increased principally due to the theatrical success of New Line Cinema's Austin Powers -The Spy Who Shagged Me and the absence of film write-offs relating to disappointing results for theatrical releases of Castle Rock Entertainment in 1998. Cable. Revenues decreasedto $216 million, compared to $242 million in the second quarter of 1998. EBITA increased to $81 million from $74 million. Operating income increased to $39 million from $26 million. The Cable division's 1999 operating results were affected by certain cable-relatedtransactions that occurred in 1998 (the "1998 Cable Transactions") and by net pretax gains of $11 million recognized in 1999 related to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation of certain operations and are described more fully in Note 2 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates and an increase in advertising revenues. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, decreased to an expense of $202 million in the second quarter of 1999, compared to an expense of $283 million in the second quarter of 1998. Interest expense increased to $236 million, compared to $222 million in the second quarter of 1998. Interest expense increased principally because of higher interest costs incurred in connection with the $2.1 billion of borrowings used to redeem the Company's Series M Preferred Stock in December 1998, offset in part by interest savings associated with the Company's 1998 debt reduction efforts. Other income, net, was $34 million in the second quarter of 1999, compared to other expense, net, of $61 million in the second quarter of 1998. The change principally related to the recognition 6 • 1 1 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) of an approximate $115 million pretax gain in 1999 in connection with the Time Warner Telecom IPO, offset in part by higher losses from certain investments accounted for under the equity method of accounting. Entertainment Group Filmed Entertainment -Warner Bros. Revenues increased to $1.446 billion, compared to $1.330 billion in the second quarter of 1998. EBITA increasedto $132 million from $122 million. Operating income increased to $101 million from $89 million. Revenues benefited from increases in worldwide theatrical and television distribution operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were marginally higher revenues from worldwide home video operations, which benefited from increased sales of DVDs. EBITA and operating income benefited principally from improved results from worldwide theatrical and television distribution operations, offset in part by lower gains on the sale of assets and lower results from consumer products operations. Broadcasting -The WB Network. Revenues increased to $83 million, compared to $61 million in the second quarter of 1998. EBITA decreased to a loss of $30 million from a loss of $23 million. Operating losses increased to $31 million from $24 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $546 million, compared to $509 million in the second quarter of 1998. EBITA and operating income increased to $131 million from $113 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increasedprincipally as a result of the revenue gains, increased cost savings and higher income from Comedy Central, a 50% -owned equity investee. Cable. Revenues increased to $1.114 billion, compared to $1.084 billion in the second quarter of 1998. EBITA increased to $1.099 billion from $374 million. Operating income increased to $1.011 billion from $278 million. The Cable division's 1999 operating results were affected by the 1998 Cable Transactions and by net pretax gains of $760 million in 1999 and $70 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 2 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, an increase in advertising revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other net, decreased to an expense of $167 million in the second quarter of 1999, compared to an expense of $183 million in the second quarter of 1998. Interest expense increased to $136 million, compared to $132 million in the second quarter of 1998, principally due to higher average debt levels. Other expense, net, decreased to $31 million in the second quarter of 1999, compared to $51 million in the 1 7 • 1 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) second quarter of 1998. The decrease principally related to lower losses from certain investments accounted for under the equity method of accounting and a gain on the sale of an investment. Minority Interest. Minority interest expense increased to $233 million, compared to $82 million in the second quarter of 1998. Minority interest expense increased primarily due to the allocation of a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by the TWE- Advance/NewhousePartnership ("TWE-A/N'), a majority owned partnership of TWE, to the minority owners of that partnership. Excluding the significant effect of the gains recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Time Warner had revenues of $6.840 billion and net income of $731 million for the six months ended June 30, 1999, compared to revenues of $6.809 billion and net income of $39 million for the six months ended June 30, 1998. After preferred dividend requirements, Time Warner had basic net income per common share of $.56 in 1999, compared to a net loss of $.10 per common share in 1998. On a diluted basis, net income per common share was $.54 in 1999, compared to a net loss of $.10 per common share in 1998. As previously described, the comparability of Time Warner's and the Entertainment Group's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of approximately $1.1 billion of net pretax gains in 1999, compared to $84 million of net pretax gains in 1998. The aggregate net effect of these items was an increase in basic net income per common share of $.44 in 1999, compared to an increase of $.03 in 1998. On a diluted basis, the net effect was an increase of $.40 per common share in 1999, compared to an increase of $.03 in 1998. Time Warner's net income increased to $731 million in 1999, compared to $39 million in 1998. However excluding the significant effect of the nonrecurring items referred to earlier net income increased by $172 million to $174 million in 1999 from $2 million in 1998. This improvement principally resulted from an overall increase in Time Warner's business segment operating income and higher income from Time Warner's equity in the pretax income of the Entertainment Group, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting and higher income taxes due to the increase in Time Warner's income. Similarly, excluding the effect of these nonrecurring items, normalized basic net income per common share increased to $.12 in 1999, compared to a net loss of $.13 per common share in 1998. On a diluted basis, net income per common share increased to $.14 in 1999, compared to a net loss of $.13 per common share in 1998. In addition to the factors discussed above, the improvement in 1999 normalized per share results reflects a $124 million reduction in preferred dividend requirements principally relating to the redemption of Time Warner's Series M Preferred Stock in late 1998. Time Warner's equity in the pretax income of the Entertainment Group was $1.135 billion for the six months ended June 30, 1999, compared to $273 million for the six months ended June 30, 1998. The Entertainment Group had revenues of $5.994 billion and net income of $1.079 billion in 1999, compared to revenues of $5.765 billion and net income of $264 million in 1998. Similarly, excluding the portion of the nonrecurring items referred to above that was recognized by the Entertainment Group, net income increased by $62 million to $262 million in 1 8 1 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) 1999 from $200 million in 1998. As discussed more fully below, this improvement principally resulted from an overall increase in operating income generated by its business segments, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting. The relationship between income before income taxes and income tax expense of Time Wamer is principally affected by the amortization of goodwill and certain other financial statement expenses that are not deductible for income tax purposes. Income tax expense of Time Warner includes all income taxes related to its allocable share of partnership income and its equity in *the income tax expense of corporate subsidiaries of the Entertainment Group. Time Warner Publishing. Revenues increasedto $2.127 billion, compared to $2.084 billion in the first six months of 1998. EBITA increasedto $290 million from $261 million. Operating income increasedto $270 million from $244 million. Revenues in 1999 were affected negatively by the deconsolidation of a direct -marketing operation, which is now being accountedfor under the equity method of accounting. Excluding this change, revenues increasedprimarily from significant growth in magazine advertising revenues, offset in part by lower circulation revenues. The increase in advertising revenues was principally due to a strong overall advertising market for most of the division's magazines, primarily led by Time, People, In Style, Fortune, and Entertainment Weekly. The decline in circulation revenues was principally due to lower newsstand sales and lower net subscription revenues generated by third -party agencies. EBITA and operating income increasedprincipally as a result of the revenue gains, increased cost savings and a one- time gain on the sale of an asset. These increases were offset in part by lower results from direct -marketing activities, including Book -of -the -Month Club and AFE. Music. Revenues decreased to $1.764 billion, compared to $1.793 billion in the first six months of 1998. EBITA increased to $203 million from $189 million. Operating income increased to $66 million from $50 million. Revenues decreasedprimarily due to lower international recorded music sales and a decline in music publishing reve- nues, offset in part by a marginal increase in domestic recorded music revenues. The international revenue decline principally related to lower sales of new releases in comparison to the prior yea; which benefited from popular releases by established artists, like Madonna and Eric Clapton. Despite the revenue decrease, EBITA and operating income increased due to higher results from domestic recorded music operations, which benefited from increased cost savings, lower artist royalty costs and improved results from joint ventures that had successful releases during the period. The improvements in domestic recorded music operations were offset in part by lower results from inter- national recorded music operations relating to lower international sales levels and less licensing income from direct - marketing activities. Management expects that the revenue decline relating to lower worldwide sales levels will continue into the third quarter of 1999, which could negatively affect operating results. Cable Networks -TBS. Revenues increased to $1.903 billion, compared to $1.634 billion in the first six months of 1998. EBITA increased to $419 million from $351 million. Operating income increased to $318 million from $251 million. Revenues benefited from increases in advertising and subscription revenues. The increase in advertising revenues was principally due to a strong overall advertising market for most of the division's networks, including, CNN, TBS Superstation, TNT, Cartoon Network and Headline News. The increase in subscription revenues principally related to an increase in subscriptions and higher rates, primarily led by revenue increases at 9 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) CNN, TBS Superstation, TNT and Turner Classic Movies. EBITA and operating income increased principally as a result of the revenue gains, offset in part by higher programming costs. Filmed Entertainment -TBS. Revenues decreased to $654 million, compared to $876 million in the first six months of 1998. EBITA increasedto $100 million from $23 million. Operating income increased to $63 million from a loss of $17 million. Revenues decreased principally as a result of fewer theatrical releases and the absence of revenues from the sale of second -cycle broadcasting rights for Seinfeld in 1998, offset in part by increased worldwide home video revenues. Despite the decline in revenues, EBITA and operating income increased principally due to the theatrical success of New Line Cinema's Austin Powers -The Spy Who Shagged Me, improved results from worldwide home video operations and the absence of film write-offs relating to disappointing results for theatrical releases of Castle Rock Entertainment in 1998. Cable. Revenues decreased to $438 million, compared to $490 million in the first six months of 1998. EBITA decreased to $147 million from $148 million. Operating income increased to $61 million from $46 million. The Cable division's 1999 operating results were affected by the 1998 Cable Transactions and by net pretax gains of $11 million recognized in 1999 related to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation of certain operations and are described more fully in Note 2 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates and an increase in advertising and pay-per-view revenues. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increasedprincipally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, decreased to an expense of $513 million in the first six months of 1999, compared to an expense of $566 million in the first six months of 1998. Interest expense increased to $469 million, compared to $455 million in the first six months of 1998. Interest expense increased principally because of higher interest costs incurred in connection with the $2.1 billion of borrowings used to redeem the Company's Series M Preferred Stock in December 1998, offset in part by interest savings associated with the Company's 1998 debt reduction efforts. Other expense, net, decreased to $44 million in the first six months of 1999 from $111 million in the first six months of 1998. The decrease principally related to the recognition of an approximate $115 million pretax gain in 1999 in connection with the Time Warner Telecom IPO, offset in part by higher losses from certain investments accounted for under the equity method of accounting. Entertainment Group Filmed Entertainment -Warner Bros. Revenues increased to $2.826 billion, compared to $2.642 billion in the first six months of 1998. EBITA increased to $478 million from $241 million. Operating income increased to $417 million from $175 million. Revenues benefited from increases in worldwide theatrical and television distribution operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were higher revenues from worldwide home video operations, which benefited from increased sales of DVDs. EBITA and operating income increased primarily from the inclusion of an approximate $215 million net pretax gain recognized in the first quarter of 1999 in connection with the early termination and settlement of a long- term home video distribution agreement. In addition, EBITA and operating income benefited principally from 10 • • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) improved results from worldwide theatrical and home video operations and an increase in investment -related income, offset in part by lower results from consumer products operations. Broadcasting -The WB Network. Revenues increased to $162 million, compared to $106 million in the first six months of 1998. EBITA decreasedto a loss of $71 million from a loss of $61 million. Operating losses increased to $73 million from $63 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule, a lower allocation of losses to a minority partner in the network and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $1.072 billion, compared to $1.021 billion in the first six months of 1998. EBITA and operating income increased to $256 million from $222 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, increased cost savings, one-time gains from the sale of certain investments and higher income from Comedy Central, a 50% -owned equity investee. These increases were offset in part by higher marketing expenses. Cable. Revenues decreased to $2.188 billion, compared to $2.237 billion in the first six months of 1998. EBITA increased to $1.436 billion from $681 million. Operating income increased to $1.263 billion from $491 million. The Cable division's 1999 operating results were affected by the 1998 Cable Transactions and by net pretax gains of $760 million in 1999 and $84 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 2 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, increases in advertising and pay-per-view revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and othei net, increased to an expense of $392 million in the first six months of 1999, compared to an expense of $347 million in the first six months of 1998. Interest expense was $273 million in both periods. Other expense, net, increased to $119 million in the first six months of 1999, compared to $74 million in the first six months of 1998. This increase principally related to higher losses from certain investments accounted for under the equity method of accounting, offset in part by a gain on the sale of an investment. Minority Interest. Minority interest expense was $301 million in the first six months of 1999, compared to $146 million in the first six months of 1998. Minority interest expense increased primarily due to the allocation of a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by TWE-A/N to the minority owners of that partnership. Excluding the significant effect of the gains recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. 1 1 • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) FINANCIAL CONDITION AND LIQUIDITY June 30, 1999 Time Warner Financial Condition At June 30, 1999, Time Warner had $10.8 billion of debt, $304 million of cash and equivalents (net debt of $10.5 billion), $1.2 billion of borrowings against future stock option proceeds, $575 million of mandatorily redeemable preferred securities of a subsidiary and $9.1 billion of shareholders' equity. This compares to $10.9 billion of debt, $442 million of cash and equivalents (net debt of $10.5 billion), $895 million of borrowings against future stock option proceeds, $575 million of mandatorily redeemable preferred securities of a subsidiary and $8.9 billion of shareholders' equity at December 31, 1998. Debt Refinancings In July 1999, Time Warner Companies, Inc., a wholly owned subsidiary of Time Warne; redeemed all of its $600 million principal amount of Floating Rate Reset Notes due July 29, 2009. The aggregate redemption cost of approximately $620 million was funded with borrowings under Time Warner's bank credit agreement. In connection with this redemption, an extraordinary loss of $12 million will be recognized in the third quarter of 1999. Preferred Stock Conversion In July 1999, Time Warner issued approximately 46 million shares of common stock in connection with the conversion of all outstanding 11 million shares of its Series D convertible preferred stock. Because holders of Series D preferred stock were entitled to cash dividends at a preferential rate through July 1999, Time Warner's historical cash dividend requirements will be reduced, going forward, by approximately $30 million on an annualized basis. Common Stock Repurchase Program In January 1999, Time Warner's Board of Directors authorized a new common stock repurchase program that allows the Company to repurchase, from time to time, up to $5 billion of common stock. This program is expected to be completed over a three-year period; however actual repurchases in any period will be subject to market conditions. Along with stock option exercise proceeds and borrowings under Time Warner's $1.3 billion stock option proceeds credit facility, additional funding for this program is expected to be provided by future free cash flow and financial capacity. During the first six months of 1999, Time Warner acquired 13.7 million shares of its common stock at an aggregate cost of $926 million. These repurchases increased the cumulative shares purchased under this and its previous common stock repurchase program begun in 1996 to approximately 108.8 million shares at an aggregate cost of $3.97 billion. 12 1 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Cash Flows During the first six months of 1999, Time Warner's cash provided by operations amounted to $595 million and reflected $1.171 billion of EBITA from its Publishing, Music, Cable Networks -TBS, Filmed Entertainment -TBS and Cable businesses, $179 million of noncash depreciation expense, $78 million of proceeds from Time Warner's asset securitization program and $280 million of distributions from TWE, less $446 million of interest payments, $145 million of income taxes, $44 million of corporate expenses and $478 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $889 million for the first six months of 1998 reflected $952 million of EBITA from its Publishing, Music, Cable Networks -TBS, Filmed Entertainment -TB S and Cable businesses, $191 million of noncash depreciation expense, $132 million of proceeds from Time Warner's asset securitization program and $298 million of distributions from TWE, less $404 million of interest payments, $79 million of income taxes, $38 million of corporate expenses and $163 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash used by investing activities was $302 million in the first six months of 1999, compared to cash provided by investing activities of $93 million in the first six months of 1998. The increase in cash used by investing activities principally resulted from higher capital expenditures and a decrease in investment proceeds. Capital expenditures increased to $314 million in the first six months of 1999, compared to $228 million in the first six months of 1998. Cash used by financing activities was $431 million in the first six months of 1999, compared to $1.283 billion in the first six months of 1998. The use of cash in 1999 principally resulted from the repurchase of approximately 13.7 million shares of Time Warner common stock at an aggregate cost of $926 million and the payment of $149 million of dividends, offset in part by a $33 million increase in net borrowings, $324 million of borrowings against future stock option proceeds and $287 million of proceeds received principally from the exercise of employee stock options. During the first six months of 1998, Time Warner had additional borrowings that offset the noncash reduction of $1.15 billion of debt relating to the conversion of its zero-coupon convertible notes into common stock. Time Warner principally used the proceeds from such borrowings, together with $460 million of proceeds received from the exercise of employee stock options, to repurchase approximately 23.2 million shares of Time Warner common stock at an aggregate cost of $1.661 billion. Time Warner also paid $265 million of dividends in the first six months of 1998. The decrease in dividends paid in 1999 reflects the effect of Time Warner's redemption of its Series M Preferred Stock in December 1998 and the conversion of approximately 15 million shares of preferred stock into shares of common stock that also occurred during 1998. The assets and cash flows of TWE are restricted by certain borrowing and partnership agreements and are unavailable to Time Warner except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. Under its bank credit agreement, TWE is permitted to incur additional indebtedness to make loans, advances, distributions and other cash payments to Time Warner subject to its individual compliance with the cash flow coverage and leverage ratio covenants contained therein. • • 1 • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Management believes that Time Warner's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future without distributions and loans from TWE above those permitted by existing agreements. Entertainment Group Financial Condition At June 30, 1999, the Entertainment Group had $6.5 billion of debt, $117 million of cash and equivalents (net debt of $6.4 billion), $627 million of Time Warner General Partners' senior priority capital and $5.7 billion of partners' capital. This compares to $6.6 billion of debt, $87 million of cash and equivalents (net debt of $6.5 billion), $217 million of preferred stock of a subsidiary, $603 million of Time Warner General Partners' senior priority capital and $5.2 billion of partners' capital at December 31, 1998. Senior Capital Distributions In July 1999, TWE paid a $627 million distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Warner used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. Redemption of REIT Preferred Stock In March 1999, a subsidiary of TWE (the "REIT") redeemed all of its shares of preferred stock ("REIT Preferred Stock") at an aggregate cost of $217 million, which approximated net book value. The redemption was funded with borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of proposed changes to federal tax regulations that substantially increased the likelihood that dividends paid by the REIT or interest paid to the REIT under a mortgage note of TWE would not be fully deductible for federal income tax purposes. Cash Flows During the first six months of 1999, the Entertainment Group's cash provided by operations amounted to $1.519 billion and reflected $2.099 billion of EBITA from its Filmed Entertainment -Warner Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $406 million of noncash depreciation expense and $21 million of proceeds from TWE's asset securitization program, less $242 million of interest payments, $49 million of income taxes, $36 million of corporate expenses and $680 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $586 million in the first six months of 1998 reflected $1.083 billion of EBITA from its Filmed Entertainment -Warner Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $469 million of noncash depreciation expense and $135 million of proceeds from TWE's asset securitization program, less $260 million of interest payments, $39 million of income taxes, $36 million of corporate expenses and $766 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. 14 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Cash used by investing activities was $662 million in the first six months of 1999, compared to $493 million in the first six months of 1998. The increase principally resulted from a $296 million decrease in investment proceeds relating to the 1998 sale of TWE's remaining interest in Six Flags Entertainment Corporation. The decrease in investmentproceeds was partially offset by lower capital expenditures. Capital expenditures decreasedto $649 million in the first six months of 1999, compared to $734 million in the first six months of 1998. Cash used by financing activities was $827 million in the first six months of 1999, compared to $343 million in the first six months of 1998. The use of cash in 1999 principally resulted from the redemption of REIT Preferred Stock at an aggregate cost of $217 million, the payment of $280 million of capital distributions to Time Warner and $229 million of debt reduction. The use of cash in 1998 principally resulted from the payment of $298 million of capital distributions to Time Warne; offset in part by an $11 million increase in net borrowings. Management believes that the Entertainment Group's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future. Cable Capital Spending Time Warner Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which it believes will position the business for sustained, long- term growth. Capital spending by Time Warner Cable, including the cable operations of both Time Warner and TWE, amounted to $704 million in the six months ended June 30, 1999, compared to $776 million in the six months ended June 30, 1998. Cable capital spending is expected to approximate $900 million for the remainder of 1999. Capital spending by Time Wamer Cable is expected to continue to be funded by cable operating cash flow. Filmed Entertainment Backlog Backlog represents the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog of TWE's Filmed Entertainment -'Warner Bros. division amounted to $2.663 billion at June 30, 1999, compared to $2.298 billion at December 31, 1998. (including amounts relating to the licensing of film product to Time Warner's and TWE's cable television networks of $1.014 billion at June 30, 1999 and $769 million at December 31, 1998). In addition, backlog of Time Warner's Filmed Entertainment -TBS division amounted to $587 million at June 30, 1999 and $636 million at December 31, 1998 (including amounts relating to the licensing of film product to Time Warner's and TWE's cable television networks of $222 million at June 30, 1999 and $226 million at December 31, 1998). Because backlog generally relates to contracts for the licensing of theatrical and television product which have already been produced, the recognition of revenue for such completed product principally is dependent only upon the commencement of the availability period for telecast under the terms of the related licensing agreement. Cash licensing fees are collected periodically over the term of the related licensing agreements or on an accelerated basis using TWE's $500 million securitization facility. The portion of backlog for which cash has not already been received has significant off-balance sheet asset value as a source of future funding. The backlog excludes advertising 15 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) barter contracts, which are also expected to result in the future realization of revenues and cash through the sale of advertising spots received under such contracts. Year 2000 Technology Preparedness Time Warne; together with its Entertainment Group and like most large companies, depends on many different computer systems and other chip -based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip -based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced. Time Warner's exposure to potential Year 2000 problems arises both in technological operations under the control of the Company and in those dependent on one or more third parties. These technological operations include information technology ("IT") systems and non -IT systems, including those with embedded technology, hardware and software. Most of Time Warner's potential Year 2000 exposures are dependent to some degree on one or more third parties. Failure to achieve high levels of Year 2000 compliance could have a material adverse impact on Time Warner and its financial statements. The Company's Year 2000 initiative is being conducted at the operational level by divisional project managers and senior technology executives overseenby senior divisional executives, with assistance internally as well as from outside professionals. The progress of each division through the different phases of remediation -- inventorying, assessment, remediation planning, implementation and final testing --is actively overseen and reviewed on a regular basis by an executive oversight group that reports through the Company's Chief Financial Officer to the Audit Committee of the Board of Directors. The Company has generally completed the process of identifying, assessing and planning the remediation of potential Year 2000 difficulties in its technological operations, including IT applications, IT technology and support, desktop hardware and software, non -IT systems and important third party operations, and distinguishing those that are "mission critical" from those that are not. An item is considered "mission critical" if its Year 2000 - related failure would significantly impair the ability of one of the Company's major business units to (1) produce, market and distribute the products or services that generate significant revenues for that business, (2) meet its obligations to pay its employees, artists, vendors and others or (3) meet its obligations under regulatory requirements and internal accounting controls. The Company and its divisions, including the Entertainment Group, have identified approximately 1,000 worldwide, "mission critical" potential exposures. Of these, as of June 30, 1999, approximately 73% have been identified by the divisions as Year 2000 compliant and approximately 27% as in the remediation implementation or final testing stages. The Company currently expects that remediation with respect to well over 90% of all these identified operations will be substantially completed in all material respects by the end of the third quarter of 1999. The Company, however could experience unexpected delays. The Company is currently planning to impose a "quiet" period at some point during the fourth quarter of 1999 during which any remaining remediation involving installation or modification of systems that interface with other systems will be minimized to permit the Company to conduct testing in a stable environment and to focus on its contingency and transition plans, as necessary. t • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) As stated above, however, the Company's business is heavily dependent on third parties and these parties are themselves heavily dependent on technology. For example, in a situation endemic to the cable industry, much of the Company's headend equipment that controls cable set-top boxes was not Year 2000 compliant. The box manufacturers and cable industry groups together developed solutions that the Company has been installing and successfully testing in its headend equipment at its various geographic locations. The few remaining installations are currently scheduled during the third quarter of 1999. In addition, if a television broadcaster or cable programmer encounters Year 2000 problems that impede its ability to deliver its programming, the Company will be unable to provide that programming to its cable customers. Because the Company is also a programming supplier, third -party signal delivery problems would affect its ability to deliver its programming to its customers. The Company has attempted to include in its "mission critical" inventory significant service providers, vendors, suppliers, customers and governmental entities that are believed to be critical to business operations and is in various stages of completing its determination of their state of Year 2000 readiness through various means, including questionnaires, interviews, on-site visits, system interface testing and industry group participation. The Company continues to monitor these situations. Moreover, Time Wamer is dependent, like all large companies, on the continued functioning, domestically and internationally, of basic, heavily computerized services such as banking, telephony, water and powe; and various distribution mechanisms ranging from the mail, railroads and trucking to high-speed data transmission. Time Warner is taking steps to attempt to satisfy itself that the third parties on which it is heavily reliant are Year 2000 compliant, are developing satisfactory contingency plans or that alternate means of meeting its requirements are available, but cannot predict the likelihood of such compliance nor the direct or indirect costs to the Company of non-compliance by those third parties or of securing such services from alternate compliant third parties. In areas in which the Company is uncertain about the anticipated Year 2000 readiness of a significant third party, the Company is investigating available alternatives, if any. The Company, including the Entertainment Group, currently estimates that the aggregate cost of its Year 2000 remediationprogram, which started in 1996, will be approximately $125 to $175 million, of which an estimated 70% to 80% has been incurred through June 30, 1999. These costs include estimates of the costs of assessment, replacement, repair and upgrade, both planned and unplanned, of certain IT and non -IT systems and their implementation and testing. The Company anticipates that its remediation program, and related expenditures, may continue into 2001 as temporary solutions to Year 2000 problems are replaced with upgraded equipment. These expenditures have been and are expected to continue to be funded from the Company's operating cash flow and have not and are not expected to impact materially the Company's financial statements. Management believes that it has established an effective program to resolve all significant Year 2000 issues in its control in a timely manner As noted above, however, the Company has not yet completed all phases of its program and is dependent on third parties whose progress is not within its control. In the event that the Company experiences unanticipated failures of the systems within its control, management believes that the Company could experience significant difficulty in producing and delivering its products and services and conducting its business in the Year 2000 as it has in the past. More importantly, disruptions experienced by third parties with which the Company does business as well as by the economy generally could materially adversely affect the Company. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company continues to focus its efforts on remediation of its Year 2000 exposures. Simultaneously, it is examining its existing standard business interruption strategies to evaluate whether they would satisfactorily meet 17 [ 6 1 i • TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) the demands of failures arising from Year -2000 related problems. It is also developing and refining specific transition schedules and contingency plans in the event it does not successfully complete its remaining remediation as anticipated or experiences unforeseen problems outside the scope of these standard strategies. The Company intends to examine its status periodically to determine the necessity of implementing such contingency plans or additional strategies, which could involve, among other things, manual workarounds, adjusting staffing strategies and sharing resources across divisions. Caution Concerning Forward -Looking Statements The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document, together with management's public commentary related thereto, contains such "forward-looking state- ments" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITA and cash flow. Words such as "anticipate", "estimate", "expects", "projects", "intends", "plans", "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward- looking statements are management's present expectations of future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of such changes, new information, future events or otherwise. Time Warner operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political and social conditions in the countries in which they operate, consumer demand for their products and services, technological developments and (particularly in view of technological changes) protection of their intellectual property rights. Time Warner's actual results could differ materially from management's expectations because of changes in such factors. Some of the other factors that also could cause actual results to differ from those contained in the forward-looking statements include those identified in Time Warner's other filings and: • For Time Warner's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS; increases in government regulation of cable or equipment rates or other terms of service (such as "digital must -carry" or "unbundling" requirements); increased difficulty in obtaining franchise renewals; the failure of new equipment (such as digital set-top boxes) or services (such as high-speed on-line services or telephony over cable or video on demand) to function properly, to appeal to enough consumers or to be available at reasonable prices and to be delivered in a timely fashion; and greater than expected increases in programming or other costs. • For Time Warner's cable programming and television businesses, greater than expected programming or production costs; public and cable operator resistance to price increases (and the negative impact on premium programmers of increases in basic cable rates); increased regulation of distribution agreements; the sensitivity of advertising to economic cyclicality; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television. 18 TIME WARNER INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) • For Time Warner's film and television businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; increases in production costs generally; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments such as DVD and the Internet. • For Time Warner's music business, its ability to continue to attract and select desirable talent at manageable costs; the timely completion of albums by major artists; the popular demand for particular artists and albums; its ability to continue to enforce and capitalize on its intellectual property rights in digital environments; and the overall strength of global music sales. • For Time Warner's print media and publishing businesses, increases in paper and distribution costs; the introduction and increased popularity of alternative technologies for the provision of news and information, such as the Internet; and fluctuations in advertiser and consumer spending. • For Time Warner's digital media businesses, their ability to develop products and services that are attractive, accessible and commercially viable in terms of content, technology and cost, their ability to manage costs and generate revenues, aggressive competition from existing and developing technologies and products, the resolution of issues concerning commercial activities via the Internet, including security, reliability, cost, ease of use and access, and the possibility of increased goverment regulation of new media services. • The ability of the Company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Year 2000 issue, including their ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of the Company's remediation plans and the ability of third parties to address adequately their own Year 2000 issues. In addition, Time Warner's overall financial strategy, including growth in operations, maintaining its financial ratios and strengthened balance sheet, could be adversely affectedby increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, consequences of the euro conversion and changes in Time Warner's plans, strategies and intentions. 1 TIME WARNER INC. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, December 31, 1999 1998 (millions, except per share amounts) ASSETS Current assets Cash and equivalents $ 304 $ 442 Receivables, less allowances of $875 million and $1.007 billion 2,397 2,885 Inventories 923 946 Prepaid expenses 1.279 1.176 Total current assets 4,903 5,449 Noncurrent inventories 1,838 1,900 Investments in and amounts due to and from Entertainment Group 6,252 4,980 Other investments 924 794 Property, plant and equipment 2,027 1,991 Music catalogues, contracts and copyrights 824 876 Cable television and sports franchises 2,662 2,868 Goodwill 11,647 11,919 Other assets 816 863 Total assets $31,893 $31,640 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 823 $ 996 Participations, royalties and programming costs payable 1,172 1,199 Debt due within one year 20 19 Other current liabilities 2,121 2,404 Total current liabilities 4,136 4,618 Long-term debt 10,765 10,925 Borrowings against future stock option proceeds 1,219 895 Deferred income taxes 3,704 3,491 Unearned portion of paid subscriptions 755 741 Other liabilities 1,647 1,543 Company -obligated mandatorily redeemable preferred securities of a subsidiary holding solely subordinated debentures of a subsidiary of the Company 575 575 Shareholders' equity Preferred stock, $.10 par value, 19.4 and 22.6 million shares outstanding, $1.940 and $2.260 billion liquidation preference 2 2 Series LMCN-V common stock, $.01 par value, 114.1 million shares outstanding 1 1 Common stock, $.01 par value, 1.133 and 1.118 billion shares outstanding 11 11 Paid -in capital 13,289 13,134 Accumulated deficit (4,211) (4,296) Total shareholders' equity 9,092 8,852 Total liabilities and shareholders' equity $31,893 $31,640 See accompanying notes. 1 1 TIME WARNER INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Revenues (a) Cost of revenues (a)(b) Selling, general and administrative (a)(b) Operating expenses Business segment operating income Equity in pretax income of Entertainment Group (a) Interest and other, net (a)(c) Corporate expenses (a) Income before income taxes Income tax provision Three Months Ended June 30. 1999 1998 (millions, except $3,574 $3,672 1,899 2,077 1.180 1,211 3,079 3,288 Six Months Ended June 30, 1999 1998 per share amounts) $6,840 $6.809 3,685 3,964 2,365 2,291 6,050 6,255 495 384 790 554 793 166 1,135 273 (202) (283) (513) (566) (22) (19) (44) (38) 1,064 248 1,368 223 (471) (147) (637) (184) Net income 593 101 731 39 Preferred dividend requirements (18) (78) (36) (160) Net income (loss) applicable to common shares $ 575 $ 23 $ 695 $(121) Net income (loss) per common share: Basic $ 0.46 $ 0.02 $ 0.56 $(0.10) Diluted $ 0.43 $ 0.02 $ 0.54 $(0.10) Average common shares Basic 1,249.3 1,192.6 1.246.2 1,174.6 Diluted 1,403.7 1,192.6 1.401.6 1.174.6 (a) Includes the following income (expenses) resulting from transactions with the Entertainment Group and other related companies for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year: revenues -$105 million and $239 million in 1999, $102 million and $214 million in 1998; cost of revenues -$(104) million and $(190) million in 1999, $(70) million and $(137) million in 1998; selling, general and administrative -$(17) million and $(26) million in 1999, $(11) million and $(20) million in 1998; equity in pretax income of Entertainment Group -$34 million and $18 million in 1999, $(15) million and $(20) million in 1998; interest and other, net -$(10) million and $(20) million in 1999, $(3) million and $(6) million in 1998; and corporate expenses -$(18) million and $(36) million in each of 1999 and 1998. (b) Includes depreciation and amortization expense of: $283 $293 $560 $589 (c) Includes an approximate $115 million pretax gain recognized in the second quarter of 1999 in connection with the initial public offering of a 20% interest in Time Wamer Telecom Inc. See accompanying notes. 21 TIME WARNER INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1999 1998 (millions) OPERATIONS Net income $731 $ 39 Adjustments for noncash and nonoperating items: Depreciation and amortization 560 589 Noncash interest expense 2 29 Excess (deficiency) of distributions over equity in pretax income of Entertainment Group (855) 25 Changes in operating assets and liabilities 157 207 Cash provided by operations 595 889 INVESTING ACTIVITIES Investments and acquisitions (101) (74) Capital expenditures (314) (228) Investment proceeds 113 395 Cash provided (used) by investing activities (302) 93 FINANCING ACTIVITIES Borrowings 341 1,603 Debt repayments (308) (1,377) Borrowings against future stock option proceeds 324 525 Repayments of borrowings against future stock option proceeds - (533) Repurchases of Time Warner common stock (926) (1,661) Dividends paid (149) (265) Proceeds received from stock option and dividend reinvestment plans 287 460 Othe; principally financing costs _ (35) Cash used by financing activities (431) (1,283) DECREASE IN CASH AND EQUIVALENTS (138) (301) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 442 645 CASH AND EQUIVALENTS AT END OF PERIOD$304 $344 See accompanying notes. 22 1 TIME WARNER INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Six Months Ended June 30. 1999 1998 (millions) BALANCE AT BEGINNING OF PERIOD $8,852 $9,356 Net income 731 39 Other comprehensive income (loss) (10) (22) Comprehensive incometal 721 17 Common stock dividends (113) (106) Preferred stock dividends (36) (160) Repurchases of Time Warner common stock (926) (1,661) Issuance of common stock in connection with the conversion of the zero-coupon convertible notes due 2013 1,150 Other, principally shares issued pursuant to stock option, dividend reinvestment and benefit plans 594 724 BALANCE Al END OF PERIOD $9.092 $9.320 (a) Comprehensive income for the three months ended June 30, 1999 and 1998 was 8580 million and 8103 million, respectively. See accompanying notes. • i • TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Time Warner Inc. ("Time Warner" or the "Company"), together with its consolidated and unconsolidated subsidiaries, is the world's leading media and entertainment company. Time Wamer's principal business objective is to create and distribute branded information and entertainment copyrights throughout the world. Time Warner classifies its business interests into four fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. A majority of Time Warner's interests in filmed entertainment, televisionproduction, television broadcasting and cable television systems, and a portion of its interests in cable television programming are held through Time Warner Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne"). Time Warner has not consolidated TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership approval rights held by MediaOne related to TWE's cable television business. Each of the business interests within Cable Networks, Publishing, Entertainment and Cable is important to management's objective of increasing shareholder value through the creation, extension and distribution of recognizable brands and copyrights throughout the world. Such brands and copyrights include (1) leading cable television networks, such as HBO, Cinemax, CNN, TNT and TBS Superstation, (2) magazine franchises such as Time, People and Sports Illustrated and direct marketing brands such as Time Life Inc. and Book -of -the -Month Club, (3) copyrighted music from many of the world's leading recording artists that is produced and distributed by a family of established record labels such as Wamer Bros. Records, Atlantic Records, Elektra Entertainment and Warner Music International, (4) the unique and extensive film, television and animation libraries of Warner Bros. and Turner Broadcasting System, Inc. ("TBS"), and trademarks such as the Looney Tunes characters, Batman and The Flintstones, (5) The WB Network, a national broadcasting network launched in 1995 as an extension of the Warner Bros. brand and as an additional distribution outlet for the Company's collection of children's cartoons and television programming, and (6) Time Warner Cable, currently the largest operator of cable television systems in the U.S. The operating results of Time Wamer's various business interests are presented herein as an indication of financial performance (Note 7). Except for start-up losses incurred in connection with The WB Network, Time Warner's principal business interests generate significant operating income and cash flow from operations. The cash flow from operations generated by such business interests is considerably greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized in various acquisitions accounted for by the purchase method of accounting. Noncash amortization of intangible assets recorded by Time Warner's business interests, including the unconsolidated business interests of the Entertainment Group, amounted to $311 million and 24 • 1 1 • TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) $327 million for the three months ended June 30, 1999 and 1998, respectively, and $617 million and $656 million in the six months ended June 30, 1999 and 1998, respectively. Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Time Wamer included in its Annual Report on Form 10-K for the year ended December 31, 1998, as amended on June 28, 1999 (the "1998 Form 10-K"). Certainreclassificationshave been made to the prior year's financial statements to conform to the 1999 presentation. Per common share and average common share amounts for all prior periods have been restated to give effect to a two-for-one common stock split that occurred on December 15, 1998. 2. ENTERTAINMENT GROUP Time Warner's investment in and amounts due to and from the Entertainment Group at June 30, 1999 and December 31, 1998 consists of the following: June 30, December 31, 1999 1998 (millions) Investment in TWE $4,497 , $3,850 Stock option related distributions due from TWE 1,347 1,130 Credit agreement debt due to TWE (400) (400) Other net amounts due to TWE, principally related to home video distribution (104) (395) Investment in and amounts due to and, from TWE 5,340 4,185 Investment in TWE-AJN and other Entertainment Group companies 912 795 Total $6,252 $4,980 Partnership Structure and Allocation of Income TWE is a Delaware limited partnership that was capitalized on June 30, 1992 to own and operate substantial- ly all of the Filmed Entertainment -Warner Bros., Cable Networks -HBO and Cable businesses previously owned by subsidiaries of Time Warner Time Warner; through its wholly owned subsidiaries, collectively owns general and limited partnership interests in TWE consisting of 74.49% of the Series A Capital and Residual Capital, and 100% of the Series B Capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are owned by MediaOne. Certain Time Warner subsidiaries are the general partners of TWE (the "Time Warner General Partners"). The TWE partnership agreement provides for special allocations of income, loss and distributions of partnership capital, including priority distributions in the event of liquidation. TWE reported net income of $1.079 25 • TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) billion and $263 million for the six months ended June 30, 1999 and 1998, respectively, no portion of which was allocated to the limited partnership interests. Summarized Financial Information of the Entertainment Group Set forth below is summarized financial information of the Entertainment Group. This information reflects (i) the transfer of Time Warner Cable's direct broadcast satellite operations to Primestai; Inc. ("Primestar"), a separate holding company, effective as of April 1, 1998, (ii) the formation of the Road Runner joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed online businesses, effective as of June 30, 1998, (iii) the reorganization of Time Warner Cable's business telephony operations into a separate entity now named Time Warner Telecom Inc. ("Time Wamer Telecom"), effective as of July 1, 1998 and (iv) the formation of a joint venture in Texas that owns cable television systems serving approximately 1.1 million subscribers, effective as of December 31, 1998 (collectively, the "1998 Cable Transactions"). These transactions are described more fully in Time Warner's 1998 Form 10-K. Three Months Six Months Ended June 30. Ended June 30. 1999 1998 1999 1998 (millions) Operating Statement Information Revenues $3,060 $2,853 $5,994 $5,765 Depreciation and amortization (334) (356) (642) (727) Business segment operating incomeOx2) 1,212 456 1,863 825 Interest and other, net (167) (183) (392) (347) Minority interest (233) (82) (301) (146) Income before income taxes 794 173 1,134 296 Net income 767 156 1,079 264 (1) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of S760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. (2) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. Six Months Ended June 30. 1999 1998 (millions) Cash Flow Information Cash provided by operations $1,519 $ 586 Capital expenditures (649) (734) Investments and acquisitions (223) (265) Investment proceeds 210 506 Borrowings 1,310 503 Debt repayments (1,539) (492) Redemption of preferred stock of subsidiary (217) - Capital distributions , (280) (298) Other financing activities, net (101) (56) Increase (decrease) in cash and equivalents 30 (250) 26 1 1 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) June 30, December 31, 1999 1998 (millions) Balance Sheet Information Cash and equivalents $ 117 $ 87 Total current assets 4,223 4,187 Total assets 22,889 22,241 Total current liabilities 4,745 4,940 Long-term debt 6,535 6,578 Minority interests 1,744 1,522 Preferred stock of subsidiary - 217 Time Warner General Partners' Senior Capital 627 603 Partners' capital 5,711 5,210 Capital Distributions The assets and cash flows of TWE are restricted by the TWE partnership and credit agreements and are unavailable for use by the partners except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. At June 30, 1999 and December 31, 1998, the Time Warner General Partners had recorded $1.347 billion and $1.130 billion; respectively of stock option related distributions duefrom TWE, based on closing prices of Time Warner common stock of $72.63 and $62.06, respectively. Time Warner is paid when the options are exercised. The Time Warner General Partners also receive tax -related distributions from TWE on a current basis. During the six months ended June 30, 1999, the Time Wamer General Partners received distributions from TWE in the amount of $280 million, consisting of $138 million of tax -related distributions and $142 million of stock option related distributions. During the six months ended June 30, 1998, the Time Warner General Partners received distributions from TWE in the amount of $298 million, consisting of $138 million of tax - related distributions and $160 million of stock option related distributions. In July 1999, TWE paid a $627 million distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Warner used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. Gain on Termination of MGM Video Distribution Agreement In March 1999, Warner Bros. and Metro-Goldwyn-Maye; Inc. ("MGM") terminated a long-term distribution agreement under which Warner Bros. had exclusive worldwide distribution rights for MGM/United Artists home video product. In connection with the early termination and settlement of this distribution agreement, Warner Bros. recognized a net pretax gain of approximately $215 million ($0.10 per basic common share), which has been included in Time Warner's equity in the pretax income of the Entertainment Group in the accompanying consolidated statement of operations. TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Gain on Sale or Exchange of Cable Television Systems and Investments In 1999 and 1998, largely in an effort to enhance their geographic clustering of cable television properties, Time Warner and TWE sold or exchanged various cable television systems and investments. The 1999 transactions included a large exchange of cable television systems serving approximately 575,000 subscribers for other cable television systems of comparable size owned by TCI Communications, Inc., a subsidiary of AT&T Corp. As a result of these transactions, the operating results of Time Warner's and TWE's Cable division include net pretax gains for the second quarter of $771 million in 1999 and $70 million in 1998. Net pretax gains for the first half of the year amounted to $771 million in 1999 and $84 million in 1998. Of such amounts, $11 million of net pretax gains recognized in the second quarter of 1999 relate to Time Warner's wholly owned Cable division. Primestar TWE owns an approximate 24% equity interest in Primestar In January 1999, Primestar an indirect wholly owned subsidiary of Primestar and the stockholders of Primestar entered into an agreement to sell Primestar's medium -power direct broadcast satellite business and assets to DirecTV a competitor of Primestar owned by Hughes Electronics Corp. In addition, a second agreement was entered into with DirecTV pursuant to which DirecTV agreed to purchase Primestar's rights with respect to the use or acquisition of certain high-power satellites from a wholly owned subsidiary of one of the stockholders of Primestar In April 1999, Primestar closed on the sale of its medium - power direct broadcast satellite business to DirecTV Then, in June 1999, Primestar completed the sale of its high- power satellite rights to DirecTV As a result of those transactions, Primestar began to substantially wind down its operations during the first quarter of 1999. TWE recognized its share of Primestar's 1999 losses under the equity method of accounting. Such losses are included in interest and other, net, in TWE's consolidated statement of operations. Future wind -down losses are not expected to be material to Time Warner's or TWE's operating results. 3. GAIN ON TIME WARNER TELECOM'S INITIAL PUBLIC OFFERING In May 1999, Time Warner Telecom, a competitive local exchange carrier that provides telephony services to businesses, completed an initial public offering of 20% of its common stock (the "Time Warner Telecom IPO"). Time Warner Telecom raised net proceeds of approximately $270 million, of which $180 million was paid to Time Wamer and TWE in satisfaction of certain obligations. In turn, Time Warner and TWE used those proceeds principally to reduce bank debt. In connection with the Time Warner Telecom IPO and certain related transactions, Time Warner's ownership interest in Time Warner Telecom was diluted from 61.98% to 48.21%. As a result, Time Wamer recognized a pretax gain of approximately $115 million ($.05 per basic common share after taxes). This gain has been included in interest and other; net, in Time Warner's 1999 consolidated statement of operations. 28 • TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 4. INVENTORIES Inventories consist of: June 30. 1999 December 31. 1998 Current Noncurrent Current Noncurrent (millions) Film costs: Released, less amortization. $ 74 $ 226 $ 51 $ 308 Completed and not released 28 5 20 In process and other 246 2 240 Library, less amortization 979 1,007 Programming costs, less amortization 403 382 457 345 I Magazines, books and recorded music 418 416 - Total $923 $1.838 $946 $1.900 5. MANDATORILY REDEEMABLE PREFERRED SECURITIES In December 1995, Time Warner Companies, Inc. ("TW Companies"), a wholly owned subsidiary of Time Warne; issued approximately 23 million Company -obligated mandatorily redeemable preferred securities of a wholly owned subsidiary ("Preferred Trust Securities") for aggregate gross proceeds of $575 million. The sole assets of the subsidiary that is the obligor on the Preferred Trust Securities are $592 million principal amount of 87/8% subordinated debentures of TW Companies due December 31, 2025. Cumulative cash distributions are payable on the Preferred Trust Securities at an annual rate of 8'/8%. The Preferred Trust Securities are mandatorily redeemable for cash on December 31, 2025, and TW Companies has the right to redeem the Preferred Trust Securities, in whole or in part, on or after December 31, 2000, or in other certain circumstances. If TW Companies elects to redeem these securities, the redemption amount would be in each case at an amount per Preferred Trust Security equal to $25 per security, plus accrued and unpaid distributions thereon. Time Warner has certain obligations relating to the Preferred Trust Securities which amount to a full and unconditional guaranty (on a subordinated basis) of its subsidiary's obligations with respect thereto. 6. SHAREHOLDERS' EQUITY Preferred Stock Conversion In July 1999, Time Warner issued approximately 46 million shares of common stock in connection with the conversion of all outstanding 11 million shares of its Series D convertible preferred stock. Because holders of Series D preferred stock were entitled to cash dividends at a preferential rate through July 1999, Time Warner's historical cash dividend requirements will be reduced, going forward, by approximately $30 million on an annualized basis. Series LMCN-V Stock Split In May 1999, Time Warner amended the terms of its Series LMCN-V common stock, which effectively resulted in a two-for-one stock split and the issuance of approximately 57 million shares of Series LMCN-V common 29 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) stock. As a result, each share of Series LMCN-V common stock now is equivalent effectively to one share of common stock instead of two. Because the equivalent number of shares of common stock did not change, the split did not have any effect on Time Warner's consolidated financial statements. Shares of Series LMCN-V common stock continue to have limited voting rights. Common Stock Repurchase Program In January 1999, Time Warner's Board of Directors authorized a new common stock repurchase program that allows the Company to repurchase, from time to time, up to $5 billion of common stock. This program is expected to be completed over a three-year period; however; actual repurchases in any period will be subject to market conditions. Along with stock option exerciseproceeds and borrowings under Time Warner's $1.3 billion stock option proceeds credit facility, additional funding for this program is expected to be provided by anticipated future free cash flow and financial, capacity. During the first six months of 1999, Time Warner acquired 13.7 million shares of its common stock at an aggregate cost of $926 million. These repurchases increased the cumulative shares purchased under this and its previous common stock repurchase program begun in 1996 to approximately 108.8 million shares at an aggregate cost of $3.97 billion. Net Income (Loss) Per Common Share Set forth below is a reconciliation of basic and diluted net income (loss) per common share for each period. Net income (loss) applicable to common shares - basic Interest savings, net of tax(2) Preferred dividends Net income (loss) applicable to common shares - diluted Three Months Ended June 30, 1999 1998(1) $ 575 10 18 $ 603 Six Months Ended June 30. 1999 1998(') (millions, except per share amounts) $ 23 $ 695 $ (121) 19 36 $ 23 $ 750 $ 121 Average number of common shares outstanding - basic 1,249.3 1,192.6 1,246.2 1,174.6 Dilutive effect of stock options 73.3 74.0 Dilutive effect of convertible preferred shares 81.1 81.4 Average number of common shares outstanding - diluted 1.403.7 1,192.6 1.401.6 1,174.6 Net income (loss) per common share: Basic $ 0.46 $ 0.02 $ 0.56 $(0.10) Diluted $ 0.43 $ 0.02 $ 0.54 $(0.10) (1) 1998 basic and diluted net income (loss) per common share are the same because the effect of Time Wamer's stock options and convertible preferred stock was antidilutive. (2) Reflects the required use ofa portion of the proceeds from the future exercise of employee stock options to repay all outstanding borrowings under Time Warner's stock option proceeds credit facility. i 1 30 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 7. SEGMENT INFORMATION Time Warner classifies its business interests into four fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. A majority of Time Warner's interests in filmed entertainment, television production, television broadcasting and cable television systems, and a portion of its interests in cable television programming are held by the Entertainment Group. The Entertainment Group is not consolidated for financial reporting purposes. Information as to the operations of Time Warner and the Entertainment Group in different business segments is set forth below based on the nature of the products and services offered. Time Warner evaluates performance based on several factors, of which the primary financial measure is business segment operating income before noncash amortization of intangible assets ("EBITA"). The operating results of Time Warner's and the Entertainment Group's cable segments reflect the 1998 Cable Transactions. Three Months Ended June 30, Six Months Ended June 30. 1999 1998 1999 1998 (millions) Revenues Time Warner: Publishing $1,153 $1,136 $2,127 $2,084 Music 828 905 1,764 1,793 Cable Networks -TBS 1,065 906 1,903 1,634 Filmed Entertainment -TBS 337 504 654 876 Cable 216 242 438 490 Intersegment elimination (25) (21) (46) (68) Total $3,574 $3,672 $6,840 $6,809 Entertainment Group: Filmed Entertainment -Warner Bros $1,446 $1,330 $2,826 $2,642 Broadcasting -The WB Network 83 61 162 106 Cable Networks -HBO 546 509 1,072 1,021 Cable 1,114 1,084 2,188 2,237 Intersegment elimination (129) (131) (254) (241) Total $3,060 $2,853 $5,994 $5,765 31 1 1 1 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (millions) EBITA(') Time Warner: Publishing $ 196 $ 176 $ 290 $ 261 Music 101 96 203 189 Cable Networks -TBS 235 198 419 351 Filmed Entertainment -TBS 71 38 100 23 Cable(zl 81 74 147 148 Intersegment elimination ... 2 81) 12 (20) Total $ 686 $ 581 $1,171 $ 952 Entertainment Group: Filmed Entertainment -Warner Bros (3) $ 132 $ 122 $ 478 $ 241 Broadcasting -The WB Network (30) (23) (71) (61) Cable Networks -HBO 131 113 256 222 Cable(2) 1,099 374 1,436 681 Total $1:332 $ 586 $2,099 $1.083 (1) EBITA represents business segment operating income before noncash amortization of intangible assets. After deducting amortization of intangible assets, Time Warner's business segment operating income for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year was $495 million and $790 million in 1999, $384 million and $554 million in 1998. Similarly, business segment operating income of the Entertainment Group for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year was $1.212 billion and $1.863 billion in 1999, $456 million and $825 million in 1998. (2) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of $771 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $771 million in 1999 and $84 million in 1998. Of such amounts, $11 million of net pretax gains recognized in the second quarter of 1999 relate to Time Wamer's wholly owned Cable division. (3) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. Three Months Six Months Ended June 30. Ended June 30. 1999 1998 1999 1998 (millions) Depreciation of Property, Plant and Equipment Time Warner: Publishing $ 19 $ 19 $ 38 $ 38 Music 18 19 35 38 Cable Networks -TBS 26 25 50 47 Filmed Entertainment -TBS 2 1 3 3 Cable 27 32 53 65 Total $ 92 $ 96 $179 $191 Entertainment Group: Filmed Entertainment -Warner Bros $ 36 $ 38 $ 65 $ 78 Broadcasting -The WB Network 1 1 Cable Networks -HBO 6 5 13 10 Cable 171 183 327 381 Total $214 $226 $406 $469 T 32 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (millions) Amortization of Intangible Assets(1) Time Warner: Publishing $ 10 $ 8 $ 20 $ 17 Music 70 71 137 139 Cable Networks -TBS 51 50 101 100 Filmed Entertainment -TBS 18 20 37 40 Cable 42 48 86 102 Total $191 $197 $381 $398 Entertainment Group: Filmed Entertainment -Warner Bros $ 31 $ 33 $ 61 $ 66 Broadcasting -The WB Network 1 1 2 2 Cable Networks -HBO - Cable 88 96 173 190 Total $120 $130 $236. $258 (1) Amortization includes amortization relating to all business combinations accounted for by the purchase method, including the $14 billion acquisition of Warner Communications Inc. in 1989, the $6.2 billion acquisition of Turner Broadcasting System, Inc. in 1996 and the $2.3 billion of cable acquisitions in 1996 and 1995. 8. COMMITMENTS AND CONTINGENCIES Time Warner is subject to numerous legal proceedings. In management's opinion and considering established reserves, the resolution of these matters will not have a material effect, individually and in the aggregate, on Time Wamer's consolidated financial statements. 9. ADDITIONAL FINANCIAL INFORMATION Additional financial information with respect to cash flows is as follows: Six Months Ended June 30, 1999 1998 (millions) Interest expense $469 $455 Cash payments made for interest 446 404 Cash payments made for income taxes 159 122 Tax -related distributions received from TWE 138 138 Income tax refunds received ' 14 43 Noncash investing activities include the exchange of certain cable television systems in 1999 and 1998 (see Note 2). Noncash investing activities in the first six months of 1998 also included the transfer of cable television systems (or interests therein) serving approximately 650,000 subscribers that were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, as well as certain related transactions (collectively, 33 I I I 1 TIME WARNER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) the "TWE-A/N Transfers"). For a more comprehensive description of the TWE-A/N Transfers, see Time Warner's 1998 Form 10-K. TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (unaudited) Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting System, Inc. ("TBS" and, together with TW Companies, the "Guarantor Subsidiaries") are wholly owned subsidiaries of Time Warner Inc. ("Time Warner"). Time Warne; TW Companies and TBS have fully and unconditionally guaranteed all of the outstanding publicly traded indebtedness of each other Set forth below are condensed consolidating financial state- ments of Time Warne; including each of the Guarantor Subsidiaries, presented for the information of each company's public debtholders. Separate financial statements and other disclosures relating to the Guarantor Subsidiaries have not been presented because management has determined that this information would not be material to such debtholders. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) Time Warne; TW Companies and TBS (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the direct and indirect non -guarantor subsidiaries of Time Warner and (iii) the eliminations necessary to arrive at the information for Time Warner on a consolidated basis. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of Time Warner Consolidating Statement of Operations For The Three Months Ended June 30, 1999 Non- Time Time TW Guarantor Elimina- Warner Ti WarnerCompanies TBS Subsidiaries tions Consolidated (millions) Revenues 5 - $ - $ 242 $3,333 $ (1) $3.574 Cost of revenues (1) 132 1,768 (1) 1,899 Selling, general and administrative (1) . 48 1,132 - 1.180 Operating expenses _ 180 2,900 (1) 3,079 Business segment operating income 62 433 495 Equity in pretax income of consolidated subsidiaries 1,156 1,162 158 (2,476) Equity in pretax income of Entertainment Group 794 (1) 793 Interest and other, net (70) (163) (35) 94 (28) (202) Corporate expenses (22) (14) (4) (16) 34 (22) Income before income taxes 1,064 985 181 1,305 (2,471) 1,064 Income tax provision (471) (436) (89) (581) 1,106 (471) Net income $ 593 $ 549 $ 92 $ 724 $(1,365) $ 593 (1) Includes depreciation and amortization expense of: $ $ 5 3 $ 280 $ $ 283 35 TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS—(Continued) (unaudited) Consolidating Statement of Operations For The Three Months Ended June 30, 1998 Non- rune Time TW Guarantor Elimtna- Warner Warner Companies TBS Subsidiaries dons Consolidated (millions) Revenues $ - $ - $198 $3,474 Cost of revenues (1) Selling, general and administrative (1) . Operating expenses 100 1,977 47 1,164 147 3,141 $ - $3,672 2,077 1,211 3.288 Business segment operating income 51 333 384 Equity in pretax income of consolidated subsidiaries 279 397 99 (775) Equity in pretax income of Entertainment Group - 173 .(7) 166 Interest and others net (12) (202) (40) (11) (18) (283) Corporate expenses (19) (13) _14) (15) 32 (19) Income before income taxes 248 182 106 480 (768) 248 Income tax provision (147) (117) (60) (261) 438 (147) Net income $101 $ 65 $ 46 $ 219 $(330) $101 (1) Includes depreciation and amortization expense of: $ $ $ 2 $ 291 $ $ 293 • 1 r' TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS—(Continued) (unaudited) Consolidating Statement of Operations For The Six Months Ended June 30, 1999 Non- Tune Time TW Guarantor Elimina- Warner Warner Comyanless TBS Subsidiaries tions Consolidated (millions) Revenues $ - $ - $ 426 $6.417 $ (3) $6,840 Cost of revenues (1) 200 3,488 (3) 3,685 Selling, general and administrative (1) _ _ 104 2,261 _ 2,365 Operating expenses _ - 304 5,749 _C33 6,050 Business segment operating income - 122 668 790 Equity in pretax income of consolidated subsidiaries 1,534 1,636 234 (3,404) - Equity in pretax income of Entertainment Group - - 1,134 1 1,135 Interest and other, net (122) (346) (69) 69 (45) (513) Corporate expenses (44). (28) (8)- - (32) .. 68 (44). Income before income taxes 1,368 1,262 279 1,839 (3,380) 1,368 Income tax provision (637) (587) (145) (845) 1,577 (637) Net income $ 731 $ 675 $ 134 $ 994 $(1.803) $ 731 (1) Includes depreciation and amortization expense of: $ $ $ 5 $ 555 $ $ 560 37 Revenues TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS—(Continued) (unaudited) Consolidating Statement of Operations For The Six Months Ended June 30, 1998 Cost of revenues (1) Selling, general and administrative (1) . Operating expenses Non- Time Time TW Guarantor Elimina- Warner Warner Companies TBS Subsidiaries tions Consolidated (millions) $ - $ - $366 $6,443 $ $6,809 161 3,803 97 2.194 258 5,997 3,964 2,291 _ 6.255 Business segment operating income 108 446 554 Equity in pretax income of consolidated subsidiaries 283 614 78 (975) Equity in pretax income of Entertainment Group - - 296 (23) 273 Interest and other, net (22) (387) (84) (51) (22) (566) Corporate expenses (38) (26) _8) (31) 65 (38) Income before income taxes 223 201 94 660 (955) 223 Income tax provision (184) (135) (73) (367) 575 (184) Net income $ 39 $ 66 $ 21 $ 293 $(380) $ 39 (1) Includes depreciation and amortization expense of: $ - $ $ 4 $ 585 $ $ 589 38 TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -(Continued) (unaudited) Consolidating Balance Sheet June 30, 1999 Non- Time Tbne TW Guarantor Elimina- Warner Warner Companies TBS Subsidiaries tions Consolidated (millions) ASSETS Current assets Cash and equivalents $ - $ - $ 8 $ 296 $ $ 304 Receivables, net 10 28 89 2,270 2,397 Inventories 134 789 923 Prepaid expenses 52 _ _ 1,227 _ 1.279 Total current assets 62 28 231 4,582 4,903 Noncurrent inventories 141 1,697 1,838 Investments in and amounts due to and from consolidated subsidiaries 15,928 14,425 9,455 - (39,808) Investments in and amounts due to and from Entertainment Group 899 5,460 (107) 6,252 Other investments 230 27 24 1,333 (690) 924 Property, plant and equipment 41 45 1,941 - 2,027 Music catalogues, contracts and copyrights - 824 824 Cable television and sports franchises 2,662 2,662 Goodwill 11,647 11,647 Other assets 65 105 66 580 _ 816 Total assets $16,326 $15.484 $9,962 $30,726 $(40,605) $31.893 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 12 $ 37 $ 2 $ 772 $ $ 823 Participations, royalties and programming costs payable • 34 1,138 1,172 Debt due within one year - 20 - 20 Other current liabilities 248 187 145 1.584 (43) 2,121 Total current liabilities 260 224 181 3,514 (43) 4,136 Long-term debt 1,585 7,391 747 1,042 - 10,765 Debt due to affiliates - 1,647 158 (1,805) Borrowings against future stock option proceeds 1,219 - - 1,219 Deferred income taxes 3,704 3,499 285 3,784 (7,568) 3,704 Unearned portion of paid subscriptions 755 755 Other liabilities 466 121 1,060 1,647 TW Companies -obligated mandatorily redeemable preferred securities of a subsidiary holding solely subordinated debentures of TW Companies 575 575 Shareholders' equity Due from Time Warner and subsidiaries - (2,623) (642) (2,692) 5,957 Other shareholders' equity 9,092 6.993 7,623 22,530 (37,146) 9,092 Total shareholders' equity 9,092 4,370 6,981 19,838 (31,189) 9,092 Total liabilities and shareholders' equity $16,326 $15,484 $9,962 $30,726 $(40,605) $31,893 39 TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -(Continued) (unaudited) Consolidating Balance Sheet December 31, 1998 Non- Time Tune TW Guarantor Elimina- Warner Warner Compaoles TBS Subsidiaries tions Consolidated (millions) ASSETS Current assets Cash and equivalents $ - $ 66 $ 25 $ 351 $ - $ 442 Receivables, net 10 56 78 2,750 (9) 2,885 Inventories - 131 815 - 946 Prepaid expenses 17 5 1,166 (12) 1,176 Total current assets 27 127 234 5,082 (21) 5,449 Noncurrent inventories - 156 1,744 1,900 Investments in and amounts due to and from consolidated subsidiaries 15,222 13,745 9,465 (38,432) Investments in and amounts due to and from Entertainment Group 919 4,169 (108) 4,980 Other investments 211 15 24 1,194 (650) 794 Property, plant and equipment 55 44 1,892 1,991 Music catalogues, contracts and copyrights - - 876 876 Cable television and sports franchises - 2,868 - 2,868 Goodwill - 11,919 - 11,919 Other assets 65 116 59 631 (8i 863 Total assets $15,580 $14,922 $9.982 $30,375 $(39.219) $31.640 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 20 $ $ 11 $ 965 $ - $ 996 Participations, royalties and programming costs payable 31 1,168 1,199 Debt due within one year 19 - 19 Other current liabilities 308 229 176 1,705 (14) 2.404 Total current liabilities 328 229 218 3,857 (14) 4,618 Long-term debt 1,584 7,346 747 1,248 - 10,925 Debt due to affiliates - 1,647 158 (1,805) - Borrowings against future stock option proceeds 895 - - 895 Deferred income taxes 3,491 3,324 246 3,570 (7,140) 3,491 Unearned portion of paid subscriptions - 741 - 741 Other liabilities • 430 116 997 1,543 TW Companies -obligated mandatorily redeemable preferred securities of a subsidiary holding solely subordinated debentures of TW Companies 575 575 Shareholders' equity Due from Time Warner and subsidiaries - (2,313) (479) (2,317) 5,109 Other shareholders' equity 8,852 6,336 7,487 21,546 (35,369) 8,852 Total shareholders' equity 8,852 4,023 7,008 19.229 (30,260) 8,852 Total liabilities and shareholders' equity $15,580 $14,922 $9,982 $30,375 $(39,219) $31,640 40 ( • 1 TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS—(Continued) (unaudited) Consolidating Statement of Cash Flows For The Six Months Ended June 30, 1999 Non- Time Time TW Guarantor Elimina- Warner Warner Companies TBS Subsidiaries tions Consolidated (millions) OPERATIONS Net income $ 731 $ 675 $ 134 $ 994 $(1,803) $ 731 Adjustments for noncash and nonoperating items: Depreciation and amortization - 5 555 - 560 Noncash interest expense 2 2 Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries (174) (502) 147 529 Deficiency of distributions over equity in pretax income of Entertainment Group - - (854) (1) (855) Changes in operating assets and liabilities (89) (53) (134) 452 (19) 157 Cash provided by operations 468 122 152 1,147, (1,294) 595 INVESTING ACTIVITIES Investments and acquisitions - (101) - (101) Advances to parents and consolidated subsidiaries - - (228) 228 Repayments of advances from consolidated subsidiaries 71 - 232 (303) - Capital expenditures - (6) (308) - (314) Investment proceeds - _ - 113 = 113 Cash provided (used) by investing activities _ 71 (6) (292) (75) (302) FINANCING ACTIVITIES Borrowings - 115 - 226 341 Debt repayments - (65) - (243) (308) Change in due to/from parent (4) (309) (163) (893) 1,369 Borrowings against future stock option proceeds 324 - - 324 Repurchases of Time Warner common stock (926) (926) Dividends paid (149) (149) Proceeds received from stock option and dividend reinvestment plans 287 _ _ _ 287 Cash used by financing activities (468) (259) (163) (910) 1,369 (431) DECREASE IN CASH AND EQUIVALENTS - (66) (17) (55) - (138) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 66 25 351 = 442 CASH AND EQUIVALENTS AT END OF PERIOD . $ $ - $ 8 $ 296 $ - $ 304 41 • 1 • TIME WARNER INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS—(Continued) (unaudited) Consolidating Statement of Cash Flows For The Six Months Ended June 30, 1998 Non- Tune Time TW Guarantor Elimina- Warner Warner Companies TBS Subsidiaries tions Consolidated (millions) OPERATIONS Net income $ 39 $ 66 $21 $293 $(380) $ 39 Adjustments for noncash and nonoperating items: Depreciation and amortization 4 585 - 589 Noncash interest expense 29 29 Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries 838 (313) 145 (670) Excess of distributions over equity in pretax income of Entertainment Group - 2 23 25 Changes in operating assets and liabilities 160 91 (81) 81 (44) 207 Cash provided (used) by operations 1,037 (127) 89 961 (1,071) 889 INVESTING ACTIVITIES ... Investments and acquisitions (213) - 139 - (74) Advances to parents and consolidated subsidiaries - (187) - (26) 213 - Repayments of advances from consolidated subsidiaries 75 - - - (75) - Capital expenditures (7) (221) - (228) Investment proceeds _ _ = 395 = 395 Cash provided (used) by investing activities (138) (187) (7) 287 138 93 FINANCING ACTIVITIES Borrowings 597 496 - 514 (4) 1,603 Debt repayments - (500) (75) (877) 75 (1,377) Change in due to/from parent - 21 - (883) 862 - Borrowings against future stock option proceeds 525 - 525 Repayments of borrowings against future stock option proceeds (533) - (533) Repurchases of Time Warner common stock (1,661) - (1,661) Dividends paid (265) - (265) Proceeds received from stock option and dividend reinvestment plans 460 - 460 Other, principally financing costs (22) (13) _ _ (35) Cash provided (used) by financing activities (899) 4 (75) (1,246) 933 (1,283) INCREASE (DECREASE) IN CASH AND EQUIVALENTS (310) 7 2 - (301) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 372 9 264 _ 645 CASH AND EQUIVALENTS AT END OF PERIOD . $ - $ 62 $ 16 $ 266 $ - $ 344 42 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Description of Business Time Warner Entertainment Company, L.P. ("TWE" or the "Company") classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. TWE also manages the cable properties owned by Time Warner and the combined cable television operations are conducted under the name of Time Wamer Cable. Use of EBITA TWE evaluates operating performance based on several factors, including its primary financial measure of operating income before noncash amortization of intangible assets ("EBITA"). Consistent with management's financial focus on controlling capital spending, EBITA measures operating performance after charges for depreci- ation. In addition, EBITA eliminates the uneven effect across all business segments of considerable amounts of non- cash amortization of intangible assets recognized in business combinations accounted for by the purchase method. These business combinations, including Time Warner's $14 billion acquisition of Warner Communications Inc. in 1989 and $1.3 billion acquisition of the minority interest in American Television and. Communications Corporation in 1992, created over $10 billion of intangible assets that generally are being amortized over a twenty to forty year period. The exclusion of noncash amortization charges also is consistent with management's belief that TWE's intangible assets, such as cable television franchises, film and television libraries and the goodwill associated with its brands, generally are increasing in value and importance to TWE's business objective of creating, extending and distributing recognizablebrands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of TWE includes, among other factors, an analysis of changes in business segment EBITA. Howeve; EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles. AT&T/MediaOne Acquisition At the time of this filing, MediaOne Group, Inc. ("MediaOne"), a limited partner in TWE, had agreed to be acquired by AT&T Corp. ("AT&T"). On August 3, 1999, TWE received a notice from MediaOne concerning the termination of its covenant not to compete with TWE. As a result of the termination notice and the operation of the partnership agreement governing TWE, MediaOne's rights to participate in the management of TWE's businesses have terminated immediately and irrevocably. MediaOne has retained only certain protective governance rights pertaining to certain limited matters affecting TWE as a whole. In addition, in connection with the proposed acquisition of MediaOne by AT&T, Time Warner and AT&T are engaged in discussions concerning the overall relationship of the companies following that acquisition. Among the subjects included in those discussions are the structure of TWE, the structure of AT&T/MediaOne's investment in TWE, as well as potential changes to the proposed cable telephony joint venture discussed on page F-8 of TWE's Annual Report on Form 10-K for the year ended December 31, 1998. The proposed acquisition of MediaOne by AT&T is subject to customary closing conditions, including regulatory approvals. Accordingly, there is no assurance that it will occur 43 1 T TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Transactions Affecting Comparability of Results of Operations As more fully described herein, the comparability of TWE's operating results has been affected by certain significant transactions and nonrecurring items in each period. In 1999, these nonrecurring items consisted of (i) an approximate $215 million net pretax gain recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement and (ii) net pretax gains in the amount of $760 million in the second quarter of 1999 relating to the sale or exchange of various cable television systems and investments. This compares to net pretax gains in the first half of 1998 of $84 million also relating to the sale or exchange of cable television systems. In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of these significant nonrecurring gains. As such, the following discussion and analysis focuses on amounts and trends adjusted to exclude the impact of these unusual items. However, unusual items may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions for which adjustments have been made. In addition, the comparability of TWE's Cable division results has been affected further by certain cable - related transactions, as described more fully in Note 8 to the accompanying consolidated financial statements. While these transactions had a significant effect on the comparability of the Cable division's EBITA and operating income principally due to the deconsolidation of the related operations, they did not have a significant effect on the comparability of TWE's net income. RESULTS OF OPERATIONS EBITA and operating income are as follows: Three Months Ended June 30. Six Months Ended June 30. Operating Operating EBITA Income EBITA Income 1999 1998 1999 1998 1999 1998 1999 1998 (millions) Filmed Entertainment -Warner Bros cel $ 132 $121 $ 101 $ 88 $ 478 $ 240 $ 417 $174 Broadcasting -The WB Network (30) (23) (31) (24) (71) (61) (73) (63) Cable Networks -HBO 131 113 131 113 256 222 256 222 Cable) 1,099 374 1,011 278 1,436 681 1,263 491 Total $1,332 $585 $1,212 $455 $2,099 $1,082 $1,863 $824 (1) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. (2) Includes net pretax gains relating to the sale or exchange of certain cable television systems and investments of $760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. 44 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30, 1998 TWE had revenues of $3.060 billion and net income of $767 million for the three months ended June 30, 1999, compared to revenues of $2.850 billion and net income of $155 million for the three months ended June 30, 1998. As previously described, the comparability of TWE's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of $760 million of net pretax gains in 1999, compared to $70 million of net pretax gains in 1998. TWE's net income increased to $767 million in 1999, compared to $155 million in 1998. However excluding the effect of the nonrecurring items referred to earliei net income increased by $65 million to $165 million in 1999 from $100 million in 1998. As discussed more fully below, this improvement principally resulted from an overall increase in TWE's business segment operating income. As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $27 million and $17 million for the three months ended June 30, 1999 and 1998, respectively, have been provided for the operations of TWE's domestic and foreign subsidiary corporations. Filmed Entertainment -Warner Bros. Revenues increased to $1.446 billion, compared to $1.327 billion in the second quarter of 1998. EBITA increased to $132 million from $121 million. Operating income increasedto $101 million from $88 million. Revenues benefited from increases in worldwide theatrical and television distribution operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were marginally higher revenues from worldwide home video operations, which benefited from increased sales of DVDs. EBITA and operating income benefited principally from improved results from worldwide theatrical and television distribution operations, offset in part by lower gains on the sale of assets and lower results from consumer products operations. Broadcasting - The WB Network. Revenues increasedto $83 million, compared to $61 million in the second quarter of 1998. EBITA decreased to a loss of $30 million from a loss of $23 million. Operating losses increased to $31 million from $24 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $546 million, compared to $509 million in the second quarter of 1998. EBITA and operating income increased to $131 million from $113 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increasedprincipally as a result of the revenue gains, increased cost savings and higher income from Comedy Central, a 50% -owned equity investee. Cable. Revenues increased to $1.114 billion, compared to $1.084 billion in the second quarter of 1998. EBITA increased to $1.099 billion from $374 million. Operating income increased to $1.011 billion from $278 million. The Cable division's 1999 operating results were affected by certain cable -related transactions that occurred 45 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) in 1998 (the "1998 Cable Transactions") and by net pretax gains of $760 million in 1999 and $70 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 8 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, an increase in advertising revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, decreased to an expense of $167 million in the second quarter of 1999, compared to an expense of $183 million in the second quarter of 1998. Interest expense increased to $136 million, compared to $132 million in the second quarter of 1998, principally due to higher average debt levels. Other expense, net, decreased to $31 million in the second quarter of 1999, compared to $51 million in the second quarter of 1998. The decrease principally related to lower losses from certain investments accounted for under the equity method of accounting and a gain on the sale of an investment. Minority Interest. Minority interest expense increased to $233 million, compared to $82 million in the second quarter of 1998. Minority interest expense increased primarily due to the allocation of a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by the TWE- Advance/NewhousePartnership ("TWE-A/N"), a majority owned partnership of TWE, to the minority owners of that partnership. Excluding the significant effect of the gains recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998 TWE had revenues of $5.994 billion and net income of $1.079 billion for the six months ended June 30, 1999, compared to revenues of $5.760 billion and net income of $263 million for the six months ended June 30, 1998. As previously described, the comparability of TWE's operating results for 1999 and 1998 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of approximately $1 billion of net pretax gains in 1999, compared to $84 million of net pretax gains in 1998. TWE's net income increased to $1.079 billion in 1999, compared to $263 million in 1998. However excluding the significant effect of the nonrecurring items referred to earlier net income increased by $63 million to $262 million in 1999 from $199 million in 1998. This improvement principally resulted from an overall increase in TWE's business segment operating income, offset in part by higher equity losses from certain investments accounted for under the equity method of accounting. Filmed Entertainment -Warner Bros. Revenues increased to $2.826 billion, compared to $2.637 billion in the first six months of 1998. EBITA increased to $478 million from 8240 million. Operating income increased to $417 million from $174 million. Revenues benefited from increases in worldwide theatrical and television distribution operations, offset in part by lower revenues from consumer products operations. Also contributing to the revenue increase were higher revenues from worldwide home video operations, which benefited from increased sales of 46 r 4. l • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) DVDs. EBITA and operating income increased primarily from the inclusion of an approximate $215 million net pretax gain recognized in the first quarter of 1999 in connection with the early termination and settlement of a long- term home video distribution agreement. In addition, EBITA and operating income benefited principally from improved results from worldwide theatrical and home video operations and an increase in investment -related income, offset in part by lower results from consumer products operations. Broadcasting - The WB Network. Revenues increased to $162 million, compared to $106 million in the first six months of 1998. EBITA decreased to a loss of $71 million from a loss of $61 million. Operating losses increased to $73 million from $63 million. Revenues increased as a result of improved television ratings and the addition of a fifth night of prime -time programming in September 1998. Operating losses increased principally because the revenue gains were more than offset by the combination of higher programming costs associated with the expanded programming schedule, a lower allocation of losses to a minority partner in the network and higher start-up costs associated with The WB Network 100+ station group, a distribution alliance for The WB Network in smaller markets. Cable Networks -HBO. Revenues increased to $1.072 billion, compared to $1.021 billion in the first six months of 1998. EBITA and operating income increased to $256 million from $222 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, increased cost savings, one-time gains from the sale of certain investments and higher income from Comedy Central, a 50% -owned equity investee. These increases were offset in part by higher marketing expenses. Cable. Revenues decreased to $2.188 billion, compared to $2.237 billion in the first six months of 1998. EBITA increased to $1.436 billion from $681 million. Operating income increased to $1.263 billion from $491 million. The Cable division's 1999 operating results were affected by the 1998 Cable Transactions and by net pretax gains of $760 million in 1999 and $84 million in 1998 relating to the sale or exchange of various cable television systems and investments. The 1998 Cable Transactions principally resulted in the deconsolidation or transfer of certain operations and are described more fully in Note 8 to the accompanying consolidated financial statements. Excluding the effect of the 1998 Cable Transactions, revenues increased due to growth in basic cable subscribers, increases in basic cable rates, increases. in advertising and pay-per-view revenues and an increase in revenues from providing Road Runner -branded, high-speed online services. Similarly, excluding the effect of the 1998 Cable Transactions and the one-time gains, EBITA and operating income increased principally as a result of the revenue increases, offset in part by higher programming costs. Interest and Other, Net. Interest and other, net, increased to an expense of $392 million in the first six months of 1999, compared to an expense of $347 million in the first six months of 1998. Interest expense was $273 million in both periods. Other expense, net, increased to $119 million in the first six months of 1999, compared to $74 million in the first six months of 1998. This increase principally related to higher losses from certain investments accounted for under the equity method of accounting, offset in part by a gain on the sale of an investment. Minority Interest. Minority interest expense was $301 million in the first six months of 1999, compared to $146 million in the first six months of 1998. Minority interest expense increased primarily due to the allocation of a portion of the net pretax gains relating to the sale or exchange of various cable television systems and investments owned by TWE-A/N to the minority owners of that partnership. Excluding the significant effect of the gains 47 1 { t TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) recognized in each period, minority interest expense for 1999 and 1998 was comparable in amount and did not have any significant effect on operating trends. FINANCIAL CONDITION AND LIQUIDITY June 30, 1999 Financial Condition At June 30, 1999, TWE had $6.5 billion of debt, $117 million of cash and equivalents (net debt of $6.4 billion), $627 million of Time Warner General Partners' senior priority capital and $5.7 billion of partners' capital. This compares to $6.6 billion of debt, $87 million of cash and equivalents (net debt of $6.5 billion), $217 million of preferred stock of a subsidiary, $603 million of Time Warner General Partners' senior priority capital and $5.1 billion of partners' capital at December 31, 1998. Senior Capital Distributions In July 1999, TWE paid a $627 million distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Warner used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. Redemption of REIT Preferred Stock In March 1999, a subsidiary of TWE (the "REIT") redeemed all of its shares of preferred stock ("REIT Preferred Stock") at an aggregate cost of $217 million, which approximated net book value. The redemption was funded with borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of proposed changes to federal tax regulations that substantially increased the likelihood that dividends paid by the REIT or interest paid to the REIT under a mortgage note of TWE would not be fully deductible for federal income tax purposes. Cash Flows During the first six months of 1999, TWE's cash provided by operations amounted to $1.519 billion and reflected $2.099 billion of EBITA from its Filmed Entertainment-Wamer Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $406 million of noncash depreciation expense and $21 million of pro- ceeds from TWE's asset securitizationprogram, less $242 million of interest payments, $49 million of income taxes, $36 million of corporate expenses, and $680 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $586 million in the first six months of 1998 reflected $1.082 billion of EBITA from its Filmed Entertainment -Warner Bros., Broadcasting -The WB Network, Cable Networks -HBO and Cable businesses, $469 million of noncash depreciation expense and $135 million of proceeds from TWE's asset securitization program, less $260 million of interest payments, $39 million of income taxes, $36 million of corporate expenses and $765 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. 48 / TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION --(Continued) Cash used by investing activities was $662 million in the first six months of 1999, compared to $493 million in the first six months of 1998. The increaseprincipally resulted from a $296 million decrease in investment proceeds relating to the 1998 sale of TWE's remaining interest in Six Flags Entertainment Corporation. The decrease in investment proceeds was partially offset by lower capital expenditures. Capital expenditures decreasedto $649 million in the first six months of 1999, compared to $734 million in the first six months of 1998. Cash used by financing activities was $827 million in the first six months of 1999, compared to $343 million in the first six months of 1998. The use of cash in 1999 principally resulted from the redemption of REIT Preferred Stock at an aggregate costof $217 million, the payment of $280 million of capital distributions to Time Warner and $229 million of debt reduction. The use of cash in 1998 principally resulted from the payment of $298 million of capital distributions to Time Warnes offset in part by an $11 million increase in net borrowings. Management believes that TWE's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future. Cable Capital Spending Time Wamer Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which it believes will position the business for sustained, long- term growth. Capital spending by TWE's Cable division amounted to $587 million in the six months ended June 30, 1999, compared to $666 million in the six months ended June 30, 1998. Cable capital spending is expected to approximate $700 million for the remainder of 1999. Capital spending by TWE's Cable division is expected to continue to be funded by cable operating cash flow. Filmed Entertainment Backlog represents the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog of TWE's Filmed Entertainment -Warner Bros. division amounted to $2.663 billion at June 30, 1999 (including amounts relating to the licensing of film product to TWE's cable television networks of $359 million and to Time Warner's cable television networks of $655 million). This compares to $2.298 billion at December 31, 1998 (including amounts relating to the licensing of film product to TWE's cable television networks of $199 million and to Time Warner's cable television networks of $570 million). Because backlog generally relates to contracts for the licensing of theatrical and television product which have already been produced, the recognition of revenue for such completed product principally is dependent only upon the commencement of the availability period for telecast under the terms of the related licensing agreement. Cash licensing fees are collected periodically over the term of the related licensing agreements or on an accelerated basis using TWE's $500 million securitization facility. The portion of backlog for which cash has not already been receivedhas significant off-balance sheet asset value as a source of future funding. The backlog excludes advertising barter contracts, which are also expected to result in the future realization of revenues and cash through the sale of advertising spots received under such contracts. 49 • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Year 2000 Technology Preparedness TWE, like most large companies, depends on many different computer systems and other chip -based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip -based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced. TWE's exposure to potential Year 2000 problems arises both in technological operations under the control of the Company and in those dependent on one or more third parties. These technological operations include information technology ("IT) systems and non -IT systems, including those with embedded technology, hardware and software. Most of TWE's potential Year 2000 exposures are dependent to some degree on one or more third parties. Failure to achieve high levels of Year 2000 compliance could have a material adverse impact on TWE and its financial statements. The Company's Year 2000 initiative is being conducted at the operational level by divisional project managers and senior technology executives overseenby senior divisional executives, with assistance internally as well as from outside professionals. The progress of each division through the different phases of remediation -- inventorying, assessment, remediation planning, implementation and final testing --is actively overseen and reviewed on a regular basis by an executive oversight group. The Company has generally completed the process of identifying, assessing and planning the remediation of potential Year 2000 difficulties in its technological operations, including IT applications, IT technology and support, desktop hardware and software, non -IT systems and important third party operations, and distinguishing those that are "mission critical" from those that are not. An item is considered "mission critical" if its Year 2000 - related failure would significantly impair the ability of one of the Company's major business units to (1) produce, market and distribute the products or services that generate significant revenues for that business, (2) meet its obligations to pay its employees, artists, vendors and others or (3) meet its obligations under regulatory requirements and intemal accounting controls. The Company and its divisions have identified approximately 600 worldwide, "mission critical" potential exposures. Of these, as of June 30, 1999, approximately 72% have been identified by the divisions as Year 2000 compliant and approximately 28% as in the remediation implementation or final testing stages. The Company currently expects that remediation with respect to well over 90% of all these identified operations will be substantially completed in all material respects by the end of the third quarter of 1999. The Company, however could experience unexpected delays. The Company is currently planning to impose a "quiet" period at some point during the fourth quarter of 1999 during which any remaining remediation involving installation or modification of systems that interface with other systems will be minimized to permit the Company to conduct testing in a stable environment and to focus on its contingency and transition plans, as necessary. As stated above, however the Company's business is heavily dependent on third parties and these parties are themselves heavily dependent on technology. For example, in a situation endemic to the cable industry, much of the Company's headend equipment that controls cable set-top boxes was not Year 2000 compliant. The box manufacturers and cable industry groups together developed solutions that the Company has been installing in its headend equipment at its various geographic locations. The few remaining installations are currently scheduled during the third quarter of 1999. In addition, if a television broadcaster or cable programmer encounters Year 2000 problems that impede its ability to deliver its programming, the Company will be unable to provide that programming to its cable customers. Because the Company is also a programming supplier third -party signal delivery problems would 50 1 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) affect its ability to deliver its programming to its customers. The Company has attempted to include in its "mission critical" inventory significant service providers, vendors, suppliers, customers and governmental entities that are believed to be critical to business operations and is in various stages of completing its determination of their state of Year 2000 readiness through various means, including questionnaires, interviews, on-site visits, system interface testing and industry group participation. The Company continues to monitor these situations. Moreover, TWE is dependent, like all large companies, on the continued functioning, domestically and internationally, of basic, heavily computerized services such as banking, telephony, water and power, and various distribution mechanisms ranging from the mail, railroads and trucking to high-speed data transmission. TWE is taking steps to attempt to satisfy itself that the third parties on which it is heavily reliant are Year 2000 compliant, are developing satisfactory contingency plans or that alternate means of meeting its requirements are available, but cannot predict the likelihood of such compliance nor the direct or indirect costs to the Company of non-compliance by those third parties or of securing such services from alternate compliant third parties. In areas in which the Company is uncertain about the anticipated Year 2000 readiness of a significant third party, the Company is investigating available alternatives, if any. The Company currently estimates that the aggregate cost of its Year 2000 remediation program, which started in 1996, will be approximately $50 to $85 million, of which an estimated 65% to 75% has been incurred through June 30, 1999. These costs include estimates of the costs of assessment, replacement, repair and upgrade, both planned and unplanned, of certain IT and non -IT systems and their implementation and testing. The Company anticipates that its remediation program, and related expenditures, may continue into 2001 as temporary solutions to Year 2000 problems are replaced with upgraded equipment. These expenditures have been and are expected to continue to be funded from the Company's operating cash flow and have not and are not expected to impact materially the Company's financial statements. Management believes that it has established an effective program to resolve all significant Year 2000 issues in its control in a timely manner As noted above, however, the Company has not yet completed all phases of its program and is dependent on third parties whose progress is not within its control. In the event that the Company experiences unanticipated failures of the systems within its control, management believes that the Company could experience significant difficulty in producing and delivering its products and services and conducting its business in the Year 2000 as it has in the past. More importantly, disruptions experienced by third parties with which the Company does business as well as by the economy generally could materially adversely affect the Company. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company continues to focus its efforts on remediation of its Year 2000 exposures. Simultaneously, it is examining its existing standard business interruption strategies to evaluate whether they would satisfactorily meet the demands of failures arising from Year -2000 related problems. It is also developing and refining specific transition schedules and contingency plans in the event it does not successfully complete its remaining remediation as anticipated or experiences unforeseen problems outside the scope of these standard strategies. The Company intends to examine its status periodically to determine the necessity of implementing such contingency plans or additional strategies, which could involve, among other things, manual workarounds, adjusting staffing strategies and sharing resources across divisions. 1 • • TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) Caution Concerning Forward -Looking Statements The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document, together with management's public commentary related thereto, contains such "forward-looking state- ments" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITA and cash flow. Words such as "anticipate", "estimate", "expects", "projects", "intends", "plans", "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward- looking statements are management's present expectations of future events. As with any projection or forecast, they are inherently susceptible to changes in circumstances, and TWE is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements, whether as a result of such changes, new information, future events or otherwise. TWE operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political, social conditions in the countries in which they operate, consumer demand for their products and services, technological developments and (particularly in view of technological changes) protection of their intellectual property rights. TWE's actual results could differ materially from management's expectations because of changes in such factors. Some of the other factors that also could cause actual results to differ from those contained in the forward-looking statements include those identified in TWE's other filings and: • For TWE's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS; increases in government regulation of cable or equipment rates or other terms of service (such as "digital must -carry" or "unbundling" requirements); increased difficulty in obtaining franchise renewals; the failure of new equipment (such as digital set-top boxes) or services (such as high-speed on-line services or telephony over cable or video on demand) to function properly, to appeal to enough consumers or to be available at reasonable prices and to be delivered in a timely fashion; and greater than expected increases in programming or other costs. • For TWE's cable programming and television businesses, greater than expected programming or production costs; public and cable operator resistance to price increases (and the negative impact on premium programmers of increases in basic cable rates); increased regulation of distribution agreements; the sensitivity of advertising to economic cyclicality; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television. • For TWE's film and television businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; increases in production costs generally; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments such as DVD and the Internet. • For TWE's digital media businesses, their ability to develop products and services that are attractive, accessible and commercially viable in terms of content, technology and cost, their ability to manage costs and generate revenues, aggressive competition from existing and developing technologies and products, the resolution of issues 52 TIME WARNER ENTERTAINMENT COMPANY, L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued) • concerning commercial activities via the Internet, including security, reliability, cost, ease of use and access, and the possibility of increased government regulation of new media services. • • The ability of the Company and its key service providers, vendors, suppliers, customers and governmental entities to replace, modify or upgrade computer systems in ways that adequately address the Year 2000 issue, including their ability to identify and correct all relevant computer codes and embedded chips, unanticipated difficulties or delays in the implementation of the Company's remediation plans and the ability of third parties to address adequately their own Year 2000 issues. In addition, TWE's overall financial strategy, including growth in operations, maintaining its financial ratios and strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, consequences of the euro conversion and changes in TWE's plans, strategies and intentions. 53 f TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED BALANCE SHEET (Unaudited) June 30, December 31, 1999 1998 (millions) ASSETS Current assets Cash and equivalents $ 117 $ 87 Receivables, including $469 and $765 million due from Time Wame4 less allowances of $476 and $506 million 2,639 2,618 Inventories 1,247 1,312 Prepaid expenses 220 166 Total current assets 4,223 4,183 Noncurrent inventories 2,114 2,327 Loan receivable from Time Warner 400 400 Investments 903 886 Property, plant and equipment 6,302 6,041 Cable television franchises 4,527 3,773 Goodwill 3,795 3,854 Other assets 625 766 Total assets $22,889 $22.230 LIABILITIES AND PARTNERS' CAPITAL Current liabilities Accounts payable $ 1,400 $ 1,473 Participations and programming costs payable 1,494 1,515 Debt due within one year 6 6 Other current liabilities, including $365 and $370 million due to Time Warner 1,845 1,942 Total current liabilities 4,745 4,936 Long-term debt 6,535 6,578 Other long-term liabilities, including $1.347 and $1.130 billion due to Time Warner 3,527 3,267 Minority interests 1,744 1,522 Preferred stock of subsidiary holding solely a mortgage note of its parent - 217 Time Warner General Partners' Senior Capital 627 603 Partners' capital Contributed capital 7,341 7,341 Undistributed partnership deficit (1,630) (2,234) Total partners' capital 5,711 5.107 Total liabilities and partners' capital $22,889 $22,230 See accompanying notes. i" TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (millions) Revenues (a) $3,060 $2,850 $5,994 $5,760 Cost of revenues (a)(b) (1,985) (1,876) (3,904) (3,836) Selling, general and administrative (a)(b) (623) (589) (1,202) (1,184) Gain on sale or exchange of cable systems and investments 760 70 760 84 Gain on early termination of video distribution agreement - - 215 - Business segment operating income 1,212 455 1,863 824 Interest and other net (a) (167) (183) (392) (347) Minority interest (233) (82) (301) (146) Corporate services (a) (18) (18) (36) (36) Income before income taxes 794 172 1,134 295 Income taxes (27) (17) (55) (32) Net income . $ 767 $ 155 $1,079 $ 263 (a) Includes the following income (expenses) resulting from transactions with the partners of TWE and other related companies for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year: revenues -$152 million and $272 million in 1999, $118 million and $247 million in 1998; cost of revenues -$(58) million and $(136) million in 1999, $(55) million and $(93) million in 1998; selling, general and administrative -$(12) million and $(16) million in 1999, $(3) million and $(2) million in 1998; interest and other, net -$8 million and $28 million in 1999, $3 million and $5 million in 1998; and corporate services -$(18) million and $(36) million in each of 1999 and 1998. (b) Includes depreciation and amortization expense of: $334 $356 $642 $727 See accompanying notes. 55 i TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1999 1998 (millions) OPERATIONS Net income $1,079 $263 Adjustments for noncash and nonoperating items: Depreciation and amortization 642 727 Changes in operating assets and liabilities (202) (404) Cash provided by operations 1,519 586 INVESTING ACTIVITIES Investments and acquisitions (223) (265) Capital expenditures (649) (734) Investment proceeds 210 506 Cash used by investing activities (662) (493) FINANCING ACTIVITIES Borrowings 1,310 503 Debt repayments (1,539) (492) Redemption of preferred stock of subsidiary (217) Capital distributions (280) (298) Other (101) (56) Cash used by financing activities (827) (343) INCREASE (DECREASE) IN CASH AND EQUIVALENTS 30 (250) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 87 322 CASH AND EQUIVALENTS AT END OF PERIOD $ 117 $ 72 See accompanying notes. TIME WARNER ENTERTAINMENT COMPANY, L.P. CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL (Unaudited) Six Months Ended June 30. 1999 1998 (millions) BALANCE AT BEGINNING OF PERIOD $5,107 $6,333 Net income 1,079 263 Other comprehensive income (loss) 47 (16) Comprehensive income(a> 1,126 247 Distributions (497) (552) Allocation of income to Time Warner General Partners' Senior Capital (24) (45) Other - BALANCE AT END OF PERIOD $5,711 $5,983 (a) Comprehensive income for the three months ended June 30, 1999 and 1998 was $773 million and $153 million, respectively. See accompanying notes. TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Time Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. Each of the business interests within Cable Networks, Entertainment and Cable is important to TWE's objective of increasing partner value through the creation, extension and distribution of recognizable brands and copyrights throughout the world. Such brands and copyrights include (1) HBO and Cinemax, the leading pay television services, (2) the unique and extensive film, television and animation libraries of Wamer Bros. and trademarks such as the Looney Tunes characters and Batman, (3) The WB Network, a national broadcasting network launched in 1995 as an extension of the Warner Bros. brand and as an additional distribution outlet for Warner Bros.' collection of children's cartoons and television programming, and (4) Time Wamer Cable, currently the largest operator of cable television systems in the U.S. The operating results of TWE's various business interests are presented herein as an indication of financial performance (Note 8). Except for start-up losses incurred in connection with The WB Network, TWE's principal business interests generate significant operating income and cash flow from operations. The cash flow from operations generated by such business interests is considerably greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized principally in Time Warner Companies, Inc.'s ("Time Warner") $14 billion acquisition of Warner Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority interest in American Television and Communications Corporation ("ATC") in 1992, a portion of which cost was allocated to TWE upon the capitalization of the partnership. Noncash amortization of intangible assets recorded by TWE's businesses amounted to $120 million and $130 million in the three months ended June 30, 1999 and 1998, respectively and $236 million and $258 million for the six months ended June 30, 1999 and 1998, respectively. Time Warner and certain of its wholly owned subsidiaries collectively own general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne"). Certain of Time Warner's subsidiaries are the general partners of TWE ("Time Warner General Partners"). Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of TWE included in its 58 t i TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K"). Certain reclassifica- tions have been made to the prior year's financial statements to conform to the 1999 presentation. 2. GAIN ON TERMINATION OF MGM VIDEO DISTRIBUTION AGREEMENT In March 1999, Warner Bros. and Metro-Goldwyn-Maye; Inc. ("MGM") terminated a long-term distribution agreement under which Warner Bros. had exclusive worldwide distribution rights for MGM/United Artists home video product. In connection with the early termination and settlement of this distribution agreement, Warner Bros. recognized a net pretax gain of approximately $215 million, which has been included in operating income in the accompanying consolidated statement of operations. 3. GAIN ON SALE OR EXCHANGE OF CABLE TELEVISION SYSTEMS AND INVESTMENTS In 1999 and 1998, largely in an effort to enhance their geographic clustering of cable television properties, TWE sold or exchanged various cable television systems and investments. The 1999 transactions included a large exchange of cable television systems serving approximately 450,000 subscribers for other cable television systems of comparable size owned by TCI Communications, Inc., a subsidiary of AT&T Corp. As a result of these transactions, the operating results of TWE's Cable division include net pretax gains for the second quarter of $760 million in 1999 and $70 million in 1998. Net pretax gains for the first half of the year amounted to $760 million in 1999 and $84 million in 1998. 4. INVESTMENT IN PRIMESTAR TWE owns an approximate 24% equity interest in Primesta; Inc. ("Primestar"). In January 1999, Primesta; an indirect wholly owned subsidiary of Primestar and the stockholders of Primestar entered into an agreement to sell Primestar's medium -power direct broadcast satellite business and assets to DirecTV a competitor of Primestar owned by Hughes Electronics Corp. In addition, a second agreement was entered into with DirecTV pursuant to which DirecTV agreed to purchase Primestar's rights with respect to the use or acquisition of certain high-power satellites from a wholly owned subsidiary of one of the stockholders of Primestar In April 1999, Primestar closed on the sale of its medium -power direct broadcast satellite business to DirecTV. Then, in June 1999, Primestar completed the sale of its high-power satellite rights to DirecTV As a result of those transactions, Primestar began to substantially wind down its operations during the first quarter of 1999. TWE recognized its share of Primestar's 1999 losses under the equity method of accounting. Such losses are included in interest and other, net, in the accompanying consolidated statement of operations. Future wind - down losses are not expected to be material to TWE's operating results. 59 • TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 5. INVENTORIES TWE's inventories consist of: June 30, 1999 December 31. 1998 Current Noncurrent Current Noncurrent (millions) Film costs: Released, less amortization $ 529 $ 778 $ 614 $ 744 Completed and not released 224 64 179 76 In process and other 54 367 23 572 Library, less amortization 534 560 Programming costs, less amortization 361 371 426. 375 Merchandise 79 - 70 Total $1,247 $2,114 $1,312 $2,327 6. PREFERRED STOCK OF SUBSIDIARY In February 1997, a newly formed, substantially owned subsidiary of TWE (the "REIT") issued 250,000 shares of preferred stock ("REIT Preferred Stock"). The REIT was intended to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended. In March 1999, the REIT redeemed all of its shares of REIT Preferred Stock at an aggregate cost of $217 million, which approximated net book value. The redemption was funded with borrowings under TWE's bank credit agreement. Pursuant to its terms, the REIT Preferred Stock was redeemed as a result of proposed changes to federal tax regulations that substantially increasedthe likelihood that dividends paid by the REIT or interest paid to the REIT under a mortgage note of TWE would not be fully deductible for federal income tax purposes. 7. PARTNERS' CAPITAL TWE is required to make distributions to reimburse the partners for income taxes at statutory rates based on their allocable share of taxable income, and to reimburse Time Warner for stock options granted to employees of TWE based on the amount by which the market price of Time Warner Inc. common stock exceeds the option exercise price on the exercise date or, with respect to options granted prior to the TWE capitalization on June 30, 1992, the greater of the exercise price or the $13.88 market price of Time Warner Inc. common stock at the time of the TWE capitalization. TWE accrues a stock option distribution and a corresponding liability with respect to unexercised options when the market price of Time Warner Inc. common stock increases during the accounting period, and reverses previously accrued stock option distributions and the corresponding liability when the market price of Time Wamer Inc. common stock declines. During the six months ended June 30, 1999, TWE accrued $138 million of tax-relateddistributions and $359 million of stock option distributions, based on closing prices of Time Warner Inc. common stock of $72.63 at June 30, 1999 and $62.06 at December 31, 1998. During the six months ended June 30, 1998, TWE accrued $138 million of tax -related distributions and $414 million of stock option distributions as a result of an increase at that time in the market price of Time Warner Inc. common stock. During the six months ended June 30, 1999, TWE paid distributions to the Time Wamer General Partners in the amount of $280 million, consisting of $138 million of tax - related distributions and $142 million of stock option related distributions. During the six months ended June 30, 60 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 1998, TWE paid the Time Warner General Partners distributions in the amount of $298 million, consisting of $138 million of tax -related distributions and $160 million of stock option related distributions. In July 1999, TWE borrowed $627 million under its bank credit agreement and paid a distribution to the Time Warner General Partners to redeem the remaining portion of their senior priority capital interests, including a priority capital return of $173 million. Time Warner used a portion of the proceeds received from this distribution to repay all $400 million of outstanding borrowings under its credit agreement with TWE. 8. SEGMENT INFORMATION TWE classifies its business interests into three fundamental areas: Cable Networks, consisting principally of interests in cable television programming; Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; and Cable, consisting principally of interests in cable television systems. Information as to the operations of TWE in different business segments is set forth below based on the nature of the products and services offered. TWE evaluates performance based on several factors, of which the primary financial measure is business segment operating income before noncash amortization of intangible assets ("EBITA"). The operating results of TWE's cable segment reflect: (i) the transfer of Time Warner Cable's direct broadcast satellite operations to Primesta; a separate holding company, effective as of April 1, 1998, (ii) the formation of the Road Runner joint venture to operate and expand Time Wamer Cable's and MediaOne's existing high-speed online businesses, effective as of June 30, 1998, (iii) the reorganization of Time Wamer Cable's business telephony operations into a separate entity now named Time Warner Telecom Inc., effective as of July 1, 1998 and (iv) the formation of a joint venture in Texas that owns cable television systems serving approximately 1.1 million subscribers, effective as of December 31, 1998 (collectively the "1998 Cable Transactions"). These transactions are described more fully in TWE's 1998 Form 10-K. Three Months Six Months Ended June 30, Ended June 30. 1999 1998 1999 1998 (millions) Revenues Filmed Entertainment -Warner Bros $1,446 $1,327 $2,826 $2,637 Broadcasting -The WB Network 83 61 162 106 Cable Networks -HBO 546 509 1,072 1,021 Cable 1,114 1,084 2,188 2,237 Intersegment elimination (129) (131) (254) (241) Total $3,060 $2,850 $5,994 $5,760 ( 61 TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Three Months Ended June 30, Six Months Ended June 30. 1999 1998 1999 1998 (millions) EBITA(1) Filmed Entertainment -Warner Bros.(2) $ 132 $121 $ 478 $ 240 Broadcasting -The WB Network (30) (23) (71) (61) Cable Networks -HBO 131 113 256 222 Cablee3) 1,099 374 1,436 681 Total $1,332 $585 $2,099 $1,082 (1) EBITA represents business segment operating income before noncash amortization of intangible assets. After deducting amortization of intangible assets, TWE's business segment operating income for the three and six months ended June 30, 1999, respectively, and for the corresponding periods in the prior year was $1.212 billion and $1.863 billion in 1999 and $455 million and $824 million in 1998. (2) Includes a net pretax gain of approximately $215 million recognized in the first quarter of 1999 in connection with the early termination and settlement of a long-term home video distribution agreement. (3) Includes net pretax gains relating to the sale or exchange of certain cable television systems of $760 million in the second quarter of 1999 and $70 million in the second quarter of 1998. Similarly, six-month results include net pretax gains of $760 million in 1999 and $84 million in 1998. Three Months Ended June 30, Six Months Ended June 30. 1999 1998 1999 1998 (millions) Depreciation of Property, Plant and Equipment Filmed Entertainment -Warner Bros $ 36 $ 38 $ 65 $ 78 Broadcasting -The WB Network 1 - 1 Cable Networks -HBO 6 5 13 10 Cable 171 183 327 381 Total $214 $226 $406 $469 Three Months Ended June 30, Six Months Ended June 30. 1999 1998 1999 1998 (millions) Amortization of Intangible Assets (1) Filmed Entertainment -Warner Bros $ 31 $ 33 $ 61 $ 66 Broadcasting -The WB Network 1 1 2 2 Cable Networks -HBO Cable 88 96 173 190 Total $120 $130 $236 $258 (1) Amortization includes amortization relating to all business combinations accounted for by the purchase method, including Time Wamer's $14 billion acquisition of WCI in 1989 and $1.3 billion acquisition of the minority interest in ATC in 1992. 9. COMMITMENTS AND CONTINGENCIES TWE is subject to numerous legal proceedings. In management's opinion and considering established reserves, the resolution of these matters will not have a material effect, individually and in the aggregate, on TWE's consolidated financial statements. TIME WARNER ENTERTAINMENT COMPANY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) 10. ADDITIONAL FINANCIAL INFORMATION Six Months Ended June 30, 1999 1998 (millions) Interest expense $273 $273 Cash payments made for interest 242 260 Cash payments made for income taxes, net 49 39 Noncash capital distributions 359 414 Noncash investing activities included the exchange of certain cable television systems in 1999 and 1998 (see Note 3). Noncash investing activities in the first six months of 1998 also included the transfer of cable television systems (or interests therein) serving approximately 650,000 subscribers that were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, as well as certain related transactions (collectively, the "TWE-A/N Transfers"). For a more comprehensive description of the TWE-A/N Transfers, see TWE's 1998 Form 10-K. • • • Part II. Other Information Item 1. Legal Proceedings. On July 4, 1999, the former President of Indonesia, H.M. Suharto, filed a lawsuit in an Indonesian court against Time Inc. Asia and certain individuals, alleging that the May 24, 1999 issue of the Asian edition of TIME Magazine defamed him in violation of Indonesian law. The complaint seeks a public retraction and apology, as well as $27 billion in compensatory damages for alleged harm to Suharto' s reputation. Reference is made to the various actions filed against American Family Publishers ("AFP"), a company engaged in magazine sweepstakes solicitations which is 50% -owned by a subsidiary of Time Inc., described on page I-42 of Time Warner' s Annual Report on Form 10-K for the year ended December 31, 1998. On May 28, 1999, AFP settled the claims made by the states of Florida, West Virginia, South Carolina and Indiana. Among other things, AFP has agreed to make certain changes in its sweepstakes mailings. The settlement has been approved by the court overseeing these actions. Item 4. Submission of Matters to a Vote of Security -Holders. (a) The Annual Meeting of Stockholders of Time Warner was held on May 20, 1999 (the "1999 Annual Meeting"). (b), (c) The following matters were voted .upon at the 1999 Annual Meeting: (i) The following were elected directors of Time Warner for terms expiring in 2000: Mery Adelson J. Carter Bacot Stephen F. Bollenbach John C. Danforth Beverly Sills Greenough Gerald Greenwald Carla A. Hills Gerald M. Levin Reuben Mark Michael A. Miles Richard D. Parsons R. E. Turner Francis T. Vincent, Jr. For 968,885,565 969,557,822 969,576,601 969,212,651 964,297,681 969,611,182 969,494,154 969,158,519 969,631,970 969,259,942 969,584,922 969,443,185 964,637,841 Withheld 6,101,683 5,429,426 5,410,647 5,774,597 10,689,567 5,376,066 5,493,094 5,828,729 5,355,278 5,729,306 5,402,326 5,544,063 10,349,407 Broker Non -Votes 0 0 0 0 0 0 0 0 0 0 0 0 0 (ii) Approval of an amendment to Time Warner' s Restated Certificate of Incorporation to increase the number of authorized shares: Votes For 882,935,815 (iii) Approval Votes For 752,070,974 Votes Against 87,719,723 Abstentions 3,141,296 of the Time Warner Inc. 1999 Restricted Stock Plan: Votes Against 217,311,954 Abstentions 4,413,761 Broker Non -Votes 49,176 Broker Non -Votes 49,321 (iv) Approval of amendments to the Time Warner Inc. 1988 Restricted Stock Plan for Non - Employee Directors: Broker Votes For Votes Against Abstentions Non -Votes 757,870,744 211,388,070 4,536,789 50,399 (v) Approval of the appointment of Ernst & Young LLP as independent auditors of Time Warner for 1999: Broker Votes For Votes Against Abstentions Non -Votes 965,728,075 1,598,459 6,470,343 49,133 (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference. (b) Reports on Form 8-K. (i) Time Warner filed a Current Report on Form 8-K dated July 12, 1999 in which it reported in Item 5 that Time Warner had entered into an agreement with CDnow, Inc. and Sony Corporation of America to combine the businesses of CDnow and Columbia House. j 65 TIME WARNER INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 13, 1999 • TIME WARNER INC. (Registrant) By: /s/ Joseph A. Ripp Name: Joseph A. Ripp Title: Executive Vice President and Chief Financial Officer EXHIBIT INDEX Pursuant to Item 601 of Regulations S -K Exhibit No. Description of Exhibit 3.(i)(a) Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.3 to the Registrant's Post -Effective Amendment No. 1 on Form S-8 to the Registrant's Registration Statement on Form S-4 filed with the Commission on October 11, 1996 (Registration No. 333- 11471) (the "S-8 Registration Statement")). 3.(i)(b) Certificate of Amendment of Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on May 26, 1999. 3.(i)(c) Certificate. of Amendment of Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on May 19, 1997 (which is incorporated herein by reference to Exhibit 3.(i)(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 3.(i)(d) Certificate of Amendment of Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.4 to the Registrant' s S-8 Registration Statement). 3.(i)(e) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMC Common Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.5 to the Registrant' s S-8 Registration Statement). 3.(i)(f) 3.(i)(g) 3.(i)(h) 3.(i)(i) Certificate of Amendment of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMC Common Stock of the Registrant as filed with the Secretary of State of the State of Delaware on May 26, 1999. Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMCN- V Common Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.6 to the Registrant' s S-8 Registration Statement). Certificate of Increase of the Number of Shares of Series Common Stock of the Registrant Designated as Series LMCN-V Common Stock as filed with the Secretary of State of the State of Delaware on August 13, 1997 (which is incorporated herein by reference to Exhibit 3.(i)(b) to the Registrant' s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). Certificate of Amendment of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMCN-V Common Stock of the Registrant as filed with the Secretary of State of the State of Delaware on May 26, 1999. 3.(i)(j) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series A Participating Cumulative Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.7 to the Registrant' s S-8 Registration Statement). 3.(i)(k) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series D 3.(i)(1) 3.(i)(m) 3.(i)(n) 3.(i)(o) 3.(i)(p) 3.(i)(q) 3.(i)(r) 3.(i)(s) 3.(i)(t) Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.8 to the Registrant' s S-8 Registration Statement). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series E Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.9 to the Registrant's S-8 Registration Statement). Certificate of Correction of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series E Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on November 13, 1996 (which is incorporated herein by reference to Exhibit 3.(i)(h) to the Registrant' s Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K")). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series F Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.10 to the Registrant's S-8 Registration Statement). Certificate of Correction of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series F Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on November 13, 1996 (which is incorporated herein by reference to Exhibit 3.(i)(j) of the Registrant' s 1996 Form 10-K). Certificate of Elimination of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights and Qualifications, Limitations or Restrictions Thereof, of Series G Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on March 18, 1999 (which is incorporated herein by reference to Exhibit.3.(i)(m) to the Registrant' s Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K")). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series G Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.11 to the Registrant' s S-8 Registration Statement). Certificate of Elimination of the Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights and Qualifications, Limitations or Restrictions Thereof, of Series H Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on March 18, 1999 (which is incorporated herein by reference to Exhibit 3.i(o) to the Registrant' s 1998 Form 10-K). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series H Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.12 to the Registrant' s S-8 Registration Statement). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series H Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.12 to the Registrant' s S-8 Registration Statement). 3.(i)(u) 3.(i)(v) 3.(i)(w) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of Series J Convertible Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.14 to the Registrant' s S-8 Registration Statement). Certificate of Elimination of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of 10'/% Series M Exchangeable Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on March 18, 1999 (which is incorporated herein by reference to Exhibit 3.(i)(s) to the Registrant' s 1998 Form 10-K). Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof, of 10'/% Series M Exchangeable Preferred Stock of the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996 (which is incorporated herein by reference to Exhibit 4.15 to the Registrant' s S-8 Registration Statement). 10 Time Warner Inc. 1988 Restricted Stock Plan for Non -Employee Directors, as amended through May 20, 1999. 27 Financial Data Schedule. EXHIBIT 6 The Agreement and Plan of Merger by and among AT&T Corp., Meteor Acquisition Inc. and MediaOne Group, Inc. dated May 6, 1999 is attached. • AGREEMENT AND PLAN OF MERGER dated as of May 6, 1999 by and among AT&T CORP., METEOR ACQUISITION INC. and MEDIAONE GROUP, INC. • SECTION 1.1. SECTION 2.1. SECTION 2.2. SECTION 2.3. SECTION 3.1. SECTION 3.2. SECTION 3.3. SECTION 3.4. SECTION 3.5. SECTION 3.6. SECTION 3.7. SECTION 4.1. SECTION 4.2. SECTION 4.3. SECTION 4.4. SECTION 4.5. SECTION 4.6. SECTION 4.7. SECTION 4.8. SECTION 4.9. SECTION 4.10. SECTION 4.11. TABLE OF CONTENTS Pan ARTICLE 1 DEFINITIONS Definitions 1 ARTICLE 2 THE MERGER The Merger 9 Articles of Incorporation and Bylaws of the Surviving Corporation 9 Directors and Officers of the Surviving Corporation 10 ARTICLE 3 CONVERSION OF SECURITIES Conversion of Securities 10 Surrender and Payment 14 Dissenting Shares 17 Stock Options 18 Fractional Shares 20 Withholding Rights 20 Lost Certificates 21 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MEDIAONE Corporate Existence and Power 21 Corporate Authorization 21 Governmental Authorization 22 Non -contravention 22 Capitalization 23 Subsidiaries 24 SEC Filings 24 Financial Statements Information Supplied Absence of Certain Changes No Undisclosed Material Liabilities 25 25 25 25 Pa2e SECTION 4.12. Compliance with Laws and Court Orders 26 SECTION 4.13. Litigation 26 SECTION 4.14. Finders' Fees 26 SECTION 4.15. Opinion of Financial Advisor 26 SECTION 4.16. Taxes 27 SECTION 4.17. Tax Opinions 27 SECTION 4.18. Employee Benefit Plans and Labor Matters 27 SECTION 4.19. Environmental Matters 29 SECTION 4.20. Intellectual Property 30 SECTION 4.21. Contracts 30 SECTION 4.22. TWE 31 SECTION 4.23. Vote Required 31 SECTION 4.24. Antitakeover Statutes, Rights Agreement and Charter Provisions 31 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF AT&T SECTION 5.1. Corporate Existence and Power 32 SECTION 5.2. Corporate Authorization 32 SECTION 5.3. Governmental Authorization 33 SECTION 5.4. Non -contravention 33 SECTION 5.5. Capitalization 33 SECTION 5.6. Subsidiaries 34 SECTION 5.7. SEC Filings . 35 SECTION 5.8. Financial Statements 35 SECTION 5.9. Information Supplied 36 SECTION 5.10. Absence of Certain Changes 36 SECTION 5.11. No Undisclosed Material Liabilities 36 SECTION 5.12. Compliance with Laws and Court Orders 36 SECTION 5.13. Litigation 37 SECTION 5.14. Finders' Fees 37 SECTION 5.15. Taxes 37 SECTION 5.16. Tax Opinions 38 SECTION 5.17. Employee Benefit Plans and Labor Matters 38 SECTION 5.18. Environmental Matters 39 SECTION 5.19. Intellectual Property 40 SECTION 5.20. Contracts 40 SECTION 5.21. MediaOne Securities • 41 SECTION 5.22. No Vote Required 41 SECTION 5.23. Merger Sub 41 Pat2e ARTICLE 6 COVENANTS OF MEDIAONE SECTION 6.1. MediaOne Interim Operations 42 SECTION 6.2. MediaOne Stockholders' Meeting; Proxy Material 45 SECTION 6.3. No Solicitation 45 SECTION 6.4. Redemption of Preferred Stock 46 SECTION 6.5. Channel. Launches 47 ARTICLE 7 COVENANTS OF AT&T SECTION 7.1. AT&T Interim Operations 47 SECTION 7.2. Director and Officer Liability 48 SECTION 7.3. Listing of Stock 49 SECTION 7.4. • AT&T Board of Directors 49 SECTION 7.5. Employee Matters 49 SECTION 7.6. Designation of Preferred Stock 51 ARTICLE 8 COVENANTS OF AT&T AND MEDIAONE SECTION 8.1. Best Efforts 51 IIISECTION 8.2. Proxy Statement; Registration Statement 52 SECTION 8.3. Public Announcements 53 SECTION 8.4. Further Assurances 53 SECTION 8.5. Access to Information 54 SECTION 8.6. Notices of Certain Events 54 SECTION 8.7. Tax-free Reorganization 54 SECTION 8.8. Affiliates 55 SECTION 8.9. TWE Termination Notice 55 SECTION 8.10. Assumption of Certain Obligations 55 ARTICLE 9 CONDITIONS TO THE MERGER . SECTION 9.1. Conditions to the Obligations of Each Party 55 SECTION 9.2. Conditions to the Obligations of AT&T and Merger Sub 56 SECTION 9.3. Conditions to the Obligations of MediaOne 57 ARTICLE 10 TERMINATION SECTION 10.1. Termination SECTION 10.2. Effect of Termination_ SECTION 10.3. Fees and Expenses 58 59 59 • iii • Page ARTICLE 11 MISCELLANEOUS SECTION 11.1. Notices 61 SECTION 11.2. Survival of Representations and Warranties 62 SECTION 11.3. Amendments; No Waivers 62 SECTION 11.4. Successors and Assigns 62 SECTION 11.5. Governing Law 62 SECTION 11.6. Jurisdiction 62 SECTION 11.7. WAIVER OF JURY TRIAL 63 SECTION 11.8.. Counterparts; Effectiveness 63 SECTION 11.9. Entire Agreement 63 SECTION 11.10. Captions 63 SECTION 11.11. •Severability 63 SECTION 11.12. Specific Performance 0 63 SECTION 11.13. Schedules 64 EXHIBITS AND SCHEDULES Exhibit A -- Form of MediaOne Rule 145 Affiliate Letter MediaOne Disclosure Schedule AT&T Disclosure Schedule iv • • AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of May 6. 1999 by and among AT&T Corp.. a New York corporation ("AT&T"), Meteor Acquisition Inc., a Delaware corporation wholly owned by AT&T ("Merger Sub"), and MediaOne Group, Inc.. a Delaware corporation ("MediaOne"). WHEREAS, the respective Boards of Directors of AT&T, Merger Sub and MediaOne have approved this Agreement, and deem it advisable and in the best interests of their respective stockholders to consummate the merger of MediaOne with and into Merger Sub on the terms and conditions set forth herein; and WHEREAS, it is intended that, for federal income tax purposes, the Merger shall qualify as a reorganization within the meaning of the provisions of Section 368(a) of the Internal Revenue Code of 1986 (the "Code"); NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions. (a) The following terms, as used herein, have the following meanings: "Acquisition Proposal" means any offer or proposal for, or any indication of interest in (i) a merger, consolidation, share exchange, business combination, reorganization, recapitalization or other similar transaction involving MediaOne or any MediaOne Significant Subsidiary or (ii) the acquisition, directly or indirectly, of (A) an equity interest representing greater than 25% of the voting securities of MediaOne or any MediaOne Significant Subsidiary or (B) assets, securities or ownership interests representing an amount equal to or greater than 25% of the consolidated assets or earning power of the MediaOne Group, other than the transactions contemplated by this Agreement or permitted pursuant to Section 6.1 hereof. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; provided, however, that Liberty Media, @Home and any Affiliates of Liberty Media, @Home or of any of their respective Subsidiaries shall not be treated as Affiliates of AT&T or of any of AT&T's Subsidiaries or Affiliates for purposes of this Agreement. "eaHome" means At Home Corporation, a Delaware corporation. • • "AT&T Balance Sheet" means the Consolidated Balance Sheet of AT&T and its consolidated subsidiaries as of December 31, 1998 and the footnotes thereto. as set forth in the AT&T 10-K. "AT&T Balance Sheet Date" means December 31, 1998. "AT&T Common Stock" means the Common Stock, par value $1.00 per share, of AT&T. "AT&T Group" means AT&T and the AT&T Subsidiaries. "AT&T Material Adverse Effect" means a material adverse effect on the financial condition, assets or results of operations of AT&T and the AT&T Subsidiaries, taken as a whole, excluding any such effect resulting from or arising in connection with (i) this Agreement, the transactions contemplated hereby or the announcement thereof, (ii) changes or conditions generally affecting the industries in which AT&T and the AT&T Subsidiaries operate or (iii) changes in general economic, regulatory or political conditions. "AT&T Price" means the volume weighted average per share sales price of the AT&T Common Stock for all sales on the NYSE during the 20 -trading day period ending three trading_ days prior to the Effective Time. "AT&T Significant Subsidiary" means any AT&T Subsidiary that would constitute a "significant subsidiary" within the meaning of Rule 1-02 of Regulation S -X of the SEC as of December 31, 1998 (but including Tele-Communications, Inc. as if it had been an AT&T Subsidiary as of December 31, 1998). "AT&T Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time, directly or indirectly, owned by AT&T; provided, however, that Liberty Media, @Home and their respective Subsidiaries shall not be treated as Subsidiaries of AT&T or any of AT&T's other Subsidiaries for purposes of this Agreement. "AT&T 10-K" means AT&T's annual report on Form 10-K for the fiscal year ended December 31, 19.98. "Benefit Arrangement" means, with respect to any Person, any employment, severance or similar contract or arrangement (whether or not written) providing for compensation, bonus, profit-sharing, stock option, or other stock -related rights or other forms of incentive or deferred. compensation, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and past -employment or retirement benefits (including compensation, pension, health, medical or life insurance or other benefits) that (i) is not an Employee Plan, (ii) is entered into, maintained, administered or contributed to, as the case may be, by such Person or any of its Affiliates and (iii) covers any employee or former employee of such Person or any of its Subsidiaries employed in the United States. "MediaOne Benefit Arrangements" means the Benefit Arrangements of MediaOne or the MediaOne Subsidiaries and 1 "AT&T Benefit Arrangements" means the Benefit Arrangements of AT&T or the AT&T Subsidiaries. "Business Dav" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Confidentiality Agreement" means the confidentiality letter agreement dated April 26, 1999 between AT&T and MediaOne. "Deferred Compensation -Plan" means, with respect to any Person, any plan, agreement or arrangement that (i) is described under Sections 4(b)(5) or 401(a)(1) of ERISA (or similar plan covering one or more non-employee directors of a Person), (ii) is maintained, administered or contributed to or required to be contributed to by such Person or any of its Affiliates and (iii) covers any current or former employee or director of such Person or any of its Subsidiaries. "MediaOne Deferred Compensation Plan" means a Deferred Compensation Plan of MediaOne or any MediaOne Affiliate for the benefit of any current or former employee or director of MediaOne or any MediaOne Subsidiary and "AT&T Deferred Compensation Plan" means a Deferred Compensation Plan of AT&T or any AT&T Affiliate for the benefit of any current or former employee or director of AT&T or any AT&T Subsidiary. "Delaware Law" means the General Corporation Law of the State of Delaware. "Employee Plan" means, with respect to any Person, any "employee benefit plan", as defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained, administered or contributed to by such Person or any of its Affiliates and (iii) covers any employee or former employee of such Person or any of its Subsidiaries. "MediaOne Employee Plan" means an Employee Plan of MediaOne or any of the MediaOne Subsidiaries and "AT&T Employee Plan" means an Employee Plan of AT&T or any of the AT&T Subsidiaries. "Environmental Laws" means any federal, state, local or foreign law (including, without limitation, common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit or governmental restriction or requirement or any agreement with any Governmental Authority or other third party, relating to human health and safety, the environment or to pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials. "Environmental Permits" means, with.respect to any Person, all permits, licenses, franchises, certificates, approvals and other similar authorizations of any Governmental Authority relating to or required by Environmental Laws and affecting, or relating in any way to, the business of such Person or any of its Subsidiaries as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code. 3 • • "FCC" means the Federal Communications Commission. "Franchise' means a written "franchise" within the meaning of Section 602(8) of the Communications Act. "Franchising Authority" means "franchising authority" within the meaning of Section 602(9) of the Communications Act. "FTC Consent Order" means the consent agreement and order by and among the Federal Trade Commission, Turner Broadcasting System, Inc., Time Warner Inc., Tele-Communications, Inc. and Liberty Media Corporation published in 61 FR 50301. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976. "International Plan" means, with respect to any Person, any employment, severance or similar contract or arrangement (whether or not written) or any plan, policy, fund, program or arrangement or contract providing for severance, insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, pension or retirement benefits or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights or other forms of incentive compensation or post-retirement insurance, compensation or benefits that (i) is not an Employee Plan or a Benefit Arrangement, (ii) is entered into, maintained, administered or contributed to by such Person or any of its Affiliates and (iii) covers any employee or former employee of such Person or any of its Subsidiaries. "MediaOne International Plan" means an International Plan of MediaOne or any of the MediaOne Subsidiaries and "AT&T International Plan" means an International Plan of AT&T or any of the AT&T Subsidiaries. "Knowledge" means, with respect to any fact, the conscious awareness of such fact by an executive officer (as defined under the 1933 Act) of the relevant Person. "Liberty Media" means.Liberty Media Corporation, a Delaware corporation, and its successors and assigns, and each other corporation constituting part of the Liberty Media Group as defined in AT&T's certificate of incorporation. "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MediaOne Balance Sheet" means the Consolidated Balance Sheets of MediaOne and its consolidated subsidiaries as of December 31, 1998 and the footnotes thereto set forth in the MediaOne 10-K. "MediaOne Balance Sheet Date" means December 31, 1998. "MediaOne Common Stock" means Common Stock. par value 30.01 per share, of MediaOne. "MediaOne Franchises" means Franchises for the MediaOne Systems. "MediaOne Group" means MediaOne and the MediaOne Subsidiaries. "MediaOne Material Adverse Effect" means a material adverse effect on the financial condition, assets or results of operations of the MediaOne Group taken as a whole, excluding any such effect resulting from or arising in connection with (A) this Agreement, the transactions contemplated hereby or the announcement thereof, (B) changes or conditions generally affecting the industries in which MediaOne, the MediaOne Subsidiaries, TWE and the TWE Subsidiaries, operate or (C) changes in general economic, regulatory or political conditions. "MediaOne 1999 Rights Agreement" means the Rights Agreement dated as of April 6, 1999 between MediaOne and State Street Bank and Trust Company, as Rights Agent. "MediaOne Significant Subsidiary" means any MediaOne Subsidiary that would constitute a "significant subsidiary" within the meaning of Rule 1-02 of Regulation S -X of the SEC as of December 31, 1998; provided that for purposes hereof, the phrase "earnings before interest, taxes, depreciation and amortization" will be substituted for the phrase "income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle" in Rule 1-02(w)(3). "MediaOne Social Contract" means the agreement dated August 3, 1995 between the FCC and Continental Cablevision, Inc., and the related FCC authorization dated July 3, 1997. . "MediaOne Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time, directly or indirectly, owned by MediaOne. For the avoidance of doubt, (i) neither TWE nor Telewest Communications plc will be treated as MediaOne Subsidiaries and (ii) Mercury Personal Communications will be treated as a MediaOne Subsidiary for so long as MediaOne owns, directly or indirectly, not less than a 50% interest therein.. "MediaOne Systems" means the Systems owned and operated by MediaOne or any MediaOne Subsidiary in the United States. "MediaOne 10-K" means MediaOne's annual report on Form 10-K for the fiscal year ended December 31, 1998. "Multiemplover Plan" means each Employee Plan that is a multiemployer plan, as defined in Section 3(37) of ERISA. "Nasdaq" means The Nasdaq National Market. "NYSE" means The New York Stock Exchange, Inc. 5 "1933 Act" means the Securities Act of 1933. "1934 Act" means the Securities Exchange Act of 1934. "PBGC" means the Pension Benefit Guaranty Corporation. "Pension Plan" means, with respect to any Person, any plan (other than a Multiemployer Plan) that is subject to Title IV of ERISA and is maintained, administered or contributed to or required to be contributed to by such Person or any of its ERISA Affiliates. "MediaOne Pension Plan" means a Pension Plan of MediaOne or any of its ERISA Affiliates and "AT&T Pension Plan" means a Pension Plan of AT&T or any of its ERISA Affiliates. "Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "SEC" means the Securities and Exchange Commission. "Subsidiary" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person. "System" means a "cable television system" within the meaning of Section 602(7) of the Communications Act. "TW" means Time Warner Inc., a Delaware corporation. "TWE" means Time Warner Entertainment Company, L.P., a Delaware limited partnership. "TWE Agreements" means the TWE Partnership Agreement, together with any related agreements between MediaOne or any MediaOne Subsidiary, on the one hand, and TW or any Subsidiary of TW, on the other hand. . "TWE Partnership Agreement" means the Agreement of Limited Partnership dated as of October 29, 1991, as amended. "TWE Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by TWE. "U S WEST" means U S WEST, Inc., a Delaware corporation. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. • (b) Each of the following terms is defined in the Section set forth opposite such term: Section Additional Amount 3.1(c) Adjusted Option 3.4(c) AT&T Preamble AT&T Benefit Arrangements 1.1(a) AT&T Common Stock 5.5(a) AT&T Employee Plan 1.1(a) AT&T Intellectual Property 5.20 AT&T International Plan 1.1 (a) AT&T SEC Documents 5.7(a) AT&T Securities 5.5(b) AT&T Series C Preferred Stock 3.1(e) AT&T Series D Preferred Stock 3.1(e) AT&T Series E Preferred Stock 3.1(e) Benefits Maintenance Period 7.6(a) Cash Election 3.1(c) Cash Election Consideration 3.1(c) Cash Election Fraction 3.4(c) Cash Election Proration Factor 3.1(h) Cash Election Top -Up Amount 3.1(h) Certificates 3.2(a) Certificate of Merger 2.1 (b) Code Preamble Comcast 4.2(c) Comcast Merger Agreement 4.2(c) Common Stock Consideration 3.1(c) • Dissenting Shares 3.3 Effective Time 2.1 (b) Election Deadline 3.2(a) Election.Form 3.2(a) End Date 10.1(b) Exchange Agent 3.2(a) Exchange Fund 3.2(a) Franchise Consents 4.3 GAAP 4.8 Governmental Authority 4.3 Indemnified Losses 7.3(a) Indemnified Person 7.3(a) IRS 4.16 Liberty Media Class A Common Stock 5.5(a) Liberty Media Class B Common Stock 5.5(a) 1 Section License Consents 4.3 Maximum Share Amount 3.1(f) MediaOne Preamble MediaOne Benefit Arrangements 1.1(a) MediaOne Common Holders 3.2(b) MediaOne Employee Plan 1.1 (a) MediaOne Intellectual Property 4.20 MediaOne International Plan 1.1(a) MediaOne Rule 145 Affiliate 8.8 MediaOne SEC Documents 4.7(a) MediaOne Securities 4.5(b) MediaOne Series A Preferred Stock 4.5(a) MediaOne Series C Holders 3.2(b) MediaOne Series C Preferred Stock 3.1(e) MediaOne Series D Holders 3.2(b) MediaOne Series D Preferred Stock 3.1(e) MediaOne Series E Holders 3.2(b) MediaOne Series E Preferred Stock 3.1(e) MediaOne Series F Preferred Stock 4.5(a) MediaOne Stockholders' Meeting 4.9 MediaOne Stockholders' Approval 4.23 MediaOne Stock Option 3.4(a) Merger 2.1(a) New Director 7.4 Proxy Statement 4.9 Purchase Rights 8.1(a) Registration Statement 4.9 Reimbursement Payment 10.3(b) Series C Certificates 3.2(a) Series C Consideration 3.1(e) Series D Certificates 3.2(a) Series D Consideration 3.1(e) Series E Certificates 3.2(a) Series E Consideration 3.1(e) Social Contract Consent 4.3 Spinoff 9.2(c) Standard Election 3.1(e) Standard Election Consideration 3.1(c) Standard Election Fraction - 3.4(a) Standard Election Top-Up Amount 3.1(c) StandstillAgreement 6.3(a) Stock Election 3.1(c) Stock Election Consideration 3.1(c) 8 • • Section Stock Election Proration Factor 3.1(g) Stock Election Top -Up Amount 3.1(c) Stock Option Cash Election Consideration 3.4(a) Stock Option Standard Election Consideration 3.4(a) Stock Option Stock Election Consideration 3.4(a) Successor Plan 7.6(b) Surviving Corporation 2.1(a) Tax Returns 4.16 Taxes 4.16 Termination Fee 10.3(c) Termination Notice Election 8.9 Third Party 6.3(a) Transferred Employees 7.6(a) 368 Reorganization 8.7(a) U S WEST Agreements 8.10 ARTICLE 2 THE MERGER SECTION 2.1. The Merger. (a) At the Effective Time, MediaOne shall be merged (the "Merger") with and into Merger Sub in accordance with Delaware Law and upon the terms set forth in this Agreement, whereupon the separate existence of MediaOne shall cease and Merger Sub shall be the surviving corporation (the "Surviving Corporation"). (b) As soon as practicable (and, in any event, within five Business Days) after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger set forth in Article 9, other than conditions that by their nature are to be satisfied at the Effective Time and will in fact be satisfied at the Effective Time, a certificate of merger shall be duly prepared, executed and acknowledged by MediaOne and Merger Sub and thereafter delivered to the Secretary of State of Delaware for filing pursuant to Delaware Law. Such certificate of merger shall be referred to herein as the "Certificate of Merger". The Merger shall become effective at such time (the "Effective Time") as the Certificate of Merger is duly filed with such Secretary of State of Delaware (or at such later time as may be agreed by MediaOne and AT&T and specified in the Certificate of Merger). (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of MediaOne and Merger Sub, all as provided under Delaware Law. SECTION 2.2. Articles of Incorporation and Bylaws of the Surviving Corporation. The articles of incorporation of Merger Sub in effect at the Effective Time shall be the articles of incorporation of the Surviving Corporation and the bylaws of Merger Sub in effect at the Effective Time shall be the bylaws of the Surviving Corporation, in each case until amended in accordance with applicable law. SECTION 2.3. Directors and Officers of the Surviving Corporation. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Sub at the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of Merger Sub at the Effective Time shall be the officers of the Surviving Corporation. ARTICLE 3 CONVERSION OF SECURITIES SECTION 3.1. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, AT&T, MediaOne or the holders of any of the following securities: (a) Each share of.MediaOne Common Stock and each share of.MediaOne Series C Preferred Stock, MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock held in the treasury of MediaOne or owned by AT&T immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto. (b) Each issued and outstanding share of common stock, par value $.01 per share, of Merger Sub immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non -assessable share of common stock of the Surviving Corporation, and the Surviving Corporation shall be a wholly owned subsidiary of AT&T. (c) Subject to the provisions of Sections 3.1(g), (h) and (i) and to Sections 3.3 and 3.5, each share of MediaOne Common Stock that is issued and outstanding immediately • prior to the Effective Time (excluding any share of MediaOne Common Stock canceled pursuant to Section 3.1(a)) shall be converted, at the election of the holder thereof in accordance with the procedures set forth herein, into one of the following (as adjusted pursuant to the provisions of this Section 3.1, the "Common Stock Consideration"), and the associated preferred stock purchase rights, issued pursuant to the MediaOne 1999 Rights Agreement, shall be terminated: (i) for each such share of MediaOne Common Stock with respect to which an election to receive only AT&T Common Stock has been effectively made and not revoked or lost pursuant to Sections 3.2(a) (a "Stock Election"), the right to receive (A) 1.4912 shares of AT&T Common Stock and (B) an amount in cash (the "Stock Election Top -Up Amount"), if any, without interest except as provided in Section 3.2(b), rounded to the nearest cent, equal to 1.4912 times the excess, if any, of $57.00 over the • AT&T Price; provided, however, that in no event shall such amount in cash exceed $8.50 (collectively, the "Stock Election Consideration"); 10 • • (ii) for each such share of MediaOne Common Stock with respect to which an election to receive only cash has been effectively made and not revoked or lost pursuant to Section 3.2(a) (a "Cash Election"), the right to receive $85 in cash, without interest except as set forth in Section 3.2(b) (the "Cash Election Consideration"); and (iii) for each such share of MediaOne Common Stock other than shares as to which a Stock Election or a Cash Election has been made, the right to receive (A) .95 of a share of AT&T Common Stock, (B) $30.85 in cash, without interest except as set forth in Section 3.2(b), and (C) an additional amount in cash (the "Standard Election Top - Up Amount"), if any, without interest except as set forth in Section 3.2(b), rounded to the nearest cent, equal to .95 times the excess, if any, of $57.00 over the AT&T Price; provided, however, that in no event shall such additional amount in cash exceed $5.42 (collectively, the "Standard Election Consideration"). (d) If between the date of this Agreement and the Effective Time the outstanding shares of AT&T Common Stock shall have been changed into a different number of shares, by reason of any stock dividend, subdivision, split or combination of shares, the Stock Election Consideration and the Standard Election Consideration, and the consideration to be paid pursuant to Sections 3.1(g) and 3.1(h), will be correspondingly adjusted to reflect such stock dividend, subdivision, split or combination of shares. (e) Each person who, at the Effective Time, is a record holder of shares of MediaOne Common Stock (other than holders of shares of MediaOne Common Stock to be canceled as set forth in Section 3.1(a) or Dissenting Shares) shall have the right to submit an Election Form specifying the number of shares of MediaOne Common Stock that such person desires to have converted into the right to receive AT&T Common Stock and cash, if any, - pursuant to the Stock Election, the number of shares of MediaOne Common Stock that such person desires to have converted into the right to receive cash pursuant to the Cash Election, and the number of shares of MediaOne Common Stock that such person desires to have converted into the right to receive the Standard Election Consideration (a "Standard Election"). Any such record holder who fails properly to submit an Election Form on or prior to the Election Deadline in accordance with the procedures set forth in Section 3.2(a) shall be deemed to have made a Standard Election. (f) The aggregate number of shares of AT&T Common Stock to be issued in . the Merger or to become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock shall equal .95 times the sum of (i) the total number of shares of MediaOne Common Stock issued and outstanding immediately prior to the Effective Time, other than shares to be canceled pursuant to Section 3.1(a) and Dissenting Shares, and (ii) the total number of shares of MediaOne Common Stock issuable upon exercise of MediaOne Stock Options or conversion of MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock outstanding immediately prior to the Effective Time (the "AT&T Share Issuance Number"). If between the date of this Agreement and the Effective Time the outstanding shares of AT&T Common Stock shall have been changed into a different number of shares, by reason of any stock dividend, subdivision, split or combination of shares, the AT&T Share Issuance Number will be correspondingly adjusted to 11 • • reflect such stock dividend, subdivision. split or combination of shares. The AT&T Share Issuance Number shall also be subject to adjustment as set forth in Section 3.1(i). (g) In the event that the number of shares of AT&T Common Stock to be issued in the Merger or to become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock would exceed the AT&T Share Issuance Number based on the elections of the holders of MediaOne Common Stock (together with the elections of holders of MediaOne Stock Options and the conversion adjustments applicable to the MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock), (i) all shares of MediaOne Common Stock subject to a Cash Election or a Standard Election will be converted into the right to receive the Cash Election Consideration or the Standard Election Consideration, as the case may be, and (ii) each share of MediaOne Common Stock subject to a Stock Election will be converted into the right to receive (A) a • number of shares of AT&T Common Stock equal to 1.4912 times the Stock Election Proration Factor, (B) an amount of cash, 'without interest except as set forth in Section 3.2(b), equal to (1) 585 multiplied by (2) one minus the Stock Election 1?roration Factor, and (C) an additional amount of cash, if any, without interest except as set forth in Section 3.2(b), rounded to the nearest cent, equal to 1.4912 times the Stock Election Proration Factor times the excess, if any, of 557.00 over the AT&T Price; provided, however, that in no event shall such additional amount in cash exceed 58.50 times the Stock Election Proration Factor. The "Stock Election Proration Factor" means a fraction (x) the numerator of which is the AT&T Share Issuance Number minus the aggregate number of shares of AT&T Common Stock to be issued in the Merger pursuant to the Standard Elections or to become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock pursuant to elections corresponding to the Standard Elections made by holders of MediaOne Stock Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock, and (y) the denominator of which is the number of shares of AT&T Common Stock that, but for this paragraph (g), would have been issued in the Merger pursuant to the Stock Elections or become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock pursuant to elections corresponding to the Stock Elections made by holders of Mediabne Stock Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock. (li) In the event that the number of shares of AT&T Common Stock to be issued in the Merger or to become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock would be less than the AT&T Share Issuance Number based on the elections of the holders of MediaOne Common Stock (together with the elections of holders of MediaOne Stock Options and the conversion adjustments applicable to the MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock), (i) all shares of MediaOne Common Stock subject to a Stock Election or a Standard Election will be converted into the right to receive the Stock Election Consideration or the Standard Election Consideration, as the case may be, and (ii) each share of MediaOne Common Stock subject to a Cash Election will be converted into the right to receive (A) a number of shares of AT&T Common Stock equal to the Cash Election Proration Factor, (B) an amount of cash, without interest except as set forth in Section 3.2(b), equal to (1) 585 17 • multiplied by (2) (x) one minus (y) the Cash Election Proration Factor divided by 1.491?, and (C) an additional amount of cash (the "Cash Election Top -Up Amount"), if any, without interest except as set forth in Section 3.2(b), rounded to the nearest cent, equal to the Cash Election Proration Factor times the excess, if any, of $57.00 over the AT&T Price; provided, however. that in no event shall such additional amount in cash exceed $5.70 times the Cash Election Proration Factor. The "Cash Election Proration Factor" means a fraction (x) the numerator of which is the AT&T Share Issuance Number minus the aggregate number of shares of AT&T Common Stock to be issued in the Merger pursuant to the Stock Elections and the Standard Elections or to become subject to issuance upon exercise of Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock pursuant to elections corresponding to the Stock Elections and the Standard Elections made by holders of MediaOne Stock Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock, and (y) the denominator of which is the number of shares of MediaOne Common Stock subject to the Cash Elections or elections corresponding to the Cash Elections made by holders of MediaOne Stock Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred Stock. (i) In the event that either the condition set forth in Section 9.2(b) or the condition set forth in Section 9.3(b) is not satisfied but would be capable of being satisfied if the AT&T Share Issuance Number were increased, and all other conditions set forth in Article 9 have been satisfied (or, with respect to conditions to be satisfied at the Effective Time, will in fact be satisfied), then the AT&T Share Issuance Number shall be increased to the extent • necessary to permit the satisfaction of the conditions set forth in each of Sections 9.2(b) and 9.3(b) and, if required by law or the rules of the NYSE, AT&T will use its reasonable best efforts to obtain the requisite approval of its shareholders for the issuance of a number of shares of AT&T Common Stock equal to the revised AT&T Share Issuance Number (and MediaOne will use its reasonable best efforts to obtain the requisite approval of its shareholders for this Agreement and the Merger based on such revised AT&T Share Issuance Number, if approval based on such revision is necessary); provided that if, prior to any such required shareholder approval, the conditions set forth in Sections 9.2(b) and 9.3(b) become capable of being satisfied without revision of the AT&T Share Issuance Number, the AT&T Share Issuance Number shall not be revised and the Merger will be completed as promptly as practicable (subject to continued satisfaction of the conditions set forth in Article 9). • (j) At the Effective Time: (i) except as otherwise provided in Section 3.1(a) or Section 3.3, each . share of SeriesC Cumulative Redeemable Preferred Stock, par value $1.00 per share, of MediaOne (the "MediaOne Series C Preferred Stock") outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of the corresponding series (the "AT&T Series C Preferred Stock") of preferred stock of AT&T (the "Series C Consideration") that shall have terms that are identical to those of the MediaOne Series C Preferred Stock; provided that (A) as a result of the Merger, the issuer thereof shall be AT&T rather than MediaOne and (B) AT&T's obligations to pay full quarterly dividends in respect of shares of AT&T Series C Preferred Stock (from the • • • date of the last dividend paid on the MediaOne Series C Preferred Stock) shall commence on the first dividend payment date that occurs following the Effective Time; (ii) except as otherwise provided in Section 3.1(a), each share of Series D Convertible Preferred Stock, par value $1.00 per share, of MediaOne (the "MediaOne. Series D Preferred Stock") outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of the corresponding series (the "AT&T Series D Preferred Stock") of preferred stock of AT&T (the "Series D Consideration") that shall have terms that are identical to those of the MediaOne Series D Preferred Stock; provided that (A) as a result of the Merger, the issuer thereof shall be AT&T rather than MediaOne, (B) AT&T's obligations to pay full quarterly dividends in respect of shares of AT&T Series D Preferred Stock (from the date of the last dividend paid on the MediaOne Series D Preferred Stock) shall commence on the first dividend payment date that occurs following the Effective Time and (C) the AT&T Series D Preferred Stock shall initially be convertible into cash and a number of shares of AT&T Common Stock calculated in accordance with Section 3.7 of the Certificate of Designations relating thereto (subject to proration adjustments consistent with the provisions of Sections 3.1(g) and (h)); and (iii) except as otherwise provided in Section 3.1(a) or Section 3.3, each share of Series E Convertible Preferred Stock, par value $1.00 per share, of MediaOne (the "MediaOne Series E Preferred Stock") outstanding immediately prior to the Effective Time shall be converted into the right to receive one share of the corresponding series (the "AT&T Series E Preferred Stock") of preferred stock of AT&T (the "Series E Consideration") that shall have terms that are identical to those of the MediaOne Series E Preferred Stock; provided that (A) as a result of the Merger, the issuer thereof shall be AT&T rather than MediaOne, (B) AT&T's obligations to pay full quarterly dividends in respect of shares of AT&T Series E Preferred Stock (from the date of the last dividend paid on the MediaOne Series E Preferred Stock) shall commence on the first dividend payment date that occurs following the Effective Time and (C) the conversion rate for the MediaOne Series E Preferred Stock shall be fixed as set forth in the Certificate of Designations relating thereto (subject to proration adjustments consistent with Sections 3.1(g) and (h)). SECTION 3.2. Surrender and Payment. (a) Prior to the Effective Time, AT&T shall appoint an agent (the "Exchange Agent") for the purpose of (i) exchanging certificates representing shares of MediaOne Common Stock (the "Common Certificates") for . the Common Stock Consideration; (ii) exchanging certificates representing shares of MediaOne Series C Preferred Stock (the "Series C Certificates") for the Series C Consideration, (iii) exchanging certificates representing shares of MediaOne Series D Preferred Stock (the "Series D Certificates") for the Series D Consideration and (iv) exchanging certificates representing shares of MediaOne Series E Preferred Stock (the "Series E Certificates")," and together with the Common Certificates, the Series C Certificates and the Series D Certificates, the "Certificates") for the Series E Consideration. At the Effective Time, AT&T will deposit with the Exchange Agent (i) the Conimon Stock Consideration to be paid in respect of shares of MediaOne Conunon Stock, (ii) the Series C Consideration to be paid in respect of shares of MediaOne Series C Preferred Stock, (iii) the Series D Consideration to be paid in respect of shares of • MediaOne Series D Preferred Stock, (iv) the Series E Consideration to be paid in respect of shares of MediaOne Series E Preferred Stock and (v) cash in an amount required to be paid pursuant to Section 3.5. The Common Stock Consideration, Series C Consideration, Series D Consideration, Series E Consideration and cash referred to in items (i) through (v) are referred to herein as the "Exchange Fund". Upon receipt, the Exchange Agent will invest the cash portion of the Exchange Fund in United States government securities maturing at the Election Deadline or such other investments as AT&T and -MediaOne may mutually agree. Promptly after the Effective Time, AT&T will send, or will cause the Exchange Agent to send, (A) to each holder of shares of MediaOne Common Stock, MediaOne Series C Preferred Stock, MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock at the Effective Time, a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates to the Exchange Agent) for use in such exchange, and (B) to each holder of shares of MediaOne Common Stock, an election form (the "Election Form") providing for such holders to make the Standard Election, the Cash Election or the Stock Election. Any Standard Election (other than a deemed Standard Election), Cash Election or Stock EIection shall be validly made only if the Exchange Agent shall have received by 5:00 p.m., New York City time, on a date (the "Election Deadline") to be mutually agreed upon by AT&T and MediaOne (which date shall not be later than the twentieth Business Day after the Effective Time), an Election Form properly completed and executed (with the signature or signatures thereon guaranteed to the extent required by the Election Form) by such holder accompanied by such holder's Common Certificates, or by an appropriate guarantee of delivery of such Common Certificates from a member of any registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States as set forth in such Election Form. Any holder of MediaOne Common Stock who has made an election by submitting an Election Form to the Exchange Agent may at any time prior to the Election Deadline change such holder's election by submitting a revised Election Form, properly completed and signed that is received by the Exchange Agent prior to the Election Deadline. Any holder of MediaOne Common Stock may at any time prior to the Election Deadline revoke his election and withdraw his Common Certificates deposited with the Exchange Agent by written notice to the Exchange Agent received by the close of business on the day prior to the Election Deadline. AT&T will make similar election forms available to the appropriate holders of shares of MediaOne Series D Preferred Stock (if such shares have not been redeemed) and MediaOne Series E Preferred Stock in the manner contemplated by the certificates of designations for such shares to permit such holders to make comparable elections with respect to the conversion adjustments for such shares. AT&T shall have the right to make rules (which will be described in the Election Form), not inconsistent with the terms of this Agreement, governing the validity of Election Forms and the manner and extent to which Standard Elections, Cash Election or Stock Elections are to be taken into account in making the determinations prescribed by Sections 3.1(g) and 3.1(h). (b) Upon surrender to the Exchange Agent of its Certificate, together with a properly completed letter of transmittal, (i) each holder of shares of MediaOne Common Stock (the "MediaOne Common Holders") will be entitled to receive promptly after the Election Deadline the Common Stock Consideration in respect of the shares of MediaOne Common Stock represented by its Certificate; (ii) each holder of shares of MediaOne Series C Preferred Stock • • (the "MediaOne Series C Holders") will be entitled to receive the Series C Consideration in respect of the shares of MediaOne Series C Preferred Stock represented by its Certificate; (iii) each holder of shares of MediaOne Series D Preferred Stock (the "MediaOne Series D Holders") will be entitled to receive the Series D Consideration in respect of the shares of MediaOne Series D Preferred Stock represented by its Certificate and (iv) each holder of shares of MediaOne Series E Preferred Stock (the "MediaOne Series E Holders") will be entitled to receive the Series E Consideiation in respect of the shares represented by its Certificate. In addition, each such MediaOne Common Holder, MediaOne Series C Holder, MediaOne Series D Holder and MediaOne Series E Holder will be entitled to receive any dividends and distributions payable pursuant to Section 3.2(0 and, in the case of MediaOne Common Holders and holders of MediaOne Stock Options, such holder's pro rata share, if any, based on the cash portion of the Common Stock Consideration to be received by such holder, of the interest or other return earned on the cash portion of the Exchange Fund from the Effective Time until the Election Deadline. Until so surrendered, each such Certificate shall represent after the Effective Time, for all purposes, only the right to receive the Common Stock Consideration, the Series C Consideration, the Series D Consideration or the Series E Consideration, as the case may be. (c) If any portion of the Common Stock Consideration, the Series C Consideration, the Series D_Consideration or. the Series .E Consideration is.to.be.paid to a Person other than the Person in whose name the Certificate so surrendered is registered, it shall be a condition to such payment that such Certificate shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate, or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (d) After the Effective Time, there shall be no further registration of transfers of shares of MediaOne Common Stock, MediaOne Series C Preferred Stock, MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Common Stock Consideration, the Series C Consideration, the Series D Consideration or the Series E Consideration provided for, and in accordance with the procedures set forth, in this Article 3. (e) Any portion of the Exchange Fund made available to the Exchange Agent pursuant to Section 3.2(a) that remains unclaimed by the MediaOne Common Holders, MediaOne Series C Holders, MediaOne Series D Holders and MediaOne Series E Holders one year after the Effective Time shall be returned to AT&T, upon demand, and any such holder who has not exchanged its shares for the Common Stock Consideration, the Series C Consideration, the Series D Consideration or the Series E Consideration in accordance with this Section 3.2 prior to that time shall thereafter look only to AT&T for payment of such consideration, any dividends and distributions in respect of such shares, and, if applicable, the pro rata share. if any, of the interest or other return earned on the cash portion of the Exchange Fund from the Effective Time until the Election Deadline, in each case without any interest thereon. Notwithstanding the foregoing, AT&T shall not be liable to any MediaOne Common Holder, MediaOne Series C • • Holder, MediaOne Series D Holder or MediaOne Series E Holder for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Any amounts remaining unclaimed by the MediaOne Common Holders, MediaOne Series C Holders, Media0ne Series D Holders and MediaOne Series E Holders five years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority) shall become, to the extent permitted by applicable law, the property of AT&T free and clear of any claims or interest of any Person previously entitled thereto. (f) No dividends or other distributions with respect to any AT&T Securities constituting part of the Common Stock Consideration, the Series C Consideration, the Series D Consideration or the Series E Consideration and, in the case of the Common Certificates, no cash payment in lieu of fractional shares as provided in Section 3.5, shall be paid to the holder of any unsurrendered Certificates until such Certificates are surrendered as provided in Section 3.2(b). Following such surrender, there shall be paid, without interest, to the Person in whose name such AT&T Securities have been registered, (i) at the time of such surrender, (A) in the case of Common Certificates, the amount of any cash payable in lieu of fractional shares to which such Person is entitled pursuant to Section 3.5, and (B) the amount of all dividends or other distributions with a record date after the Effective Time previously paid or payable on the date of such surrender, with respect to such AT&T Securities, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender, and with a payment date subsequent to surrender, payable with respect to such AT&T Securities. (g) Any portion of the Common Stock Consideration, Series C Consideration or the Series E Consideration made available to the Exchange Agent pursuant to Section 3.2(a) to pay for shares of MediaOne Common Stock, MediaOne Series C Preferred Stock or MediaOne Series E Preferred Stock for which appraisal rights have been perfected shall be returned to AT&T upon demand. SECTION 3.3. Dissenting Shares. Notwithstanding Section 3.1, shares of MediaOne Common Stock, MediaOne Series C Preferred Stock and MediaOne Series E Preferred Stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger and has demanded appraisal for such shares in accordance with Delaware Law ("Dissenting Shares") shall not be converted into_a right to receive the Common Stock Consideration, the Series C Consideration or the Series E Consideration, as the case may be, unless such holder fails to perfect, withdraws or otherwise loses its right to apprai al. If, after the Effective Time, such holder fails to perfect, withdraws or loses its right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Common Stock Consideration, the Series C Consideration or the Series E Consideration, as the case may be. MediaOne shall give AT&T prompt notice of any demands received by MediaOne for appraisal of shares, and AT&T shall have the right to participate in all negotiations and proceedings with respect to such demands. Except with the prior written consent of AT&T, MediaOne shall not make any payment with respect to, or settle or offer to settle, any such demands. 17 • • SECTION 3.4. Stock Options. (a) Each outstanding option to purchase shares of MediaOne Common Stock granted under any stock option or compensation plans or arrangements (a "MediaOne Stock Option"). whether or not exercisable or vested, that is outstanding immediately prior to the Effective Time, shall be converted, at the election of the holder thereof, in accordance with the procedures set forth in this Section 3.4. Each holder may. elect, with respect to each of such holder's MediaOne Stock Options, to make a Stock Election. a Cash Election, or a Standard Election. Subject to the provisions of paragraphs (b), (c) and (d) of this Section 3.4: (i) each MediaOne Stock Option subject to a Cash Election will be converted into, for each share underlying such MediaOne Stock Option, (A) the Cash Election Consideration minus (B) the per share exercise price of the MediaOne Stock Option (the "Stock Option Cash Election Consideration"); (ii) each MediaOne Stock Option subject to a Standard Election will be converted into, for each share underlying such MediaOne Stock Option, (A) an option to purchase .95 of a share of AT&T Common Stock at an exercise price equal to (1) the per share exercise price of the MediaOne Stock Option multiplied by (2) a fraction, the numerator of which is $54.15 and the denominator of which is $85 (the "Standard Election Fraction"), minus (3) the Standard Election Top -Up Amount, if any, divided by (4) .95, and (B) $30.85 in cash, without interest except as set forth in Section 3.2(b), minus the product of (1) the per share exercise price of the MediaOne Stock Option and (2) one minus the Standard Election Fraction (the "Stock Option Standard Election Consideration"); and (iii) each MediaOne Stock Option subject to a Stock Election will be converted into, for each share underlying the MediaOne Stock Option, an option to receive 1.4912 shares of AT&T Common Stock at an exercise price equal to (A) the per share exercise price of the MediaOne Stock Option minus the Stock Election Top -Up Amount, if any, divided by 1.4912 (the "Stock Option Stock Election Consideration"). (b) To the extent that the consideration to be paid in the Merger is adjusted pursuant to Section 3.1(g): (i) each MediaOne Stock Option subject to a Cash Election will be converted into, for each share underlying such MediaOne Stock Option, the Stock Option Cash Election Consideration; (ii) each MediaOne Stock Option subject to a Standard Election will be converted into, for each share underlying such MediaOne Stock Option, the Stock Option Standard Election Consideration; and (iii) each MediaOne Stock,Option subject to a Stock Election will be converted into, for each share underlying such MediaOne Stock Option, (A) an option to purchase a number of shares of AT&T Common Stock equal to 1.4912 multiplied by the Stock Elution Proration Factor, at an exercise price equal to (1) the per share exercise price of the MediaOne Stock Option multiplied by the Stock Election Proration Factor, minus (2) the Stock Election Top -Up Amount, if any, multiplied by the Stock Election 18 • • Proration Factor. divided by (3) 1.4912 multiplied by the Stock Election Proration Factor. and (B) an amount of cash, without interest except as set forth in Section 3.2(b). equal to (1) $85 multiplied by one minus the Stock Election Proration Factor, minus (2) the per share exercise price of the MediaOne Stock Option multiplied by one minus the Stock. Election Proration Factor. (c)• To the extent that the consideration to be paid in the Merger is adjusted pursuant to Section 3.1 (h): (i) each MediaOne Stock Option subject to a Stock Election will be converted into, for each share underlying such MediaOne Stock Option, the Stock Option Stock Election.Consideration; (ii) each MediaOne Stock Option subject to a Standard Election will be converted into, for each share underlying such MediaOne Stock Option, the Stock Option Standard Election Consideration; and (iii) each MediaOne Stock Option subject to a Cash Election will be converted into, for each share underlying such MediaOne Stock Option, (A) an option to purchase a number of shares of AT&T Common Stock equal to the Cash Election Proration Factor, at an exercise price equal to (1) the per share exercise price of the MediaOne Stock Option multiplied by (2) a fraction (the "Cash Election Fraction"), the numerator of which is the Cash Election Proration Factor and the denominator of which is 1.4912, minus (3) the Cash Election Top -Up Amount, if any, divided by (4) the Cash Election Proration Factor, and (B) an amount of cash, without interest except as set forth in Section 3.2(b), equal to (1) $85 multiplied by one minus the Cash Election Fraction, minus (2) the per share exercise price of the MediaOne Stock Option multiplied by one minus the Cash Election Fraction. The options to purchase shares of AT&T Common Stock referred to in this Section are hereinafter referred to as "Adjusted Options." (d) To the extent that the provisions of this Section 3.4 would require the payment to any holder of a MediaOne Stock Option of a positive cash amount, such amount, net of any applicable withholding taxes, shall be paid as promptly as practicable following the determination thereof. To the extent that the provisions of this Section 3.4 would require the payment to any holder of a MediaOne Stock Option of a negative cash amount, then such amount shall not be paid by or to the holder of such MediaOne Stock Option; instead such amount shall be divided (i) in the case of paragraphs (a)(ii), (b)(ii) and (c)(ii) above, by .95, (ii) in the case of paragraph (b)(iii) above, by 1.4912 times the Stock Election Proration Factor, and (iii) in the case of paragraph (c)(iii) above, by the Cash Election Proration Factor, and in each case the resulting amount shall be added to the per share exercise price of such holder's Adjusted Options with respect to which such calculation was performed. (el Holders of MediaOne Stock Options will be provided with election forms and given the opportunity to make such elections in the same manner as holders of shares of MediaOne Common Stock are provided with Election Forms and given the opportunity to make • • Stock Elections, Cash Elections and Standard Elections. Any holder of a MediaOne Stock Option who does not make such an election on or prior to the Election Deadline will be deemed to have elected the Standard Election Consideration. (0 Any fractional share of AT&T Common Stock resulting from an. aggregation of all the shares of a holder subject to MediaOne Stock Options shall be rounded up to the nearest whole share. (h) AT&T shall take such actions as are necessary for the assumption of the MediaOne Stock Options.pursuant to this Section 3.4 and any obligations to issue MediaOne Common Stock under the existing terms of any other plans, agreements or arrangements of MediaOne covering any current or former employee or director of MediaOne or any MediaOne Subsidiary, including the reservation, issuance and listing of AT&T Common Stock as is necessary to effectuate the transactions contemplated by this Section 3.4. Similarly, MediaOne shall take all actions required to be taken by it to effectuate such assumption. AT&T shall prepare and file with the SEC a registration statement on Form S-8 (or any other appropriate form) or a post -effective amendment to a registration statement previously filed under the 1933 Act, with respect to the shares of AT&T Common Stock subject to the Adjusted Options and, where applicable, shall use its reasonable best efforts to have such registration statement declared effective as soon as practicable following the Effective Time and to maintain the effectiveness of such registration statement covering such Adjusted Options (and to maintain the current status of the prospectus contained therein) for so long as such Adjusted Options remain outstanding. With respect to those individuals, if any, who, subsequent to the Effective Time, will be subject to the reporting requirements under Section 16(a) of the 1934 Act, where applicable, AT&T shall use all reasonable efforts to administer any Adjusted Options issued pursuant to this Section 3.4 in a manner that complies with Rule 16b-3 promulgated under the 1934 Act to the extent that the MediaOne Stock Option in respect of which such Adjusted Option has been issued complied with such rule prior to the Merger. SECTION 3.5. Fractional Shares. No fractional shares of AT&T Common Stock shall be issued in the Merger. All fractional shares of AT&T Common Stock that a holder of shares of MediaOne Common Stock would otherwise be entitled to receive as a result of the Merger shall be aggregated and if a fractional share results from such aggregation, such holder shall be entitled to receive, in lieu thereof, an amount in cash without interest determined by multiplying the closing sale price of a share of AT&T Common Stock on the NYSE on the trading day immediately preceding the Effective Time by the fraction of a share of AT&T Common Stock to which such holder would otherwise have been entitled. . SECTION 3.6. Withholding Rights. AT&T shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 3 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If AT&T so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the MediaOne Common Holder, the MediaOne Series C Holder, the MediaOne Series D Holder or 20 • • • the MediaOne Series E Holder. as the case may be. in respect of which AT&T made such deduction and withholding. SECTION 3.7. Lost Certificates. If any Certificate is lost, stolen or destroyed. upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and executing an indemnity reasonably satisfactory to AT&T (and, if required by AT&T in the case of a Certificate representing more than 1,000 shares (100 shares in the case of the MediaOne Series D Preferred Stock), the posting by such Person of a bond, in such reasonable amount as AT&T may direct, as indemnity) against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue, in exchange for such lost, stolen or destroyed Certificate, (i) the Common Stock Consideration to be paid in respect of the shares of MediaOne Common Stock represented by such Certificate, (ii) the Series C Consideration to be paid in respect of the shares of MediaOne Series C Preferred Stock represented by such Certificate, (iii) the Series D Consideration to be paid in respect of the shares of MediaOne Series D Preferred Stock represented by such Certificate, or (iv) the Series E Consideration to be paid in respect of the shares of MediaOne Series E Preferred Stock represented by such Certificate, as the case may be. In addition, such Person will be entitled to receive any amounts payable pursuant to Section 3.2(0. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MEDIAONE Except as set forth in the MediaOne Disclosure Schedule or as disclosed in the MediaOne SEC Documents filed prior to the date hereof, MediaOne represents and warrants to AT&T and Merger Sub as follows: SECTION 4.1. Corporate Existence and Power. MediaOne is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers required to carry on its business as now conducted. MediaOne is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified, individually or in the aggregate, has not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. MediaOne has heretofore delivered or made available to AT&T true and complete copies of the certificate of incorporation and bylaws of MediaOne as currently in effect. SECTION 4.2. Corporate Authorization. (a) The execution, delivery and performance by MediaOne of this Agreement and the consummation by MediaOne of the transactions contemplated hereby are within MeaiaOne's corporate powers and, except for the required approval of MediaOne's stockholders of this Agreement, have been duly authorized by all necessary corporate action on the part of MediaOne. This Agreement constitutes a valid and binding agreement of MediaOne, enforceable against MediaOne in accordance with its terms, except (i) as the same may be limited by applicable bankruptcy, insolvency, moratorium or 21 • • similar laws of general application relating to or affecting creditors' rights. and (ii) for the limitations imposed by general principles of equity. (b) At a meeting duly called and held, MediaOne's Board of Directors has unanimously: (i) determined that this Agreement and the transactions contemplated hereby are advisable and fair to and in the best interests of MediaOne's stockholders; (ii) approved and adopted this Agreement and the transactions contemplated hereby; and (iii) resolved (subject to Section 6.2(b)) to recommend approval and adoption of this Agreement by its stockholders. (c) The Agreement and' Plan of Merger, dated as of March 22, 1999 (the "Comcast Merger Agreement"), by and between MediaOne and Comcast Corporation ("Comcast") has been duly terminated by MediaOne pursuant to Section 10.1(d)(iii) thereof. SECTION 4.3. Governmental Authorization. The execution, delivery and performance by MediaOne of this Agreement and the consummation by MediaOne of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority, domestic or foreign (a "Govemmental Authority"), other than: (i) notices to, or consents or waivers from, the relevant Franchising Authorities in respect of the MediaOne Franchises (the "Franchise Consents"), and the FCC in _. . connection with a change of control and/or assignment of the holder of the FCC licenses of MediaOne and the MediaOne Subsidiaries ("License Consents"); (ii) any filings as may be required with the FCC or any Governmental Authority to obtain its consent to the assumption by AT&T or Merger Sub of the MediaOne Social Contract (the "Social Contract Consent"); (iii) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which MediaOne is qualified to do business; (iv) compliance with any applicable requirements of the HSR Act; (v) compliance with any applicable requirements of the 1933 Act, 1934 Act, and any other applicable securities laws, whether state or foreign; and (vii) any actions or filings the absence of which, individually or in the aggregate, would not be reasonably expected to have a MediaOne Material Adverse Effect or materially impair or delay the ability of MediaOne to consummate the transactions contemplated by this Agreement. SECTION 4.4. Non -contravention. The execution, delivery and performance by MediaOne of this Agreement and the consummation by MediaOne of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of MediaOne; (ii) assuming compliance with the matters referred to in Section 4.3, contravene, conflict with or result in a violation or breach of any provision of any applicable law, statute, ordinance, rule, regulation, judgment, injunction, order, or decree; (iii) require any consent or other action by any Person under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or cause or permit the termination, cancellation, acceleration, triggering or other change of any right or obligation or the loss of any benefit to which MediaOne or anv:MediaOne Subsidiary is entitled under (A) any provision of any agreement or other instrument binding upon MediaOne or any MediaOne Subsidiary or (B) any license, franchise, permit, certificate, approval or other similar authorization held by, or affecting, or 22 • • relating in any way to, the assets or business of, MediaOne or any MediaOne Subsidiary: or (iv) result in the creation or imposition of any Lien on any asset of MediaOne or any MediaOne Subsidiary, other than such exceptions in the case of clauses (ii), (iii) and (iv) as would not be, individually or in the aggregate, reasonably expected to have a MediaOne Material Adverse Effect or materially impair or delay the ability of MediaOne to consummate the transactions contemplated by this Agreement. SECTION 4.5. Capitalization. (a) The authorized capital stock of MediaOne consists of 2,000,000,000 shares of MediaOne Common Stock and 200,000,000 shares of Preferred Stock, par value $1.00 per share, of which (i) 10,000,000 shares have been designated Series A Junior Participating Cumulative Preferred Stock (the "MediaOne Series A Preferred Stock"), (ii) 50,000 shares have been designated MediaOne Series C Preferred Stock, (iii) 20,000,000 shares have been designated MediaOne Series D Preferred Stock, (iv) 1,000,000 shares have been designated MediaOne Series E Preferred Stock and (v) 2,000,000 shares have been designated Series F Junior Participating Cumulative Preferred Stock (the "MediaOne Series F Preferred Stock") and reserved for issuance upon the exercise of rights distributed to holders of MediaOne Common Stock pursuant to the MediaOne 1999 Rights Agreement. As of the close of business on April 29, 1999, there were outstanding (i) 605,466,754 shares of MediaOne Common.Stock (inclusive of all shares of restricted stock granted under any compensatory plans or arrangements), (ii) MediaOne Stock Options to purchase an aggregate of 29,126,981 shares of MediaOne Common Stock (of which options to purchase an aggregate of 9,907,524 shares of MediaOne Common Stock were exercisable), (iii) phantom shares or stock units issued under any stock option, compensation or deferred compensation plan or arrangement with respect to an aggregate of 339,703 shares of MediaOne Common Stock, (iv) no shares of MediaOne Series A Preferred Stock, (iv) 50,000 shares of MediaOne Series C Stock, (vi) 19,999,478 shares of MediaOne Series D Preferred Stock (which are convertible, subject to the terms and conditions thereof, into 39,609,366 shares of MediaOne Common Stock), (vii) 996,562 shares of MediaOne Series E Preferred Stock and (viii) no shares of MediaOne Series F Preferred Stock. All • outstanding shares of capital stock of MediaOne have been, and all shares that may be issued pursuant to any compensatory plan or arrangement will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable. (b) Except as set forth in this Section 4.5 and for changes since April 29, I999 resulting from the exercise of employee stock options. outstanding on such date (and the grant or award of employee stock options in the ordinary course of business and the exercise thereof) and the conversion of MediaOne Series D Preferred Stock outstanding on such date, there are no outstanding (i) shares of capital stock or voting securities of MediaOne, (ii) securities of MediaOne convertible into or exchangeable for shares of capital stock or voting securities of MediaOne or (iii) options or other rights to acquire from MediaOne, or other obligation of MediaOne to issue any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of MediaOne. There are no outstanding obligations of MediaOne or any MediaOne Subsidiary to repurchase, redeem or otherwise acquire any of the securities referred to in clauses (i), (ii) and (iii) above (collectively, the "MediaOne Securities"). 23 • SECTION 4.6. Subsidiaries. (a) Each MediaOne Subsidiary is a corporation or other legal entity duly organized. validly existing and in.good standing under the laws of its jurisdiction of organization and has all corporate. partnership or other similar powers required to carry on its business as now conducted, other than such exceptions as, individually or in the aggregate, have not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. Each MediaOne Subsidiary is duly qualified to do business as a foreign corporation or other foreign legal entity and is in good standing in each jurisdiction where such .qualification is necessary, with such exceptions, individually or in the aggregate, as have not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. The MediaOne Disclosure Schedule sets forth a list of all MediaOne Significant Subsidiaries and their respective jurisdictions of organization and identifies MediaOne's (direct or indirect) percentage ownership interest therein. (b) All of the outstanding capital stock of, or other voting securities or ownership interests in, each MediaOne Significant Subsidiary, is owned by MediaOne, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests). There are no outstanding (i) securities of MediaOne or any MediaOne Subsidiary convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any MediaOne Significant Subsidiary or (ii) options or other rights to acquire from MediaOne or any MediaOne Subsidiary, or other obligation of MediaOne or any MediaOne Subsidiary to issue any capital stock, or other voting securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any MediaOne Significant Subsidiary. There are no outstanding obligations of MediaOne or any MediaOne Significant Subsidiary to repurchase, redeem or otherwise acquire any of the items referred to in clauses (i) and (ii) above. SECTION 4.7. SEC Filings. (a) MediaOne has delivered or made available to AT&T: (i) MediaOne's annual report on Form 10-K for its fiscal year ended December 31, 1997 and the MediaOne 10-K; (ii) its proxy or information statements relating to meetings of, or actions taken without a meeting by, the stockholders of MediaOne.held since December 31, 1997; and (iii) all of its other reports, statements, schedules and registration statements filed with the SEC since December 31, 1997 (the documents referred to in this Section 4.7(a), collectively, the "MediaOne SEC Documents"). (b) As of its filing date, each MediaOne SEC Document complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be. (c) As of its filing date, each MediaOne SEC Document filed pursuant to the 1934 Act did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were 'Wade, not misleading. 24 • • • (d) Each MediaOne SEC Document that is a registration statement. as amended or supplemented. if applicable, filed pursuant to the 1933 Act, as of the date such registration statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. - SECTION 4.8. Financial Statements. The audited consolidated financial statements and unaudited consolidated interim financial statements of MediaOne included in the MediaOne SEC Documents fairly present, in all material respects, in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of MediaOne and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). SECTION 4.9. Information Supplied. The information supplied by MediaOne for inclusion or incorporation in the registration statement on Form S-4 or any amendment or supplement thereto pursuant to which shares of AT&T Common Stock issuable in the Merger will be registered with the SEC (the "Registration Statement") shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information supplied by MediaOne for inclusion in the proxy statement/ prospectus or any amendment or supplement thereto (the "Proxy Statement") to be sent to the stockholders of MediaOne in connection with their meeting to consider this Agreement and the Merger (the "MediaOne Stockholders' Meeting") shall not, on the date the Proxy Statement is first mailed to the stockholders of MediaOne or at the time of the MediaOne Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4.10. Absence of Certain Changes. Since the MediaOne Balance Sheet Date, the business of MediaOne and the MediaOne Subsidiaries has been conducted in the ordinary course consistent with past practices and there has not been: • . (a) any event, occurrence or development of a state of circumstances or facts which, individually or in the aggregate, has had or would be reasonably expected to have a MediaOne Material Adverse Effect; or (b) any action, event, occurrence or transaction that would have been prohibited by clause (a), (b), (c), (d), (f), (i) or (grof the second sentence of Section 6.1 (or committed to do any of the foregoing) if this Agreement had been in effect as of the time thereof. SECTION 4.11. No Undisclosed Material Liabilities. There are no liabilities or obligations of MediaOne or any MediaOne Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, 25 i • situation or set of circumstances that could be reasonably expected to result in such a liability or obligation, other than: (a) liabilities or obligations disclosed and provided for in the MediaOne Balance Sheet or in the notes thereto or in MediaOne SEC Documents filed prior to the date hereof or in the MediaOne 10-K; (b) liabilities or obligations incurred in the ordinary course of business consistent with past practice since the MediaOne Balance Sheet Date; and (c) liabilities or obligations that, individually or in the aggregate have not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. SECTION 4.12. Compliance with Laws and Court Orders. MediaOne and the MediaOne Subsidiaries hold all licenses, franchises, certificates, consents, permits, qualifications and authorizations from all Governmental Authorities necessary for the lawful conduct of their business, except where the failure to hold any of the foregoing, individually or in the aggregate, has not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. MediaOne and each of the MediaOne Subsidiaries are and have been in compliance with, and to the knowledge of MediaOne, are not under investigation with respect to and have not been threatened to be charged with or given notice of any violation of, any such license, franchise, certificate, consent, permit, qualification or authorization, applicable law, statute, ordinance, rule, regulation, judgment, injunction, order or decree, except for failures to comply or violations that, individually or in the aggregate, have not had and would not be reasonably expected to have a MediaOne Material Adverse Effect. SECTION 4.13. Litigation. There is no action, suit, investigation or proceeding (or any basis therefor) pending against, or, to the knowledge of MediaOne, threatened against or affecting, MediaOne or any MediaOne Subsidiary or any of their respective properties before any court or arbitrator or before or by any other Governmental Authority, that, individually or in the aggregate, would be reasonably expected to have a MediaOne Material Adverse Effect. SECTION 4.14. Finders' Fees. Except for Lehman Brothers Inc. and Allen & Co., Incorporated, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of MediaOne or any MediaOne Subsidiary who might be entitled to any fee or commission from AT&T, any of the AT&T Subsidiaries, MediaOne or any of the MediaOne Subsidiaries in connection with the transactions contemplated by this Agreement. A copy of Lehman Brothers Inc. engagement agreement has been provided to AT&T. SECTION 4.15. Opinion of Financial Advisor. MediaOne has received an opinion of Lehman Brothers Inc., financial advisor to MediaOne, to the effect that, as of May 6, 1999, from a financial point of view, the Common Stock Consideration is fair to the holders of MediaOne Common Stock. • • SECTION 4.16. Taxes. Except as set forth in the MediaOne Balance Sheet (including the notes thereto) and except as would not be, individually or in the aggregate, reasonably expected to have a MediaOne Material Adverse Effect, (i) all MMfedia0ne Tax Returns required to be filed with any taxing authority by, or with respect to, MediaOne and the MediaOne Subsidiaries have been filed in accordance with all applicable laws; (ii) MediaOne and the MediaOne Subsidiaries have timely paid all Taxes shown as due and payable on the MediaOne Tax Returns that have been so filed, and, as of the time of filing, the MediaOne Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities and the status of MediaOne and the MediaOne Subsidiaries (other than Taxes which are being contested in good faith and for which adequate reserves are reflected on the MediaOne Balance Sheet); (iii) MediaOne and the MediaOne Subsidiaries have made provision for all Taxes payable by MediaOne and the MediaOne Subsidiaries for which no MediaOne Tax Return has yet been filed; (iv) the charges, accruals and reserves for Taxes with respect to MediaOne and the MediaOne Subsidiaries reflected on the MediaOne Balance Sheet are adequate under GAAP to cover the Tax liabilities accruing through the date thereof; (v) there is no action, suit, proceeding, audit or claim now proposed or pending against or with respect to MediaOne or any MediaOne Subsidiary in respect of any Tax where there is a reasonable possibility of an adverse determination; (vi) the federal income Tax Returns of MediaOne and the MediaOne Subsidiaries have been examined and settled with the Internal Revenue Service (the "IRS") (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all years through 1987; and (vii) there are no material Liens or encumbrances for Taxes on any of the assets of MediaOne or any MediaOne Subsidiary except liens for current Taxes not yet due. For purposes of this Agreement, "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, excise, stamp, real or personal property, ad valorem, withholding, social security (or similar), unemployment, occupation, use, service, service use, license, net worth, payroll, franchise, severance, transfer, recording, employment, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, profits, disability, sales, registration, value added, alternative or add-on minimuni,,estimated or other taxes, assessments or charges imposed by any federal, state, local or foreign governmental entity and any interest, penalties, or additions to tax attributable thereto. For purposes of this Agreement, "Tax Returns" shall mean any return, report, form or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. SECTION 4.17. Tax Opinions. There are no facts or circumstances relating to MediaOne or, to the knowledge of MediaOne, U S WEST, that would prevent Weil, Gotshal & Manges LLP from delivering the opinion referred to in Section 9.3(c) as of the date hereof. SECTION 4.18. Employee Benefit Plans and Labor Matters. Except as have not had and would not be reasonably expected to have, individually or in the aggregate, a MediaOne Material Adverse Effect: (a) The MediaOne Disclosure Schedule contains a true and complete list, as of the date hereof, of all MediaOne Employee Plans and all MediaOne Benefit Arrangements. Copies of each MediaOne Employee Plan and each MediaOne Benefit Arrangement (and. if applicable, related trust agreements) and all amendments thereto and written interpretations thereof have been made available to AT&T as of the date hereof or will have been made available to AT&T within thirty days after the date hereof, together with the three most recent annual reports (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any MediaOne Employee Plan. (b) No "accumulated funding deficiency," as defined ih Section 412 of the Code, has been incurred with respect to any MediaOne Employee Plan subject to such Section 412, whether or not waived. No "reportable event" within the meaning of Section 4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA has occurred in connection with any MediaOne Employee Plan. Neither MediaOne nor any ERISA Affiliate of MediaOne has (i) engaged in, or is a successor or parent corporation to .an entity that has engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to incur prior to the Effective Time (A) any liability under Title IV of ERISA arising in connection with the termination of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA or (B) any liability under Section 4971 of the Code that in either case could become.a liability of MediaOne, any MediaOne Subsidiary, AT&T or any of their ERISA Affiliates after the Effective Time. If a "complete withdrawal" by MediaOne and all of its ERISA Affiliates were to occur as of the Effective Time with respect to all Multiemployer Plans, none of MediaOne, any MediaOne Subsidiary or any of their ERISA • Affiliates would incur any withdrawal liability under Title IV of ERISA. (c) As of December 31, 1998, the fair market value of the assets of each MediaOne Pension Plan (excluding for these purposes any accrued but unpaid contributions) exceeded the present value of all benefits accrued under such MediaOne Pension Plan determined on a termination basis using the assumptions established by the PBGC as in effect on such date. As of December 31, 1998, the aggregate unfunded liability of MediaOne and any MediaOne Subsidiary in respect of all MediaOne Deferred Compensation Plans, computed using reasonable actuarial assumptions and determined as if all benefits under such plans were vested and payable as of such date, did not exceed $53,000,000. • (d) Each MediaOne Employee Plan that is intended to be qualified under Section 401(a) of the Code is the subject of a favorable qualification determination letter issued by the IRS and to MediaOne's knowledge each such MediaOne Employee Plan is so qualified. (e) There is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of MediaOne or any MediaOne Subsidiary that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Sections 162(m) or 280G of the Code. (f) MediaOne has made available to AT&T as of the date hereof, or will have made available to AT&T within thirty days after the date hereof, a list and copies of each MediaOne International Plan. According to the actuarial assumptions and valuations most recently used.for the purpose of funding each MediaOne International Plan (or, if the same has no such assumptions and valuations or is unfunded. according to actuarial assumptions and valuations in use by the PBGC on the date hereof), as of December 31, 1998 the total amount or value of the funds available under such MediaOne International Plan to pay benefits accrued thereunder or segregated in respect of such accrued benefits, together with any reserve or accrual with respect thereto, exceeded the present value of all benefits (actual or contingent) accrued as of such date of all participants and past participants therein in respect of which MediaOne or any MediaOne Subsidiary has or would have after the Effective Time any obligation. From and after the Effective Time, AT&T and its Affiliates will get the full benefit of any such funds, accruals or reserves for the benefit of covered employees. (g) As of December 31, 1998, the aggregate amount of the accumulated post- retirement benefit obligation under all MediaOne Employee Plans, MediaOne Benefit Arrangements and MediaOne International Plans, as determined in accordance with Statement of Financial Accounting Standards No. 106, did not exceed $25,000,000. (h) Each MediaOne Employee Plan, MediaOne Benefit Arrangement and MediaOne International Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations (including any special provisions relating to registration or qualification where such Plan was intended so to be so registered or qualified) and has been maintained in good standing with applicable regulatory authorities. (i) No employee or former employee of MediaOne or any MediaOne Subsidiary will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby (either alone or together with any other event). (j) Neither MediaOne nor any of the MediaOne Subsidiaries is a party to any collective bargaining agreement. Neither MediaOne nor any of the MediaOne Subsidiaries is involved in or threatened with any labor dispute, work stoppage, labor strike, slowdown or grievance. To the knowledge of MediaOne, there is no organizing effort or representation question at issue with respect to any employee of MediaOne or any of the MediaOne Subsidiaries. SECTION 4.19. Environmental Matters. (a) Except as have not had and would not be reasonably expected to have, individually or in the aggregate, a MediaOne Material Adverse Effect: (A) no notice, notification, demand, request for information, citation, summons or order has been receiwd, no complaint has been filed, no penalty has been assessed, and no investigation, action, claim, suit, proceeding or review (or any basis therefor) is pending or, to the knowledge of MediaOne, is threatened by any Governmental Authority or other Person relating to or arising out of any Environmental Law; 29 • (B) MediaOne is and has been in compliance with all Environmental • • Laws and all Environmental Permits; and • (C) there are no liabilities of or relating to MediaOne or any MediaOne Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise arising under or relating to any Environmental Law and there are no facts, conditions, situations or set of circumstances that could reasonably be expected to result in or be the basis for any such liability. (b) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted of which MediaOne has knowledge in relation to the current or prior business of MediaOne or any MediaOne Subsidiary or any property or facility now or previously owned or leased by MediaOne or any MediaOne Subsidiary that reveal matters that, individually or in the aggregate, have had or. would reasonably be expected to have a MediaOne Material Adverse Effect. (c) For purposes of this Section 4.19, the terms MediaOne and MediaOne Subsidiary shall include any entity that is, in whole or in part, a predecessor of MediaOne or any MediaOne Subsidiary. SECTION 4.20. Intellectual Property. With such exceptions as; individually c in the aggregate, have not had and would not be reasonably expected to have a MediaOne Material Adverse Effect, each of MediaOne and the MediaOne Subsidiaries own or have a valid license to use each trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right (collectively, the "MediaOne Intellectual Property") necessary to carry on its business substantially as currently conducted. Neither MediaOne nor any MediaOne Subsidiary has received any notice of infringement of or conflict with, and to MediaOne's knowledge, there are no infringements of or conflicts with, the rights of any Person with respect to the use of any MediaOne Intellectual Property that, in either such case, individually or in the aggregate, have had or would be reasonably expected to have, a MediaOne Material Adverse Effect. SECTION 4.21. Contracts. Neither MediaOne nor any of the MediaOne Subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S -K of the SEC) or any agreement, contract or commitment that would be such a "material contract" but for the exception for contracts entered into in the ordinary course of business, (ii) any non -competition agreement or any other agreement or obligation which materially limits or will materially limit MediaOne or any of the MediaOne Subsidiaries from engaging in the business of providing cable television, telephony or data transmission services in the United States or the business of providing programming content in the United States, the United Kingdom or Japan, (iii) any agreement, contract or commitment to which TW or anycof its Affiliates is a party that amends the TWE Partnership Agreement or any related agreement or affects the rights or obligations of MediaOne or any MediaOne Subsidiary with • respect to TWE or any TWE Subsidiary or (iv) any material agreement. contract or commitment to which U S WEST or any of its Affiliates is a party that is not in the ordinary course of business of Media0ne and the MediaOne Subsidiaries. With such exceptions as, individually or in the aggregate, have not had, and would not be reasonably expected to have, a MediaOne Material Adverse Effect, (x) each of the contracts, agreements and commitments of the MediaOne and the MediaOne Subsidiaries is valid and in full force and effect and (y) neither MediaOne nor any of the MediaOne Subsidiaries has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time, or both, would constitute a default under the provisions of any such contract, agreement or commitment. To the knowledge of MediaOne, no counterparty to any such contract, agreement or commitment has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time, or both would constitute a default or other breach under the provisions of, such contract, agreement or commitment, except for defaults or breaches which, individually or in the aggregate, have not had, or would not reasonably be expected to have, a MediaOne Material Adverse Effect. Neither MediaOne nor any MediaOne Subsidiary is a party to, or otherwise a guarantor of or liable with respect to, any interest rate, currency or other swap or derivative transaction, other than any such transactions which are not material to the business of the MediaOne Group. MediaOne has provided or made available to AT&T a copy of each agreement described in item (i), (ii), (iii) or (iv) above. SECTION 4.22. TWE. MediaOne, directly or indirectly, owns a 25.51% priority capital and residual equity interest in TWE as described in the TWE Partnership Agreement. As of the date hereof, to the knowledge of MediaOne, there are no facts or circumstances with respect to TWE or the TWE Subsidiaries that, individually or in the aggregate, have had or would be reasonably expected to have a material adverse effect on MediaOne's investment in TWE. SECTION 4.23. Vote Required. The only vote of the holders of any class or series of capital stock of MediaOne necessary to approve this Agreement and the transactions contemplated hereby is the affirmative vote of the holders of a majority of the outstanding shares of MediaOne Common Stock (the "MediaOne Stockholders' Approval"). SECTION 4.24. Antitakeover Statutes, Rights Agreement and Charter Provisions. (a) MediaOne has taken all action necessary to exempt the Merger and this Agreement and the transactions contemplated hereby from the restrictions of Section 203 of Delaware Law, and, accordingly, neither such Section nor any other antitakeover or similar statute or regulation applies or purports to apply to any such transactions. No other "control share acquisition," "fair price," "moratorium" or other antitakeover laws or regulations enacted under U.S. state or federal laws apply to this Agreement or any of the transactions contemplated hereby. (b) The Amended and Restated Rights Agreement dated as of October 31, 1995 between MediaOne and State Street Bank and Trust Company, as Rights Agent, and the rights issued thereunder, have. expired in accordance with their'terms and have no further force or effect. 31 • • (c) MediaOne and the MediaOne Board have taken all necessary action to (i) render the MediaOne 1999 Rights Agreement inapplicable. to the Merger and the other transactions contemplated by this Agreement. (ii) provide that (A) neither AT&T nor any AT&T Subsidiary shall be deemed an Acquiring Person (as defined in the MediaOne 1999 Rights Agreement) as a result of this Agreement or any of the transactions contemplated hereby, (B) no Distribution Date (as defined in the MediaOne 1999 Rights Agreement) shall be deemed to have occurred as a result of this Agreement or the consummation of any of the transactions contemplated hereby and (C) the rights issuable pursuant to the MediaOne 1999 Rights Agreement will not separate from the shares of MediaOne Common Stock, as a result of the approval, execution or delivery of this Agreement or the consummation of the transactions contemplated hereby. (d) .MediaOne and the MediaOne Board have taken all necessary action to approve this Agreement and the transactions contemplated hereby for purposes of Article IX of the certificate of incorporation of MediaOne. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF AT&T Except as set forth in the AT&T Disclosure Schedule or as disclosed in the AT&T SEC Documents filed prior to the date hereof, each of AT&T and Merger Sub represents and warrants to MediaOne that: SECTION 5.1. Corporate Existence and Power. Each of AT&T and Merger Sub is a corporation duly incorporated and subsisting under the laws of its jurisdiction of incorporation and has all corporate powers required to carry on its business as now conducted. Each of AT&T and Merger Sub is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary except for those jurisdictions where failure to be so qualified, individually or in the aggregate, has not had and would not be reasonably expected to have an AT&T Material Adverse Effect. AT&T has heretofore delivered or made available to MediaOne true and complete copies of the certificate of incorporation and bylaws of AT&T, as currently in effect. SECTION 5.2. Corporate Authorization. (a) The execution, delivery and performance by AT&T and Merger Sub and the consummation by AT&T and Merger Sub of the transactions contemplated hereby are within the corporate powers of AT&T and Merger Sub, and have been duly authorized by all necessary corporate action. This Agreement constitutes a valid and binding agreement of each of AT&T and Merger Sub enforceable against each of AT&T and Merger Sub in accordance with its terms, except ki) as the same may be limited by applicable bankruptcy, insolvency, moratorium or similar laws of general application relating to or affecting . creditors' rights, and (ii) for the limitations imposed by general principles of equity. (b) AT&T's Board of Directors, at a meeting duly called and held, has (i) determined that this Agreement and the transactions contemplated hereby are fair to and in the 32 • best interests of AT&T's stockholders and (ii) approved this Agreement and the transactions contemplated hereby. SECTION 5.3. Governmental Authorization. The execution, delivery and performance by AT&T and Merger Sub of this Agreement and the consummation by AT&T and Merger Sub of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Authority, other than: (i) the Franchise Consents and the License Consents; (ii) the Social Contract Consent; (iii) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which AT&T is qualified to do business; (iv) the filing with the Secretary of State of the .State of New York'of certificates of designations creating the AT&T Series C Preferred Stock, the AT&T Series D Preferred Stock and the AT&T Series E Preferred Stock; (v) compliance .with any applicable requirements of the HSR Act; (vi) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable securities laws, whether state or foreign; and (vii) any actions or filings the absence of which, individually or in the aggregate, would not be reasonably expected to have an AT&T Material Adverse Effect or materially impair or delay the ability of AT&T to consummate the transactions contemplated by this Agreement. SECTION 5.4. Non -contravention. The execution, delivery and performance by AT&T and Merger Sub of this Agreement and the consummation by AT&T and Merger Sub of the transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of AT&T or Merger Sub; (ii) assuming compliance with the matters referred to in Section 5.3, contravene, conflict with or result in a violation or breach of any provision of any law, rule, regulation, judgment, injunction, order or decree; (iii) require any consent or other action by any Person under, constitute a default under (or an event that, with or without notice or lapse of time or both, would constitute a default), or cause or permit the termination, cancellation, acceleration, triggering or other change of any right or obligation or the loss of any benefit to which AT&T or any of the AT&T Subsidiary is entitled under (A) any provision of any agreement or other instrument binding upon AT&T or any AT&T Subsidiary or (B) any license, franchise, permit, certificate, approval or other similar authorization held by, or affecting, or relating in any way to, the assets or business of AT&T or any AT&T Subsidiary; (iv) result in the creation or imposition of any Lien on any asset of AT&T or any AT&T Subsidiary; or (v) assuming MediaOne does not have any right(s), present or contingent, to hold voting or nonvoting interest(s), equity interest(s), and/or beneficial ownership(s) in the capital stock of TW, contravene, conflict with, or result in any violation or breach of any provision of the FTC Consent Order, other than such exceptions in the case of clauses (ii), (iii), (iv) and (v) as would not be, individually or in the aggregate, reasonably expected to have an AT&T Material Adverse Effect or materially impair the ability of AT&T to consummate the transactions contemplated by this Agreement. SECTION 5.5. Capitalization. (a) The authorized capital stock of AT&T consists of (i) 6 billion shares of Common Stock, par value $1.00 per share (the "AT&T Common Stock"), (ii) 2.5 billion shares of Class A Liberty Media Group Common Stock, par value $1.00 per share (the "Liberty Media Class A Common Stock "), (iii) 250 million shares of 33 • Class B Liberty Media Group Common Stock. par value $1.00 per share (the "Liberty Media Class B Common Stock'), and (iv) 100 million shares of preferred stock, $1.00 par value per share. As of the close of business on April 16. 1999, there were outstanding (i) 3,181,898,645 shares of AT&T Common Stock, (ii) employee and non-employee director stock options to purchase an aggregate of approximately 155 million shares of AT&T Common Stock (of which options to purchase an aggregate of approximately 50 million shares of AT&T Common Stock were exercisable), and (iii) no shares of AT&T Preferred Stock. All outstanding shares of capital stock of AT&T have been duly authorized and validly issued and are fully paid and nonassessable. (b) Except as set forth in this Section 5.5 and for changes since April 16, 1999 resulting from (x) the exercise of employee and non-employee director stock options outstanding on such date (and the grant or award of employee and non-employee director stock options in the ordinary course of business and the exercise thereof), and (y) the issuance of shares of AT&T Common Stock pursuant to publicly announced transactions, there are as of the date of this Agreement no outstanding (i) shares of capital stock or voting securities of AT&T (in each case, other than shares of Liberty Media Class A Common Stock or Liberty Media Class B Common Stock), (ii) securities of AT&T convertible into or exchangeable for shares of capital stock or voting securities of AT&T (in each case, other than shares of Liberty Media Class A Common Stock or Liberty Media Class B Common Stock) or (iii) options or other rights to acquire from AT&T or other obligations of AT&T to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of AT&T (in each case, other than shares of Liberty Media Class A Common Stock or Liberty Media Class B Common Stock). There are as of the date of this Agreement no outstanding obligations of AT&T or any AT&T Subsidiary to repurchase, redeem or otherwise acquire any of the securities referred to in clause (i), (ii) or (iii) above (collectively, the "AT&T Securities"). (c) The AT&T Securities to be issued as part of the Common Stock Consideration, the Series C Consideration, Series D Consideration and Series E Consideration (or upon exercise of Adjusted Options) have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement (or the Adjusted Options, as the case may be), will have been validly issued and will be fully paid and nonassessable and the issuance thereof is not subject to any preemptive or other similar right. Prior to the Effective Time, AT&T will reserve for issuance the AT&T Common Stock to be issued upon exercise of the Adjusted Options. SECTION 5.6. Subsidiaries. (a) Each AT&T Subsidiary is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has all corporate partnership or other similar powers required to carry on its business as now conducted other than,such exceptions as, individually or in the aggregate, have not had and would not reasonably be expected to have an AT&T Material 'Adverse Effect. Each AT&T Subsidiary is duly qualified to do business as a foreign corporation or other foreign legal entity and is in good standing in each jurisdiction where such qualification is necessary, with such exceptions, individually or in the aggregate, as have not had and would 34 • not be reasonably expected to have an AT&T Material Adverse Effect. The AT&T Disclosure Schedule sets forth a list of all AT&T Significant Subsidiaries. (b) All of the outstanding capital stock of, or other voting securities or ownership interests in, each AT&T Significant Subsidiary is owned by AT&T, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests). There are no outstanding (i) securities of AT&T or any AT&T Subsidiary convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any AT&T Significant Subsidiary or (ii) options or other rights to acquire from AT&T or any AT&T Subsidiary, or other obligations of AT&T or any AT&T Subsidiary to issue, any capital stock or other voting securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any AT&T Significant Subsidiary. There are no outstanding obligations of AT&T or any AT&T Significant Subsidiary to repurchase, redeem or otherwise acquire any of the securities referred to in clauses (i) or (ii) above. SECTION 5.7. SEC Filings. (a) AT&T has delivered or made available to. MediaOne (i) AT&T's annual reports on Form 10-K for its fiscal years ended December 31, 1998, 1997 and 1996, (ii) its proxy or information statements relating to meetings of, or actions taken without a meeting by AT&T's stockholders held since December 31, 1997, and (iii) all of its other reports, statements, schedules and registration statements filed with the SEC since December 31, 1997 (the documents referred to in this Section 5.7(a), collectively, the "AT&T SEC Documents"). _ (b) As of its filing date, each AT&T SEC Document complied as to form in all material respects with the applicable requirements of the 1933 Act and 1934 Act, as the case may be. (c) • As of its filing date, each AT&T SEC Document filed pursuant to the 1934 Act did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. . (d) Each AT&T SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such registration statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. SECTION 5.8. Financial Stateihents. The audited consolidated financial statements and unaudited consolidated interim financial statements of AT&T included in the AT&T SEC Documents fairly present, in all material respects, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of AT&T and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements).• SECTION 5.9. Information Supplied. The information supplied by AT&T for inclusion in the Registration Statement shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The information supplied by AT&T for inclusion in the Proxy Statement to be sent to the stockholders of MediaOne in connection with the MediaOne Stockholders' Meeting shall not, on the date the Proxy Statement is first mailed to the stockholders of MediaOne or at the time of the MediaOne Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 5.10. Absence of Certain Changes. Since the AT&T Balance Sheet Date, the business of AT&T and the AT&T Subsidiaries has been conducted in the ordinary course consistent with past practices. Since the AT&T Balance Sheet Date, there has not been: • (a) any event, occurrence or development of a state of circumstances or facts which, individually or in the aggregate, has had or would be reasonably expected to have an AT&T Material Adverse Effect; or (b) any action, event, occurrence or transaction that would have been prohibited by Section 7.1 if this Agreement had been in effect as of the time thereof. SECTION 5.11. No Undisclosed Material Liabilities. There are no liabilities or obligations of AT&T or any AT&T Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances that could be reasonably expected to result in such a liability or obligation, other than: (a) liabilities or obligations disclosed and provided for in the AT&T Balance Sheet or in the notes thereto or in the AT&T SEC Documents filed prior to the date hereof; (b) liabilities or obligations incurred in the ordinary course of business consistent with past practice since the AT&T Balance Sheet Date; or (c) liabilities or obligations that, individually or in the aggregate have not had and would not be reasonably expected to have an AT&T Material Adverse Effect. SECTION 5.12. Compliance with Laws and Court Orders. AT&T and the AT&T Subsidiaries hold all licenses, franchises, certificates, consents, permits, qualifications and authorizations from all Governmental Authorities necessary for the lawful conduct of their business, except where the failure to hold any of the foregoing, individually or in the aggregate, 36 • • has not had and would not be reasonably expected to have an AT&T Material Adverse Effect. AT&T and each of the AT&T Subsidiaries are, and have been in compliance with, and -to the knowledge of AT&T, are not under investigation with respect to and have not been threatened to be charged with or given notice of any violation of, any such license, franchise, certificate, consent, permit, qualification or authorization, applicable law, statute, ordinance, rule, regulation, judgment. injunction, order or decree, except for failures to comply or violations that, individually or in the aggregate, have not had and would not be reasonably expected to have an AT&T Material Adverse Effect. SECTION•5.13. Litigation. There is no action, suit, investigation or proceeding (or any basis therefor) pending against, or, (0 the knowledge of AT&T, threatened against or affecting, AT&T, any AT&T Subsidiary, or any of their respective properties before any court or arbitrator or before or by any other Governmental Authority, that, individually or in the aggregate, would be reasonably expected to have an AT&T Material Adverse Effect. SECTION 5.14. Finders' Fees. Except for Goldman Sachs & Co., Credit Suisse First Boston, and Merrill Lynch & Co., whose fees will be paid by AT&T, as of the date hereof there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of AT&T or any AT&T Subsidiary who might be entitled to any fee or commission from AT&T or any of the AT&T Subsidiaries upon consummation of the transactions contemplated by this Agreement. SECTION 5.15. Taxes. Except as set forth in the AT&T Balance Sheet (including the notes thereto) and except as would not be, individually or in the aggregate, reasonably expected to have an AT&T Material Adverse Effect: (i) all AT&T Tax Returns required to be filed with any taxing authority by, or with respect to, AT&T and the AT&T Subsidiaries have been filed in accordance with all applicable laws; (ii) AT&T and the AT&T Subsidiaries have timely paid all Taxes shown as due and payable on the AT&T Tax Returns that have been so filed, and, as of the time of filing, the AT&T Tax Returns correctly reflected the facts regardingthe income, business, assets, operations, activities and the status of AT&T and the AT&T Subsidiaries (other than Taxes which are being contested in good faith and for which adequate reserves are reflected on the AT&T Balance Sheet); (iii) AT&T and the AT&T Subsidiaries have made provision for all Taxes payable by AT&T and the AT&T Subsidiaries for which no AT&T Tax Return has yet been filed; (iv) the charges, accruals and reserves for Taxes with respect to AT&T and the AT&T Subsidiaries reflected on the AT&T Balance Sheet are adequate under GAAP to cover the Tax liabilities accruing through the date thereof; (v) there is no action, suit, proceeding, audit or claim now proposed or pending against or with respect to AT&T or any AT&T Subsidiary in respect of any Tax where there is a reasonable possibility of an adverse determination; (vi) the federal income Tax Returns of AT&T and the AT&T Subsidiaries have been examined and settled with the IRS (or the applicable statutes of limitation for the assessment of federal income Taxes for such periods have expired) for all years through 1989; and (vii) there are no material Liens or encumbrances for Taxes on any of the assets of AT&T or any AT&T Subsidiary except liens for current Taxes not yet due. • SECTION 5.16. Tax Opinions. There are no facts or circumstances relating to AT&T that would prevent Wachtell, Lipton, Rosen & Katz from delivering the opinion referred to in Section 9.2(c) as of the date hereof. SECTION 5.17. Employee Benefit Plans and Labor Matters. Except as have not and would not be reasonably expected to have, individually or in the aggregate, an AT&T Material Adverse Effect: (a) If MediaOne requests, copies of each AT&T Employee Plan and each AT&T Benefit Arrangements (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof will be made available to MediaOne within thirty days after the date hereof, together with the three most recent annual reports (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any AT&T Employee Plan. (b) No "accumulated funding deficiency," as defined in Section 412 of the Code, has been incurred with respect to any AT&T Employee Plan subject to such Section 412, whether or not waived. No "reportable event" within the meaning of Section 4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA has occurred in connection with any AT&T Employee Plan. Neither AT&T nor any ERISA Affiliate of AT&T has (i) engaged in, or is a successor or parent corporation to an entity that has engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to incur prior to the • Effective Time (A) any liability under Title IV of ERISA arising in connection with the termination of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA or (B) any liability under Section 4971 of the Code that in either case could become a liability of AT&T, any AT&T Subsidiary, MediaOne or any of their ERISA Affiliates after the Effective Time. If a "complete withdrawal" by AT&T and all of its ERISA Affiliates were to occur as of the Effective Time with respect to all Multiemployer Plans, none of AT&T, any AT&T Subsidiary or any of their ERISA Affiliates would incur any withdrawal liability under Title IV of ERISA. (c) As of December 31, 1998, the fair market value of the assets of each AT&T Pension Plan (excluding for these purposes any accrued but unpaid contributions) exceeded the present value of the pension benefit obligations under such AT&T Pension Plan calculated pursuant to SFAS No. 84, "Employers' Accounting for Pensions." As of December 31, 1998, the aggregate unfunded liability of AT&T and any AT&T Subsidiary in respect of all AT&T Deferred Compensation Plans, computed using reasonable actuarial assumptions and determined as if all benefits under such plans were vested and payable as of such date, did not exceed $335 million. (d) Each AT&T Employee Plan that is intended to be qualified under Section 401(a) of the Code is the subject of a favorable qualification determination letter issued by the IRS and to AT&T's knowledge each such AT&T Employee Plan is so qualified. (e) There is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of AT&T or any AT&T Subsidiary that, individually or 38 • • collectively, could give rise to the payment of any amount contingent on the transactions contemplated hereby that would not be deductible pursuant to the terms of Sections 162(m) or 280G of the Code. (0 If MediaOne requests, AT&T will make available to MediaOne, within thirty days after the date hereof, a list and copies of each material AT&T International Plan. According to the actuarial assumptions and valuations most recently used for the purpose of funding each AT&T International Plan (or, if the same has no such assumptions and valuations or is unfunded, according to actuarial assumptions and valuations in use by the PBGC on the date hereof), as of December 31, 1998 the total amount or value of the funds available under such AT&T International Plan to pay benefits accrued thereunder or segregated in respect of such accrued benefits, together with any reserve or accrual with respect thereto, exceeded the present value of all benefits (actual or contingent) accrued as of such date of all participants and past participants therein in respect of which AT&T or any AT&T Subsidiary has or would have after the Effective Time any obligation. From and after the Effective Time, MediaOne and its Affiliates will get the full benefit of any such funds, accruals or reserves. (g) As of December 31, 1998, the aggregate amount of the accumulated post- retirement benefit obligation under all AT&T Employee Plans, AT&T Benefit Arrangements and AT&T International Plans, as determined in accordance with the Statement of Financial Accounting Standards No. 106, did not exceed $5.2 billion. (h) Each AT&T Employee Plan, AT&T Benefit Arrangement and AT&T International Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations (including any special provisions relating to registration or qualification plans where such Plan was intended so to be so registered or qualified) and has been maintained in good standing with applicable regulatory authorities. (i) No employee or former employee of AT&T or any AT&T Subsidiary will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby (either alone or together with any other event). (j) Neither AT&T nor any of the AT&T Subsidiaries is involved in or threatened with any labor dispute, work stoppage, labor strike, slowdown or grievance. SECTION 5.18. Environmental Matters. (a) Except as have not had and would not be reasonably expected to have, individually or in the aggregate, an AT&T Material Adverse Effect: (i) no notice, notification, demand, request for information, citation, summons or order has been received, no complaint has been filed, no penalty has been assessed, and no investigation, action, claim, suit, proceeding or review (or any basis therefor) is pending or, to the knowledge of AT&T, is threatened by any Governmental Authority or other Person relating to or arising out of any Environmental Law; 39 • • (ii) AT&T is and has been in compliance with all Environmental Laws and all Environmental Permits; and - (iii) there are no liabilities of or relating to AT&T or any AT&T Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise arising under or relating to any Environmental Law and there are no facts. conditions, situations or set of circumstances that could reasonably be expected to result in or be the basis for any such liability. (b) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted of which AT&T has knowledge in relation to the current or prior business of AT&T or any AT&T Subsidiary or any property or facility now or previously owned or leased by AT&T or any AT&T Subsidiary that reveal matters that, individually or in the aggregate, have had or would reasonably be expected to have an AT&T Material Adverse Effect. (c) For purposes of this Section 5.18, the terms AT&T and AT&T Subsidiary shall include any entity that is, in whole or in part, a predecessor of AT&T or any AT&T Subsidiary. SECTION 5A9. Intellectual. Property. With such exceptions as, individually or in the aggregate, have not had and would not be reasonably expected to have an AT&T Material Adverse Effect, to AT&T's knowledge, each of AT&T and the AT&T Subsidiaries own or have a valid license or other right to use each trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration or applications for any of the foregoing) or any other similar type of proprietary intellectual property right (collectively, the "AT&T Intellectual Property") necessary to carry on its business substantially as conducted as of the Effective Time. To AT&T's knowledge, neither AT&T nor any AT&T Subsidiary has received any notice of infringement of or conflict with, and to AT&T's knowledge, there are no infringements of or conflicts with, the rights of any Person with respect to the use of any AT&T Intellectual Property in the conduct of AT&T's business substantially as conducted as of the Effective Time that, in either such case, individually or in the aggregate, have had or would be reasonably expected to have, an AT&T Material Adverse Effect. SECTION 5.20. Contracts. (a) Neither AT&T nor any of the AT&T Subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S -K of the SEC) or any agreement, contract or commitment that would be such a "material contract" but for the exception for contracts entered into in the ordinary course of business, or (ii) any non -competition agreement or any other agreement or obligation which limits or will limit AT&T or the AT&T Subsidiaries from engaging in the business of providing cable television, telephony or data transmission services in the United States or the business of providing programming content, other than any such non -competition agreements or other agreements pr obligations which, individually or in the aggregate, do not have, and would not reasonably be expected to have, an AT&T Material Adverse Effect. With such exceptions as, individually or in the aggregate, have not had, and would not reasonably be expected to have, an 40 • • AT&T Material Adverse Effect, (i) each of the contracts. agreements and commitments of AT&T and the AT&T Subsidiaries is valid and in full force and effect and (ii) neither AT&T nor anv of the AT&T Subsidiaries has violated any provision of, or committed or failed to perform any act which, with or without notice, Lapse of time, or both, would constitute a default under the provisions of, any such contract, agreement or commitment. To the knowledge of AT&T, no counterparty to any such contract, agreement or commitment has violated any provision of. or committed or failed to perform any act which, with or without notice, lapse of time, or both would constitute a default or other breach under the provisions of such contract, agreement or commitment, except for defaults or breaches which, individually or in the aggregate, have not had, or would not reasonably be expected to have, an AT&T Material Adverse Effect. Neither AT&T nor any AT&T Subsidiary is a party to, or otherwise a guarantor of or liable with respect to, any interest rate, currency or other swap or derivative transaction, other than any such transactions which are not material to the business of AT&T and the AT&T Subsidiaries, taken as a whole. AT&T has provided or made available to MediaOne a copy of each agreement of the type described in item (i) or (ii) above. (b) As of the date of this Agreement, neither AT&T nor any AT&T Subsidiary is a party to any contract, agreement, understanding or commitment, whether oral or written, with Amos B. Hostetter, Jr., or with TW or its Subsidiaries, with respect to the Merger or the transactions contemplated by this Agreement, except, in the case of Mr. Hostetter, as disclosed in his Schedule 13D relating to his ownership of MediaOne Common Stock. SECTION 5.21. MediaOne Securities. Neither AT&T nor any of the AT&T Subsidiaries owns any securities of MediaOne. SECTION 5.22. No Vote Required. Unless the AT&T Share Issuance Number is increased pursuant to Section 3.1(i), and assuming the accuracy of the representations set forth in Section 4.5 and MediaOne's compliance with the covenants set forth in Section 6.1, no vote of the holders of any class or series of capital stock of AT&T is necessary to approve this Agreement and the transactions contemplated hereby. SECTION.5.23. Merger Sub. Merger Sub was formed by AT&T solely for the purpose of engaging in the transactions contemplated hereby. As of the date hereof and as of the Effective Time, (a) Merger Sub is and will be a wholly owned subsidiary of AT&T and (b) except for obligations and liabilities incurred in connection with its incorporation or organization and the transactions contemplated hereby, Merger Sub has not and will not have incurred, directly or indirectly, any obligations or liabilities or engaged in any business or activities or entered into any agreements or arrangements with any Person. At no time prior to the Effective Time will Merger Sub own any material assets other than an amount of cash necessary to incorporate Merger Sub and to pay the expenses of the Merger attributable to Merger Sub if the Merger is consummated. 41 ARTICLE 6 COVENANTS OF MEDIAONE MediaOne agrees that: SECTION 6.1. MediaOne Interim Operations. Except as set forth in the MediaOne Disclosure Schedule or as otherwise expressly contemplated hereby, without the prior written consent of AT&T,.from the date hereof until the Effective Time, MediaOne shall, and shall cause each of the MediaOne Subsidiaries to, conduct its business in all material respects in the ordinary course consistent with past practice and use all reasonable efforts to: (i) preserve intact its present business organization; (ii) keep available the services of its key officers and key employees; (iii) maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including; without limitation, all material licenses and permits that are required for MediaOne or any MediaOne Subsidiary to carry on its business and (iv) preserve existing relationships with its material partners, lenders, suppliers and others having material business relationships with it so that the business of MediaOne and the MediaOne Subsidiaries shall not be impaired in any material respect at the Effective Time. Without limiting the generality of the foregoing, except as set forth in the. MediaOne Disclosure Schedule oras otherwise expressly contemplated by this Agreement, from the date hereof until the Effective Time, without the prior written consent of AT&T, MediaOne shall not, nor shall it permit any MediaOne Subsidiary to: (a) amend its articles of incorporation or by-laws or other applicable governing instrument; (b) amend any material term of any of its outstanding securities; (c) split, combine, subdivide or reclassify any shares of its capital stock or other equity interests or declare, sefaside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities or any securities of MediaOne or any MediaOne Subsidiary, except for (i) regular dividends on outstanding preferred stock or trust preferred securities pursuant to the terms of such securities and (ii) dividends paid by any MediaOne Subsidiary that is, directly or indirectly, wholly owned by MediaOne; (d) adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization (other than a merger or consolidation between wholly owned MediaOne Subsidiaries); (e) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of its capital stock of any class or other equity interests or any securities convertible into or exercisable for; or any rights, warrants or options to acquire, any such capital stock or other equity interests, other than (i) the issuance of shares of MediaOne Common Stock upon the exercise of stock options in accordance with their present terms, (ii) issuances pursuant to the 42 • conversion of convertible securities outstanding on the date hereof and (iii) the granting. of options to acquire shares of MediaOne Common Stock in accordance with Section 6.1(n) of the Media0ne Disclosure Schedule; (0 incur any capital expenditures except as set forth in the MediaOne Disclosure Schedule; (g) except for capital expenditures, which shall be governed by clause (f) acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any assets, other than (i) pursuant to agreements in effect as of the date hereof, (ii) assets used in the ordinary course of business of MediaOne and the MediaOne Subsidiaries in a manner that is consistent with past practice or (iii) assets having a fair market value not exceeding $25,000,000 in the aggregate; (h) other than pursuant to agreements in effect as of the date hereof, sell, lease, license, encumber or otherwise transfer any domestic assets having a fair market value exceeding $25,000,000 in any one transaction or series of related transactions or $100,000,000 in the aggregate; (i) incur, assume or guarantee any indebtedness for borrowed money other than in the ordinary course of business and in amounts and on terms consistent with past practices; (j) make any loan, advance or capital contributions to or investment in any Person other than loans, advances or capital contributions to or investments in its wholly owned Subsidiaries; (k) except for capital expenditures, which shall be governed by clause (0, engage in or enter into any transaction or commitment, enter into any contract or agreement, or relinquish or amend in any material respect any contract or other right, in any case, (i) material to the MediaOne Group, taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practices and those contemplated by this Agreement or (ii) other than in the ordinary course of business consistent with past practices and other than programming agreements, for the provision of goods or services that provides for payments in excess of $25,000,000 per agreement (or $100,000,000 for all agreements for similar goods or services); (1) after May 5, 1999, enter into any new programming agreement unless it has used all commercially reasonable efforts to include within such agreement a provision permitting it to terminate such agreement without penalty at the Effective Time if the counterparty thereto has a programming agreemeit with AT&T or any AT&T Subsidiary; (m) enter into any commitment, agreement or arrangement for the acquisition of high speed modems or digital set-top boxes in quantities exceeding MediaOne's expected needs for such modems and boxes through June 30, 2001; 43 • • (n) amend in any material respects the TWE Partnership Agreement or enter into or amend any material agreement with TW or its Affiliates with respect to. TWE or any TWE Subsidiary, or (except as prohibited by the TWE Partnership Agreement, as required by the fiduciary duties of MediaOne to the TWE Partnership or as an exercise by MediaOne of its rights with respect to the TWE Management Committee) waive or exercise any material rights with respect to TWE or any TWE Subsidiary or consent to any material transaction by or with respect to TWE or any TWE Subsidiary; (o) enter into any agreement or arrangement that materially limits or otherwise materially restricts MediaOne, any MediaOne Subsidiary or any of their respective Affiliates or. any successor thereto or that could, after the Effective Time, materially limit or restrict AT&T, any AT&T Subsidiary, the Surviving Corporation or any of their Affiliates, from engaging in the business of providing cable television, telephony or data transmission services anywhere in the world or the business of providing programming content in the United States, the United Kingdom or Japan; (p) except as required pursuant to existing written, binding agreements or as otherwise mandated by law as of the date hereof (i) enter into any commitment to provide any severance or termination pay to (or amend any existing arrangement with) any director, officer or employee of MediaOne or any MediaOne Subsidiary, (ii) increase the benefits payable under any existing severance or termination pay policy or employment agreement (other than as may be increased by function of the existing terms of any such policy or agreement), (iii) enter into any employment, deferred compensation or other similar agreement (or amend any such existing agreement) with any director, officer or employee of MediaOne or any MediaOne Subsidiary, (iv) establish, adopt or amend (except as required by applicable law) any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director, officer or employee of MediaOne or any MediaOne Subsidiary, except that MediaOne and the MediaOne Subsidiaries may amend any such existing agreement or plan or adopt a successor plan or arrangement to the extent mandated by applicable law or to the extent that such amendment would not result in a more than de minimis increase in the costs or liabilities under such . agreement or plan, (v) other than in the ordinary course of business consistent with past practice or as required by any agreement in effect as of the date hereof, increase the compensation, bonus or other benefits -payable to any director, officer or employee of MediaOne or any MediaOne Subsidiary or (vi) amend the terms of any outstanding option to purchase shares in MediaOne Common Stock; (q) change (i) its methods of accounting or accounting practices in any material respect, except as required by concurrent changes in U.S. GAAP or by law or (ii) its fiscal year; (r) enter into or amend in any material respect (i) any material joint venture, partnership or other similar arrangement, (ii) any agreement for the provision by one or more third parties of telephony, data or other services through the facilities of one or more of the MediaOne Systems, which is exclusive or which cannot be terminated as of the Effective Time 44 without any penalty, or (iii) any agreement providing for the right to use the facilities of one or more of the MediaOne Systems, which is exclusive or which cannot be terminated within two years of the Effective Time without any penalty; (s) settle, or propose to settle, any litigation, investigation, arbitration, proceeding or other claim that is material to the MediaOne Group taken as a whole; (t) other than in the ordinary course of business consistent with past practice, make any material tax election or enter into any settlement or compromise of any material tax liability; (u) take any action that would make any representation or warranty of MediaOne hereunder inaccurate in any material respect at the Effective Time; or (v) agree or commit to do any of the foregoing; provided that the limitations set forth in clauses 6.1(a) through 6.1(v) shall not apply to any transaction between MediaOne and any MediaOne Subsidiary that is wholly owned by MediaOne or between any such wholly owned MediaOne Subsidiaries. SECTION 6.2. _ . MediaOne Stockholders' Meeting; Proxy Material. (a) MediaOne shall cause the MediaOne Stockholders' Meeting to be duly called and held as soon as reasonably practicable for the purpose of voting on the approval and adoption of this Agreement and the Merger. In connection with such meeting, MediaOne will (i) subject to Section 6.2(b), use its best efforts to obtain the necessary approvals by its stockholders of this Agreement and the transactions contemplated hereby and (ii) otherwise comply with all legal requirements applicable to such meeting. (b) Except as provided below, the Board of Directors of MediaOne shall recommend approval and adoption of this Agreement and the Merger by MediaOne's stockholders. The Board of Directors of MediaOne shall be permitted to withdraw, or modify in a manner adverse to AT&T, its recommendation to its stockholders, but only if (i) the Board of Directors determines in good faith by a majority vote, on the basis of the advice of MediaOne's outside counsel, that it must take such action to comply with its fiduciary duties under applicable law; and (ii) MediaOne shall have delivered to AT&T a prior written notice advising AT&T that it intends to take such action and describing its reasons for taking such action (such notice to be delivered not less than two days prior to the time such action is taken). Unless this Agreement is previously terminated in accordance with Article 10, MediaOne shall submit this Agreement to its stockholders at the MediaOne Stockholders' Meeting even if the MediaOne Board of Directors determines at any time after the date hereof that is no longer advisable or recommends that the MediaOne stockholders reject it. SECTION 6.3. No Solicitation. (a) From the date hereof until the termination hereof, MediaOne will not, and will cause the MediaOne Subsidiaries and the officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents or advisors of MediaOne and the MediaOne Subsidiaries not to, directly or indirectly: (i) take any action to solicit, initiate, facilitate or encourage the submission of any Acquisition Proposal; (ii) other than 45 in the ordinary course of business and not related to an Acquisition Proposal, engage in any discussions or negotiations with. or disclose any non-public information relating to MediaOne or any MediaOne Subsidiary or afford access to the properties, books or records of MediaOne or any MediaOne Subsidiary to, any Person who is known by MediaOne to be considering making, or has made, an Acquisition Proposal; (iii) (A) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of MediaOne (a - "Standstill Agreement"), (B) to the fullest extent permitted by Delaware Law, amend or grant any waiver or release or approve any transaction or redeem rights under the MediaOne 1999 Rights Agreement, (C) approve any transaction under Section 203 of the Delaware Law or Article IX of the MediaOne certificate of incorporation or (D)'approve of any Person's becoming • an "interested stockholder" under Section 203 of Delaware Law or (iv) enter into any agreement with respect to an Acquisition Proposal. Notwithstanding the foregoing, MediaOne shall, if requested by AT&T, (1) release TW and its Subsidiaries from their standstill obligations under the TWE Agreements to the extent necessary to permit AT&T and TW to discuss a potential restructuring of the TWE Agreements to be effective following the Effective Time or other matters in connection with the Merger and the transactions contemplated hereby and (2) release Amos B. Hostetter, Jr. from his standstill obligations to the extent necessary to permit AT&T and Mr. Hostetter to work together in the implementation and completion of the Merger and the transactions contemplated thereby. Nothing contained in this Agreement shall prevent the Board of Directors of MediaOne from complying with Rule 14e-2 and Rule 14d-9 under the 1934 Act with regard to an Acquisition Proposal; provided that the Board of Directors of MediaOne shall not recommend that the stockholders of MediaOne tender their shares in connection with a tender offer except to the extent the Board of Directors of MediaOne by a majority vote determines in its good faith judgment that such a recommendation is required to comply with the fiduciary duties of the Board of Directors of MediaOne to shareholders under applicable law, after receiving the advice of outside legal counsel. (b) MediaOne will notify AT&T promptly (but in no event later than 24 hours) after receipt by MediaOne (or any of its advisors) of any Acquisition Proposal, or of any request (other than in the ordinary course of business and not related to an Acquisition Proposal) for non-public information relating to MediaOne or any of the MediaOne Subsidiaries or for access to the properties, books or records of MediaOne or any MediaOne Subsidiary by any Person who is known to be considering making, or has made, an Acquisition Proposal. MediaOne shall provide such notice orally and in writing and shall identify the Person making, and the terms and conditions of, any such Acquisition Proposal, indication or request. MediaOne shall keep AT&T fully informed, on a prompt basis (but in any event no later than 24 hours), of the status and details of any such Acquisition Proposal, indication or request. MediaOne shall, and shall cause the MediaOne Subsidiaries and the directors, employees and other agents of MediaOne and the MediaOne Subsidiaries to, cease immediately and cause to be terminated all activities, discussions or negotiations, if any, with any Persons conducted prior to the date hereof with respect to any Acquisition Proposal. Sr-CTION 6.4. Redemption of Preferred Stock. As promptly as it is permitted • to do so under the terms thereof, MediaOne will call for redemption and redeem the MediaOne Series C Preferred Stock and the MediaOne Series D Preferred Stock in accordance with the terms thereof. SECTION 6.5. Channel Launches. MediaOne agrees to consult with AT&T regarding its plans and overall strategy for channel launches. ARTICLE 7 'COVENANTS OF AT&T AT&T agrees that: SECTION 7.1. AT&T Interim Operations. Except as set forth in the AT&T Disclosure Schedule or as otherwise expressly contemplated hereby, without the prior consent of MediaOne, from the date hereof until the Effective Time, AT&T shall, and shall cause each of the AT&T Subsidiaries to, conduct their business in all material respects in the ordinary course consistent with past practice and use all reasonable efforts to (i) preserve intact its present business organization, (ii) keep available the services of its key officers and key employees, (iii) maintain in effect all material foreign, federal, state and locallicenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for AT&T or any AT&T Subsidiary to carry on its business and (iv) preserve existing relationships with its material partners, lenders, suppliers and others having material business relationships with it so that the business of AT&T and the AT&T Subsidiaries shall not be impaired in any material respect at the Effective Time. Without limiting the generality of the foregoing, except as set forth in the AT&T Disclosure Schedule or as otherwise expressly contemplated by this Agreement, from the date hereof until the Effective Time, without the prior written consent of MediaOne, AT&T shall not, nor shall it permit any AT&T Subsidiary to: (a) amend AT&T's articles of incorporation or by-laws; (b) amend any material terms of the shares of AT&T Common Stock; (c) split, combine, subdivide or reclassify any shares of AT&T Common Stock or declare; set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of AT&T Common Stock, except for (i) regular quarterly cash dividends, (ii) regular dividends on any future series of preferred stock pursuant to the terms of such securities, or (iii) dividends paid by any AT&T Subsidiary to AT&T or any AT&T Subsidiary that is, directly or indirectly, wholly owned by AT&T; (d) .take any action that would or would reasonably be expected to prevent, impair or materially delay the ability of MediaOne or AT&T to consummate the transactions contemplated by this Agreement; (4 change (i) its methods of accounting or accounting practices in any material respect except as required by concurrent changes in U.S. GAAP or by law or (ii) its fiscal year; 47 • • • (f) enter into or acquire any new line of business that (i) is material to the AT&T Group taken as a whole and (ii) is not strategically related to the current business or operations of AT&T and the AT&T Subsidiaries; (g) incur indebtedness outside of the ordinary course or for acquisitions unless. in the reasonable judgment of AT&T, such incurrence is not reasonably likely to result in the rating accorded AT&T's senior debt by Moody's Investor's Service and Standard & Poor's Rating Services to be non -investment grade; •(h) engage in any (i) merger, consolidation, share exchange, business combination, reorganization, recapitalization or other similar transaction unless the shareholders of AT&T prior to such transaction own, directly or indirectly, a majority of the equity interests in the surviving or resulting corporation, (ii) transaction as a result of which any third party acquires, directly or indirectly, an equity interest representing greater than 25% of the voting securities of AT&T or any AT&T Significant Subsidiary or (iii) disposition, directly or indirectly, of assets, securities or ownership interests representing 10% or more of the basic cable subscribers of the AT&T Group, other than the transactions contemplated by. this Agreement or permitted pursuant to Section 7.1 hereof or asset swaps (unless such asset swaps, together with other dispositions, result in a 10% decrease in the basic cable subscribers of the AT&T Group);.. (i) take any action that would make any representation or warranty of AT&T hereunder inaccurate in any material respect at the Effective Time; or (j) agree or commit to do any of the foregoing. SECTION 7.2. Director and Officer Liability. (a) AT&T shall, or shall cause the Surviving Corporation to, indemnify and hold harmless and advance expenses to the present and former officers, directors and employees of MediaOne and the MediaOne Subsidiaries, and each person who prior to the Effective Time becomes an officer, director or employee of MediaOne (each an "Indemnified Person"), in respect of acts or omissions by them in their capacities as such occurring at or prior to the Effective Time (including, without limitation, for acts or omissions occurring in connection with this Agreement and the consummation of the transactions contemplated hereby) to the same extent provided under MediaOne's certificate of incorporation and bylaws in effect on the date hereof ("Indemnified Losses"); provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. Without Iimiting the generality of the foregoing, the Indemnified Losses shall include reasonable costs of prosecuting a claim under this Section 7.2(a). AT&T shall, or shall cause the Surviving Corporation to, periodically advance or reimburse each Indemnified Person for all reasonable fees and expenses of counsel constituting Indemnified Losses as such fees and expenses are incurred; provided that such Indemnified Person shall agree to promptly repay to AT&T or the Surviving Corporation the amount of any such reimbursement if it shall be judicially determined by judgment or order not subject to further appeal or discretionary review that such Indemnified Person is not entitled to be indemnified by AT&T or the Surviving Corporation in connection with such matter. In the event that AT&T sells, transfers or leases all or substantially all of its assets or is not a surviving corporation in any merger, consolidation or 48 • • • other business combination in which it may enter with any Person. AT&T shall. as a condition..of any such transaction, cause such purchaser or such surviving corporation, as the case may be. to assume AT&T's and the Surviving Corporation's obligations under this Section 7.2 upon the consummation of any such transaction. (b) For six years after the Effective Time, AT&T shall, or shall cause the Surviving Corporation to, provide officers' and directors' liability insurance in respect of acts or omissions occurring prior to the Effective Time (including, without limitation, for acts or omissions occurring in connection with this Agreement and the consummation of the transactions contemplated hereby) covering each such Indemnified Person currently covered by MediaOne's officers' and directors' liability insurance policy on terms with respect to coverage and amount (including with respect to the payment of attorney's fees) no less favorable than those of such policy in effect on the date hereof (which policy has been provided by MediaOne to AT&T); provided that if the aggregate annual premiums for such insurance during such period shall exceed 300% of the per annum rate of premium paid by MediaOne as of the date hereof for such insurance, then AT&T shall, or shall cause the Surviving Corporation to, provide a policy with the best coverage as shall then be available at 300% of such rate. (c) The rights of each Indemnified Person and its heirs and legal representatives under this Section 7.2 shall be in addition to any rights such Person may have under the certificate of incorporation or bylaws of MediaOne or any MediaOne Subsidiary, or under Delaware Law or any other applicable laws. These rights shall survive consummation of the Merger and are intended to benefit, and shall be enforceable by, each Indemnified Person. SECTION 7.3. Listing of Stock. AT&T shall use its best efforts to cause (i) the shares of AT&T Common Stock and AT&T Series D Preferred Stock to be issued in connection with the Merger and reserved for issuance in connection with the Adjusted Options to be approved for listing on the NYSE, subject to official notice of issuance, and (ii) the securities of MediaOne and the MediaOne Subsidiaries that are listed on the NYSE to continue to be listed on the NYSE following the Merger: SECTION 7.4. AT&T Board of Directors. Immediately prior to the Effective Time, the Board of Directors of AT&T will take all necessary action to expand the size of its Board of Directors by at least one member and to appoint to the AT&T Board, as of the Effective Time, one current member of the MediaOne Board selected by AT&T who agrees to serve in that capacity (the "New Director"). From the Effective Time until and including the second annual meeting of the stockholders of AT&T taking place after the Effective Time, the Board of Directors of AT&T will nominate the New Director for reelection to the AT&T Board of Directors at each subsequent annual or special meeting of the stockholders of AT&T at which the New Director's term expires. The provisions of this Section 7.4 shall survive the consummation of the Merger and are intended to benefit, and shall be enforceable by, the New Director. SECTION 7.5. Employee Matters. (a) AT&T shall and shall cause the AT&T Subsidiaries to: 49 • • (i) honor the terms of all MediaOne Employee Plans. MediaOne Benefit Arrangements and MediaOne International Plans. and cause the Surviving Corporation and its Subsidiaries to pay the benefits required under the terms of such plans and arrangements, in each case subject to Section 7.5(c); (ii) until December 31. 2001 (the "Benefits Maintenance Period"). with respect to employees of MediaOne or any of MediaOne Subsidiaries at the Effective Time ("Transferred Employees. ). provide a level of employee benefits and aggregate compensation which is substantially comparable in the aggregate to the level of employee benefits and aggregate compensation provided by MediaOne and MediaOne Subsidiaries as of the Effective Time (other than the benefits provided under any severance or termination benefit plans and arrangements of MediaOne or any MediaOne Subsidiary): (iii) until the second anniversary of the Effective Time, continue. without any adverse change. each MediaOne and MediaOne Subsidiary Severance Plan identified as such in the MediaOne Disclosure Schedule (as amended in accordance with Section 6.1(p) of the MediaOne Disclosure Schedule); and (iv) until the fifth anniversary of the Effective Time (and for the life of certain individuals as identified in the MediaOne Disclosure Schedule), continue without adverse change the existing retiree medical, dental and life insurance benefit plan coverage for Transferred Employees and the retired employees of MediaOne and the employees and retired employees of Time Warner Telecom who participate in the MediaOne Pension Plan and are eligible to participate in the MediaOne retiree welfare benefit plans, each of whom are currently, or during such period will become; eligible to receive such benefits. (b) If Transferred Employees are included in any benefit plan or arrangement of AT&T or the AT&T Subsidiaries, including without limitation, any plan or arrangement providing vacation benefits. the Transferred Employees shall receive credit for service prior to the Effective Time with MediaOne and the MediaOne Subsidiaries and their predecessors to the same extent such service was counted under similar MediaOne Employee Plans, MediaOne Benefit Arrangements and MediaOne International Plans for purposes of determining eligibility to participate and vesting and benefit accrual (except that with respect to benefit accrual. such service shall not be counted to the extent that it would result in a duplication of benefits). If Transferred Employees or their dependents are included in any medical, dental or health plan other than the plan or plans they participated in at the Effective Time (a "Successor Plan"), any such Successor Plan shall not include pre-existing condition exclusions, except to the extent such exclusions were applicable under any similar MediaOne Employee Plan at the Effective Time. (c) Except as otherwise specifically set forth above, nothing contained herein shall be construed as requiring AT&T or any AT&T Subsidiary to continue any specific Employee Plan, Benefit Arrangement or International Plan, or to continue the employment of any specific person. provided, however. that any changes that AT&T or any AT&T Subsidiary may make to any such Employee Plan, Benefit Arrangement or International Plan are permitted by the terms of the applicable Employee Plan, Benefit Arrangement or International Plan and under any applicable law. 50 • • (d) The provisions of Section 7.5(a). as they relate solely to the individual Chance of Control Agreements set forth in Section 4.18(1) of the MediaOne Disclosure Schedule and the severance agreements for the specified individuals set forth in Section 6.01(p)(3)(a) of the MediaOne Disclosure Schedule. are intended to be for the benefit of. and shall be enforceable by, each Transferred Employee who has entered into such a Change of Control Agreement or severance agreement (but only with respect to those provisions applicable to such Transferred Employee). their heirs and personal representatives. To the extent that benefits under such Change of Control Agreements or severance agreements are not paid by the Surviving Corporation and its Subsidiaries, AT&T shall pay or provide for the payment of such benefits. SECTION 7.6. Designation of Preferred Stock. Prior to the Effective Time. AT&T shall duly file with the Secretary of State of the State of New York certificates of designation creating the AT&T Series C Preferred Stock, the AT&T Series D Preferred Stock and the AT&T Series E Preferred Stock; provided that, if no shares of MediaOne Series C Preferred Stock, MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock remain outstanding, AT&T shall not be required to file a certificate of designation for the corresponding series of its preferred stock. ARTICLE 8 COVENANTS OF AT&T AND MEDIAONE The parties hereto agree that: SECTION 8.1. Best Efforts. (a) Subject to the terms and conditions of this Agreement, AT&T will use its best efforts to promptly (i) take, or cause to be taken. all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement as soon as practicable, including, without limitation, preparing and filing as promptly as practicable all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents, (ii) obtain and maintain all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any third party that are necessary, proper or advisable to consummate the Merger and the other transactions contemplated by this Agreement and (iii) obtain and maintain waivers of all Purchase Rights (as defined below); provided that AT&T's obligation to obtain the License Consents and the expiration or termination of the applicable waiting periods under the HSR Act shall be unconditional and shall not be qualified by best efforts (regardless of whether fulfillment of such obligation would have a MediaOne Material Adverse Effect or an AT&T Material Adverse Effect). The existence of the conditions set forth in Sections 9.1(b), (c). (g) and (h) shall not limit AT&T's obligations pursuant to the foregoing sentence or relieve AT&T of any liability or damages that may result from its breach of its obligations under this Section 8.1 (nor limit MediaOne's obligations pursuant to the following sentence or relieve MediaOne of any liability or damages that may result from its breach of its obligations under this Section 8.1). In connection with the foregoing, MediaOne will cooperate with and assist AT&T, and. with respect to matters that are within MediaOne's power or control, will use its best efforts to 51 promptly (i) take. or cause to be taken. all actions and to do. or cause to be done. all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement as soon as practicable, including, without limitation. preparing and filing as promptly as practicable all documentation to effect all • necessary filings, notices, petitions, statements. registrations, submissions of information. applications and other documents, (ii) obtain and maintain all approvals, consents. registrations. permits. authorizations and other confirmations required to be obtained from any third party that are necessary, proper or advisable to consummate the Merger and the other transactions contemplat. d by this Agreement and (iii) obtain and maintain waivers of all Purchase Rights. At AT&T's request, MediaOne will commit to and implement any divestiture, hold separate or similar transaction or action with respect to any asset or business of the MediaOne Group, which commitment and implementation may, at MediaOne's option, be conditioned upon and effective as of the Effective Time. Subject to applicable laws relating to the exchange of information, MediaOne and AT&T shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to MediaOne and the MediaOne Subsidiaries or AT&T and the AT&T Subsidiaries, as the case may be, that appears in any filing made with, or written materials submitted to, any third party and/or any Governmental Authority in connection with the Merger and the other transactions contemplated by this Agreement. MediaOne has provided to AT&T a list of all Franchise Consents, all License Consents and all rights that any Person may have under the terms of the MediaOne Franchises to purchase all or any portion of a MediaOne System as a result of the transactions contemplated hereby ("Purchase Rights"). (b) In furtherance and not in limitation of the foregoing, each of AT&T and MediaOne agrees to (i) make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within ten Business Days of the date hereof, (ii) supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and (iii) complete the review process under the HSR Act to permit the consummation of the Merger including, but not limited to, causing the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable. SECTION 8.2. Proxy Statement; Registration Statement. (a) As promptly as practicable after the execution of this Agreement, MediaOne shall prepare and file the Proxy Statement with the SEC, and AT&T shall prepare and file the Registration Statement (in which the Proxy Statement will be included) with the SEC. AT&T and MediaOne shall use their reasonable best efforts to cause the Registration Statement to become effective under the 1933 Act as soon after such filing as practicable and to keep the Registration Statement effective as long as is necessary to consummate the Merger. The Proxy Statement shall include the recommendation of the Board of Directors of MediaOne in favor of approval and adoption of this Agreement and the Merger, except to the extent the Board of Directors of MediaOne shall have withdrawn or modified its approval or recommendation of this Agreement as permitted by Section 6.2(b). MediaOne shall use its reasonable best efforts to cause the Proxy Statement to be mailed to its stockholders as promptly as practicable after the Registration Statement becomes effective. The parties shall promptly provide copies. consult with each other and prepare written 52 • • responses with respect to any written comments received from the SEC with respect to the Prox% Statement and the Registration Statement and advise one another of any oral comments received from the SEC. The Registration Statement and the Proxy Statement shall comply as to form in all material respects with the rules and regulations promulgated by the SEC under the 1933 Act and the 1934 Act. respectively. (b) AT&T and MediaOne shall make all necessary filings with respect to the Merger and the transactions contemplated thereby under the 1933 Act and the 1934 Act and applicable state blue sky laws and the rules and regulations thereunder. Each party will advise the other, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order. the suspension of the qualification of the AT&T Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. No amendment or supplement to the Proxy Statement or the Registration Statement shall be filed without the approval of both parties hereto. which approval shall not be unreasonably withheld or delayed. If at any time prior to the Effective Time, any information relating to AT&T or MediaOne, or any of their respective Affiliates, officers or directors; should be discovered by AT&T or MediaOne that should be set forth in an amendment or supplement to the Registration Statement or the Proxy Statement, so that such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of AT&T and MediaOne. SECTION 8.3. Public Announcements. So long as this Agreement is in effect. MediaOne and AT&T will consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and. except as may be required by applicable law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement without the prior consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, any such press release or public statement as may be required by applicable law or any listing agreement with any national securities exchange or Nasdaq may be issued without such consent, if the party making such release or statement has used its reasonable efforts to consult with the other party. SECTION 8.4. Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver. in the name and on behalf of MediaOne, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of MediaOne, any other actions and things to vest. perfect or confirm of record in the Surviving Corporation any and all right, title and interest in. to and under any of the rights, properties or assets of MediaOne acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. 53 • • • SECTION 8.5. .Access to Information. From the date hereof until the Effective Time or earlier termination of this Agreement and subject to applicable law and the Confidentiality Agreement, each of MediaOne and AT&T shall (1) give to the other party and the other party's counsel, financial advisors. auditors and other authorized representatives reasonable access during normal business hours to the offices. properties. books and records of such party and its Subsidiaries (and. in the case of MediaOne. to the offices. properties, books and records of TWE and the TWE Subsidiaries to the extent it is reasonably able to provide such access). (ii) furnish to the other party and the other party's counsel. financial advisors. auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request and (iii) instruct its employees, counsel. financial advisors. auditors and other authorized representatives to cooperate with the other party in such other party's investigation. Any investigation pursuant to this Section 8.5 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the other party. No information or knowledge obtained in any investigation pursuant to this Section 8.5 shall affect . or be deemed to modify any representation or warranty made by any party hereunder. Each party will hold such information which is non-public in confidence in accordance with the provisions of the Confidentiality Agreement. SECTION 8.6. Notices of Certain Events. Each of MediaOne and AT&T shall. promptly notify the other of: (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (c) the occurrence, or non-occurrence, of any event the occurrence, or non- occurrence, of which would be reasonably expected to cause any representation or warranty contained herein to be untrue or inaccurate in any material respect at any time during the period commencing on the date hereof and ending at the Effective Time; and (d) any failure of such party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 8.6 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 8.7. Tax-free Reorganization. (a) Prior to the Effective Time, each party shall use its best efforts to cause the Merger to qualify as a reorganization within the meaning of the provisions of Section 368(a) of the Code ("368 Reorganization"), and will not take any action reasonably likely to cause the Merger not to so qualify. AT&T shall not take, or cause MediaOne to take, any action after the Effective Time reasonably likely to cause the Merger not to qualify as a 368 Reorganization. 54 • (b) Each party shall use its best efforts to obtain the opinions referred to in Sections 9.2(b), 9.2(c), 9.3(b), and 9.3(c). SECTION 8.8. Affiliates. (a) Within 30 days following the date of this Agreement. MediaOne shall deliver to AT&T a letter identifying all known Persons who may be deemed affiliates of MediaOne under Rule 145 of the 1933 Act (a "MediaOne Rule 145 . Affiliate"). MediaOne shall use its best efforts to obtain a written agreement from each MediaOne Rule 145 Affiliate as soon as practicable and, in any event. at least 30 days prior to the Effective Time, substantially in the form of Exhibit A hereto. SECTION 8.9. TWE Termination Notice. At any time after the date upon which the MediaOne Stockholders' Approval shall have been obtained, AT&T may elect by written notice (a `'Termination Notice Election") to have MediaOne give a Termination Notice (as defined in Section 5.5(0 of the TWE Partnership Agreement). In addition, MediaOne may exercise a Termination Notice Election at any time after the 90th day after the date hereof. If, either party exercises a Termination Notice Election, then within five days of the date of such election, MediaOne shall give the Termination Notice in accordance with the TWE Agreements. Notwithstanding the foregoing, if AT&T and MediaOne agree (which agreement will not be unreasonably withheld) that delivery of a Termination Notice is not necessary for the completion of the Merger and that completion of the Merger without the delivery of a Termination Notice would not have a MediaOne Material Adverse Effect or an AT&T Material Adverse Effect. then MediaOne will not give the Termination Notice. SECTION 8.10. Assumption of Certain Obligations. At the Effective Time, the Surviving Corporation shall assume all of MediaOne's rights and obligations under all of the agreements to which MediaOne is a party as of the Effective Time, including without limitation. the Separation Agreement between MediaOne and U S WEST dated as ofJune 5, 1998, the Employee Matters Agreement between MediaOne and U S WEST dated as ofJune 5, 1998, and the Tax Sharing Agreement between MediaOne and U S WEST dated as ofJune 5, 1998 (collectively, the "U S WEST Agreements") and shall execute such instruments of assumption as may be reasonably required under the terms of the U S WEST Agreements and such other agreements. At the Effective Time, AT&T shall guarantee the performance by the Surviving Corporation of its obligations under the U S WEST Agreements. ARTICLE 9 CONDITIONS TO THE MERGER SECTION 9.1. Conditions to the Obligations of Each Partv. The obligations of MediaOne, AT&T and Merger Sub to consummate the Merger are subject to the satisfaction of the following conditions: (a) the MediaOne Stockholders' Approval shall have been obtained: (b) any applicable waiting period under the HSR Act relating to the Merger shall have expired or been terminated; 55 (c) no provision of any applicable lav or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger: • (d) the Registration Statement shall have been declared effective and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be rending before or threatened by the SEC; (e) the shares of AT&T Common Stock to be issued in the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance; (f) if a Termination Notice has been delivered, one year (or such shorter period, if any, to which TW agrees) shall have elapsed from the date upon which MediaOne delivers a Termination Notice to TW; (g) (i) all License Consents shall have been obtained and be in effect, except for such License Consents the failure to obtain would not, individually or in the aggregate, be reasonably expected to have an AT&T Material Adverse Effect (after giving effect to the Merger), and (ii) all Social Contract Consents, Franchise Consents and other consents and waivers, including waivers of all Purchase Rights, shall have been obtained, be in effect and be subject to no limitations, conditions, restrictions or obligations, except for such consents the failure to obtain would not, and such limitations, conditions, restrictions or obligation as would not, individually or in the aggregate, be reasonably expected to have a MediaOne Material Adverse Effect; and (h) no court; arbitrator or Governmental Authority shall have issued any order, and there shall not be any statute, rule or regulation restraining or prohibiting the effective operation of the business of AT&T and the AT&T Subsidiaries or MediaOne and the MediaOne Subsidiaries after the Effective Time that would be reasonably expected to have an AT&T Material Adverse Effect (after giving effect to the Merger). SECTION 9.2.. Conditions to theObligations of AT&T and Merger Sub. The obligations of AT&T and Merger Sub to consummate the Merger are subject to the satisfaction of the following further conditions: (a) . (i) MediaOne shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time, (ii) the representations and warranties of MediaOne contained in this Agreement and in any certificate or other writing delivered by MediaOne pursuant hereto, disregarding all qualifications and exceptions contained therein relating to materiality or a MediaOne Material Adverse Effect or any similar standard or qualification, shall be true and correct at and as of the Effective Time, as if made at and as of such time (other than represe.itations or warranties that address matters only as of a certain date which shall be true and correct as of such date), with only such exceptions as. individually or in the aggregate, have not had and would not be reasonably expected to have MediaOne Material Adverse Effect, and (iii) AT&T shall have received a certificate signed by an executive officer of MediaOne to the foregoing effect; 56 • • (b) AT&T shall have received an opinion of Wachtell. Lipton. Rosen & Katz in form and substance reasonably satisfactory to AT&T. on the basis of certain facts. representations and assumptions set forth in such opinion. dated the Effective Time. to the effect that the Merger will be treated for federal income tax purposes as a 368 Reorganization and that each of AT&T. Merger Sub and MediaOne will be a party to the reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, such counsel shall be entitled to rely upon certain documentation including representations of officers of MediaOne and AT&T; and (c) AT&T shall have received an opinion of Wachtell, Lipton. Rosen & Katz dated the Effective Time to the effect that the Merger pursuant to this Agreement should not cause the spinoff of U S WEST on June 12, 1998 (the '`Spinoff') to fail to be qualified as a tax- free transaction under Section 355(a) and (c) of the Code. In rendering such opinion, Wachtell, Lipton, Rosen & Katz shall be entitled to rely upon certain documentation, including representations of officers of MediaOne and AT&T. SECTION 9.3. Conditions to the Obligations of MediaOne. The obligations of MediaOne to consummate the Merger are subject to the satisfaction of the following further conditions: (a) (a) (i) Each of AT&T and Merger Sub shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time, (ii) the representations'and warranties of each of AT&T and Merger Sub contained in this Agreement and in any certificate or other writing delivered by AT&T pursuant hereto .. disregarding all qualifications and exceptions contained therein relating to materiality or AT&T Material Adverse Effect or any similar standard or qualification shall be true at and as of the Effective Time as if made at and as of such time (other than representations and warranties that address matters only as of a certain date, which shall be true as of such date), with only such exceptions as, individually or in the aggregate, have not had and would not be reasonably expected to have an AT&T Material Adverse Effect and (iii) MediaOne shall have received a certificate signed by an executive officer of AT&T to the foregoing effect; and (b) MediaOne shall have received an opinion of Weil, Gotshal & Manges LLP in form and substance reasonably satisfactory to MediaOne, on the basis of certain facts. • representations and assumptions set forth in such opinion, dated the Effective Time, to the effect that the Merger will be treated for federal income tax purposes as a 368 Reorganization and that each of AT&T, Merger Sub and MediaOne will be a party to the reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, such counsel shall be entitled to rely upon certain documentation including representations of officers of MediaOne and AT&T. (c) MediaOne shall have received an opinion of Weil, Gotshal & Manges LLP dated the Effective Time to the effect that the Merger pursuant to this Agreement should not cause :he Spinoff to fail to be qualified as a tax-free transaction under Section 355(a) and (c) of 57 • the Code. In rendering such opinion Weil. Gotshal & Manges LLP shall be entitled to rely upon certain documentation. including representations of officers of MediaOne and AT&T. ARTICLE 10 TERMINATION SECTION 10.1. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the stockholders of MediaOne): (a) by mutual written agreement of MediaOne and AT&T; (b) by either MediaOne or AT&T, if: (i) the Merger has not been consummated on or before March 31, 2000 (the "End Date"); provided that if (A) the Effective Time has not occurred by March 31, 2000 by reason of the non -satisfaction of any of the conditions set forth in Sections 9.1(b), 9.1(c), 9.1(f), 9.1(g) and 9.1(h) and (B) all other conditions in Article 9 have theretofore been satisfied or waived or are then capable of being promptly satisfied, the End Date will be September 30, 2000; provided further that if (1) the Effective Time has not occurred by September 30, 2000 by reason of the non -satisfaction of the condition set forth in Section 9.1(0 and (2) all other conditions in Article 9 have theretofore been satisfied or waived or are then capable of being promptly satisfied, the End Date will be December 31, 2000; and provided further that the right to terminate this Agreement pursuant to this Section 10.1(b)(i) shall not be available to any party whose breach of any provision of this Agreement results in the failure of the Merger to be consummated by the End Date; (ii) (A) there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or (B) any judgment, injunction, order or decree of any court or other Governmental Authority having competent jurisdiction enjoining MediaOne and AT&T from consummating the Merger is entered and such judgment, injunction, order or decree shall have become final and non -appealable; or (iii) MediaOne Stockholders' Approval shall not have been obtained at the MediaOne Stockholders' Meeting (or any adjournment or postponement thereof). (c) by AT&T if: (i) the Board of Directors of MediaOne shall have failed to recommend or withdrawn, or modified in a manner adverse to AT&T, its approval or recommendation of this Agreement, or shall have failed to call the MediaOne Stockholders' Meeting in accordance with Section 6.2(a) (or the Board of Directors of MediaOne resolves to do any of the foregoing);. 58 (ii) MediaOne shall have v.illfully and materially breached am• of its obligations under Sections 6.2(b) or 6.3: or (iii) a breach of any representation. warranty, covenant or agreement on the part of MediaOne set forth in this Agreement shall have occurred that would cause the condition set forth in Section 9.2(a) not to be satisfied, and such condition shall be incapable of being satisfied by the End Date; or (d) by MediaOne. if a breach of any representation. warranty. covenant or agreement on the part of AT&T set forth in this Agreement shall have occurred that would cause the condition set forth in Section 9.3(a) not to be satisfied, and such condition shall be incapable of being satisfied by the End Date. The party desiring to terminate this Agreement pursuant to this Section 10.1 (other than pursuant to Section 10.1(a)) shall give notice of such termination to the other party. SECTION 10.2. Effect of Termination. If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no effect without liability of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other parties hereto, except that (a) the agreements contained in this Section 10.2,•in- Section -10.3 and in the Confidentiality Agreement(otherthan paragraph 7 thereof) shall survive the termination hereof and (b) no such termination shall relieve any party of any liability or damages resulting from any breach by such party of this Agreement. SECTION 10.3. Fees and Expenses. (a) Except as otherwise provided in this Section 10.3, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense whether or not the Merger is consummated; provided that MediaOne and AT&T shall share equally all fees and expenses, other than attorneys' and accounting fees and expenses, incurred in relation to the printing and filing of the Registration Statement and the Proxy Statement. (b). If this Agreement is terminated, other than (i) pursuant to Section 10.1(a), Section 10.1(b)(ii) (unless termination under Section 10.1(b)(ii) is a result of a judgment, injunction, order or decree arising from a private action that is not an antitrust action), Section 10.1(b)(iii) (except as otherwise provided in paragraph (d) below), or Section 10.1(d), (ii) as a result of a failure to satisfy any of the conditions set forth in Sections 9.1(b), (c), (g) and (h) (except, in the case of Sections 9.1(c) and (h), a failure resulting from a judgment, injunction, order or decree arising from a private action that is not an antitrust action), or (iii) as.a result of a failure to satisfy the condition set forth in Section 9.3(a) or otherwise as a result of AT&T's breach of this Agreement, MediaOne will pay to AT&T a reimbursement payment of S 1,500,000,000 in'cash,together with interest thereon, at a rate equal to the London Interbank Offered Rate plus .15%, from the date hereof to tfe date such payment is due pursuant to this Agreement (collectively, the "Reimbursement Payment"), reflectingreimbursement of the amounts advanced by AT&T to MediaOne on the date hereof and used by MediaOne to pay the termination fee to Comcast under the Comcast Merger Agreement (which advance will be evidenced by a note that, in the event of termination of this Agreement, will be repaid only on the 59 terms set forth in this Section 10.3 with respect to the Reimbursement Payment. and that will survive the consummation of the Merger if the Merger is completed). For the avoidance of doubt. in the event the Reimbursement Payment is not paid when due, interest on the Reimbursement Payment shall be paid thereon from the due date to the date of payment pursuant to the provisions of Section 10.3(e) and not pursuant to the provisions of this Section 10.3(b). (c) If this Agreement is terminated pursuant to Section 10.1(c)(i) or Section 10.1(c)(ii), MediaOne shall pay to AT&T a termination fee of S1,600,000.000 in cash (the `'Termination Fee"), which shall be in addition to the Reimbursement Payment paid pursuant to Section 10.3(b). (d) If (A) this Agreement is terminated pursuant to Section 10.1(b)(iii). (B) after the date hereof and prior to the MediaOne. Stockholders' Meeting, an Acquisition Proposal is made or continued or renewed by any Person (including Comcast) and not withdrawn prior to such meeting and (C) within one year of the MediaOne Stockholders' Meeting, either (1) MediaOne or any MediaOne Subsidiary enters into an agreement with any Person with respect to an Acquisition Proposal which provides for (x) transfer or issuance of securities representing more than 50% of the equity or voting interests in MediaOne, (y) a merger, consolidation, recapitalization or another transaction resulting in the issuance of cash or securities of any Person (other than a reincorporation or a holding.company merger that results in the MediaOne stockholders owning all of the equity interests in the surviving corporation) to MediaOne stockholders in exchange for more than 50% of the equity or voting interests in MediaOne, or (z) transfer of assets, securities or ownership interests representing more than 50% of the consolidated assets or earning power of the MediaOne Group, or (2) any Person commences a tender offer that results in the acquisition by the Person making the tender offer of a majority of the MediaOne Common Stock, then MediaOne shall pay to AT&T both the Reimbursement Payment and the Termination Fee. (e) Any payment of the Reimbursement Payment and the Termination Fee pursuant to this Section 10.3 shall be made within one Business Day after termination of this Agreement except that any payment of the Reimbursement Payment and the Termination Fee pursuant to Section 10.3(d) shall be paid within one Business Day after it becomes payable. Any payment of the Reimbursement Payment and the Termination Fee shall be made by wire transfer of immediately available funds. If one party fails to pay to the other promptly any fee or expense due hereunder (including the Reimbursement Payment or the Termination Fee), the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the prosecution of any lawsuit or other legal action, taken to collect payment. together with interest on the amount of any unpaid fee at the publicly announced prime rate of The Bank of New York in New York City from the date such fee was required to be paid to the date it is paid. 60 • ARTICLE 11 MISCELLANEOUS SECTION 11.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given. if to AT&T or Merger Sub, to: AT&T Corp. 295 North Maple Avenue Basking Ridge, New Jersey 07920 Attention: Marilyn J. Wasser Fax: (908) 953-8360 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Richard D. Katcher Steven A. Rosenblum Fax: (212) 403-2000 if to MediaOne, to: MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 80112 Attention: Frank M. Eichler Fax: (303) 858-5834 with copies to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Stephen M. Besen Akiko Mikumo Fax: (212) 310-8007 and 61 • Cadwalader. Wickersham & Taft 100 Maiden Lane New York. New York 10038 Attention: Dennis J. Block Fax: (212) 504-6666 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. on a Business Day, in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. SECTION 11.2. Survival of Representations and Warranties. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement, except as provided under Section 10.2. SECTION 11.3. Amendments: No Waivers. (a) Subject to applicable law, any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective; provided that, after the adoption of this Agreement by the stockholders of MediaOne, no such amendment or waiver shall be made or given that requires the approval of the stockholders of MediaOne unless the required approval is obtained. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 11.4. Successors and Assigns. The provisions of this Agreement shall be bindingupon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. SECTION 11.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules of such State. SECTION 11.6. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit. 62 • • action or proceeding and irrevocably waives. to the fullest extent permitted by law. any objection that it may now or hereafter have to the laying of the venue of any such suit. action or proceeding in any such court or that any such suit. action or proceeding brought in any such court has been brought in an inconvenient form. Process in any such suit. action or proceeding may be served on any party anywhere in the world. whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.1 shall be deemed effective service of process on such party. SECTION 11.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 11.8. Counterparts: Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. No provision of this Agreement is intended to confer any rights. benefits, remedies, obligations or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns except as provided in Sections 7.2, 7.4 and 7.5. SECTION 11.9. Entire Agreement. This Agreement, together with the Confidentiality Agreement (other than paragraph 7 thereof, which shall terminate upon execution of this Agreement), constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. SECTION 11.10. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. SECTION 11.11. Severabilitv. If any term, provision. covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall -remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. SECTION 11.12. Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this. Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity. 63 • • SECTION 11.13. Schedules. Each of MediaOne and AT&T has set forth information in its respective Disclosure Schedule in a section thereof that corresponds to the section of this Agreement to which it relates. A matter set forth in one section of the Disclosure Schedules need not be set forth in any other section of the Disclosure Schedule so long as its relevance to the latter section of the Disclosure Schedule or section of the Agreement is apparent on the face of the information disclosed in the Disclosure Schedule. The fact that any item of information is disclosed in a Disclosure Schedule to this Agreement shall not be construed to mean that such information is required to be disclosed by this Agreement. Such information and the dollar thresholds set forth herein shall not be used as a basis for interpreting the terms "material" or "Material Adverse Effect" or other similar terms in this Agreement except as otherwise expressly set forth in such Disclosure Schedules. • • IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written_ AT&T CORP. By: Name: Title: METEOR ACQUISITION INC. By: • Name: Title: MEDIAONE GROUP, INC. By: Name: Title: • IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AT&T CORP. By: Name: Title: METEOR ACQUISITION INC. By: Name: Title: MEDIAONE GROUP, INC. By: Name: Title: • • IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AT&T CORP. By: Name: Title: METEOR ACQUISITION INC. By: Name: Title: MEDIAONE GROUP, INC. /1 �. 4 By: vl� �L Name: Charles M. Lillis Title: President, Chief Executive Officer and Chairman Frank M. Eichler Executive Vice President Law and Public Policy General Counsel and Secretary Phone 303 858.5856 Marilyn J. Wasser Vice President, Law & Secretary AT&T Corp. 295 North Maple Avenue Basking Ridge, New Jersey 07920 Dear Marilyn: 188 Inverness Drive West Suite 500 Englewood. CO 80112-5209 feichler@mediaone.com May 14, 1999 FAX: 303 858.5834 MediaOne Group Reference is hereby made to that certain Agreement and Plan of Merger, dated,as of May 6, 1999 (the "Merger Agreement"), by and between AT&T Corp., Meteor Acquisition, Inc., and MediaOne Group, Inc. All capitalized terms used herein without definition have the meanings ascribed to such terms in the Merger Agreement. In order to memorialize the agreement reached earlier this week regarding our respective HSR filings, we propose that Section 8.1(b)(i) of the Merger Agreement be amended in its entirety as follows: (i) make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within twenty-five Business Days of the date hereof, It is expressly understood and acknowledged that this letter shall be subject to the same law applicable to the Merger Agreement, and other than as modified herein, the remaining provisions of the Merger Agreement shall remain in effect. • Marilyn J. Wasser AT&T Corp. May 14, 1999 Page 2 of 2 If the foregoing is acceptable, please confirm by having the appropriate parties sign below and return a copy of this letter to me. Very truly yours, MEDIAONE GROUP, INC. 444 KI. 5106 -1 -by I Sn4v Frank M. Eichler Executive Vice President — Law & Public Policy, General Counsel and Secretary Accepted and agreed to as of the 14th day of May, 1999: METEOR ACQUISITION INC. AT&T CORP. By:/// US By: `�%it'i/(pn k?Si e/ Name: Name: Title: Title: cc: Wachtell, Lipton, Rosen & Katz Weil, Gotshal & Manges, L.L.P. Cadwalader, Wickersham & Taft • EXHIBITS AND SCHEDULES In accordance with FCC Form 394 and associated regulations, certain exhibits and schedules have been redacted to protect confidential information about our employees or because they contain proprietary or confidential business matters that are not necessary for an understanding of this transaction. • • • MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 80112 Ladies and Gentlemen: Reference is hereby made to that certain Agreement and Plan of Merger, dated as of May 6, 1999 (the "Merger Agreement"), by and between AT&T Corp., Meteor Acquisition Inc. and MediaOne Group, Inc. All capitalized terms used herein without definition have the meanings ascribed to such terms in the Merger Agreement. Pursuant to the Merger Agreement, attached hereto are all of the MediaOne Disclosure Schedules referred to in the Merger Agreement. The section numbers in the MediaOne .. . Disclosure Schedules correspond to the section numbers in the Merger Agreement. Certain agreements and other matters are listed in the MediaOne Disclosure Schedules for purposes of providing information only, and items referred to in the MediaOne Disclosure Schedules referring to sections of the Merger Agreement containing qualifications to "material," "materiality" or "Material Adverse Effect" are in no way meant to reflect an interpretation by MediaOne that such items rise to such level of material, materiality or Material Adverse Effect references. In no event shall the listing of such agreements or other matters in the MediaOne Disclosure Schedules be deemed or interpreted to broaden or otherwise amplify Mediaone's representations and warranties, covenants or agreements contained in the Merger Agreement, and nothing in such MediaOne Disclosure Schedules shall influence the construction or interpretation of the information contained in the Merger Agreement. The headings contained in the MediaOne Disclosure Schedules are for convenience of reference only and shall not be deemed to modify or influence the interpretation of the information contained in such MediaOne Disclosure Schedules or the Merger Agreement. Where any information set forth in the attached MediaOne Disclosure Schedules comprises expressions of opinion, no warranty is given as to their accuracy, but unless otherwise stated herein, such opinions are bona fide held by MediaOne or by such person to whom they are attributed. Dated: May 6, 1999 Frank M. Eichler Executive Vice President — Law, General Counsel and Secretary • • MEDIAONE DISCLOSURE SCHEDULE Section 4.3 — Governmental Authorizations • Notices to and consents from state and local public utility or other regulatory bodies for licenses or authorizations for telephony and high speed data services in connection with a change of control and/or assignment thereof. MEDIAONE DISCLOSURE SCHEDULE Section 4.4 — Non -contravention List any consents required for MediaOne to consummate the transaction under existing agreements • 364 -Day Credit Agreement, dated as of May 8, 1998, by and among MediaOne Group Funding, Inc., MediaOne Group, Inc., Morgan Guaranty Trust Company of New York (as Administrative Agent) and certain other lenders party thereto. • Credit Agreement, dated as of May 8, 1998, by and among MediaOne Group Funding, Inc., MediaOne Group, Inc., Morgan Guaranty Trust Company of New York (as Administrative Agent) and certain other lenders party thereto. • Tax Sharing Agreement, dated as of June 5, 1998, by and between U S WEST, Inc. and MediaOne. • Leveraged leases of MediaOne described in Note 23 of the financial statements in MediaOne's 1998 10-K. • Guarantees of MediaOne relating to financings of joint ventures in Central Europe and Asia. • Agreements relating to MediaOne's international joint ventures and investments (other than agreements to which MediaOne or any MediaOne Subsidiary is a party with respect to MediaOne's interest in Telewest Communications plc and Mercury Personal Communications). 2 • MEDIAONE DISCLOSURE SCHEDULE Section 4.6 — Significant Subsidiaries MediaOne of Colorado, Inc. (Colorado Corporation —100% owned) ■ MediaOne of Delaware, Inc. (Delaware Corporation — 100% owned) • MediaOne International Holdings, Inc. (Delaware Corporation — 100% owned) • • MEDIAONE DISCLOSURE SCHEDULE • Section 4.10 — Absence of Certain Changes • MediaOne has repurchased, between January 1, 1999 and March 19, 1999, 830,000 shares of MediaOne Common Stock. 4 MEDIAONE DISCLOSURE SCHEDULE Section 4.11. Confidential and proprietary information redacted • 1 • MEDIAONE DISCLOSURE SCHEDULE Section 4.12 — Compliance with Laws and Court Orders • MediaOne does not hold franchising authorizations for all of their non -cable services which are not customary for franchising in the cable television industry. • Notices regarding access to high speed cable modem services by unaffiliated intemet service providers in certain jurisdictions. 6 • MEDIAONE DISCLOSURE SCHEDULE Section 4.13 Confidential and proprietary information redacted • • • MEDIAONE DISCLOSURE SCHEDULE Section 4.18 Confidential and proprietary information redacted • • t MEDIAONE DISCLOSURE SCHEDULE Section 4.21 Confidential and proprietary information redacted • • MEDIAONE DISCLOSURE SCHEDULE Section 4.2T(iv) Confidential and proprietary information redacted • MEDIAONE DISCLOSURE SCHEDULE Section 4.22 Confidential and proprietary information rcdacted • MEDIAONE DISCLOSURE SCHEDULE Section 6.1 • Confidential and proprietary information redacted • MEDIAONE DISCLOSURE SCHEDULE Section 6.1(p) Confidential and proprietary information redacted • AT&T Corp. 295 North Maple Avenue Basking Ridge, NJ 07920 Ladies and Gentlemen: Reference is hereby made to that certain Agreement and Plan of Merger, dated as of May 6. 1999 (the "Merger Agreement"), and betwccn MediaOne, AT&T and Meteor Acquisition Inc. All capitalized terms used herein without definition have the meanings ascribed to such terms in the Merger Agreement. Pursuant to the Merger Agreement, attached hereto is the AT&T Disclosure Schedule referred to in the Merger Agreement. The section numbers in the AT&T Disclosure Schedule correspond to the section numbers in the Merger Agreement. Certain agreements and other matters are listed in the AT&T Disclosure Schedule for purposes of providing information only, and items referred to in the AT&T Disclosure Schedule referring to sections of the Merger Agreement containing qualifications to "material," "materiality" or "Material Adverse Effect" are in no way meant to reflect an interpretation by AT&T that such items rise to such level of material, materiality or Material Adverse Effect references. In no event shall the listing of such agreements or other matters in the AT&T Disclosure Schedule be deemed or interpreted to broaden or otherwise amplify AT&T's representations and warranties, covenants or agreements contained in the Merger Agreement, and nothing in such AT&T Disclosure Schedule shall influence the construction or interpretation of the information contained in the Merger Agreement. The headings contained in the AT&T Disclosure Schedule are for convenience of reference only and shall not be deemed to modify or influence the interpretation of the information contained in such AT&T Disclosure Schedule or the Merger Agreement. Where any information set forth in the attached AT&T Disclosure Schedule comprises expressions of opinion, no warranty is given as to their accuracy, but unless otherwise stated herein, such opinions are bona fide held by AT&T or by such person to whom they are attributed. Dated: May 6, 1999 Very truly yours, aufil n 56./ Marilyn J. aser Vice President -Law and Secretary • AT&T DISCLOSURE SCHEDULE Section 5.3 — Government Authorization • Notices to and consents from state and local public utility and other regulatory bodies for licenses or authorizations fcr telephony and high-speed data services in connection with a change of control and/or assignment thereof • Noticcs to and consents from international bodies, including the European Union and Japan's FTC, in connection with a change of control and/or assignment of licenses Section 5.5 — Capitalization ▪ Tele-Communications, Inc. has outstanding as of the date hereof 1,552,490 shares of Class B 6% Cumulative Redeemable Exchangeable Preferred Stock. • There are outstanding as of the date hereof 6,257,961 shares of TCI Pacific Preferred Stock (TPACP), which are convertible into AT&T common shares. Section 5.6 — Subsidiaries • Reference is made to the matters listed on Section 5.5 of the AT&T Disclosure Schedule above. • The following are the AT&T Significant Subsidiaries as of the date hereof: Jurisdiction of Incorporation ACC Corp Delaware Alascom, Inc. Alaska AT&T Canada Corp. Canada AT&T Communications, Inc. Delaware AT&T Communications of California, Inc. California AT&T Communications of Delaware, Inc Delaware AT&T Communications of Hawaii, Inc Hawaii AT&T Communications of Illinois, Inc Illinois AT&T Communications of Indiana, Inc. Indiana AT&T Communications of Maryland, Inc Maryland AT&T Communications of Michigan, Inc. Michigan AT&T Communications of the Midwest, Inc. Iowa AT& T Communications of the Mountain States, Inc. Colorado AT& T Communications of Nevada, Inc. Nevada AT& T Communications of New England, Inc. New York -1- AT&T DISCLOSURE SCHEDULE AT& T Communications New Hampshire, Inc. New Hampshire AT& T Communications of New Jersey, Inc New Jersey AT&T Communication of New York, Inc New York AT& T Communications Ohio, Inc. Ohio AT& T Communications of the Pacific Northwest, Inc. Washington AT& T Communications of Pennsylvania, Inc. Pennsylvania AT& T Communications of the South Central States, Inc. Delaware AT& T Communications of the Southern States, Inc. New York AT& T Communications of the Southwest, Inc Delaware AT& T Communications of Virginia, Inc Virginia AT& T Communications of Washington D.C., Inc. New York AT&T Communications of West Virginia, Inc West Virginia AT& T Communications of Wisconsin, Inc. Wisconsin AT&T Communications Services International Inc. Delaware AT& T Communications (UK) Ltd United Kingdom AT& T Global Communications Services Inc. Delaware AT&T Istel United Kingdom AT&T Solutions Inc Delaware AT&T of Puerto Rico, Inc. New York AT&T Wireless Services, Inc. Delaware LIN Broadcasting Corporation Delaware Lucky Dog Phone Company Inc. Delaware Teleport Communications Group Inc Delaware Tele-Communications, Inc. Delware Section 5.11— No Undisclosed Material Liabilities • All fees incurred in connection with the transactions contemplated by the Merger Agreement • All obligations for future performance arising under items described on Section 7.1 of the AT&T Disclosure Schedule • All obligations for future performance arising under items listed on Section 5.20 of the AT&T Disclosure Schedule Section 5.20 — Contracts • In the normal course of business, AT&T uses certain derivative funancial instruments, primarily interest rate swaps and foreign currency exchange rate contracts. The interest rate swaps and foreign currency contracts and options allow the Company to -2- • AT&T DTSCLOSURE SCHEDULE manage its exposures to changing interest rates and currency exchange rates. AT&T does not use derivative financial insnuments for speculative purposes. Section 7.1— AT&T Interim Operations (d) AT&T may engage in swaps, ownership realignments in less than wholly owned entities, and similar matters (it being understood that the foregoing shall not limit AT&T's obligations pursuant to Section 8.1 of the Merger Agreement). - 3 - ATT C. filiclvialArnsaosita Chen an or me Boyo Mr. Charles M. Lillis Chairman and Chief Executive Officer MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 80112 Dear Chunk: April 22. 1999 32 Avenue of the Americas Waw Tork ?fl 10013.2142 212 644-1000 AT&T is pleased to offer to acquire all of MediaOne Group for cash and AT&T common stock. AT&T will pay S30.85 in cash, subject to upward adjustment, and .95 of a share of AT&T common stock, for each share of MediaOne common stock. Based on today's closing pricc,.our cash and stock offer has a value of S87375 per MediaOne share. AT&T will support the value of this offer by increasing the amount of cash per share to offset up to a 10% drelinr in AT&T's stock price from yesterday's closing price of SS7 per share. With this feature, we provide downside protection for the value of our proposal, while MediaOne shareholders will realize all the upside of any increases in AT&T's stock price. The stock portion of our offer will be tax-free to MediaOne shareholders. If you wish, we would also be happy to discuss with you a structure that would give MediaOne shareholders the ability to elect between cash and AT&T shares, subject to the same aggregate proportion of cash and stock. Our offer represents a 17%, or $8.6 billion, premium to the value of MediaOne's previously proposed merger with Comcast based on the closing price of Comcast's shares today. This is a 44% premium to the trading price of the MediaOne shares prior to announcement of its merger agement with Comcast and a 26% premium to today's MediaOne closing price. In addition, the future value of the AT&T shares we are offering, which are voting, cash dividend -paying shares, is far greater and more reliable than the non-voting. non-cash dividend -paying Comcast shares. In developing this proposal, we have worked together with Amos B. Hostetter, the former chainran and chief executive officer of Continental Cablevision and forma chief executive officer of U S WEST Media Group. Upon consummation of the transaction, Mr. Hostetter would become the non-executive chairman of AT&T's Broadband & Intermit Services business unit and would join the AT&T board of directors. We would also expect to invite one of MediaOne's current directors to join the AT&T board upon completion of the merger. The combination of our two compani .a is truly a powerful opportunity for both companies and our shareholders, as well as for employees, and will provide �8 Rec}d.d piper significant benefits to the American public. The merger will accelerate our ability to bring a wide array of broadband services to consumer and business customers =ass the nation. The AT&T and MediaOne networks are complementary, and together they will be digital, high speed and nationwide. With the addition of the MediaOne local - broadband systems, we will offer customers superior connections for not only traditional video services, but also new competitive voice and data services. In particular, this will enhance our ability to deliver competitive local telephone services to millions of Americans. Beyond our network, AT&T offers MediaOne access to unparalleled technology and service capabilities to enhance its offers and increase its services to its communities. These technology and service attributes will provide MediaOne with long- term sustainable advantages. The combination will also allow us to join the management talents of our two companies. With our Broadband & Internet Services group headquartered in Deaver, we will be able to combine readily and smoothly with MediaOne's Denver-based headquarters. We are quite confident of our ability to complete this transaction as quickly, if not more quickly, than the proposed Comcast merger. We have received commitments frcon Chase Manhattan Bank and Goldman Sachs Credit Partners L.P. aggregating S 10 billion towards a credit facility. As lead arrangers, they have also advised us that they are highly confident of their ability to raisc-financing for the balance of the cash portion of our offer. In addition, our legal advisors are confident of our ability to obtain all necessary approvals in a timely manna. We believe that ow merger is fully consistent with the policy underlying the ownership limits that were contained in tho now -suspended FCC cable ownership rules and is strongly in the public interest However, should any questions arise with respect to this issue, we are ready to take such actions as are necessary to ensure timely legal and regulatory approval of the merger. Given the clear superiority of our offer to the proposed Comcast :Huger, we would like to meet with you and your advisors as soon as possible to finalize a definitive agreement between our companies. The offer is, of course, subject to entering into such an agreement. In this regard, we are ready to enter into a merger agreement comparable to the Corneas' agreement We are also ready to exchange confidential information immediately. We are committed to bringing an AT&T/MediaOne combination to a successful conclusion and would be delighted to discuss any aspect of our proposal. We look forward to meeting at the earliest opportunity to conclude this mutually beneficial transaction far both our companies, In addition, we and our advisors will be happy to meet with MediaOne at any time to answer any questions about our proposal. Sincerely, Executive Vice President Law and Public Policy General Counsel and Secretary Phone 303 858.5858 Stanley Wang General Counsel Comcast Corporation 1500 Market Street Philadelphia, Pennsylvania 19102 Dear Mr. Wang: inn nrVeI,Iv 'S LAM. YYea Sults 500 Englewood. CO 80112.5209 feichlen@mediaone.com April22, 1999 FAX 3u3 Gid 'alt.ii Mediaene Group This letter serves as written notice to Comcast, pursuant to Section 6.03(b) of the Agreement and Plan of Merger between Comcast and MediaOne Group, of McdiaOne's receipt of an acquisition proposal from AT&T Corp. The attached Ietter which was received by MediaOne today sets forth the terms and conditions of the acquisition proposal. We will continue to keep you fully informed of the status and details of this acquisition proposal. Please contact me if you have further questions. Cc: Sharon A. O'Leary Dennis Block Steve Besen Akiko Mikumo Dennis S. Hersch Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Very truly yours, Frank M. Eichler • • C. Mleheat Armstrong Chairman of the Beard Mr. Charles M. Lillis Chairman and Chief Executive Officer MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 801I2 Dear Chuck: April 22. 1999 32 Avenue al me lynencas New Yarx. NY 10013.2142 212 E441000 AT&T is pleased to offer to acquire all of MediaOne Group for cash and AT&T common stock AT&T will pay S30.85 in cash, subject to upward adjustment, and .95 of a share of AT&T common stock, for each share of MediaOne common stock. Based an today's closing price, our cash and stock offer has a value of 587.375 per MediaOne sham. AT&T will support the value of this offer by increasing the amount of cash per share to offset up to a 1 O% decline In AT&T's stack price from yesterday's closing price of$57 per share. With this feature, we provide downside protection for the value of aur proposal, while MediaOne shareholders will reali a all the upside of any increases in AT&T's stockprice. The stock pardon of our offer will be tux -free to MediaOne shareholders. If you wish, we would also be happy to discuss with you a structure that would give MediaOne shareholders the ability to elect between cash and AT&Tshares, subject to the same aggregate: proportion of cash and stock. Our offer represents a 1 7%, or S8.6 billion, premium to the value of MediaOne's previously proposed merger with Comcast based on the closing price of Comcast's shares today. This is a 44% premium to the trading price of the MediaOne shares prior to announcement of its merger agreement with Comcast and a 26% premium to today's MediaOne closing price. In addition, the future value of the AT&T shares we are offering, which are voting, cash dividend -paying shares, is' far greater and more reliable than the non-voting, non-cash dividend -paying Comcast shares. In developing this proposal, we have worked together with Amos B. Hostetter, the former chairman and chief executive officer of Continetual Cablevision and former chief executive officer ofU S WEST Media Group. Upon consummation of the transaction, Mr. Hostetter would become the non-executive chairman ofAT&T's Broadband & Internet Services business unit and would join the AT&T board of directors. We would also expect to invite one of MediaOnc's current directors to join the AT&T board upon completion of the merger. The combination of our two companies is truly a.powerful opportunity for both companies and our shareholders, as well as for employees, and will provide ,d Reeydad Papa • • significant benefits to the American public. The merger will accelerate our ability to bring a wide array of broadband services to consumer and business customers across the nation. The AT&T and MediaOne networker are complementary, and together they will be digital, high speed and nationwide. With the addition of the MediaOne Iocal broadband systems, we will offer customers superior connections for not only traditional video services, but also new competitive voice and data services. In particular, this will enhance our ability to deliver competitive local telephone services to millions of Americans. Beyond our network, AT&T offers MediaOne access to unparalleled technology and service capabilities to enhance its offers and increase its services to its communities. These technology and service atnibutes will provide MediaOne with long- term sustainable advantages. The combination will also allow us to join the management talents of our two companies. With our Broadband & Internet Services group headquartered in Denver, we will be able to combine readily and smoothly with MediaOne's Denver-based headquarters. We arc gil:te confident. of our ability to complete this transaction as quickly, if not more quickly, than the proposed Comcast merger. We have received commitments from Chase Manhattan Bank and Goldman Sachs Credit Partners LP. aggregating S I 0 biilion towards a credit facility. As lead arrangers, they have also advised us that they are highly confident of their ability to raise 'financing for the balance of the cash portion of our offer. In addition. our legal advisors are confident of our ability to obtain all necessary approvals in a timely manner. We believe that our merger is fully consistent with the policy underlying the ownership limits that were contained in the now -suspended FCC cable ownership rules and is strongly in the public interest. However, should any questions arise with respect to this issue, we are ready to take such actions as are necessary to ensure; timely legal and regulatory approval of the merger. Given the clear superiority of our offer to the proposed Comcast merger, we would like to mcct with you and your advisors as soon as possible to finalize a definitive agreement between our companies. The offer is, of course, subject to entering into such an agreement. In this regard, we are ready to eat= into a merger agreement comparable to the Comcast agreement We are also ready to exchange confidential information immediately. We are committed to bringing an AT&T/MediaOne combination to a successful conclusion and would be delighted to discuss any aspect of our proposal. We look forward to meeting at the earliest opportunity to conclude this mutually beneficial transaction for both our campaniles. Iii addition. we and our advisors will be happy to meet with MediaOne at any time to answer any questions aboutbur proposal. Sincerely, Frank M. Eicnler Executive Vice President Law and Puolic Policy General Counsel and Secretary Phone 303 858 5856 April 23, 1999 1 tlU Inver' inss I Llve Wi:,1 Suite 500 Englewood. CO 80112-5209 leictllar@mediaone.com rax 7r1.: Aalr.yx.ra Mediaene Group Comcast Corporation 1500 Market Street Philadelphia, Pennsylvania 19102 Attention: General Counsel The MediaOne Group Board of Directors met today to discuss the April 22, 1999 offer of AT&T Corp. to acquire all of MediaOne Group for cash and AT&T Common Stock. Please be advised that the MediaOne Group Board has determined, in • accordance with Section 6.03 of the Merger Agreement between Comcast Corporation and MediaOne Group, that it reasonably believes that AT&T's proposal will lead to a Superior Proposal (as such term is defined in the Merger Agreement). Additionally, the MediaOne Group Board has determined in good faith, on the basis of advice from MediaOne Group's outside legal counsel, that it must enter into discussions with AT&T regarding their offer in order to comply with its fiduciary duties under applicable law. Attached to this letter please find a copy of the letter sent to AT&T along with a draft Confidentiality Agreement to be executed by AT&T. This Confidentiality Agreement contains terms no less favorable in the aggregate to MediaOne Group than those contained in the Confidentiality Agreement dated as of March 16, 1999 between MediaOne Group and Comcast Corporation. Please contact me if you have further questions. Frank M. Eichler Cc: Sharon O'Leary Steve Besen Dennis Block Akiko Mikumo Dennis S. Hersch Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Charlbs M. Lillis • President d CEO Phone 303 858.5885 C. Michael Armstrong Chairman of the Board AT&T Corporation 32 Avenue of the Americas New. York, NY 10013-2142 Dear Michael: 18:3 Invern,::ss wive West, bay How Englewood. CO 80112-5209 April23, 1999 FAX 3113 Sod oh! t Mediaene Group We are in receipt of your letter dated April 22, 1999 relating to AT&T's offer to acquire all of MediaOne Group for cash and AT&T common stock. Pursuant to Section 6.03(a) of our Merger Agreement with Comcast Corporation, before MediaOne can engage in any negotiations or discussions with AT&T concerning your offer or provide AT&T or its representatives with any non-public information, AT&T is required to execute a confidentiality agreement on terms no less favorable than MediaOne's agreement with Comcast. Attached to this letter is an executed confidentiality agreement which complies with the terms of the Merger Agreement. Please execute this agreement and return a copy to Frank M. Eichler, Esq., fax number 303-858-5834. Upon execution of the confidentiality agreement, we may begin exchanging information and engaging in discussions regarding your proposal. If you have any questions regarding the confidentiality agreement, please call Frani: Eichler at (303) 858-5856 or Sharon O'Leary at (303) 858-5854. Sincerely, Charles . Lillis • • MEDIAONE GROUP, INC. 188 Inverness Drive Englewood, CO 80112 April 23, 1999 AT&T Corp. 32 Avenue of the Americas New York, NY 10013 Attention: C. Michael Armstrong Gentlemen: We are in receipt of your proposal, dated April 22, 1999, regarding a merger transaction (a "Transaction") between AT&T Corp. ("AT&T") and MediaOne Group, Inc. (the "Company"). After reviewing the terms of your proposal, the Company's Board of Directors has determined that (i) the proposed Transaction will lead to a Superior Proposal (as defined in the Agreement and Plan of Merger, dated as of March 22, 1999, between the Company and Comcast Corporation (the "Merger Agreement")) and (ii) the Company must take certain actions with respect to the proposed Transaction in order for the Company's Board of Directors to comply with its fiduciary duties under applicable law. Accordingly, the Company's Board of Directors has authorized the Company to take such action required by the Merger Agreement to engage in further discussions with AT&T regarding the Transaction. Therefore, in connection with the Transaction, the Company and AT&T may make available to one another from time to time certain nonpublic information concerning each other's respective business, financial condition, operations, assets and liabilities. As a condition to the Company and AT&T entering into any discussions relating to a Transaction and providing information to each other, each party agrees to treat any nonpublic information concerning the other party (whether prepared by the disclosing party, its directors, officers, bankers or financial advisors (collectively, "Representatives") or otherwise and irrespective of the form of communication) which is furnished in connection with the consideration of a Transaction to a party or to its Representatives now or in the future by or on behalf of the disclosing party (collectively referred to in this letter agreement as the "Evaluation Material") in accordance with the provisions of this letter agreement, and to take or abstain from taking certain other actions hereinafter set forth. All references in this letter agreement to a party shall be deemed to mean and include the entities executing this letter agreement and their respective subsidiaries. 1. Evaluation Material. The term "Evaluation Material" does not include information which (i) is or becomes generally available to the public other than as a result of a breach of this letter agreement by the receiving party or its Representatives, (ii) was within the receiving parry's possession prior to its being • • furnished to the receiving party by or on behalf of the disclosing party; provided that " the source of such information was not known by the receiving party to be bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, the disclosing party in relation to that information, (iiii) is or becomes available to the receiving party from a source other than the disclosing party or any of its Representatives; provided that such source was not known by the receiving parry to be bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, the disclosing party with respect to such information or (iv) is independently developed by an employee or employees of the receiving party or its Representatives without the benefit of access to any information that would otherwise be Evaluation Material. 2. Use ofEvaluation Material. Each party agrees that it and its Representatives shall use the other party's Evaluation Material solely for the purpose of evaluating a possible Transaction between the parties, and that the disclosing party's Evaluation Material will be kept confidential and each party and its Representatives will not disclose or use for purposes other than the evaluation of a possible Transaction any of the other party's Evaluation Material in any manner whatsoever; provided that any of such information may be disclosed to the receiving party's Representatives who need to know such information for the sole purpose of evaluating a possible Transaction between the parties (it being understood that such Representatives shall be informed by the receiving party of the confidential nature of such information and that by receiving such information they are agreeing to be bound by the confidentiality obligations in this letter agreement). Each parry agrees to be responsible for any breach of this letter agreement by any of its Representatives. 3. Non -Disclosure of Discussions. In addition, AT&T agrees that, without the prior written consent of the other party, AT&T and its Representatives will not make any public announcement or public statement concerning the fact that any Evaluation Material has been made available hereunder, that discussions or negotiations are taking place concerning a possible Transaction involving the parties or any of the terms, conditions or other facts with respect thereto (including the status thereof); provided that AT&T may make such public announcement or public statement if in the opinion of such AT&T's outside counsel or General Counsel, such public announcement or public statement is necessary to avoid committing a violation of law or of any rule or regulation of any securities association, stock exchange or national securities quotation system on which AT&T's securities are listed or trade. In such event, AT&T shall use its best efforts to give advance notice to MediaOne and to consult with MediaOne on the timing and content of any such public announcement or public statement. 4. Required Disclosure. In the event that a party or its Representatives are requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any of the other party's Evaluation Material or any of the facts disclosure of which is prohibited under paragraph (3) of this letter agreement, the • • parry requested or required to make the disclosure shall provide the other party with prompt notice of any such request or requirement so that the other party may seek a protective order or other. appropriate remedy and/or waive compliance with the provisions of this letter agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by such other party, the party requested or required to make the disclosure or any of its Representative should nonetheless, in the opinion of such party's or (in the case of disclosure requested or required of a Representative) such Representative's outside counsel or General Counsel, disclose the other party's Evaluation Material, the party requested or required to make the disclosure or its Representative may, without liability hereunder, disclose only that portion of'the other party's Evaluation Material which such counsel advises is legally required to be disclosed; provided that the party requested or required to make the disclosure exercises its reasonable efforts to preserve the confidentiality of the other party's Evaluation Material, including, without limitation, by cooperating with the other party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the other party's Evaluation Material. 5. Termination ofDircussions. If either party decides that it does not wish to proceed with discussions or negotiations relating to a Transaction with the other party, the party so deciding will promptly notify the other party of that decision. In that case, or at any time upon the request of either disclosing party for any reason, each receiving party will promptly deliver to the disclosing party or, at the option of the receiving party, destroy, all written Evaluation Material (and all copies thereof and extracts therefrom) furnished to the receiving party or its Representatives by or on behalf of the disclosing party pursuant hereto. In the event of such a decision or request, all other Evaluation Material prepared by the receiving party shall be destroyed and no copy thereof shall be retained, and in no event shall either party be obligated to disclose or provide the Evaluation Material prepared by it or its Representatives to the other party. The destruction of Evaluation Material shall be certified in writing by an authorized officer of such party. With respect to Evaluation Material in electronic form, a party shall only be required to use all reasonable endeavors to return or destroy any such Evaluation Material. Notwithstanding the termination of any discussions or the return or destruction of the Evaluation Material, each party and its Representatives will continue to be bound by their obligations of confidentiality and other obligations hereunder for a period of three. (3) years from the date hereof. 6. Nonsolicitation. For a period of two (2) years from the date hereof, each party agrees that it will not directly or indirectly solicit to employ any current senior management employees of the other party; provided, however, that the foregoing shall not apply to (i) any such employee who has left employment with the employing party prior to the commencement of such solicitation, or (ii) generalized searches for employees by use of advertisements in the media. 3 7. Standstill. Each party agrees that, for a period of twenty four months from the date of this letter agreement, neither it nor any of its controlled affiliates will, without the prior written consent of the other party: (a) . acquire, offer to acquire or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of the other party, or any subsidiary thereof, the other party, or any assets of the other party, or any subsidiary or division thereof; or of any such successor or controlling person other than immaterial asset purchases in the ordinary course of business and acquisitions of securities in the ordinary course for investment purposes by pension funds; make, or in any way participate, directly or indirectly, in any "solicitation" of `proxies" to vote (as such terms are used in the rules of the Securities and Exchange Commission), or seek to advise or influence any person or entity with respect to the voting of any voting securities of the other party; (c) form, join or in any way participate in a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, in connection with any of the foregoing; or (d) otherwise act, alone or in concert with others (including by providing financing for another party), to seek or offer to control or influence, in any manner, the management, Board of Directors or policies of the other party. Each party covenants and agrees that during such period, unless and until such party shall have been specifically invited in writing by the other party, it will not, and will cause each of its affiliates not to, directly or indirectly, (x) solicit, seek or offer to effect, negotiate with or provide any information to any party with respect to, or (y) make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board of Directors of the other party, to any director or officer of the other party or to any shareholder of the other party, or otherwise make any public announcement or proposal or offer whatsoever with respect to (i) any form of business combination or transaction involving the other party or any Affiliate thereof, including, without limitation, a merger, exchange offer or liquidation of the other party's assets, (ii) any form of restructuring, recapitalization or similar transaction with respect to the other party or any affiliate thereof, (iii) any request to waive or terminate the provisions of this letter agreement or (iv) any proposal or other statement with respect to the other party inconsistent with the terms of this letter agreement, or instigate or encourage any third party to do any of the foregoing. 8. Miscellaneous. Each party agrees that unless and until a definitive agreement between the parties with respect to any transaction has been executed and (b) 4 J delivered, neither the Company nor AT&T will be under any Iegal obligations of any kind whatsoever with respect to a transaction by virtue of this or any written or oral expression with respect to such a transaction by any of our respective Representatives except for the matters specifically agreed to in this letter agreement. Each further agrees that neither party shall have any obligation to furnish Evaluation Material to the other party or to authorize or pursue with the other party any transaction except as specifically provided herein. Each party acknowledges and agrees that each reserves the right, in its sole and absolute discretion, to reject any and all proposals and to terminate discussions and negotiations with the other at any time subject to the provisions set forth herein. The agreements set forth in this letter agreement may be modified or waived only by a separate writing between the parties hereto. 9. Injunctive Relief It is further understood and agreed that money damages would not be a sufficient remedy for any breach of this letter agreement by either party or any of its Representatives and that the non-breaching party hail be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach of this letter agreement but shall be in addition to all other remedies available at law or equity. 10. No Waiver. Any forbearance or delay by either party in exercising any right, power or privilege under the terms of this letter agreement shall not be construed as a waiver thereof or of a right thereafter to enforce the same. 11. Successors and Assigns. This letter agreement shall inure to the benefit of the parties hereto and 03a11 be binding upon their respective successors and assigns. 12. Governing Law. This letter agreement shall be governed by New York law, without reference to its conflict of laws principles. 5 • Please confirm your agreement with the foregoing by signing and returning one copy of this letter agreement to the undersigned, whereupon it shall become a binding agreement. Accepted and Agreed as of the date first written above: AT&T CORP. By:... Name Title: • • Very truly yours, MEDIAONE GROUP, INC. By: Name: a.4.4E,il..Cw Title: £Vw°— pJ,L. 6 ANT C. Michael Atmsveteg GE u tan d the Beard MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 80112 Atrcation: Charles M. Lillie Gentlemen: May 1, 1999 32 ilnnwo of lbe Ar,erigs flew Yak. Mf 5012.2'-42 212 64442C0 Please find launched hereto an Agreement and Plan of Merger (tan 'Menem Agreement") setting forth the dem: Live terms of the proposed merger between AT&T Coup. ("AT&T') and MediaOne Group, Inc. ("MediaOne"). The execution and delivery of *the Merger Agrecrnent by AT&T hereby constitutes a binding irrevocable offer (except as specified below) by AT&T to MediaOne to enter into the transactions contemplated by the Merger Agreement on else turns specified therein. AT&T wi11, have the right to withdraw this offer by written notice to Ade One if MediaOne hes not ac eptod the offaand executed the Merger Agrecnunt prier to 5:00' p.m., New York City limn, on May 10, 1999; provided that, if Comcast Corpoiaticm C`Comrast'7 docs not deliver a new Acquiffirioa Proposal, as defined in tate Agreement and Plan of Merger; Axed as cfMarch22,1999, by and between McdieOne and Comcast (the "Comcast Agreement"), tg MediaOne piioi to 11:59 p.m. on May'6,1999, AT&T will have thozight to withdraw its offer by Wridennoticc to MediaOne if MediaOtm has not accepted AT&T.' offer and exccrned the Mergir • Agreement prior to 5:00 p.m., New York City time, an May 7, 1999. Except es Set forth in the preceding sentence, AT&T sial not be entitled to withdraw, modify or amends offer. MediaOne carr accept AT&T's offer any time prior to written notice of withdravraI m accordance with tete terms of this letter by executing the Mager Agreement/and delivering it to AT&T. AT&T represents to MediaOne that AT&T's execution, delivery and performance of the Merger Agreement, and the consummation t on of the ons contemplated thereby. are within AT&T's corporate powers, and have been duly authorized by all necessary corporate action. In addition, AT&T rcpreserns to MediaOne than the Mager Agreement constitutes a valid and binding agreement of AT&T and will, won execution by MediaOne, be enforceable against AT&T in accordance with its teras. In order to induce MediaOne to deliver, concurrently with the delivery of this letter, a notice to Comcast in accordance with the provisions of Sectirm.I0.1(d)(fiiXA) of else Comeau Agrcctnerrt. AT&T hereby agrees to pay to Meditate' the sum of 51.500,000,000 by wire uansfes of irMamodiarely available funds immediately upon the cffeeliv=ss ofthe lamination of the Comcast Ageeniem and MediaOne's execution and delivery ofthe Merger Agreement (which delivery shall constitute notice of AT&T's obligation to melte the payments described in this paragraph). This offer and our Darer ogre:rnesu set forth in this latter ylrall be gcvCme$ by and construed in accordance with tjsc law* of he Sic of Delaware without ==i to the can - 1 icer of laws pduci➢lts thertoC Very tndy yours. AT&T CORP. By: Naze.. a-MIcharl Ad t ng • Vele: C'babmarr of the Board • • • Frank M. BchJar 188 Inverness Drive west Ea:cutlets Wee Pr= Amu enf Sulu, 560 Lw and Public Pr ky Engkwoad. CO 801125208 Goa oral Counaef:and Secretary fekhfere,rne Jaoneiam Fhaae 303 8583856 May 1, 1999 Comcast Corporation 1500 Market Street Philadelphia,. Pennsylvania 19102 Attention: General Counsel FAX: 349 858.5834 MediaOne Group You are hereby notified that, pursuant to Section 10.01(dxiii) of the Agreement and Plan of Merger, dated as of March 22, 1999, between MediaQne Group and Comcast Corporation (the "Comcast Agreement"), the Board ofDirectors of MediaOne Group (the "Board") has determined to terminate the Comcast Agreement. The Board has determined, based on the advice of its financial advisor, that the proposal of AT&T Corp. (the "AT&T Proposal") to acquire all of MediaOne - Group for cash and AT&T Common Stockconstitutes a Superior Proposal (as defMcd in the Merger Agreement). In this regard, the Board bas authorized MediaOne Group, subject to complying with the terms of the Comcast Agreement; to eater into a binding written agreernmt (the "AT&T Agreement") concerning the AT&T•Proposal. A copy of the most recent vez;sion of the AT&T Agreement is attached to this letter, Please note that MediaOne group has complied with Section 6.03 of the Couwast Agreement Please also note that MediaOne Group will pay to Corncast, ins imm ediately available funds, the 51,500,000,000 termination fee required .pursuant .to Secxion 10.04dXiii)(C) of the Comcast Agreement prior to germination of the Comcast Agreement at the expiration of the five-day period specified in Section 10.01(dXiii)(B) of the Comcast Agreement Pursuant to the Comcast Agreement, delivery of this notice triggers the 21 -day extension of the Initial Period (as defmad:ia Section 6.03 of the Comcast Agreement) with respect to AT&T. As you know, under the Comcast Agreement, Comcast has five days after receipt of this notice to make an offer to MediaOne Group that the Board dines is at least as. favorable to the stockholders of MediaQne Group as the Superior Proposal referenced in this letter. We expect that any such Comcast proposal, if made, will comply with the bidding procedures set forth in Sections 6.03 and 10.01(d)(iiii) afthe Comcast Agreement. Specifically, we expect that any such • proposal by Comcast will not.seek to prematurely end the bidding process contemplated'by 10'.01(dXiu)(B). • • Please be advised that MediaOne Group retains the right, until the expiration of the 45th day after the execution of the Comcast Agreement, to submit to you one or more additional notices of termination with respect to other Superior Proposals that MediaOne may receive. Please contact me if you have any questions regarding the foregoing. Very truly cc: Davie Polk & Wardwell 450 Lexington Amnia New York, Newv York 10017 Attention: Dconis S. Arrscb er • • COMCAST CORPORATION 1500 Market Street Philadelphia, PA 19102 May 4, 1999 MediaOne Group, Inc. 188 Inverness Drive West Englewood, CO 80112 Ladies and Gentlemen: Reference is made to the notice (the "MediaOne Notice") delivered by you pursuant to Section 10.01(d)(iii) of the Agreement and Plan of Merger (the "Merger Agreement") dated as of March 22, 1999 between MediaOne Group, Inc. and Comcast Corporation ("Comcast'), declaring your intention to (i) enter into a binding written agreement with AT&T Corp. (the "AT&T Agreement") concerning a transaction constituting a Superior Proposal (as defined in the Merger Agreement) and (ii) terminate the Merger Agreement to enable MediaOne to enter into the AT&T Agreement We hereby notify you that Comcast (i) will not make an offer in response to such Superior Proposal, (ii) waives the five-day period referenced in Section 10.01(d)(iii)(B) and (iii) will accept termination of the Merger Agreement in connection with such Superior Proposal immecdiatPly upon receipt of the Termination Fee (as defined in the Merger Agreement). cc: Weil, Gotshal & Manges LLP Very truly yours, COMCAST CORPORATION By: Name: 1„.,,_ ,• Title: ,,, « (1,cf,,vk ...r. a. lb • • COMCAST CORPORATION 1500 Market Street Philadelphia, PA 19102 May 4, 1999 Comcast Investment. Holdings, Inc. 1201 Market Street Suite 2201 Wilmington, DE 19801 MediaOne Group, Inc. 188 Inverness Drive West Englewood, CO 80112 Ladies and Gentlemen: Reference is niade the Agreement and Plan of Merger (the "Merger Agreement") dated as of March 22, 1999 between MediaOne Group, Inc., a Delaware corporation, and Comcast Corporation, a Pennsylvania corporation ("Comcast"). In accordance with Section 11.04 of the Merger Agreement, Comcast hereby assigns to Comcast Investment Holdings, Inc., a Delaware corporation ("CIH") and a wholly-owned subsidiary of Comcast, Comcast's right to receive a cash termination fee of $1,500,000,000 pursuant to Section 10.03(c) of the Merger Agreement. CIH hereby accepts such assignment from Comcast. Please confirm your agreement with the foregoing by signing below. Very truly yours, COMCAST CORPORATION By: Name: II„ctt.,.— .. 6 w u. - Title: vide QRv,ie,..r Accepted and agreed as of the 4th day of May, 1999: COMCAST INVESTMENT HOLDINGS, INC. By: t) Name: Title: —Ma F. "Jon.oeI./44r, Vice Pittr/ pt.."'" MEDIAONE GROUP, INC. By: • Name: Fr,c,,k M. E; Title: Exec.s..Twe d, ce pier.`.4*-17 — Lac) w�Q /�L(: AL`c, • 2 • MediaOne Group, Inc. 188 Inverness Drive West Englewood, Colorado 80012 May 6, 1999 Comcast Corporation 1500 Market Street Philadelphia, Pennsylvania 19102 Attention: General Counsel You are hereby notified that, in reliance on your letter, dated May 4, 1999, waiving your right to make an offer within the 5 -day period provided in Section 10.01(d)(iii)(B) of the Agreement and Plan of Merger, dated as of March 22, 1999, by and between MediaOne Group, Inc. ("MediaOne") and Comcast Corporation ("Comcast") (the "Comcast Agreement"), MediaOne is hereby terminating the Comcast Agreement in order to enter into a binding written agreement with AT&T Corp. In accordance with your letter, dated May 4, 1999, assigning Comcast's right to receive the $1,500,000,000 termination fee required pursuant to Section 10.01(d)(iii)(C) of the Comcast Agreement, MediaOne is concurrently herewith transmitting such fee by wire transfer of immediately available funds to Comcast Investment Holdings, Inc. Please contact me if you have any questions regarding the foregoing. cc: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: Dennis S. Hersch EXHIBIT 7 Those proceedings in which the Time Warner Entertainment-Advance/Newhouse Partnership or the Time Warner Cable Division of Time Warner Entertainment, Co., L.P. has been found liable (or instances in which a consent decree was entered into regarding antitrust violations), or is currently a party to a proceeding, limited to the time period from June of 1992 through November 9, 1999, are as follows: 1) Alice W. Holt v. Hillsborough County, Bay News 9, et al: Plaintiff filed this complaint on May 28, 1999, in federal court in Florida alleging a massive RICO conspiracy between local municipalities, animal rescue groups and the local print and news media for the purpose of obtaining donations and political support for the animal rights groups. The plaintiff has sued over 100 entities, including Bay News 9 (of TWE-A/N's Tampa Division) and an employee. We filed a motion to dismiss on June 22, 1999. 2) Rosenbaum, Michael and Peggy Nevells v. Cablevision Industries Limited Partnership d/b/a Time Warner Communications, TWE-A/N, TWE, Time Warner AxS of Florida., L.P.: Plaintiff brought this class action in state court in Florida on February 19, 1998, claiming that late fee charges imposed by Time Warner's Tampa Bay area cable systems constitute unfair or deceptive trade practices. Plaintiff also asserted various contract claims. The case was removed to, and presently remains pending in, Federal District Court for the Middle District of Florida, Ocala Division. Plaintiffs have moved to voluntarily dismiss the claims involving deceptive and unfair conduct. Defendants seek the dismissal of those claims with prejudice. 3) Jeffcoat, Brian Wessley, et al v. TWE-A/N: Plaintiffs filed this purported class action in South Carolina state court on March 17, 1998 complaining about the our late fee. Plaintiffs have claimed consumer protection law violation, unfair trade practices, and breach of an implied covenant of good faith and fair dealing and have sought declaratory and injunctive relief in addition to damages that include trebling of late fee refunds and/or punitive damages, costs and attorney's fees. On July 30, 1998, the federal court, where the case remains pending after a removal, granted the Partnership's motion to dismiss in part and denied it in part. The court granted our motion for summary judgment on June 30, 1999. The plaintiff moved to have the court reconsider or amend the judgment. 4) Bartholdi Cable fka Liberty Cable Co., Inc. and LVE, L.L.C. v. TWI, TWE., TWCNYC, ATC, TWC, TW New York City Cable Group, Paragon Communications, OUICS and Gerald Levin: On May 29, 1996, plaintiffs filed suit in United States District Court for the Eastern District of New York against defendants alleging claims for monopolization, attempted monopolization and conspiracy to monopolize under the Sherman Act and Donnelly Act. Plaintiff also alleges violations of the Lanham Act, 15 U.S.C. Sec. 1125 and New York law for purportedly misleading advertising and for deceptive acts and trade practices. The case remains pending. 5) New York State Attorney General Subpoena: On March 26, 1993, a subpoena was issued • to Time Warner Entertainment Company, L.P. by the United States Attorney's Office of the Southern District of New York directing it to produce certain documents in connection with an investigation into an alleged violation of 18 U.S.C. Section 1341 (mail fraud). Time Warner Entertainment produced responsive documents in April 1993. The Companies have had no further communication from the United States Attorney's office or the postal authorities on this matter. 6) Consent Decree between Primestar Partners, L.P. ("Primestar"), TWE, et al and the states of New York, California, Maryland, Massachusetts, Ohio, Pennsylvania, Texas, Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois,. Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington and Wisconsin: In May 1990, the Department of Justice and the New York State Attorney General's office began an antitrust investigation that involved Time Warner and certain of its corporate affiliates relating to Primestar Partners, L.P., a limited partnership formed to deliver programming via direct broadcast satellite. Numerous other states were also part of this investigation. On June 9, 1993, Time Warner, other owners of Primestar Partners, L.P., and Primestar Partners, L.P. itself entered into a settlement and Consent Decree with the United States Department of Justice and with 40 State .Attorneys General. On September 3, 1993, the United States District Court for the Southern District of New York approved the Consent Decree with the States, and on April 4, 1994, the Court entered the federal Consent Decree. t EXHIBIT 8 Attached hereto please find a list of franchises and systems within the Syracuse Division of Time Warner Cable. Please note that as Time Warner Cable has more than three thousand managed franchises in total, to provide the Consortium with all of the information requested would be overly burdensome and unmanageable. If the Consortium would like more complete information on any specific franchise, which information is not included herein, please let us know and we will make every reasonable effort to provide the requested information. ITHACA AREA CABLE CONSORTIUM PROPOSAL Section I.C.1 DIVISION SYSTEM FRANCHISE HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST Syracuse Adams Adams, Town of TWEAN 100% 525 08/21/2002 Syracuse Adams Adams, Village of TWEAN 100% 665 11/02/2002 Syracuse Adams Ellisburg, Town of TWEAN 100% 155 11/12/2003 Syracuse Adams Mannsville, Village of TWEAN 100% 108 06/02/2004 Syracuse Adams Rodman, Town of TWEAN 100% 55 11/12/2003 Syracuse Boonville Ava, Town of TWEAN 100% 21 05/10/2008 Syracuse Boonville Boonville, Town of TWEAN 100% 327 02/10/2001 Syracuse Boonville Boonville, Village of TWEAN 100% 875 06/24/2001 Syracuse Boonville Constableville, Village TWEAN 100% 123 11/12/2000 Syracuse Boonville Lewis, Town of TWEAN 100% 64 05/12/2008 Syracuse Boonville Leyden, Town of TWEAN 100% 196 10/04/2000 Syracuse Boonville Lyons Falls, Village of TWEAN 100% 257 01/14/2001 Syracuse Boonville Lyonsdale, Town of TWEAN 100% 84 11/11/2001 Syracuse Boonville Port Leyden, Village of TWEAN 100% 264 11/02/2002 Syracuse Boonville West Turin, Township TWEAN 100% 11/15/2000 Syracuse Camden Camden, Town of TWEAN 100% 132 06/11/1999 Syracuse Camden Camden, Village of TWEAN 100% 709 10/15/2006 Syracuse Camden Sylvan Beach, Village TWEAN 100% 480 07/10/2007 Syracuse Camden Vienna, Town of TWEAN 100% 738 04/05/2008 Syracuse Carthage Alexandria/Wellesley , TWEAN 100% 71 06/06/1999 Syracuse Carthage Antwerp , Village of TWEAN 100% 214 11/15/2000 Syracuse Carthage Antwerp, Town of TWEAN 100% 4 02/09/2002 Syracuse Carthage Brownville, Town of TWEAN 100% 208 03/09/2003 Syracuse Carthage Cape Vincent , Village TWEAN 100% 286 02/09/2003 :yracuse Carthage Cape Vincent, Town of TWEAN 100% 111 02/11/2003 ,:yracuse Carthage Castorland, Village of TWEAN 100% 101 12/13/2006 Syracuse Carthage Champion , Town of TWEAN 100% 408 06/30/2005 Syracuse Carthage Chaumont, Village of TWEAN 100% 212 08/20/2001 Syracuse Carthage Clayton , Village of TWEAN 100% 561 11/07/2006 Syracuse Carthage Clayton, Town of TWEAN 100% 607 11/06/2006 Syracuse Carthage Copenhagen , Village TWEAN 100% 262 05/30/2001 Syracuse Carthage Crogan, Village of TWEAN 100% 316 12/14/2006 Syracuse Carthage Croghan, Town of TWEAN 100% 207 12/13/2006 Syracuse Carthage Deferiet , Village of TWEAN 100% 104 06/30/2005 Syracuse Carthage Denmark , Town of TWEAN 100% 201 07/14/2001 Syracuse Carthage Dexter , Village of TWEAN 100% 353 10/18/2000 Syracuse Carthage Diana, Town of TWEAN 100% 112 06/10/2002 Syracuse Carthage E. Carthage, Village of TWEAN 100% 1,205 03/11/2002 Syracuse Carthage Evans Mills , Village of TWEAN 100% 249 12/12/2000 Syracuse Carthage Fort Drum TWEAN 100% 3,030 09/30/2002 Syracuse Carthage Harrisville , Village of TWEAN 100% 217 05/04/2002 Syracuse Carthage Herrings , Village of TWEAN 100% 29 06/30/2005 Syracuse Carthage Hounsfield , Town of TWEAN 100% 123 01/29/2003 Syracuse Carthage LeRay, Town of TWEAN 100% 32 04/09/2002 Syracuse Carthage Lyme, Town of TWEAN 100% 102 08/20/2001 Syracuse Carthage New Bremen, Town of TWEAN 100% 266 12/31/2006 Syracuse Carthage Orleans , Town of TWEAN 100% 285 02/08/1999 Syracuse Carthage Philadelphia , Town of TWEAN 100% 60 _02/11/2002 Syracuse Carthage Philadelphia , Village o TWEAN 100% 464 02/13/2000 Syracuse Carthage Pitcaim , Town of TWEAN 100% 55 05/04/2002 ,yracuse Carthage Sackets Harbor , Villag TWEAN 100% 517 05/30/1999 Syracuse Carthage Theresa , Town of TWEAN 100% 40 02/12/2002 Syracuse Carthage Theresa , Village of TWEAN 100% 255 12/03/2000 Syracuse Carthage West Carthage , Villag TWEAN 100% 749 04/25/2002 Page 1 of 6 I. • • • DIVISION SYSTEM FRANCHISE HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST Syracuse Carthage Wilna , Town of TWEAN 100% 488 06/30/2005 Jyracuse Champlain Altona , Town of TWEAN 100% 279 12/16/2000 Syracuse Champlain Champlain , Town of TWEAN 100% 446 02/08/1997 Syracuse Champlain Champlain , Village of TWEAN 100% 420 02/08/1997 Syracuse Champlain Chazy , Town of TWEAN 100% 878 03/11/1999 Syracuse Champlain Ellenburg , Town of TWEAN 100% 313 10/27/2001 Syracuse Champlain Mooers , Town of TWEAN 100% 427 01/23/2001 Syracuse Champlain Rouses Point , Village TWEAN 100% 890 02/08/1997 Syracuse Cortland Cortland, City of Fanch-one 100% 6,108 04/11/2005 Syracuse Cortland Cortlandville, Town of Fanch-one 100% 2,217 04/11/2005 Syracuse Cortland Homer, Town of Fanch-one 100% 480 04/11/2005 Syracuse Cortland Homer, Village of Fanch-one 100% 1,250 04/11/2005 Syracuse Cortland McGraw, Village of Fanch-one 100% 366 04/11/2005 Syracuse Cortland Preble, Town of TWE 100% 225 09/24/2008 Syracuse Cortland Scott, Town of TWE 100% 250 07/11/2008 Syracuse Cortland Virgil, Town of Fanch-one 100% 5 08/14/2005 Syracuse Fulton Fair Haven , Village of TWEAN 100% 299 09/10/2000 Syracuse Fulton Fulton, City of TWEAN 100% 4,080 06/30/2005 Syracuse Fulton Granby , Town of TWEAN 100% 1,632 02/24/2006 Syracuse Fulton Hannibal , Town of TWEAN 100% 736 09/07/1998 Syracuse Fulton Hannibal , Village of TWEAN 100% 180 09/12/1998 Syracuse Fulton New Haven , Town of TWEAN 100% 693 12/01/2002 Syracuse Fulton Palermo , Town of TWEAN 100% 782 12/26/2000 Syracuse Fulton Sterling , Town of TWEAN 100% 313 11/19/2000 Syracuse Fulton Volney , Town of TWEAN 100% 1,426 10/31/1997 Syracuse Ilion Bridgewater, Town of TWEAN 100% 148 03/02/2004 :yracuse Ilion Bridgewater, Village of TWEAN 100% 157 03/02/2004 Syracuse Ilion Columbia, Town of TWEAN 100% 116 07/14/2003 Syracuse Ilion Danube, Town of TWEAN 100% 58 07/14/2003 Syracuse Ilion Dolgeville, Village of TWEAN 100% 855 09/14/2004 Syracuse Ilion Earlville, Village of TWEAN 100% 401 01/09/2001 Syracuse Ilion Eaton, Town of TWEAN 100% 309 01/09/2002 Syracuse Ilion Frankfort, Town of TWEAN 100% 528 01/04/2005 Syracuse Ilion Frankfort, Village of TWEAN 100% 1,218 10/12/2004 Syracuse Ilion German Flats, Town of TWEAN 100% 352 11/09/2004 Syracuse Ilion Hamilton, Town of TWEAN 100% 188 01/09/2001 Syracuse Ilion Hamilton, Village of TWEAN 100% 819 01/09/2001 Syracuse Ilion Herkimer, Town of TWEAN 100% 628 11/09/2004 Syracuse Ilion Herkimer, Village of TWEAN 100% 2,757 03/07/2005 Syracuse Ilion Ilion, Village of TWEAN 100% 5,274 01/04/2005 Syracuse Ilion Lebanon, Town of TWEAN 100% 155 02/10/2001 Syracuse Ilion Litchfield, Town of TWEAN 100% 113 07/14/2003 Syracuse Ilion Little Falls, City of TWEAN 100% 2,087 09/06/2005 Syracuse Ilion Little Falls, Town of TWEAN 100% 280 01/05/2005 Syracuse Ilion Madison, Town of TWEAN 100% 157 07/20/2002 Syracuse Ilion Manhein, Town of TWEAN 100% 157 10/08/2002 Syracuse Ilion Mohawk, Village of TWEAN 100% 1,173 10/12/2004 Syracuse Ilion Morrisville, Village TWEAN 100% 327 01/09/2001 Syracuse Ilion Plainfield, Town of TWEAN 100% 56 08/19/2001 Syracuse Ilion Salisbury, Town of TWEAN 100% 170 06/13/2001 Syracuse Ilion Sherbume, Town of TWEAN 100% 196 01/09/2002 Syracuse Ilion Sherbume, Village of TWEAN 100% 645 01/09/2001 Jyracuse Ilion Smyma, Town of TWEAN 100% 51 09/14/2004 Syracuse Ilion Smyrna, Village of TWEAN 100% 57 01/09/2001 Syracuse Ilion West Winfield, Village TWEAN 100% 446 02/01/2005 Page 2 of 6 • DIVISION SYSTEM FRANCHISE HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST Syracuse Ilion Winfield, Town of TWEAN 100% 85 12/08/2003 ,yracuse IIlion Brookfield, Town of TWE 100% 300 02/08/2003 Syracuse Ithaca Candor, Town of TWEAN 100% 379 04/23/2001 Syracuse Ithaca Candor, Village of TWEAN 100% 320 09/17/2002 Syracuse Ithaca Caroline, Town of TWEAN 100% 227 11/20/2000 Syracuse Ithaca Cayuga Heights, Villag TWEAN 100% 1,278 03/01/1997 Syracuse Ithaca Covert, Town of TWEAN 100% 56 01/01/1998 Syracuse Ithaca Danby, Town of TWEAN 100% 549 06/05/1997 Syracuse Ithaca Dryden, Town of TWEAN 100% 2,775 06/05/1997 Syracuse Ithaca Dryden, Village of TWEAN 100% 190 06/05/1997 Syracuse Ithaca Freeville, Village of TWEAN 100% 672 03/05/2000 Syracuse Ithaca Groton, Town of TWEAN 100% 197 06/05/1997 Syracuse Ithaca Groton, Village of TWEAN 100% 883 06/05/1997 Syracuse Ithaca Ithaca, City of TWE 100% 8,883 02/01/1999 Syracuse Ithaca Ithaca, Town of TWEAN 100% 4,796 06/05/1997 Syracuse Ithaca Lansing, Town & Vill. TWEAN 100% 3,166 11/14/2001 Syracuse Ithaca Newark Valley, Town o TWEAN 100% 353 08/20/2001 Syracuse Ithaca Newark Valley, Village TWEAN 100% 363 05/03/2000 Syracuse Ithaca Newfield, Town of TWEAN 100% 1,118 03/01/1997 Syracuse Ithaca Trumansburg, Village TWEAN 100% 558 03/01/1997 Syracuse Ithaca Ulysses, Town of TWEAN 100% 552 03/31/2000 Syracuse Lowville Lowville, Town of TWEAN 100% 114 09/11/2004 Syracuse .Lowville Lowville, Village of. . .TWEAN. 100% 1,386 07/10/2007 Syracuse Malone Bangor, Town of TWEAN 100% - 353 10/20/2003 Syracuse Malone Bombay, Town of TWEAN 100% 207 04/09/2001 Syracuse Malone Brushton , Village of TWEAN 100% 326 06/02/1999 ,yracuse Malone Burke , Village of TWEAN 100% 78 05/24/2001 Syracuse Malone Burke, Town of TWEAN 100% 124 05/23/2001 Syracuse Malone Chateaugay , Town of TWEAN 100% 52 05/09/2001 Syracuse Malone Chateaugay , Village o TWEAN 100% 336 05/10/2001 Syracuse Malone Constable, Town of TWEAN 100% 283 07/10/2005 Syracuse Malone Fort Covington , Town TWEAN 100% 345 06/05/2004 Syracuse Malone Malone , Village of TWEAN 100% 2,422 01/05/2005 Syracuse Malone Malone, Town of TWEAN 100% 839 03/14/2005 Syracuse Malone Moira , Town of TWEAN 100% 410 06/03/1999 Syracuse Malone Westville , Town of TWEAN 100% 339 05/23/2004 Syracuse Massena Brasher, Town of TWEAN 100% 454 12/27/1998 Syracuse Massena Lawrence , Town of TWEAN 100% 235 03/14/2003 Syracuse Massena Louisville , Town of TWEAN 100% 945 05/06/1998 Syracuse Massena Massena , Town of TWEAN 100% 782 05/03/1999 Syracuse Massena Massena , Village of TWEAN 100% 4,365 04/06/1999 Syracuse Massena Norfolk, Town of TWEAN 100% 487 03/11/2000 Syracuse Massena Stockholm, Town of TWEAN 100% 297 12/28/1998 Syracuse Massena Waddington, Town of TWEAN 100% 17 08/06/2004 Syracuse Mexico Central Square, Villag TWEAN 100% 544 05/14/2005 Syracuse Mexico Hastings, Town of TWEAN 100% 1,442 09/15/2007 Syracuse Mexico Lacona, Village of TWEAN 100% 167 03/03/2007 Syracuse Mexico Mexico, Town of TWEAN 100% 314 05/15/2007 Syracuse Mexico Mexico, Village of TWEAN 100% 505 07/01/2001 Syracuse Mexico Parish, Town of TWEAN 100% 67 06/27/2006 Syracuse Mexico Parish, Village of TWEAN 100% 126 03/26/1999 Syracuse Mexico Pulaski, Village of TWEAN 100% 823 04/09/2005 Syracuse Mexico Richland, Town of TWEAN 100% 782 01/01/2008 Syracuse Mexico Sandy Creek, Town of TWEAN 100% 380 06/13/2000 Syracuse Mexico Sandy Creek, Village o TWEAN 100% 239 10/07/2006 Page 3 of 6 s • DIVISION Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse :yracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse SYSTEM Ogdensburg Ogdensburg Ogdensburg Ogdensburg Ogdensburg Ogdensburg Ogdensburg Ogdensburg Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida Oneida (Seneca) Oneida (Seneca) Oneida (Seneca) Oneida (Seneca)) Oswego Oswego Oswego Oswego Oswego Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam Potsdam FRANCHISE HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST Heuvelton , Village of Lisbon, Town of Morristown , Town of Morristown , Village of Ogdensburg , City of Oswegatchie , Town of Rensselaer Falls , Villa Waddington , Town of Canastota, Village of Chittenango, Village of Cleveland, Village of Constantia, Town of Fenner, Town of Lenox, Town of Lincoln, Town of Munnsville, Village of Oneida Castle, Village Oneida, City of Sherill, City of Stockbridge, Town of Sullivan, Town of Vernon, Town of Vernon, Village of Verona, Town of Wampsville, Village of West Monroe, Town of Baldwinsville, Village o Lysander, Town of Schroeppel, Town of Van Buren, Town of Minetto, Town of New Haven, Town of Oswego, City of Oswego, Town of Scriba, Town of Canton , Village of Canton, Town of Colton, Town of Dekalb , Town of Fowler , Town of TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN. TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN. TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN Gouverneur , Town of TWEAN Gouverneur , Village of TWEAN Hermon , Town of Hermon , Village of Hopkinton , Town of Lawrence, Town of Madrid, Town of Norfolk , Town of Norwood , Village of Parishville , Town of Pierrepont, Town of Potsdam , Town of Potsdam , Village of Richville , Village of Russell , Town of TWEAN TWEAN TWEAN TWE TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN TWEAN 100% 293 06/30/2005 100% 425 08/15/2004 100% 93 01/06/2006 100% 143 01/07/2006 100% 3,921 06/10/1999 100% 504 06/30/2005 100% 148 11/05/1999 100% 38 08/06/2004 100% 1,682 03/07/1999 100% 1,614 01/07/2003 100% 229 09/02/2000 100% 670 09/01/2000 100% 9 11/29/2006 100% 703 09/11/1999 100% 218 08/11/1997 100% 216 05/12/1997 100% 263 01/01/2002 100% 4,195 11/23/2002 100% 1,146 12/30/2002 100% 177 05/05/1997 100% 2,672 01/07/2003 100% 752 12/28/2002 100% . 421 05/14/1997 100%. 1,249 06/24/2003 100% 176 05/14/1997 100% 875 09/01/2000 100% 2,012 03/15/2005 100% 3,680 05/14/2000 100% 1,269 03/15/2005 100% 2,940 05/18/2004 100% 528 05/14/2000 100% 12 12/01/2002 100% 6,914 07/23/2000 100% 1,352 03/05/2000 100% 2,065 02/26/2000 100% 1,873 01/22/2000 100% 899 05/13/2000 100% 387 09/11/2004 100% 144 01/10/2000 100% 343 03/23/2005 100% 437 02/26/1998 100% 1,401 06/12/1999 100% 5 07/08/2000 100% 140 07/16/2000 100% 188 07/24/2000 100% 43 03/14/2003 100% 264 08/20/2005 100% 893 03/11/2000 100% 594 11/13/1998 100% 493 06/28/2003 100% 480 04/10/1999 100% 1,098 01/03/2000 100% 2,053 08/21/1999 100% 121 12/20/1999 100% 120 08/07/2000 Page 4 of 6 • • DIVISION SYSTEM FRANCHISE HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST Syracuse Potsdam Stockholm, Town of TWEAN 100% 272 12/28/1998 .yracuse Rome Annsville , Town of TWEAN 100% 516 10/20/1997 Syracuse Rome Floyd , Town of TWEAN 100% 971 12/04/2005 Syracuse Rome Griffiss AFB TWEAN 100% 8 09/30/1998 Syracuse Rome Holland Patent , Villag TWEAN 100% 179 10/05/1997 Syracuse Rome Lee, Town of TWEAN 100% 1,706 04/11/2003 Syracuse Rome Marcy , Town of TWEAN 100% 256 09/24/2000 Syracuse Rome Rome, City of TWEAN 100% 11,089 11/12/2001 Syracuse Rome Trenton , Town of TWEAN 100% 141 12/29/1998 Syracuse Rome Westem , Town of TWEAN 100% 346 01/12/1997 Syracuse Rome Westmoreland , Town TWEAN 100% 986 09/23/2001 Syracuse Rome Whitestown , Town of TWEAN 100% 5 12/30/2001 Syracuse Syracuse Brutus, Town of TWEAN 100% 470 03/23/1996 Syracuse Syracuse Camillus , Town of TWEAN 100% 7,004 01/22/2004 Syracuse Syracuse Camillus , Village of TWEAN 100% 508 08/01/2000 Syracuse Syracuse Cato , Village of TWEAN 100% 72 09/01/1999 Syracuse Syracuse Cato, Town of TWEAN 100% 385 09/01/1999 Syracuse Syracuse Cicero, Town of TWEAN 100% 7,658 03/31/1999 Syracuse Syracuse Clay, Town of TWEAN 100% 16,889 03/31/1999 Syracuse Syracuse Dewitt , Town of TWEAN 100% 6,537 01/05/2000 Syracuse Syracuse East Syracuse , Villag TWEAN 100% 953 04/02/2005 Syracuse Syracuse Elbridge, Town of TWEAN 100% 660 08/18/2005 Syracuse Syracuse Elbridge, Village of TWEAN 100% 428 08/18/2005 Syracuse Syracuse Fayetteville , Village of TWEAN 100% 1,567 02/07/1997 Syracuse Syracuse Geddes , Town of TWEAN 100% 4,003 02/28/2000 Syracuse Syracuse Hancock Air Force Ba TWEAN 100% 3 12/31/1997 yracuse Syracuse Ira, Town of TWEAN 100% 67 02/28/2000 Syracuse Syracuse Jordan, Village of TWEAN 100% 431 08/18/2005 Syracuse Syracuse Lafayette , Town of TWEAN 100% 1,087 05/29/2005 Syracuse Syracuse Liverpool , Village of TWEAN 100% 852 09/19/2000 Syracuse Syracuse Lysander , Town of TWEAN 100% 426 12/05/2000 Syracuse Syracuse Manlius , Town of TWEAN 100% 5,637 12/23/2000 Syracuse Syracuse Manlius , Village of TWEAN 100% 2,066 06/05/1997 Syracuse Syracuse Marcellus , Town of TWEAN 100% 1,331 12/26/2004 Syracuse Syracuse Marcellus , Village of TWEAN 100% 530 12/17/2004 Syracuse Syracuse Mentz., Town of TWEAN 100% 0 04/14/2001 Syracuse Syracuse Meridian , Village of TWEAN 100% 46 09/01/1999 Syracuse Syracuse Minoa , Village of TWEAN 100% 1,029 12/30/2005 Syracuse Syracuse North Syracuse, Villag TWEAN 100% 2,230 07/01/1999 Syracuse Syracuse Onondaga , Town of TWEAN 100% 5,964 11/07/2002 Syracuse Syracuse Otisco , Town of TWEAN 100% 426 05/26/1998 Syracuse Syracuse Phoenix , Village of TWEAN 100% 727 03/07/2003 Syracuse Syracuse Pompey , Town of TWEAN 100% 918 01/03/1998 Syracuse Syracuse Port Byron , Village of TWEAN 100% 525 06/22/2006 Syracuse Syracuse Salina , Town of TWEAN 100% 10,487 12/31/1999 Syracuse Syracuse Skaneateles , Town of TWEAN 100% 33 06/30/1999 Syracuse Syracuse Solvay , Village of TWEAN 100% 2,289 04/25/2002 Syracuse Syracuse Syracuse - proposed TWEAN 100% 09/05/1997 Syracuse Syracuse Syracuse, City of TWEAN 100% 35,000 09/05/2007 Syracuse Syracuse Tully , Town of TWEAN 100% 357 11/29/1999 Syracuse Syracuse Tully , Village of TWEAN 100% 357 10/01/1998 Syracuse Syracuse Van Buren , Town of TWEAN 100% 404 01/02/2005 Syracuse Syracuse Weedsport , Village of TWEAN 100% 694 09/12/2005 Syracuse Watertown Black River, Town of CAT Partnership 100% 492 10/23/2006 Syracuse Watertown Brownville, Town of CAT Partnership 100% 408 05/07/2008 Page 5 of 6 DIVISION Syracuse .iyracuse Syracuse Syracuse Syracuse Syracuse Syracuse Syracuse • SYSTEM Watertown Watertown Watertown Watertown Watertown Watertown Watertown Watertown FRANCHISE Brownville, Village of Glen Park, Village of Hounsfield, Town of LeRay, Town of Pamelia, Town of Rutland, Town of Watertown, City of Watertown, Town of HOLDER OF OWNERSHIP NUMBER OF EXPIRATION CONTROLLING INTEREST CUSTOMERS DATE OWNERSHIP INTEREST CAT Partnership CAT Partnership CAT Partnership CAT Partnership CAT Partnership CAT Partnership CAT Partnership CAT Partnership 100% 100% 100% 100% 100% 100% 100% 100% 365 10/11/2006 142 10/11/2006 69 01/29/1998 1,291 10/23/2006 760 10/23/2006 417 10/23/2006 9,518 03/17/2006 1,099 10/23/2006 Page 6 of 6 • EXHIBIT 9 Attached hereto please find a list indicating the capacity and miles of cable within the Syracuse Division of Time Warner Cable. Please note that as Time Warner Cable has more than three thousand managed franchises in total, a list of which are also attached, to provide the Consortium with all of the information requested would be overly burdensome and unmanageable. If the Consortium would like more complete information on any specific franchise, which information is not included herein, please let us know and we will make every reasonable effort to provide the requested information. TIME WARNER CABLE - Syracuse Division MILES PER MHZ j:lplantacclprojectlmhzmIs.wk4 • System Name Brookfield, NY City of Syracuse Ithaca, NY Ithaca, NY Post -Rebuild (1st Phase) Brookfield, NY Brookfield, NY Syracuse, NY Ithaca, NY Ithaca, NY Syracuse, NY Post -Rebuild (Final Phase 1999) Syracuse, NY Syracuse, NY Post -Rebuild (1st Phase) Syracuse, NY Rome, NY Post -Rebuild Rome, NY Post -Rebuild Ilton,NY Post -Rebuild (1st Phase) eulton, NY Post -Rebuild (Final Phase) Potsdam, NY Pre -Rebuild Potsdam, NY Post -Rebuild Carthage, NY Pre -Rebuild Carthage, NY Pre -Rebuild Carthage, NY Post -Rebuild (1st Phase) Carthage, NY Post -Rebuild (Final Phase) Massena, NY Post -Rebuild Ogdensburg, NY Post -Rebuild Malone, NY Post -Rebuild 11/02/99 02:36 PM Rome, NY Rome, NY Fulton, NY Fulton, NY Potsdam, NY Potsdam, NY Carthage, NY Carthage, NY Carthage, NY Carthage, NY Massena, NY Cost Division Ctr Syracuse OH8 Syracuse OH8 Plant Capacity Percent (MHZ) QfPIanL 330 0% 750 100% 9/99 TOTAL Cost MILES Center 0.0 63.4 63.4 OH8 Syracuse 0M9 750 1.00% 329.1 Syracuse 098 Syracuse 098 Syracuse 1A5 Syracuse 1A5 Syracuse 1A6 Syracuse 1A6 Syracuse 1A7 Syracuse 1A7 Syracuse 2A0 Syracuse 2A0 Syracuse 2A1 Syracuse 2A1 Syracuse 2A1 Syracuse 2A1 Syracuse 2A2 Ogdensburg, NY Syracuse 2A3 Malone, NY Syracuse 2A6 329.1 0M9 450 0% 0.0 750 100% 572.8 572.8 • 098 550 0% 0.0 750 100% 1,773.4 1,773.4 1A5 550 0% 0.0 750 - 100% - 360.1 360.1 1A6 550 0% 0.0 750 100% 370.6 370.6 1A7 450 0% 0.0 550 100% 447.6 447.6 2A0 330 2% 8.0 450 0% 0.0 550 28% 114.0 750 70% 278.7 400.7 2A1 550 100% 201.9 550 100% 550 100% 201.9 2A2 143.2 143.2 2A3 214.9 214.9 2A6 TIME WARNER CABLE - Syracuse Division MILES PER MHZ j:lplantacclprojectlm hzm Is.wk4 Plant Cost Capacity System Name Division Ctr (MHZ) Champlain, NY Post -Rebuild (1st Phase) Champlain, NY Syracuse 2A7 450 Champlain, NY Post -Rebuild (Final Phase) Champlain, NY Syracuse 2A7 550 Ilion, NY Ilion, NY Post -Rebuild (1st Phase) Oneida, NY Post -Rebuild (2nd Phase) Oneida, NY Post -Rebuild (Final Phase) • Oswego, NY Post -Rebuild Seneca, NY Post -Rebuild Central Square, NY TWEAN Grand Total • 11/02/99 02:36 PM Ilion, NY • Ilion, NY Oneida, NY Oneida, NY Oswego, NY Seneca, NY Central Square, Syracuse 7P6 Syracuse 7P6 Syracuse 7P7 Syracuse 7P7 9/99 Percent TOTAL Cost of Plant MILES Center 23% 42.0 77% 141.9 183.9 2A7 450 . 28% 115.9 750 72% 291.6 407.5 7P6 550 28% 137.8 750 72% 362.0 499.8 7P7 Syracuse 7P8 750 100% 236.1 236.1 7P8 Syracuse 7P9 750 100% 235.2 N Syracuse 8B1 235.2 7P9 300 38% 190.2 • 330 16% 78.3 450 34% 166.5 550 12% 62.0 497.0 8B1 6,937.2 • EXHIBIT 10 Regarding those systems which have been upgraded, Time Warner Cable has entered into a Social Contract with the FCC under which Time Warner Cable agreed to the following: TWC will upgrade all its cable systems so as to meet the following technical standards: each TWC cable system with a present capacity of at least 550 MHz will have a bandwidth capacity of at least 750 MHz within five years after the Effective Date; all other TWC cable systems will have a bandwidth capacity of at least 550 MHz within five years after the Effective Date. At least 50% of all TWC subscribers will be served by a system with a capacity of at least 750 MHz, of which at least 200 MHz is expected to be allocated to digital distribution. Fiber -to -the- node architecture will be deployed to improve signal quality and reliability of such systems. As of December 31, 1998, approximately 70% of Time Warner Cable's systems have been so upgraded. The Time Warner Cable - Syracuse Division Social Contract Annual Report as of December 31, 1998 is attached. Please note that as Time Warner Cable has more than three thousand managed franchises in total, to provide the Consortium with all of the information requested would be overly burdensome and unmanageable. If the Consortium would like more complete information on any specific franchise, which information is not included herein, please let us know and we will make every reasonable effort to provide the requested information. • TIME WARNER CABLE SYRACUSE �SON SOCIAL CONTRA�,gEPORT UPGRADE SUMMARY AS OF DECEMBER 31, 1998 1. SYRACUSE, NY This 1,768.4 mile system was upgraded from 350 MHZ to 750 MHZ design during the e period of July 1, 1992 to July 30, 1995. The architectureof ix am lifierswan cascad s fiber to en the more feeder in dense areas and fiber backbone with a maximum P the ortion built in 1992 and rural areas. Although the system was designed at 750 MHZ, am lifiers were not yet the first half of 1993 used 550 MHZ amplifiers, as 750 MHZ P upgrade. available. Plans are to replace these 550 MHZ sections in 1999, completing the upgr Two-way plant was begun in 1996, and completed in 1997. Impulse PPV became available in limited areas in 1997 as the CFT2200 converter became = as able.IpulePPV is available throughout the system and the launch of R Wcduring 1998. 2. ROME, NY . _. This 357.3 mile plant was upgraded from 350 MHZ to 550 MHZ from February 1995. e with a through December 1995. A fiber to the feeder chVi�l�e an FBB-9 architecture with a um of four amplifiers past the node was used in the urban areas, maximum of 12 amplifiers past the node was used mthe o Syracuse.areas. Our Although not required lan is to upgrade this system in 1999 to an FBB-3 system our five-year plan calls for this as it was by the Social Contract to got 19970, which was built as 750 MHZ in 1997. interconnected to Oneida during 3. The Fulton system, 369.2 miles, was, prior to the start of its upgrade in late 1994, somewhat of a patchwork quilt of system architectures. Part of the and some as fu117system was built as 400 0Zwith MHZ no fiber intervention, some as 450 MHZ with fiber the firstZ fiber backbone plant with 550 MHZ amplifiers. What was accomplished during 1995, was to upgrade all areas with less than 550 upgrade, which was completed by May MHZ capacity to 750 MHZ fiber backbone, with six amplifiers past the node. The balance of the system is due to be upgraded to 750 MHZ in 1999. 4. POTSDAM, NY ade start in late 1995. Prior to The Potsdam system is a 445.1 mile system that hasystem. It n upgr t was intended to upgrade this to 550 the start of the upgrade, it was a 450 MHZ y MHZ in 1995 and 1996. Approximately 100 miles of this system the 1996 budge, and is now in late 1995, but the balance of the coaxial upgrade was removed from scheduled for 1999. However, the fiber optic overlay was constructed in 1996 and is now in place, reducing cascades and increasing reliability and picture quality. 5. CARTHAGE, NY • The Carthage system is, in fact, seven separate systems ththat operate des 3) Fort Dthe same rum ost ccenter. These systems are: 1) Carthage -135 miles, 2) Indian - 51.74 miles, 4) Chaumont - 74 miles, )Yt 5 Cla on - 76.76 miles, 6) Harrisville -13 miles and 7) Wellesley Island - 8 miles. The Carthagesystem has been upgraded to an FBB-3 750 are the only ones to be planned as such, MHZ plant.. This system and the Fort Drum system Carthage was completed prior to May 4, 1995. Fort Drum had a fiber optic overlay placed in 1996, with its upgrade of the coaxial plant scheduleda1999hada fiber optic o. Clayton andvelay paced ver were upgraded to 550 MHZ FBB-9 in late 1995. Chaumont in 1996, with the coaxial upgrade scheduled for 1999. The Harrisville and Wellesleyey Isla0 to systems have a total combined size 2mheduled to be done in 2000. was upgr MHZ in 1998, and Wellesley Island i- s sc 6. MAS SENA, NY The Massena system, 200.9 miles, was upgraded from a conventional tree and branch 450 MHZ system to an FBB-9 fiber optic backbone 550 MHZ system during September and October 1995. This reduced amplifier cascades from 40 trunks to nine trunk amplifiers and three distribution amplifiers at maximum. Two-way activation is scheduled for 2000. 7. OGDENSBURG, NY The Ogdensburg system, 142.5 miles, was a conventional tree and branch system with up to 50 amplifiers in cascade prior to the upgrade, which took place late in 1995.The new and iter er rich architecture, an FBB-9, reduced maximum cascades to nine trunk a and aplifiers Two -wee distribution amplifiers maximum and improved picture quality it5' activation is scheduled for 2000.. 8. MALONE, NY The Malone system, 215.6 miles, was a conventional tree and branch system with up to 50 upgrade, which took place January through March 1996. The amplifiers in cascade to the amplifiers new fiber rich architecture, an FBB-9, reduced anxi um d picture quality trunk rliability. and three distribution amplifiers maximum andP Two-way activation is scheduled for 2000. 9. CHAMPLAIN, NY The Champlain, NY system, 183.9 miles, was a mixture of 300 MHZ tree and branch, 450 MHZ tree and branch and 550 MHZ fiber overayanaysprior to of the 450 uMHZsection, more starting in September 1996. Since then, the 300 MHZ sectionpart than 100 miles, have been upgraded to 550 MHZ e BB -9 services architecture.as thD r ngtg 19 North the system was interconnected to Malone and offered awere installed, Country in the 450 MHZ bandwidth. During 1998, 550 MHZ amplifiers bringing the useable bandwidth to 500 MHZ. The balance of the system is scheduled for upgrade to 550 MHZ FBB-9 in 2000. 10. ONEIDA, NY The Oneida system, 498.2 miles, consists of three distinct systems under one cost center. Prior to upgrade, the Oneida system proper, 283.0 miles, was a 450 MHZ tree and branch system. The Chittenango system, 118.56 miles, is interconnected to Oneida and is a fiber backbone 550 MHZ system. The North Shore system, mOneida. 96.64 miles, The Oneida system was 330 system located approximately 15 miles The North Shore upgraded during 1997 to an FBB-3 fiber backbone, 750 MHZ plant. system was also upgraded during 1997 to a 750 MHZ FBB-3 system, reducing amplifier cascades from 40 to a maximum of six past the node. Te Chittenango system is scheduled to be upgraded to an FBB-3 750 MHZ system in • 11. SENECA During 1996, the Seneca system, 230.3 miles, was upgraded from a 300 MHZ conventional tree and branch system to an FBB-3 750 MHZ system, reducing amplifier cascades, increasing reliability and picture quality. Upon completion of the rebuild, the Seneca system was integrated with the Syracuse system and is now serviced by the Syracuse headend. 12. OSWEGO, NY The Oswego system, 236.1 miles, underwent an upgradem stem. This rduring 1997 to bring the system from a 450 MHZ, tree and branch system, to a FBB-3 7o 0 MHZ squalitand system ed amplifier cascades from 35 to six maximum and imp picture reliability. Upon completion of the rebuild, the Oswe go system was integrated with the Syracuse system and serviced by the Syracuse he 13. ITHACA, NY Ithaca is a 568 mile system that underwent extensive rebuild to 450 MHZ to a min the ataxi 198um of s. At that time, some fiber optic intervention took place, reducing 25. This system was upgraded to FBB-3 750 MHZ two-way architecture in 1998, thereby increasing reliability and picture quality. 14. ILION, NY • Ilion is a system of 291.3 miles that was upgraded from its 450 MHZ, modified tree and branch design to an FBB- 750 MHZ plant in 1998. 15. HAMILTON, NY Hamilton is a 116.5 mile system that has a modified treuce e and branch d450 MHZ rove system. cst a Fiber optic overlay is used in small amountsthto optic lengths extended to further reduce quality and system reliability. In 1996, to an FBB-3 cascade lengths. During the year 2000, this system is scheduled to be upgraded 750 MHZ system, with increases in system reliability, picture quality and channel capacity. 16. WATERTOWN, NY The Watertown system, 311.3 miles, was rebuilt to 550 MHZ with fiber optic intervention limiting amplifier cascades to 18 during the early 1990's. Our plan is to upgrade this plant trtown duringo 750 MHZ FBB-3 during the year 2000. This system will then match the Carthage sy1996� which is operated from the same office, and wasinterconnected °�m reliability eand picture quality. This will improve operating efficiency and improvesystem 17. CITY OF SYRACUSE, NY The Cityof Syracuse, 326.8 miles, was taken over from Adelphia u Cable plan, ns in in December 1997. This system, which was not includedthe five-year p�aded a 750 MHZ, fiber rich, modified near passive architecture system. During 1998 we u the plant to full two-way. This project required retiring a YAG laser and replacing it with amplifiers DFB lasers. We also needed to install return lasers approximately 100 miles of hard line as needed. In addition, it was required connectors, as the connectors that Adelphia used did not lwere completed and Row the full use of the an spectrum and also caused cmm�e ma 998tO�on. Theseprojects Runner service was launched r • EXHIBIT 11 Regarding the numbers of homes passed by cable, please note that as Time Warner Cable has more than three thousand managed franchises in total, to provide the Consortium with all of the information requested would be overly burdensome and unmanageable. If the Consortium would like more complete information on any specific franchise, please let us know and we will make every reasonable effort to provide the requested information. EXHIBIT 12 Attached are rate cards with programming information for the Ithaca system of Time Warner Cable. Please note that as Time Warner Cable has more than three thousand managed franchises in total, to provide the Consortium with all of the information requested would be overly burdensome and unmanageable. If the Consortium would like more complete information on any specific franchise, which information is not included herein, please let us know and we will make every reasonable effort to provide the requested information. TIME WARNER CABLE •TOMPKINS COUNTY CHANNEL LINE-UP Basic Service 1 TV Guide Channel * 2 E! 3 WSTM-3 (Syracuse, NBC) 4 WCNY-24 (Syracuse, PBS) 5 WNYS-43 (Syracuse, Ind.) 6 WSKG-46 (Binghamton, PBS) 7 NewsCenter 7 / Marketplace 8 WSYT-68 (Syracuse, FOX) 9 WIXT 9 (Syracuse, ABC) 10 WPIX-11 (New York, Ind.) 11 WICZ-40 (Binghamton, FOX) 12 WBNG-12 (Binghamton, CBS) 13 Public Access 14 C -SPAN: Government Channel 15 GOV'T ACCESS 16 EDUCATIONAL CHANNEL 17 TBS (Atlanta, Ind.) 18 QVC Home Shopping 9WENY-36 (Elmira, ABC) .20 Value Vision 21 Knowledge TV ** 76 SCOLA 77 Local Orig/Leased Access 78 Public Access 2 Premium 65 HBO 66 HBO Plus 67 HBO Signature 68 Cinemax 69 Showtime 70 STARZ 71 Disney Custom Choice 59 ESPN2 60 Encore 61 Independent Film Channel 62 Golf 63 Sci-Fi Standard Plus 23 Court TV 24 C -SPAN 2 25 Nickelodeon 26 A&E 27 CNBC 28 MSG 29 Bravo 30 Discovery 31 AMC 32 CNN Headline News 33 FOX Family 34 TNN 35 BET 36 VH -1 37 Lifetime 38 CNN 39 ESPN 40 TLC 41 Comedy 42 History 43 TCM 44 TV Food 45 FOX News' 46 USA 47 Weather Channel 48 TNT 49 TV Land 50 MSNBC 51 Country Music TV 52 Travel 53 Cartoon 54 Home & Garden 55 MTV 56 Animal Planet 57 EWTN / INSP Pay -Per -View 72 Viewer's Choice 73 Playboy 74 Hot Choice 75 Viewer's Choice 5 **Channel 98 on Cable Ready TV *Channel 99 on Cable Ready TV CUSTOMER SERVICE 272-3456 www.twcny.com 519 W. State Street • Ithaca, NY 14850 272-3456 City of Ithaca PRICES SERVICES MONTHLY PRICES Basic Cable $12.99 P.E.G. Access fee (City of Ithaca only) $1.26 (Services above basic require an addressable home terminal) Standard Plus Custom Choice Custom Premiums Multi -Channel HBO CINEMAX, SHOWTIME, DISNEY Pay -Per -View Movies Events & Adult Programs Addressable Home Terminal (Rental) Jerrold CFT 2000 Watch & Record Remote Control Non -Addressable Converter Rental Purchase Music Choice SPECIAL PACKAGES: $21.36 $4.25 $10.95 $10.95/channel $3.95 Price Varies $ 2.92 $6.17 $0.37 $0.82 $52.00 $6.95 TV Marquee Includes Basic, Standard Plus, Custom Choice Package, Home Terminal & Remote Control $39.50 Movie Marquee Includes choice of TV Marquee, 2 Premiums & Music Choice or TV Marquee & 3 Premiums $54.95 INSTALLATIONS & MAINTENANCE New Install, Unwired New Install, Wire -In Add. Outlet Connection At time of initial connect Separate Trip Equipment Connection Charge $35.91 $23.61 $13.51 $ 22.45 $20.82 Hourly Service Charge $33.01 (For non-standard installations and non -system related service calls) Computer Transaction Charge $1.99 - Basic services required by Federal law as prerequisite to other services. - Prices do not include franchise fees or taxes. Prices Effective 1/1/99 CABLE FM RADIO 89.5 WFMT CLASSICAL 89.9 HBO 90.3 CINEMAX 90.7 DISNEY 93.7 WMHR CHRISTIAN 94.1 WCNY NPR 95.7 WHWK COUNTRY 96.1 WICB ITHACA COLLEGE ROCK 96.5 WAER JAZZ 96.9 WYXL LIGHT 98.5 Will UPSCALE ADULT 98.9 WEOS NPR -GENEVA 99.1 WVBR ROCK 99.5 WSKG NPR-BINGHAMTON 103.1 WQNY COUNTRY 103.3 SHOWTIME 105.9 VIC ITHACA COLLEGE RADIO Music Choke Channel Line -Up 1 Showcase I 2 Showcase II 3 Origens 4 New Releases 5 American Originals 6 Sounds of the Seasons 7 For Kids Only 8 Body & Soul 9 R&BHits 10 Dance . 11 Rap 12 Metal 13 Alternative Rock 14 Progressive 15 Classic Rock 16 Soft Rock 17 Hit List 18 '80s 19 '70s 20 Solid Gold Oldies 21 Today's Country 22 Classic Country 23 Big Band 24 Easy Listening 25 Classical Masterpieces 26 Light Classical 27 Atmospheres 28 Light Jazz 29 Jazz 30 Blues 31 Gospel 52 Soft Album Mix 53 The Trend 61 Contemporary Instrumentals Instructions for Ordering Pay -Per -View 1. Prevue the pay-per-view movie or event you wish to purchase on Channel 1. 2. Select the event channel (Channel 72, .73, 74, or 75). The flashing letter "E" means that the program is ready for ordering. 3. Press "Select". An "Enter Password" screen will appear if you have previously created a Purchase Password. 4. Enter your Purchase Password. If you don't use a password, go directly to Step 5. 5. Press "Enter". Sit back, relax, and enjoy your selection in the comfort of your own home. IPIf you have any questions or problems, please contact one of our Customer Service Representatives at 272-3456 Time Warner Cable Subscriber Rights All Time Warner Cable customers are entitled to know about all of the programming, rates, charges, and services we offer. This information will be provided to you: (a) at the time you first subscribe; (b) at the time you request any changes in service; (c) at the time you make a request for any such information; and semi-annually. If a network or channel is removed from the level of service to which you subscribe or if certain changes occur in pro- gramming, Time Warner Cable will notify you of these sig- nificant changes thirty (30) days prior to the effective date of the change if we know about it sufficiently in advance. If we don't, we will notify you within thirty (30) days of the date upon which we'first learn of the change. Upon receipt of the notice from the cable company, you may choose to terminate your service or downgrade your service to a less expensive level at any time, at no charge. In addition to the foregoing, if a network or channel is moved from one service tier to another or is removed from the system altogether and you first subscribed to your system during the nine months preceding the date of the change or upgraded your service during the last six months preceding the date of the change, you may be entitled to a refund of installation, upgrade, or other one-time charges paid to us if you choose to terminate or downgrade your subscription after the change. If a network is moved from our basic ser- vice tier to a more expensive tier, you may also have the opportunity to upgrade to the more expensive tier at no charge, and to receive the more expensive tier, also at no charge, for a period of six months. If a network is removed from basic cable service and is not available anywhere on the system, you may be entitled to credit for a portion of your monthly service payment for a fixed period of time after the network is removed from the system. The specific criteria for determining your eligibility for one or more of these opportunities will be explained to you it detail and when it becomes necessary for us to give yoL notice of a change in programming. In addition to the above, you are entitled to receive copies of our Billing Practices and Customer Complaint Procedures, Privacy Rights, and Technical Complaint notices. These notices will be provided periodically each year and upon request. CABLE 41)10MPKINS COUNTY CHANNEL LINE-UP Basic Service 1 TV Guide Channel * 2 E! 3 WSTM-3 (Syracuse, NBC) 4 WCNY-24 (Syracuse, PBS) 5 WNYS-43 (Syracuse, Ind.) 6 WSKG-46 (Binghamton, PBS) 7 NewsCenter 7 / Marketplace 8 WSYT 68 (Syracuse, FOX) 9 WIXT 9 (Syracuse, ABC) 10 WPIX-11 (New York, Ind.) 11 WICZ-40 (Binghamton, FOX) 12 WBNG-12 (Binghamton, CBS) 13 Public Access 14 C -SPAN: Government Channel 15 GOV'T ACCESS 16 EDUCATIONAL CHANNEL 17 TBS (Atlanta, Ind.) 18 QVC Home Shopping I WENY 36 (Elmira, ABC) 020 Value Vision 21 Knowledge TV ** 76 SCOLA 77 Local Orig/Leased Access 78 Public Access 2 Premium 65 HBO 66 HBO Plus 67 HBO Signature 68 Cinemax 69 Showtime 70 STARZ! 71 Disney Custom Choice 59 ESPN2 60 Encore 61 Independent Film Channel 62 Golf 63 Sci-Fi • Standard Plus 23 Court 1 V 24 C -SPAN 2 25 Nickelodeon 26 A&E 27 CNBC 28 MSG 29 Bravo 30 Discovery 31 AMC 32 CNN Headline News 33 FOX Family 34 TNN 35 BET 36 VH -1 37 Lifetime 38 CNN 39 ESPN 40 TLC 41 Comedy 42 History 43 TCM 44 TV Food 45 FOX News 46 USA 47 Weather Channel 48 TNT 49 TV Land 50 MSNBC 51 Country Music TV 52 Travel 53 Cartoon 54 Home & Garden 55 MTV 56 Animal Planet 57 EWTN / INSP Pay -Per -View 72 Viewer's Choice 73 Playboy 74 Hot Choice 75 Viewer's Choice 5 **Channel 98 on Cable Ready TV *Channel 99 on Cable Ready TV CUSTOMER SERVICE 272-3456 www.twcny.com 519 W. State Street • Ithaca, NY 14850 272-3456 Tompkins County PRICES SERVICES MONTHLY PRICES Basic Cable Tompkins County $12.66 City of Ithaca $12.99 P.E.G. Access fee (City of Ithaca only) $1.26 (Services above basic require an addressable home terminal) Standard Plus Tompkins County $21.69 City of Ithaca $21.36 Custom Choice $4.25 Custom Premiums Multi -Channel HBO $10.95 STARZ!, CINEMAX, SHOWTIME, DISNEY $10.95/channel Pay -Per -View Movies $3.95 Events & Adult Programs Price Varies Addressable Home Terminal (Rental) Jerrold CFT 2000 $2.92 Watch & Record $6.17 Remote Control $0.37 Non -Addressable Converter Rental $0.82 Purchase $52.00 Music Choice $6.95 • SPECIAL PACKAGES: TV Marquee Includes Basic, Standard Plus, Custom Choice Package, Home Terminal & Remote Control $39.50 1 Movie Marquee Includes choice of TV Marquee, 2 Premiums & Music Choice or TV Marquee & 3 Premiums $54.95 INSTALLATIONS & MAINTENANCE New Install, Unwired New Install, Wire -In Add. Outlet Connection At time of initial connect Separate Trip Equipment Connection Charge $35.91 $23.61 $13.51 $22.45 $20.82 Hourly Service Charge $33.01 (For non-standard installations and non -system related service calls) Computer Transaction Charge $1.99 - Basic services required by Federal law as prerequisite to other services. - Prices do not include franchise fees or taxes. CABLE FM RADIO 89.5 WFMT CLASSICAL 89.9 HBO 90.3 CINEMAX 90.7 DISNEY 93.7 WMHR CHRISTIAN 94.1 WCNY NPR 95.7 WHWK COUNTRY 96.1 WICB ITHACA COLLEGE ROCK Prices Effective 1/1/99 96.5 WAER JAZZ 96.9 WYXL LIGHT 98.5 WIII UPSCALE ADULT 98.9 WEOS NPR -GENEVA 99.1 WVBR ROCK 99.5 WSKG NPR-BINGHAMTON 103.1 WQNY COUNTRY 103.3 SHOWTIME 105.9 VIC ITHACA COLLEGE RADIO • • Music Choice Channel Line -Up 1 Showcase I 2 Showcase II 3 Origens 4 New Releases 5 American Originals 6 Sounds of the Seasons 7 For Kids Only 8 Body & Soul 9 R&BHits 10 Dance 11 Rap 12 Metal 13 Alternative Rock 14 Progressive 15 Classic Rock 16 Soft Rock 17 Hit List 18 '80s 19 '70s 20 Solid Gold Oldies 21 Today's Country 22 Classic Country 23 Big Band 24 Easy Listening 25 Classical Masterpieces 26 Light Classical 27 Atmospheres 28 Light Jazz 29 Jazz 30 Blues 31 Gospel 52 Soft Album Mix 53 The Trend 61 Contemporary Instrumentals Instructions for Ordering Pay -Per -View 1. Prevue the pay-per-view movie or event you wish to purchase on Channel 1. 2. Select the event channel (Channel 72, 73, 74, or 75). The flashing letter "E" means that the program is ready for ordering. 3. Press "Select". An "Enter Password" screen will appear if you have previously created a Purchase Password. 4. Enter your Purchase Password. If you don't use a password, go directly to Step 5. 5. Press "Enter". Sit back, relax, and enjoy your selection in the comfort of your own home. If you have any questions or problems, please contact one of our Customer Service Representatives at 272-3456 Time Warner Cable Subscriber Rights All Time Warner Cable customers are entitled to know about all of the programming, rates, charges, and services we offer. This information will be provided to you: (a) at the time you first subscribe; (b) at the time you request any changes in service; (c) at the time you make a request for any such information; and semi-annually. If a network or channel is removed from the level of servir to which you subscribe or if certain changes occur in pr, gramming, Time Warner Cable will notify you of these sig- nificant changes thirty (30) days prior to the effective date of the change if we know about it sufficiently in advance. If we don't, we will notify you within thirty (30) days of the date upon which we first learn of the change. Upon receipt of the notice from the cable company, you may choose to terminate your service or downgrade your service to a Tess expensive level at any time, at no charge. In addition to the foregoing, if a network or channel is moved from one service tier to another or is removed from the system altogether and you first subscribed to your system during the nine months preceding the date of the change or upgraded your service during the last six months preceding the date of the change, you may be entitled to a refund of installation, upgrade, or other one-time charges paid to us if you choose to terminate or downgrade your subscription after the change. If a network is moved from our basic ser- vice tier to a more expensive tier, you may also have the opportunity to upgrade to the more expensive tier at no charge, and to receive the more expensive tier, also at no charge, for a period of six months. If a network is removed from basic cable service and is not available anywhere on the system, you may be entitled to credit for a portion of your monthly service payment for a fixed period of time after the network is removed from the system. The specific criteria for determining your eligibility for one or more of these opportunities will be explained to you detail and when it becomes necessary for us to give y( notice of a change in programming. In addition to the above, you are entitled to receive copies of our Billing Practices and Customer Complaint Procedures, Privacy Rights, and Technical Complaint notices. These notices will be provided periodically each year and upon request. Cable. • • EXHIBIT 13 Attached are the financial pro -formas and assumptions for the Ithaca system of Time Warner • • TIME WARNER CABLE ITHACA, NEW YORK ASSUMPTIONS TIME WARNER PROJECTIONS The ten year projections presented as the Time Warner projections show the System operations continuing as they have from an historical basis. In addition, the projections assume that Time Warner is the sole authorized franchise holder. Years one and two are based upon Time Warner budgets. Revenues Homes Passed Increasing by 100 homes annually through year ten based on CACI Marketing Systems, 1999 edition and discussions with System personnel. Penetration Percentage Declining from 82.8% in year one to 80% in years six through ten due to competitive effects of Direct Broadcast ("DBS"). In addition, the average number of subscribers takes into account the seasonality of the subscriber base due to the student population. Number of Subscribers for Other Tiers Based on the historical relationship of tier subscribers to basic subscribers of 75%. Number of Premium Units Total is based on a pay to basic ratio of 48.3% in year one, 49.0% in year two, and 50% in all other periods. Revenue Per Subscriber Basic revenue and tier revenue per subscriber is increased by 5% annually. Premium unit revenue per premium unit is held constant at historical levels. Pay-per-view revenue per basic subscriber is grown at a 3.0% annual rate after ramping up for the effect of digital offerings. Converters and remotes are expected to remain constant on a per subscriber basis, while installation revenue on a per subscriber basis is projected to grow at a 3.0% annual rate. New product tier revenue is projected to grow at an annual rate of 3%. 1107projections -1- KANE REECE ASSOCIATES. INC. • Annual Revenue This is a calculation of the annual revenue per subscriber/unit multiplied by the applicable annual average count. Advertising revenue is based on historical and budgeted levels, grown by 6% annually during the projection period. Other revenue is based on historical levels, increased by a 3% annual factor as is commercial bulk revenue. Cable modem service will consist of residential service and commercial service. Both digital and cable modem revenue projections are based on Time Warner historical experience and industry expectations. Variable Expenses Basic programming costs (which include copyright fees) is based on 20.1% of basic revenue (basic plus tier) in year 2, growing at 0.5% annually. Mini -pay programming costs are based on 60.8% of mini -pay (or new product tier) revenue in year 2, growing at 0.3% annually. • Digital programming costs are based on 20.8% of digital revenue in year 2, growing at 0.3% annually. • Pay programming costs are based on 70.6% of premium revenue in year 2, growing by 0.4% annually. Pay-per-view programming costs are based on 43.3% of pay-per-view revenue in year 2, growing at 0.3% annually. Road runner costs are based on a factor of 30% of revenue. Other variable expenses include bad debt, data processing, and franchise fees. Non -Variable Expenense All functional categories of non -variable expense are based on the year 1999 and 2000 budget supplied by system management. Employee compensation is grown at an annual 4% rate, while employee taxes have maintained their historical relationships to compensation. Insurance and employee benefits are grown at an annual rate of 8% while the majority of all other expense line items has been increased in the 3% to 5% annual range. 1107projections -2- KANE REECE ASSOCIATES. INC. • Management Fees • • Are based upon 5% of total annual revenue. This is in line with historical financial statements and industry practice. income Taxes Income taxes are calculated at a rate of 40% which includes federal and state tax. Balance Sheet Cash This is held constant at the historical (September 30, 1999) level. Accounts Receivable Based on historical levels increased by 6% annually which approximates the average revenue growth. Prepaid Expenses Based on historical levels increased by 5% annually. Property Plant and Equipment and Depreciation See applicable assumptions. Other Assets Based on historical levels and kept constant during the model period. Accounts Payable Based on historical levels increased by 6% annually. Subscriber Prepayments Based on the historical levels, increased by 6% annually which approximates the annual revenue growth. 1107projections -3- KANE REECE ASSOCIATES. INC. • • • Deferred Marketing Revenue This represents the revenue received in each year from the launch marketing support that has not been amortized to the income statement in the current period. Intercompany Debt Held constant at historical levels. Shareholders' Equity This account changes by the difference between earning, dividends and the sum of the other balance sheet items. Sources and Uses of Funds This form represents the change in balance sheet accounts, revenues and expenses, while keeping the cash level constant at the $563,645 historical level. Cash needs are represented by increases in Debt Corporate Parent while cash in excess of that needed to fund operations and debt repayment is represented as Dividends or Distributions. Capital Expenditures For years 1 and 2, capital expenditure projections, exclusive of PEG requirements, represent Time Warner's capital expenditure budgets for 1999 and 2000. In general, beyond year 3 capital expenditures represent normal recurring capital requirements. Based on our review of the 1999 and 2000 capital budgets, we estimated normal recurring capital for years 3 through 10 to be comprised of the following, 1107projections Capital Asset Distribution Plant Subscriber Installations Receiving/Transmission Equipment Furniture Cablecasting Equipment Advertising Equipment Addressable Converters Digital Converters Test Equipment Office Equipment House Amps Small Tools Vehicles Remote Controls Personal Computers -4- Annual Recurring Amount $250,000 125,000 30,000 2,500 50,000 50,000 25,000 100,000 30,000 10,000 10,000 1,500 50,000 5,000 5,000 KANE REECE ASSOCIATES. INC. • • Beyond year 3, additional capital is added in years 7 and 8 to account for a replacefnent of the digital converters. In addition to the capital expenditures discussed above, PEG access capital expenditures were projected for years 1 through 10. We used Time Warner's projections of PEG access capital expenditures. Depreciation Depreciation projections are based on Time Warner's net book value of property, plant and equipment as of December 31, 1998 ($15,990,717) exclusive of land and CIP and projected capital expenditures. Depreciation amounts are calculated using a straight- line depreciation method over the following useful lives. Asset Useful Class Life (years) Headend Tower 25 Buildings 20 Building Improvements 20 Distribution Plant 16 Cap Interest 15 Subscriber Installations 15 Receiving/Transmission Equipment 11 Earth Station and Antennas 11 Leasehold Improvements 10 Furniture 10 Cablecasting Equipment 8 Advertising Equipment 8 Radio Equipment 8 Other Operating Equipment 8 Non -Addressable Converters 7 Addressable Converters 7 Digital Converters 7 Other Converters and Decoders 7 Test Equipment 7 Traps 5 Billing Computers 5 Office Equipment 5 House Amps 5 Small Tools 4 Vehicles 4 Remote Controls 3 Personal Computers 3 1107projections KANE REECE ASSOCIATES. INC. Time Warner e Ithaca, New York Projection Year Homes Passed Projected Actual 1 2 3 4 5 6 7 8 9 10 Year Year Year Year Year Year Year Year Year Year Year Ending Ending Ending Ending ' Ending Ending Ending Ending Ending Ending Ending 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 32,597 32,609 32,806 32,906 . 33,006 33,106 33,206 33,306 33,406 33,506 33,606 Average Basic Customers 25,584 25,630 25,737 25,946 25,712 25,475 25,237 25,313 25,389 25,465 25,541 % of Homes Passed 78.5% 78.6% 78.5% 78.9% 77.9% 77.0% 76.0% 76.0% 76.0% 76.0% 76.0% Avg. Annual Revenue/Basic Customer $ 455 $ 518 $ 561 $ 608 $ 643 $ 666 $ 691 $ 716 $ 742 $ 769 $ 798 Total Revenue $11,641 $13,282 514,449 $15,766 $16,524 $16,969 $17,432 518,115 518,833 $19,588 $20,381 Cash Flow Margin (% of Revenue) 51.9% 47.0% 44.1% 46.0% 45.8% 45.3% 44.7% 44.3% 44.0% 43.7% 43.3% Operating Cash Flow $6,043 $6,239 $6,377 $7,254 , 57,576 57,682 $7,788 $8,033 58,288 $8,554 58,830 Corporate Expenses (5%) $664 $722 5788 5826 $848 $872 5906 5942 $979 51,019 Depredation 2,382 2.633 2,618 2,614 2,467 2,434 2,218 2,177 1,835 1,809 Interest Expense (8% on Invested PP&E) 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 Pretax Profit $1,875 $1,703 $2,530 $2,818 $3,048 $3,164 $3,591 53,852 $4,421 $4,684 Taxes (4140% 5750 $681 51,012 $1,127 $1,219 $1,265 $1,437 51,541 $1,768 51,873 Net Profit 51,125 $1,022 51.518 $1,691 51,829 $1,898 $2,155 52,311 $2,653 52,810 Internal Rate of Retum Net Cash Flow Book Basis of 12/31/98 PP&E Net Profit + Depredation Capital Expenditures Net After -Tax Retum Internal Rate of Return ($16,474) $3,507 $3,655 54,136 $4,305 54,296 $4,333 54,373 $4,488 54,488 54,619 (2,220) (2,297) (982) (797) (771) (827) (1,570) (1,569) (759) (759) (516,474) $1,287 51,359 53,153 $3,507 $3,525 53,506 $2,803 52,919 $3,729 53,861 10.75% KANEAREEC Time Warner Cable Ithaca, New York Actual Thru 9/99, Pro) thru Actual 12/31199 1998 1999 2000 Local Characteristics 1 2 3 4 5 6 7 8 9 10 Homes Passed 32,597 32,609 32,806 32,906 33,006 33,106 33,206 33,306 33,406 33,506 33,606 Aerial Miles Constructed Underground Miles Constructed Aerial Miles Rebuilt Underground Miles Rebuilt Total Ithaca Aerial Miles 456 459 Total Ithaca Underground Miles 120 122 26,987 Beginning Subscribers - Actual 26,539 26,802 26,987 27,160 27,312 27,065 26,816 26,565 26,645 26,725 26,805 Net Subscriber Growth 1.00% 0.99% 0.69% 0.64% 0.56% -0.90% -0.92% -0.94% 0.30% 0.30% 0.30% Penetration Percentage (Ending Count BST / Homes Passed) 82.2% 82.8% 82.8% 83.0% 82.0% 81.0% 80.0% 80.0% 80.0% 80.0% 80.0% Number of Basic Subscribers -Actual BST 26,802 26,987 27,160 27,312 27,065 26,816 26,565 26,645 26,725 26,805 26,885 Number of Subscribers for Other Tiers - CPST 18,487 19,196 19,796 20,484 20,299 20,112 19.924 19,984 20,044 20,104 20,164 Number of Premium Units 12,178 13,400 13,516 13,656 13,532 13,408 13,282 13,322 13,362 13,402 13,442 Average Basic Subscribers 25,584 25,630 25,737 25,946 25,712 25,475 25,237 25,313 25,389 25,465 25,541 Average Subscribers Other Tiers 17,609 18,224 18,292 18,845 18,675 18,503 18,330 18,385 18,440 18,495 18,551 Average Premium Units 11,502 12,370 12,622 12,973 12,856 12,738 12,618 12,656 12,694 12,732 12,770 Pay to Basic Ratio 45.0% 48.3% 49.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% Road Runner Subscribers - Year End 429 2,750 3,346 4,411 5,142 5,095 5,047 5,063 5,078 5,093 5,108 Road Runner Subscribers -Average 322 1,513 . 2,509 3,308 3,857 3,821 3,785 3,797 3,808 3,820 3,831 Digital Subscribers - Year End 0 0 5,000 6,145 6,766 6,704 6,641 6,661 6,681 6,701 6,721 Digital Subscribers -Average 0 0 2,493 5,838 6,428 6,369 6,309 6,328 6,347 6,366 6,385 Jtevenue (Annual; Total): Basic $ 3,807,333 $ 3,665,859 $ 3,838,332 $ 4,063,010 $ 4,227,569 $ 4,398,099 $ 4,574,769 $ 4,817,973 $ 5,074,061 $ 5,343,712 $ 5,627,644 Other Tiers 3,909,676 4,315,315 4,635,397 4,633,414 4,821,075 5,015,546 5,217,018 5,494,365 5,786,405 6,093,913 6,417,705 Premium 899,180 966,449 978,592 1,005,820 996,722 987,549 978,304 981,250 984,196 987,142 990,088 Pay -per Yew 314,618 372,786 539,177 856,231 873,940 891,874 910,030 940,154 971,266 1,003,399 1,036,585 Converter / Remotes 1,024,949 1,098,168 1,043,995 1,052,482 1,042,961 1,033,363 1,023,689 1,026,771 1,029,854 1,032,937 1,036,020 Installation 227,282 207,277 201,462 209,193 213,519 217,901 222,337 229,697 237,298 245,148 253,257 Advertising 6.0% 890,123 1,104,543 1,192,832 1,264,402 1,340,266 1,420,682 1,505,923 1,596,278 1,692,055 1,793,578 1,901,193 Other: Other 3.0% 239,058 253,752 150,260 154,768 159,411 164,193 169,119 174.193 179,418 184,801 190,345 Commercial Bulk 3.0% 216,378 253,797 258,177 265,922 273,900 282,117 290,580 299,298 308,277 317,525 327,051 New Product Tier 112,608 318,419 213,579 221,775 226,362 231,007 235,709 243,512 251,570 259,893 268,489 Digital - Service 0 0 192,966 451,856 497,521 492,943 488,327' 489,798 491,269 492,739 494,210 Cable Modem Service - Basic 0 725.819 1.204.198 1.587.522 1.850.778 1.833.746 1.816,578 1.822.049 1.827.519 1.832.990 1.838.461 Total 611,641,205 613,282,184 614.448,967 $15,766,393 $16,524,023 $16,969,021 $17,432,383 $18,115,337 $18,833,188 $19,587,778 $20,381,047 <ANE REECF • • Tlmi Warner Cab Ithaca, New York Actual Thru* 9199, ProJ thru Actual 12/31199 1934 1.44 gin Statement ofIncOmS i 2 yT 4 5 8 Z 8 9 10 Revenues $ 11.841,205 $ 13,282.184 5 14,448,967 $ 15,768.393 5 16,524,023 $ 18,989.021 $ 17,432.383 $ 18,115,337 $ 18,833,188 $ 19,587.778 $ 20,381,047 Variable Expanses: Basle ProgrammingCONS 1,311,088 1,448,694 1,745,733 1,795,203 1,913,156 2,037,396 2,168,196 2,335,024 2,513,438 2,704,199 2,908,110 Mini -Pay (A La Carte) Frog Costa 143.200 145,333 129,866 135,515 138,997 142,542 148,151 151,719 157,495 163,485 169,697 Digital Programming Costs n/a n/a 40,228 95,555 106,704 107,201 107,663 109,456 111,259 113,070 114,890 Pay Programming Costs 809,658 687,415 691,285 714,542 712,066 709,463 708,734 712,787 718,864 724,965 731,089 Pay Per View Programming Costs 151,731 170,881 233,418 373,244 383,586 394,133 404,888 421,109 437,959 455,458 473,632 Road Runner Costa - 217,748 361,259 478,256 555,233 550,124 544,973 546,615 548,256 549,897 551,538 Other Variable Expenses 339,097 253,600 358,676 374,682 391,477 409,103 427,606 447,031 467,428 488,850 511,350 Total Variable Expenses 2,554,752 2.903,689 3,560,465 3,984,997 _ 4,201,218 4,349,963 4,508,209 4,723,741 4,954,699 5,199,923 5,460,306 Non -Variable Expenses: Tech Installation 228,898 255,238 264,298 Technical Service 38,016 128.340 152,979 Customer Service 332,639 358.138 396,530 Other Technical Operating Costs 718,641 1,098,438 1,078,057 Marketing 180,872 72,490 192,490 Ad Sales 331,250 402,798 481,622 Public Access 165,414 177,706 189,214 Programming 248,367 284,138 306,977 Road Runner Expenses - 508,073 602,099 General 6 Administrative 800,055 855,944 847,341 TotalNon-Variable Expenses 3,043,952 4,139,299 4,511,607 278,024 291,870 306,488 321,925 338,235 355,472 373,895 392,987 160,820 168,463 176,508 184,979 193,902 203,304 213,214 223,662 418,544 438,973 460,513 483,234 507,208 532,513 559,231 587,450 1,132,522 1,186,049 1,242,287 1,301,384 1,363,497 1,428,795 1,497,454 1,569,661 199,273 206,388 213,779 221,457 229.438 237,729 246,349 255,312 515,353 545,580 577,649 611,676 647,785 686,109 726,790 769,978 323,832 341,339 359,839 379,392 400,061 421,913 445,021 469,460 635,009 647,772 641,811 635,802 637,717 639,632 641,546 643,461 883,732 920,299 958,582 998,672 1,040,668 1,084,673 1,130,798 1,179,161 4.547.109 4,746,733 4,937,455 5,138,5225,358,510 5,590,140 5,834,098 6,091,112 Operating Income 6,042,501 6,239,216 6,376,895 7,254,287 7,576,073 7,681,603 7,787,652 8,033,086 8,288,350 8,553,758 8,829.629 51.9% 47.0% 44.1% 46.0% 45.8% 45.3% 44.7% 44.3% 44.0% 43.7% 43.3% Depredation 3,103,125 2,381,745 2,633,456 2,617,558 2,614,051 2,466,703 2,434,340 2,218,011 2,176,836 1,835,238 1,809,079 Intercompany Interest 294,046 129,752 0 0 0 0 0 0 0 0 0 Other Interest 0 0 0 0 0 0 0 0 0 0 0 Management Fees 582,060 664,109 722,448 788,320 826.201 848,451 871.619 905,767 941,659 979.389 1,019.052 Other Expenses / (Income) (41,175) - - - - - - - - - Net Income Before Income Taxes 2,104.445 3,083,810 3,020,990 3,848,411 4.135,820 4,366,450 4,481,693 4,909,308 5,169,854 5.739,131 6,001,498 Income Taxes fa 40.0% 841.778 1,225,444 1,208,398 1.539,364 1,854,328 1.746,580 1,792.677 1.963,723 2.087,942 2.295,652 2,400,599 Net Income 51,262,687 51,838,166 51,812,594 52,309,047 52,481,492 52,619,870 52,689,016 52,945,585 53,101,912 53,443,479 53,600,899 KANE.REEC t- • Time Warner Cabta Ithaca, New York Balance Sheet December 31, 12/31/98 9/30/99 2000 1 2 3 4 5 6 7 8 9 10 Current Assets Cash $ 373,625 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ 563,645 $ .563,645 Accounts Receivable 328,683 216,533 229,525 243,296 257,894 273,368 289,770 307,156 325,586 345,121 365,828 Prepaid Expenses & Other 5.022 26.937 28.284 29698 31183 32742 34379 36 098 37903 39798 41788 Total Current Assets 705.330 807,115 821.454 836.639 852.722 869.755 887.794 906.899 927.134 948.564 971.261 Property Plant b Equipment, Gross 32,395,544 32,979,091 35,275,759 36,258,214 37,055,649 37,826,399 38,652.899 40,222,982 41,791,816 42550,316 43,308,816 Less Accumulated Depredation 115.921.0791 117,508.6591 120.092.1151 122.659,6711 (25 223.722) (27.640,4251 130524.7661 (32.192.7771 (34,319.6131 136,104.8501 137,663,9291 Total Property, Plant & Equipment 16,474,465 15,470,432 15,183,644 13,598,543 11,831,927 10,185,974 8,628,133 8,030,206 7,472,203 6,445,465 5,444,886 Other Assets 866.244 891.083 891.083 891.083 891.083 891.083 891.083 891.083 891.083 891.083 891.083 Total Assets 318,046,039 317,168,630 $16,896,181 315,326.265 313,575,732 311,946,812 $10,407,011 39,828,188 39,290,420 38,285,112 37,307.230 Current Liabilities Accounts Payable $ 1,127,988 $ 1,143,015 $ 1,211,596 $ 1,284,292 $ 1,361,349 $ 1,443.030 $ 1,529,612 $ 1,621,389 $ 1,718,672 $ 1,821,792 $ 1,931,100 Subscriber Prepayments 72,036 75,715 80,258 85,073 90.178 95,588 101,324 107,403 113,847 120,678 127,919 Deferred Marketing Support 291.213 282 250 299.185 317.136 336.164 356.334 377.714 400.377 424,400 449.864 476.855 Total Current Liabilities 1,491,237 1500,980 1,591,039 1,686,501 1,787,691 1,894.953 2,008,650 2,129,169 2,256,919 2.392,334 2,535,874 Intercompany Debt (7,734,264) (11,295,570) (11,295,570) (11,295,570) (11,295,570) (11,295.570) (11,295,570) (11,295,570) (11,295,570) (11,295,570) (11,295,570) Stockholders' Equity 24,289.066 26.963.220 26.600.712 24.935.334 23.083.611 21.347.429 19.693.931 18.994.589 18.329.071 17.188.348 16.066.926 Total Liabilities & Equity ;18 046 03$ 517.168.630 316 896.181 ,515.326.260 ,513.575 732 ,511 946.812 $10.407 011 ;9 828.18Q $9 290 42Q #8.285 112 ;7.307.23Q KANE REEC £ccnrIArcc i r Time Wamer Cable Ithaca, New York Sources & Uses of Funds Sources of Funds: • Actual Thru 9/99, ProJ thru Actual 12131/99 1998 1999 2000 1 2 3 4 5 6 7 8 9 10 Proceeds from Issuance of New Stock 50 50 50 30 50 50 50 50 $0 30 50 Debt - Corporate Parent 1,683,627 0 0 0 0 0 0 0 0 0 0 Debt - Other 0 0 0 0 0 0 0 0 0 0 0 Revenues 11,641,205 13,282,184 14,448,967 15,766,393 16,524,023 16,969,021 17,432,383 18.115.337 18,833,188 19,587,778 20,381,047 Increase In Current Liabilities 544,098 9,743 90,059 95,462 101,190 107,261 113.697 120,519 127,750 135,415 143,540 Other 0 0 0 0 0 0 0 0 0 0 0 Total Sources of Funds 13,868,930 13,291,927 14,539,026 15,861,855 16,625,214 17,076,283 17,546,080 18,235,856 18,960,938 19,723,193 20,524,587 Uses of Funds: Capital Expenditures 6,405,429 2,220,381 2,296,668 982,455 797,435 770,750 826,500 1,570,083 1,568,833 758,500 758,500 Operating Expenses 9,242,714 10,088,822 11,427,977 11.917,982 12,388,203 12,602,572 12,950,690 13,206,029 13,663,334 13,848,647 14,379,549 Less Non Cash Expenses (3,103,125) (2,381,745) (2,633,456) (2,617,556) (2,614,051) (2,466,703) (2,434,340) (2,218,011) (2,176,836) (1,835,238) (1,809.079) Interest Payments to Corporate 294,046 129,752 0 0 0 0 0 0 0 0 0 Interest Payments - Other 0 0 0 0 0 0 0 0 0 0 0 Income Taxes 841,778 1,225,444 1,208,396 1,539,364 1,654,328 1,746,580 1,792,677 1,963,723 2,067,942 2,295,652 2,400,599 Debt Repayments 0 1,683,627 0 0 0 0 0 0 0 0 0 Dividends or Distributions (0) 223,861 2,225,102 4,024,424 4.383,216 4,406,051 4,392,514 3,694,927 3.817,431 4,634,201 4.772,320 Increase In Current Non -Cash Assets 53,275 (88,235) 14,339 15,186 16,083 17,033 18,039 19,105 20,234 21,430 22,697 Other 0 0 0 0 0 0 0 0 0 0 0 Total Uses of Funds 13,734,117 13,101,907 14,539,026 15,861,855 16,625.214 17.076.283 17,546,080 18,235,856 18.960.938 19,723,193 20.524,587 Net Change In Cash 134,813 190,020 0 0 0 0 0 0 0 0 0 Beginning Cash 238,812 373,625 563,645 563,645 563,645 563,645 563.645 563,645 563,645 563,645 563.645 Ending Cash 5373,625 3563,645 3563.645 3563,645 $563,645 $563,645 $563,645 3563,645 $563,645 5563,645 5563,645 KANEeREECF • • Time Warner Cable Ithaca, New York propnmminp Expenses Actual Thru 9199, ProJ thru Actual 12/31/99 1999 1999 2000 1 2 3 4 5 6 7 8 9 10 Premium Programming Expenses 3609,656 3667,415 3691.285 3714,542 3712,066 3709,463 $706,734 5712,787 5718,864 5724,965 3731,089 Basic Programming Expenses 1,311,068 1,448,694 1,745.733 1,795,203 1,913.156 2,037.396 2,168.196 2.335,024 2.513.438 2,704,199 2,908,110 Mini -Pay Programming Expenses 143,200 145,333 129,866 135,515 138.997 142.542 146,151 151,719 157,495 163,485 169.697 Digital Programming Costs n/a n/a 40,228 95,555 106,704 107,201 107,663 109,456 111,259 113,070 114,890 Other Programming Expenses: Pay Per View 151,731 170,881 233,418 373,244 383,586 394,133 404,886 421,109 437,959 455,458 473,632 Total 32,215,655 $2,432,323 52,840.530 33.114,059 53,254,508 33.390.735 33,533,630 53,730,096 53,939,015 $4,161,176 34,397.417 19.0% 18.3% 19.7% 19.8% 19.7% 20.0% 20.3% 20.6% 20.9% 21.2% 21.6% Premium Prog Exp as a •% of Prem Rev 67.8% 69.1% 70.6% 71.0% 71.4% 71.8% 72.2% 72.6% 73.0% 73.4% 73.8% Basic Prog Exp as a °% of Basic Rev 17.0% 18.2% 20.1% 20.6% 21.1% 21.6% 22.1% 22.6% 23.1% 23.6% 24.1% PPV Prog Perp as a %of PPV Rev 48.2% 45.8% 43.3% 43.6% 43.9% 44.2% 44.5% 44.8% 45.1% 45.4% 45.7% Mini -Pay Ping Exp as a % of Mlnl-Pay Rev 127.2°% 45.6% 60.8%. 61.1% 61.4% 61.7% 62.0% 62.3% 62.6% 62.9% 63.2% Digital Prog Exp as a % of Digital Rev n/a n/a 20.8% 21.1% 21.4°% 21.7% 22.0% 22.3% 22.6% 22.9% 23.2% KANE REECE ASSOCIATFS. INC. • 1 Time Wamer Cable Ithaca, New York Other Variable Expenses Actual Thru 9199, ProJ thru Actual 12/31/99 1998 1999 2000 1 2 3 4 5 6 7 8 9 10 Bad Debt 6.0% 5108,895 3171,918 3197,776 3209,643 5222,221 5235,554 5249,688 5264,669 5280,549 5297,382 5315,225 Collection Expense 17,784 11,272 0 0 0 0 . 0 0 0 0 0 Data Processing - Billing 3.0% 143,536 102,154 103,278 106,376 109,568 112,855 116,240 119,728 123,319 127,019 130,829 NCTA Dues 5.0% 8,289 4,485 8,648 9,080 9,534 10,011 10,512 11,037 11,589 12,169 12,777 Late Fees 6.0% (69,750) (69,916) (70,450) (74,677) (79,158) (83,907) (88,942) (94,278) (99,935) (105,931) (112,287) Franchise Fees 6.0% 48,770 (56,736) 29.653 31,432 33,318 35,317 37,436 39,682 42,063 44,587 47,262 Data Processing - Postage 3.0% 69,283 72,907 71,621 73,770 75,983 78,262 80,610 83,028 85,519 88,085 90,727 Other Programming 5.0% 12 290 17 516 18 150 19 058 20 010 21 011 22 061 23 165 24 323 25 539 26,816 Total 3339.097 12§2sog 3358.67Q 3374.662 3391.477 3409.103 3427 60Q 3447 031 3467.42Q 3488 85Q ;511.35Q KANE.REEC Time Warner Cable Ithaca, New York Public Access Actual Thru 9199, Pro) thru Actual 12/31/19 1998 1999 2000 1 2 3 4 5 6 7 8 9 10 Compensation 5.041 599,907 3106.061 5112,328 3117,944 3123,842 3130,034 3136,535 $143,362 5150,530 5158,057 3165.960 Employee Taxes 8,663 8,837 9.907 10.615 11.146 11.703 12,288 12.903 13,548 14,225 14,936 Insurance 8.0% 19.294 25,399 29,040 31.363 33,872 36,582 39,509 42.669 46,083 49,769 .53.751 Benefits & Other Employee Costs 8.0% 9,111 12.759 11,363 12,272 13,254 14,314 15,459 16,696 18,032 19,474 21.032 Light, Heat & Power 8.0% 13,986 15,118 16,800 18,144 19,596 21,163 22,856 24,685 26,659 28,792 31.096 Other 4.0% 14,453 9.532 9,776 10,167 10,574 10.997 11.437 11,894 12,370 12,865 13,379 Franchise Fee Offset - - - (200,506) (212,283) (224,793) (238,084) (252.209) (267,222) (283,182) (300,154) Total 3 165,414 3 177,706 3 189.214 $ 3 - $ - $ 3 - $ 3 - 3 KANE.REEC Time Wamer Cable Ithaca, New York General & Administrative 1 • Actual Thru 9/99, ProJ thru Actual 12/31/99 1998 1999 2000 1 2 3 4 5 6 7 8 9 10 Employee Costs 3.0% 5325,736 5311.000 $290,295 6299,004 5307,974 5317,213 6326,730 $336,531 $346,627 5357,026 6367.737 Light. Heat & Power 8.0% 76,300 76,475 81.600 88,128 95,178 102,792 111,016 119,897 129,489 139,848 151,036 Legal & Prof Fees 4.0% 68,978 100.400 83,622 86,967 90,446 94,063 97,826 101,739 105,809 110,041 114,442 General Insurance 4.0% 38,208 50,466 38,573 40,116 41,721 43,389 45,125 46,930 48,807 50,759 52,790 Property Tax 5.0% 114,859 150,000 190,000 199,500 209,475 219,949 230,946 242,493 254,618 267,349 280.717 Office Expense 3.0% 137,593 137.541 127,395 131,217 135.153 139,208 143,384 147,686 152,116 156,680 161,380 Repairs & Maintenance 4.0% 36,068 40,287 37,308 38,800 40,352 41,966 43,645 45,391 47,207 49,095 51.059 Other 5.0% 2.313 (10.2251 (1.4521 0 0 0 0 0 0 0 0 Total 5800,055 5855,944 5847,341 5883,732 6920.299 $958,582 $998,672 51,040,668 $1,084,673 51,130,798 31.179,161 KANE.REEC TIME WARNER ITHACA, NY Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 1999 2424 2441 2442 2003 2004 2005 2006 2007 2008 CAPITAL EXPENDITURE SCHEDULE Assets with Depreciation Life = 25 years 0 0 0 0 0 0 0 0 0 0 Assets with Depreciation Life = 20 years 10,293 20,540 0 0 0 0 0 0 0 0 Assets with Depredation Life =16 years 177,742 339,321 250,000 250.000 250,000 250.000 250,000 250.000 250.000 250,000 Assets with Depreciation Life = 15 years 132,757 123,082 125.000 125.000 125,000 125.000 125,000 125,000 - 125,000 125,000 Assets with Depredation Life =11 yearn 104,015 31,548 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 Assets with Depredation Life = 10 years 1,500 15,856 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Assets with Depreciation Life = 8 years 328,391 256,288 338,455 153,435 126,750 182,500 115,750 114,500 114,500 114,500 Assets with Depredation Life = 7 years 1,128,697 1,373,758 155,000 155.000 155,000 155,000 965,333 965,333 155,000 155.000 Assets with Depreciation Life = 5 years 148,216 49,300 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Assets with Depreciation Life =4 years 50,742 42,600 51,500 51,500 51,500 51,500 51,500 51,500 51.500 51.500 Assets with Depredation Life = 3 years 138,028 44,375 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 TOTAL 2,220,381 2,296,668 982,455 797,435 770,750 826,500 1,570,083 1,568,833 758,500 758,500 DEPRECIATION SCHEDULE Assets with Depreciation Life = 25 years 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1,010 1.010 Assets with Depreciation Life = 20 years 88,254 76,941 34,855 34,855 34,855 34,855 34,855 34,855 19,709 1,542 Assets with Depredation Life= 16 years 889,214 906,180 918,680 931,180 943.680 956.180 968,680 981,160 993,680 1,006,180 Assets with Depredation Life = 15 years 152,571 160,777 169.110 177,444 185,777 190,287 189.880 198,213 92,642 86.896 Assets with Depredation Life = 11 years 109.491 110,082 103,906 106,633 109,361 112.088 114,815 64,201 31.415 34,142 Assets with Depredation Life = 10 year 16,999 13,815 14,065 7,930 2,486 2,736 2,986 3,236 3,486 3,736 Assets with Depredation Life = 8 years 212,154 244,190 286,496 305,595 153,681 176,493 190,315 202,009 175.272 157,549 Assets with Depreciation Life = 7 years 657,428 853,178 872,758 850.204 866,481 823,330 583,970 560,632 386,524 386,524 Assets with Depreciation Life = 5 years 49,248 55,086 52,504 49,512 51,503 25,860 20,000 20,000 20,000 20,000 Assets with Depredation Life = 4 years 88,344 97,413 66,071 49,086 49,275 51,500 51,500 51,500 51,500 51,500 Assets with Depreciation Life = 3 years 105,628 64,784 48,101 50,601 18,594 10,000 10,000 10,000 10,000 10,000 TOTAL 2,370,342 2,583,456 2,567,556 2,564,051 2,416,703 2,384,340 2,168,011 2,126,836 1,785,238 1,759,079 • EXHIBIT 14 Attached is a schedule of commercial leased access charges for the Ithaca system of Time Warner Cable, all of which are determined in accordance with the rules and regulations of the Federal Communications Commission. ITHACA CITY Leased Access Rates Time Warner Cable - CITY OF ITHACA Subscriber Charge Number of Channels Number of Subscribers Total Programming Costs Subscriber Revenue Total Implicit Fee Weighting Factors Tier Implicit Fee Average Implicit Fee(Monthly) Average Implicit Fee(Weekly) Average Implicit Fee(Daily) Pro -Rata Hourly Fee Prime Time Weighting Factor ... Prime Time (7PM-12PM) Mid -Day (7AM-7PM) Night (12PM-7AM) BST CPST Combined 12.99 $ 24 6875 5,363.63 $ 89,306.25 $ 21.36 35 4556 24,288.49 $ 97,316.16. $ 29,652.12 186,622.41 $ 156,970.29 50.85% 79,825.24 $ 49.15% 77,145.05 3,326.05 $ 776.08 $ 110.87 $ 2,204.14 514.30 73.47 4.62 $ 1.89 8.73 $ 4.62 $ 1.68 $ 3.06 1.89 5.79 3.06 1.12 Instructions 1. Enter system information in red in upper box (numbers in black may not be accessed) to produce full time rates. 2. Choose appropriate prime time weighting factor in red in lower box to produce part time rates. Page 1 ITHACA TC & CAY Leased Access Rates Time Warner Cable - ITHACA - TC & CAYUGA Subscriber Charge Number of Channels Number of Subscribers Total Programming Costs Subscriber Revenue Total Implicit Fee Weighting Factors Tier Implicit Fee Average Implicit Fee(Monthly) Average Implicit Fee(Weekly) Average Implicit Fee(Daily) Pro -Rata Hourly Fee Prime Time Weighting Factor _. Prime Time (7PM-12PM) Mid -Day (7AM-7PM) Night (12PM-7AM) BST CPST Combined 12.66 $ 24 16902 13,164.21 $ 213,979.32 $ 21.69 35 12513 66,284.52 $ 271,406.97 $ 79,448.73 485,386.29 $ 405,937.56 48.09% 195,195.80 $ 51.91% 210,741.76 8,133.16 $ 1,897.74 $ 271.11 $ 6,021.19 1,404.95 200.71 $ $. 11.30 $ 1.89 21.35 $ 11.30 $ 4.11 $ 8.36 1.89 15.81 8.36 3.05 Instructions 1. Enter system information in red in upper box (numbers in black may not be accessed) to produce full time rates. 2. Choose appropriate prime time weighting factor in red in lower box to produce part time rates. Page 1 • • Time Warner Cable's I -Net proposal for the Consortium is attached. EXHIBIT 15 1 • This Exhibit will expand upon our proposal for the Institutional Network set forth in Section VIII. 1. Existing Coaxial Cable Network. Time Warner Cable will operate the existing coaxial cable I -Net. The I -Net is a midsplit 450 MHz system with approximately 210 MHz of unused forward capacity and approximately 95 MHz of unused reverse capacity. As a part of the franchise renewal, we will make available two (2) additional channels in each direction making a total of ten (10) forward and ten (10) reverse six (6) MHz channels available. Time Warner Cable will continue to work closely with the Consortium and I -Net users, as we have in the past, to assist in expanding the capabilities of the existing I -Net as well as exploring how our high- speed internet service, currently RoadRunner, might also be used for services commonly associated with the I -Net. Time Warner Cable shall be responsible for the maintenance of the co -axial I -Net. 2. Fiber Optic Upgrade. There does not appear to be a compelling or practical reason for replacing the existing coaxial I -Net with a fiber network. Given that there is substantial unused capacity on the existing I - Net and a recent survey of our subscribers indicates an overwhelming majority do not feel one is needed nor are they willing to pay for it, we believe the existing I -Net, in conjunction with our Road Runner service, will address the needs of the various I -Net users. We look forward to meeting with the Consortium to discuss specific requirements. Nevertheless, if the Consortium continues to believe a fiber optic network is necessary we will construct and maintain such a network pursuant to an arms -length agreement whereby the prospective users provide all necessary funding for construction, operation and maintenance. L 3. I -Net Extensions. Time Warner Cable proposes to provide.an_insttptional network connection to a maximum of four, (4) additional locations selected by the Consortium from those identified in the RFRP: As discussed above, there is no practical or compelling reason why those connections need to be fiber. Lastly, Time Warner Cable will provide connections beyond the four (4) mentioned previously upon request and at the User's Cost. 4. Upstream Bandwidth. Upstream bandwidth is already provided to all of the sites connected to the coaxial I -Net. Time Warner Cable believes there is no need to provide the Consortium with upstream capacity on the subscriber network because our Road Runner service has the capability to fulfill the functions identified by the Consortium without the allocation of additional bandwidth. • 5. Closed Circuit. Closed circuit programming ability for sites not on the I - Net can be accommodated on one or more of the access channels through the use of scrambling and descrambling authorization control. We are ready and willing to work with prospective users for closed circuit programming provided all expenses associated with the closed circuit programming including, but not limited to equipment, shall be the responsibility of the requesting user. 6. Internet. Internet access, currently offered through RoadRunner, is a cable television service. We expressly reserve the right to make all programming decisions. Service will be made available at published rates. Time Warner Cable reserves the right to waive the charges for various users at its sole discretion. 7. Terms of Usage. The I -Net shall be a closed circuit network dedicated for non-commercial use by government and educational institutions. Users will not make any modification to the outside plant (as the same term is commonly understood in the cable and telephone industry) nor attach any equipment or otherwise use the I -Net in any way that will interfere with the signal quality and normal operation of the system, including signal leakage. If any user wishes to interconnect the I -Net directly or indirectly to a public network or networks, including the internet, then the following shall apply: a. Itis the intent of Time Warner Cable that if the I -Net is used by any user for any purpose involving a direct interconnection to a public network, Time Warner Cable and its business affiliates be offered an opportunity to provide the Service, if Time Warner Cable is willing and able to provide the Service at the price that the user is able to obtain it from others. b. Within sixty (60) days of the renewal of the franchise, all users shall provide notice to Time Warner Cable of any Service purchased by the user from a third party involving a direct interconnection of the I -Net to a public network. If Time Warner Cable (or a business affiliate of Franchisee) is able and willing to provide the Service, then the user shall purchase all such Service from Time Warner Cable (or its affiliate) at the price (hereinafter the Price) that the user intends to obtain the Service from another provider. The user shall have the burden of establishing the Price, by reference to a bid to supply the Service, or other commercially reliable quotation of a price. If Time Warner Cable and its business affiliates do not choose to provide the Service at the Price, and the user determines to obtain the Service from a third party for an amount higher than the Price, the user shall give Time Warner Cable and its business affiliates a reasonable opportunity to provide the Service for that amount. c. The users shall not enter into any agreement, or renew, amend, or extend any agreement for the purchase of any Services involving a direct interconnection of the I -Net to a public network without offering Time Warner Cable (or a business affiliate of Franchisee) the opportunity to provide the Service at the Price at which the user intends to obtain the service. d. If Time Warner Cable (or a business affiliate of Franchisee) is able and willing to provide the Service sought to be accessed by the user by interconnecting to a public network at the Price that the user is willing to pay to a third party to provide the Service, then the user shall purchase such Service from Time Warner Cable (or its affiliate) at such Price. 8. Equipment and Maintenance. Each user of the co -axial I -Net shall be responsible for purchasing any necessary interface equipment and site equipment. Time Warner Cable shall maintain any interface equipment located at a Time Warner Cable facility at the user's cost. All other interface equipment shall be maintained by the user. • system. • EXHIBIT 16 Attached is a copy of the privacy notice sent to customers of Time Warner Cable's Ithaca • • TIME WARNER CABLE Privacy Notice As a subscriber to cable television service, you are entitled under Section 631 of the Cable Communications Policy Act of 1984 (the "Cable Act') to know the limitations imposed upon cable operators in the collection and disclosure of how subscriber personally ation is usedidentifiable , under what conditions theubscriber information, is d�losd, theof ally identifiable information period during which it is maintained,l and the rights of subscribers conceming such information and its disdosure. This law relates only to personally identifiable information. In order that we may operate efficiently, we keep regular business records that contain the following types of personally identifiable information: your name, address, telephone numbers, social security number, credit information, and security deposits, maintenance and repairs, how umr any television sets you ords also include fhave connected tormation on o cable or that are acable d ready, the location of these television sets in your home, the service options you have chosen, and the number of converters or other cable equipment installed in your home. We also keep records of research conceming subscriber satisfaction and viewing habits, which are obtained from subscribeninterviews and questionnaires. We also keep records showing the movies and events you have ordered on our pay-per-view channels. Additionally, if you rent your home, we may have a record of whether landlord permission was required prior to installing our cable facilities as well as your landlord's name and address. Without appropriate written or electronic consent from you, we cannot collect personal information over the cable system unless it is necessary to provide a cable or other service you have requested or to determine if you are being properly billed for the services you are receiving. Time Wamer Cable considers the information contained in the business records we keep to be confidential. Unless prior written or electronic consent is obtained, personal information which we maintain related trelated to o our cablesubscribers will and other erviices that wdisclosed e provide to you, or when it is If such disclosure isto render or uct a requiredby court order and thitimate business e subscriber is notified of such order, or if disdosure is otherwise consistent with the Cable Act as summarized in this Notice. Our detailed business records are used (and personal information containedin them disdosed) generally to help make sure you are being properly billed for the services you receive, to send you pertinent information regarding your cable services; to improve the quality of the services we provide, and for tax and accounting purposes. Specifically, the information in these records is used to sell, install, maintain, and disconnect cable services, as well as to bill and collect service related charges, to measure subscriber satisfaction and improve marketing and program decisions, to mail related materials, to ensure compliance with relevant law and contractual provisions, and to answer questions from subscribers. The types of persons to whom information about you may be disclosed in the course of our cable business include the employees of Time Wamer Cable and their related legal entities, agents, repair and installation subcontractors, sales representatives, accountants, billing and collection services, program guide distributors, maenousprog rame consumer and market ale inand iee mmen- inl entities. supon reasonable request, ersYdentifiable formation s disclosed to persons with equity interest in legal entities related to Time Wamer Cable when they have a legal right to inspect our books and records. Information for billing purposes and program guide mailings is generally provided on a monthly basis. Information for other purposes is provided as it is needed. We will maintain information about you as long as it is necessary for our cable television business purposes. This period of time lasts as long as you are a subscriber and up to fifteen additional years so that we can comply with tax and accounting requirements. Unless you object, the Cable Act also allows us to disclose information to others, including advertisers and direct mail or telemarketers, for non -cable related purposes, including product advertising, direct marketing, and research. Disclosure for such purposes is limited to your name, address, and the particular services to which you subscribe, but cannot include the extent of your viewing or use of a particular service or the nature of any transaction you may make over the cable system. We typically provide names and addresses of subscribers to third parties as often as requested. If you wish to have us remove your name from such lists, please contact us at the system office. We will then not make you name and address available for such non -cable purposes. Other than information necessary to render or conduct a legitimate business activity, Time Wamer Cable shall ovemment entities in the absence of an cnot make such ourt order entered after acourt rrocedi g. At suentifiable information h available court prroceding, Federal law requires the govemmentalte entity to offer clear and convincing evidence that the subject of the information is reasonably suspected of engaging in criminal activity and that the information sought would be material evidence in the case. The subject of the information must be afforded the opportunity to appear and contest the governmental entity's claims. In addition, pursuant to an administrative subpoena, state welfare agencies may obtain the names and addresses of individuals as they appear in the customer records of cable television companies with respect to those who owe, or are owed, welfare support Such information may be obtained without a court order and does not require that a subscriber be given notice of and the opportunity to contest the disclosure. You have the right to inspect our records that contain information about you and correct any errors in such information. If you wish to inspect our records at our local duringbusiness ouoffice, plse nbusiotify hours. us intnthi as a days in advance and an appointment will be arranged promptlyregular cable District Coursubscriber, should you the lbelieve e Act that anyes of the limitations onthe collection, diou with a cause of action for sclosure, attorneys nd retention of personally identifiable information have been violated by us. (7/98) u • • EXHIBIT 17 Attached is a copy of the customer complaint procedures sent to customers of Time Warner Cable's Ithaca system. r •Time Warner Cable Corporation Billing Practices and Consumer Complaint Procedures ocedures This notice contains important information regarding your cable company's billing practices and consumer complaint procedures. We hope with your cooperation and by using the following procedures, any of your billing or other complaints can be resolved. GENERAL PROCEDURES: A. Please notify us by telephone or in writing concerning any service or billing complaint within thirty (30) days from receipt of your bill at the address and telephone number shown on the enclosed coupons or invoices. B. We will promptly investigate your complaint and respond to you in writing within twenty (20) working days of the receipt of your letter or telephone call. If your dispute is still not resolved, you may contact: Time Warner Cable, P.O. Box 4733, Syracuse, New York 13221, (315) 463-2288. C. The subscriber is responsible for paying the undisputed portion of any current or future bill. Service shall not be discontinued due solely to non-payment of the disputed portion of the bill while the dispute is under investigation. D. The subscriber is entitled to a credit for a complete service outage affecting any level of basic cable service or one or more premium services in excess of four (4) continuous hours. The subscriber must immediately notify the cable company, orally or in writing, of the outage. The subscriber must claim credit for the outage within ninety (90) days of its occurrence. E. If the billing or service complaint is not resolved within (30) days of the date it is registered with the cable company, the subscriber may refer the matter to the New York State Public Service Commission, Three Empire State Plaza, Albany, New York 12223, 1-800-342-3330. If the subscriber does not refer the complaint to the Commission within thirty (30) days, the company may commence disconnection procedures. F. Service may not be disconnected for non-payment on a holiday or other day the cable company's office is not open to accept payment. The subscriber must be given at least eight (8) days written notice prior to disconnection. COMPLAINTS REFERRED TO THE N.Y.S. PUBLIC SERVICE COMMISSION: A. Complaints with a financial value of less than $1,000 may be resolved by Commission staff rather than by a hearing officer convening a formal hearing of the parties. B. The Commission may request that telephone complaints be put in writing. C. Both the subscriber and the cable company will be provided the opportunity to present evidence regarding the dispute and challenge the other party's evidence. D. The Commission's determination in the proceeding must be provided to both parties in writing and the decision may be appealed to the Commission within twenty (20) days. LATE CHARGES AND COLLECTION CHARGES: A. The due date for payment of your monthly cable service appears on your bill and is 15 days from the date of mailing. Any charges becoming 60 days delinquent from the due date will be subject to a late charge of $5.00. B. The cable company may charge a reasonable fee when the subscriber makes a payment at his or her residence to prevent disconnection of service. C. Customers may be charged a processing fee for any checks returned due to insufficient funds. PARENTAL CONTROL DEVICES Parental control devices are available for our local access, Pay -TV, or any channel. They may be purchased at cost plus 1596. There will also be an installation charge. Please contact our office to order. • TECHNICAL COMPLAINT RESOLUTION NOTICE In compliance with the requirements of Section 76.607 of the FCC Rules, we are required to inform you that Time Warner Cable has in effect the following procedures to insure any complaints that may arise concerning the technical quality of the cable television signals that we deliver are promptly and efficiently resolved: All complaints received concerning the technical quality of cable television signals will be logged in on the same day of receipt, and the date, time and nature of the complaint will be noted, as well as the name, address, and telephone number of the complaining subscriber. These records are available for inspection by the FCC and municipal officials. A technician will analyze the complaint and make an assessment as to its probable cause. Complaints concerning the technical quality of cable television signals will be investigated by a service technician the same or next business day, consistent with our ability to access your premises if such access is deemed necessary to resolve the complaint. If the problem can be resolved without a service call to your premises, you will be advised of this immediately and the resolution of the complaint will be noted in records maintained by the Chief Technician. All efforts will be made by our technicians and other employees to resolve any complaints concerning the technical quality of service promptly and efficiently. If our technician fails to correct the problem, you may contact our office and we will review the complaint and the corrective action taken. All complaints concerning the technical quality of the cable television signals we provide should be put in writing to: General Manager, Time Warner Cable — 519 W. State Street, Ithaca, NY 14850; or you may call (607) 272- 3456. If we are not able to take any further action to correct the problem, we will promptly inform you of our determination and the reasons we cannot correct the problem. If your dispute is still not resolved, you may contact Time Warner Cable, P.O. Box 4872, Syracuse, NY 13221, (315) 463-2288. If you believe our investigation and handling of a complaint is deficient in some manner, you may contact the Mayor, Supervisor, Manager or other municipal official of your community as listed below: Municipality Town of Caroline Town of Danby Vill. of Freeville City of Ithaca Village of Lansing Town of Ulysses Vil of Cayuga Heights Town of Dryden Town of Groton Town of Ithaca Town of Newfield Town of Candor Town of Covert Village of Dryden Village of Groton Town of Lansing Vil of Trumansburg Vil of Candor Address PO Box 136 1830 Danby Road 5 Factory St,Box 288 108 E.Green St. 2405 N Triphammer Rd 10 Elm St, 836 Hanshaw Rd City State Zip Community Identifier 14881 NY0088 14850 NY0310 13068 NY0622 14850 NY0092 14850 14886 NY0096 14850 NY0089 13053 NY0090 13073 NY0578 14850 NY0091 14867 NY0095 13743 NY0679 14847 NY1525 13053 NY0114 13073 NY0212 14882 NY0093 14886 NY0579 13743 NY0087 Slaterville Springs NY Ithaca NY Freeville NY Ithaca NY Ithaca NY Trumansburg NY Ithaca NY 65 E Main St Dryden 101 Conger Blvd,Box36Groton 126 E Seneca St Ithaca 166 Main St Newfield Humiston St, Box 6 Candor 3911 County Rd#150 Interlaken 16 South St Bx 820 Dryden 108 E Cortland St,Bx146Groton 29 Aubum Rd, Bx186 Lansing 56 E Main St.,Box 718 Trumansburg 138 Main St, Box 1 Candor NY NY NY NY NY NY NY NY NY NY NY • • 0 • EXHIBIT 18 Attached is a copy of the customer handbook sent to customers of Time Warner Cable's Ithaca system. Society of Cable Telecommunications Engineers "Training, Certification, Standards" for the Broadband Communications World ala Society of Cable Telecommunications Engineers Consumer's Guide To In -Home Wiring 1 0 ............ ■■■■■■■■■■■■ .■■■..■■■■■.i ■■■■.■■■■.■.i 11 A look at the requirements for installing your own CATV wiring. NOTES 22 Society of Cable Telecommunications Engineers AWf Consumer's Guide To In -Home Wiring A look at the requirements for installing your own CATV wiring Consumer's Guide To In -Home Wiring is Published by SCTEjSociety of Cable Telecommunications Inc. 140 Philips Road Exton, PA 19341-1318 (610) 363-6888 l © 1995 Society of Cable Telecommunications Engineers Inc. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted by any means—elec- tronic, mechanical, photocopying, record- ing or otherwise, without written permis- sion from the Society of Cable Telecommunications Engineers. No patent liability is assumed with respect to the use of the information contained herein. While every precaution has been taken in the' preparation of this manual, the Society assumes no responsibility for errors or omissions. Neither is any liability assumed for damages resulting from the use of the information contained herein. L NOTES 21 X. CONCLUSION A home cabling system canbe designed and installed with knowledge and patience. The cable TV company is a professional organization with trained engineers and technicians waiting to help you with any questions or problems. The Society of Cable Telecommun- ications Engineers, Inc. is composed of technical employees in the cable TV industry. SCTE serves its membership by providing training, certification and technical standards. This pamphlet is provided as a service to its membership and to you, the valued customer. 20 I. INTRODUCTION The cable running from your television to the cable TV company's connection point is attached to their entire cable system. Therefore, specific requirements are needed with respect to cable selection, routing and connection so that the best possible picture is ensured at every TV set within the home. Good planning will also minimize electrical interference with other users of the airwaves (i.e., aircraft, ham radio, police, etc.) and will allow easy servicing when necessary. The following information is given by the Society of Cable Telecommunications Engineers, Inc. along with cable TV companies and manufacturers of cable equipment. This is to ensure quality service to all cable customers who wish to install their own wiring or hire electrical contractors or builders to wire their homes for cable TV service. II. COMMON QUESTIONS Q. Are TV signals from the cable system different than TV signals received by a roof -top VHF or UHF antenna? A. Yes. Because the cable TV company offers many more channels, the system must organize and process these signals in complex ways. This means the service may not be received properly when using video distribution hardware such as 1 cables, splitters, switchers and amplifiers that are not specifically made for cable TV signals. Q. There is a lot of video distribution hardware available in retail stores and electronic supply outlets. Is this equipment OK for use with cable TV? A. Maybe. Although you may get the hardware to "work," you may not get the quality of video and audio service that your cable system is capable of delivering. Q. How will I know if the retail products will work on my system? A. Unfortunately, such products don't have to be identified as such and there are currently no recognized performance standards. Right now, the Society of Cable Telecommunications Engineers (SCTE) and the Electronics Industry Association (EIA) are developing these standards. Q. How hard is the installation work and does it take special training and equipment? A. You should know some specifics about electronics wiring along with knowing local building and National Electrical codes. Specialized equipment will make a quality installation easier and, in some cases, it is required. attachment in an area where it may be hidden behind a permanent ceiling or wall structure. VIII. SIGNAL SPLITTERS As stated earlier, random splitting violates the "Home Run" layout scheme and most likely will degrade the TV picture at one or all outlet locations. Also, splitters can fail. If placed inside walls, they will be hard to access for repairing or replacing. Generally, only one splitter is needed for the home and is placed at the cable entry point. The cable TV company will supply, install and connect it for you. IX. SIGNAL AMPLIFICATION In a properly laid out "Home Run" system, every TV in the house should have sufficient signal from the cable TV system to produce a good, clear picture. If not, you may need to consider installing an amplifier. However, amplifiers can also cause picture problems. Many of these devices are not designed for cable TV service because of limited channel capacity and insufficient shielding. Some of this equipment may be labeled as "Antenna," "UHF/VHF" or "MATV." These are not cable TV amplifiers and should never be used. Before installing an amplifier, consult your cable TV company. 19 Bonding / Block ;;.- Common Grounding Electrode you do not understand NEC requirements and procedures in Section 820 of the code, do not try a ground connection. Call the cable TV company or a qualified electrical contractor. At a very minimum, a #14 gauge, insulated, solid copper wire must be run between the cable entry point (the bonding block) and connected to the home's common -ground electrode. (Some situations require the use of larger sizes of ground wire.) One method of bonding is shown above. The bonding attachment and bonding block must be in an area that is always accessible. Do not place the bonding 18 Q. What should I do? A. This pamphlet will help you answer this question. If you're still not sure, please talk with your local cable TV company. Q. I have read that future cable systems will offer hundreds of TV channels along with other advanced services. Will my in-home wiring be able to handle these future services? A. If you follow the advice contained in this pamphlet, you can expect to take advantage of all services offered by your cable system in the future. Q. If I do not follow the advice provided by this pamphlet, is the cable TV company required to hook up to my in-home system? A. They will work with you to provide a satisfactory service that may require a complete rewire of the house if the wiring is not done properly. Q. If the in-home wiring system belongs to the homeowner, why does the cable TV company have its own requirements? A. First of all, the cable TV company works hard to provide the best quality service, and that service can be impaired by the in-home wiring and hardware. Secondly, even though the in-home wiring may be owned by the homeowner, the cable TV company is legally responsible for making sure that such wiring does not 3 disrupt other transmitted services, both inside and outside the home. Q. If problems happen, what can I expect? A. If the installation is not performed properly using the proper materials, the usual result will be one or more of the following problems. Poor Signal Levels (Snowy Pictures) Possible Causes: a. Use of low quality splitters b. Poor connections c. Damaged cable d. Excessive splitting of the signal Installing the Connector The connector is now ready to be installed onto the end of the cable. Install the connector onto the end of the cable, and use the appropriate tool to complete the connector installation. Never use pliers to crimp a connector onto the cable. Again, your cable TV company has the proper tools and will install the connectors for you. Afterwards, check to see that: • the connector does not twist on the cable. • the connector will not pull off when moderate tension is applied. • braid wires are not protruding from the back of the connector. • the center conductor extends 1/16- to 1/8 -inch past the end of the connector. VII. ELECTRICAL BONDING To ensure protection within the home, the cable TV circuits must be grounded to the earth through bonding to the home's common grounding point. As you might expect, there are very detailed requirements for the ground wire size, location, placement and attachment. All of these conditions must be met in accordance with a number of safety standards. The National Electrical Code (NEC) and your local building code requirements are just two examples. If 17 Cable Preparation Make sure that the coaxial cable is ready to accept the connector. Special preparation of the cable end is needed. A special Cable Preparation Tool, designed for the connector you are using, is recommended to make all cuts. Do not use a knife or razor blade to trim the cable to its proper dimensions. Any damage to the individual cable parts will make the product unusable. The Cable Preparation Tool will reduce the chances of damage and will increase the Tong -term reliability of the connection. The cable TV company can provide information on correct cutting tools. After making the cuts with the tool (according to its instructions), each of the cable's parts will have the exact length for insertion into the connector. Make sure that: ■ the center conductor is exposed for 3/8 -inches, free from any dirt or white residue, and that it has not been nicked or scored in any way. • the aluminum foil tape is still firmly glued to the white dielectric. • the outer braided wires are folded back over the jacket and that none are touching the center conductor. • any stray pieces of plastic or metal are removed from the end. 16 Ghosting Possible Causes: a. Inferior cable b. Poor connection c. Improper termination of cables 5 Interference Possible Causes: a. Loose connectors b. Bad cable c. Poor quality splitters d. Inadequate shielding from RFI (Radio Frequency Interference) rules about procedures and allowable types of connectors. They should be contacted for this information. Usually, they will supply and install these for you when you order cable service. Connector Selection Many different connectors are available. Depending on what the cable TV company has recommended, different handling requirements and installation procedures will apply. If you try to do this yourself, follow these guidelines. 1. Use the right size connector for the cable. Typical sizes are generically known as RG -59 and RG -6 (RG -6 is the larger cable). The cable TV company will know the correct connector designation for any given cable size. 2. Do not use "push -on" type connectors at any outlet. Because access to these areas is usually remote and rare, permanent, threaded connectors should be installed at these locations. 3. Do not use connectors with a separate piece that must be crimped around the cable. These are especially hard to install properly. One-piece designs are the more reliable choice. 15 ■ Allow enough extra cable length to remain at each outlet location (at least a couple of feet) for adding connectors later. ■ Don't kink the cable for any reason. ■ Don't pinch the cable in any way. ■ Loop the cable around sharp corners. Avoid tight 90 degree turns. ■ Maintain a minimum 2 -1/2 -inch bend radius. ■ Maintain proper separation from electrical power wiring. VI. SELECTING AND INSTALLING THE RIGHT CONNECTOR To receive cable TV, the cable must be physically and electrically connected to the TV set, and it must be done correctly. Most cable TV problems are caused by poor or wrong cable connector installation. Results can range from loss of TV channels to interference with other radio transmissions. Putting a connector on the cable can be tricky. Cable TV companies have strict Do Not Use 14 Preferred Loss of Channels Possible Causes: a. Damaged cable during installation b. Stapling or nailing into cable c. Incompatible devices 7 III. PLANNING THE CABLE ROUTE THROUGH THE HOME The best cable layout scheme to use is called "Home Run" routing. This is best defined as a system where all cable TV outlets are wired with a dedicated, uninterrupted cable to a single designated location in the home. This is usually near the power and telephone service entrance. You can see in the figure below that each television's cable is routed back to the cable TV company's connection without any breaks or splices. Incoming Coble Central Dishibution Point Home Runs Tips on Laying Out the Cable: 1. Start with a floor plan. If you don't already have one, you can easily sketch out a rough plan on a sheet of paper. 2. Locate the cable entry point to the home. You may need to ask the cable TV company where the entry is, especially in areas with underground utilities. 8 This is to fully shield the strong signals in the air from interfering with the cable channels.) Use caution when examining exposed braid wires. They can easily puncture the skin. Usually, the cable used for in-home wiring is series -6 type cable with a minimum of 67% braid coverage and 100% shielding. V. INSTALLING THE CABLE IN THE HOME You have planned your route and selected the right cable type. A few things should be said about dealing with the obstacle courses always found during the actual installation. Although the coaxial cable is durable, it can easily be damaged if caution is not used. Running each cable from the selected outlet location back to the service entry point will take you around corners, through holes and around wall studs. Here are a few hints: • Keep your runs "square" around each room for safety, neatness and accessibility. No diagonal runs. • Do not use staples. They will damage the cable if they puncture the jacket. The cable TV company can direct you to or provide the correct attachment hardware. 13 not work. Often they will even provide the proper quality cable to you at a low cost. If you choose your own cable, cut open a section and study what is inside. What to look for: 1. The different parts of the cable as shown in the drawing must all exist. 2. Make sure that the cable is Underwriters Laboratories (UL) listed. The letters "CATV" or "CATVX" and the UL trademark must be printed on the plastic jacket. 3. Make sure that the white material inside (the dielectric) looks similar to the material used in styrofoam cups, but slightly harder. It should not be solid plastic. 4. The aluminum foil tape and the white dielectric must be glued together—not just wrapped and easily torn away. 5. Each bundle of aluminum braid should have 4 or more wires. This can be hard to check, so be careful. Stay away from any products with only 2 or 3 wires per bundle. (In some areas with many local broadcast TV stations, a cable with a second aluminum foil tape and more braid may be needed. 12 3. Determine the number and location of all outlets. These are typically placed in the Living Room, Family Room, Bedrooms and Kitchen. Route each cable from these locations to the cable entry point in the most direct route possible. Do this while avoiding all hot surfaces such as heating ducts and hot water pipes. Note the outlets on your floor plan. 4. Keep the lines as short as possible, but make sure that the routing adequately hides or protects all cables to ensure safety. Carefully look over the home to find the easiest route. 5. Measure the length of the planned routes so you'll know about how much cable you'll need. Placement of outlets by cutting into one cable and using signal splitters to splice in one or more outlets is NOT recommended. This random splitting may degrade the TV picture by not allowing enough signal to, reach the TV in order to produce a clear image. This will usually result in a "snowy" picture as shown on page four. Also, this practice likely will not be approved by the cable TV company. Modifications or a total rewire may be required by them before service can be connected. 9 Once you have picked the spot for the outlet, figure out the shortest route to the cable service entrance that also follows good installation practices. DO NOT: • place the cable under a rug. • run the cable over a doorway. • route the cable up (or down) the face of inside walls. ■ run the cable over a roof top. ■ run the cable diagonally on an outside wall. ■ route the cable through a window frame, door frame or molding. ■ route the cable through a wall where a sliding door exists. ■ leave excess cable behind the set so that moving the set could cause someone to trip over the cable. • make a bend in the cable with a bend -radius of Tess than 2-1/2 inches. You should plan to hide the cable as much as possible while keeping the cable length from the entry point to the set as short as possible. There are three basic ways to route the cable for home installation. 1. If the TV set is next to an outside wall, the cable can be secured along the outside of the house and brought in where needed. 10 2. You may bring the cable into the basement or crawl space, from there to a point under the TV set, and then up through the floor to the set. 3. A wall fish may be used to wire the outlet from the entry point to the desired outlet location. If the house has an unfinished basement, use it for cable routing when you can. Use an attic or crawl space only as a last resort. IV. CHOOSING THE RIGHT CABLE Almost all coaxial cables look the same—round and black. But they are not the same in other ways. To properly send cable TV signals, the cable must have very specific features. Your cable TV company can help in determining what will or will Dielectric Jacket Center Conductor Aluminum Foil Tape Aluminum Braid 11 /TIME WARNER CABLE NEW CUSTOMER XNFORMAT=ON PACKET WE DELIVER THE BEST IN TV ENTERTAINMENT! HERE AT TIME WARNER CABLE, WE'RE PROUD TO OFFER YOU OUR ON-GOING ON-TIME GUARANTEE. IF WE'RE LATE FOR A SERVICE CALL, YOU RECEIVE A X20 CREDIT. AND IF WE'RE LATE FOR AN INSTALLATION, THE INSTALLATION IS FREE GUARANTEED. THAT'S JUST ONE OF THE THINGS WE'RE DOING AT TIME WARNER CABLE TO GUARANTEE YOUR SATISFACTION. /////IM.Si rV,Z6:46Milli v\\\\\\\\\0\\\ ,\\\\\\\W\\\ A\\\\\\\‘\\\. \\\\\\\\\\\N% KEEP THE ENTIRE FAMILY HAPPY WITH AFFORDABLE WHOLE -HOUSE ENTERTAINMENT -NO NEED TO SPEND HUNDREDS OF DOLLARS FOR ADDITIONAL EQUIPMENT. WE MAINTAIN AND REPAIR OUR EQUIPMENT. AS TECHNOLOGY ADVANCES, WE'LL CONTINUALLY UPGRADE OUR CABLE SYSTEM. ONLY CABLE DELIVERS SUPERIOR RECEPTION OF LOCAL NETWORKS. TIME WARNER CABLE Privacy Notice As a subscriber to cable television service, you are entitled under Section 631 of the Cable Communications Policy Act of 1984 (the "Cable Act") to know the limitations imposed upon cable operators in the collection and disclosure of personally identifiable subscriber information, the type of personally identifiable information collected, how subscriber information is used, under what conditions it is disclosed, the period during which it is maintained, and the rights of subscribers concerning such information and its disclosure. This law relates only to personally identifiable information. In order that we may operate efficiently, we keep regular business records that contain the following types of personally identifiable information: your name, address, telephone numbers, social security number, credit information, and subscriber correspondence. Our records also include information on billing, payment, damage and security deposits, maintenance and repairs, how many television sets you have connected to cable or that are cable ready, the location of these television sets in your home, the service options you have chosen, and the number of converters or other cable equipment installed in your home. We also keep records of research conceming subscriber satisfaction and viewing habits, which are obtained from subscriber interviews and questionnaires. We also keep records showing the movies and events you have ordered on our pay-per-view channels. Additionally, if you rent your home, we may have a record of whether landlord permission was required prior to installing our cable facilities as well as your landlord's name and address. Without appropriate written or electronic consent from you, we cannot collect personal information over the cable system unless it is necessary to provide a cable or other service you have requested or to determine if you are being properly billed for the services you are receiving. Time Wamer Cable considers the information contained in the business records we keep to be confidential. Unless prior written or electronic consent is obtained, personal information which we maintain related to our subscribers will be disclosed only when it is necessary to render or conduct a legitimate business activity related to the cable and other services that we provide to you, or if such disclosure is required by court order and the subscriber is notified of such order, or if disclosure is otherwise consistent with the Cable Act as summarized in this Notice. Our detailed business records are used (and personal information contained in them disclosed) generally to help make sure you are being properly billed for the services you receive, to send you pertinent information regarding your cable services, to improve the quality of the services we provide, and for tax and accounting purposes. Specifically, the information in these records is used to sell, install, maintain, and disconnect cable services, as well as to bill and collect service related charges, to measure subscriber satisfaction and improve marketing and program decisions, to mail related materials, to ensure compliance with relevant law and contractual provisions, and to answer questions from subscribers. The types of persons to whom information about you may be disclosed in the course of our cable business include the employees of Time Wamer Cable and their related legal entities, agents, repair and installation subcontractors, sales representatives, accountants, billing and collection services, program guide distributors, mailhouses, program suppliers, consumer and market research firms, and authorized representatives of govemmen- tal entities. Also upon reasonable request, personally identifiable information is disclosed to persons with an equity interest in legal entities related to Time Wamer Cable when they have a legal right to inspect our books and records. Information for billing purposes and program guide mailings is generally provided on a monthly basis. Information for other purposes is provided as it is needed. We will maintain information about you as long as it is necessary for our cable television business purposes. This period of time lasts as long as you are a subscriber and up to fifteen additional years so that we can comply with tax and accounting requirements. Unless you object, the Cable Act also allows us to disclose information to others, including advertisers and direct mail or telemarketers, for non -cable related purposes, including product advertising, direct marketing, and research. Disclosure for such purposes is limited to your name, address, and the particular services to which you subscribe, but cannot include the extent of your viewing or use of a particular service or the nature of any transaction you may make over the cable system. We typically provide names and addresses of subscribers to third parties as often as requested. If you wish to have us remove your name from such lists, please contact us at the system office. We will then not make you name and address available for such non -cable purposes. Other than information necessary to render or conduct a legitimate business activity, Time Warner Cable shall not make such personally identifiable information available to govemment entities in the absence of an appropriate court order entered after a court proceeding. At such a court proceeding, Federal law requires the govemmental entity to offer clear and convincing evidence that the subject of the information is reasonably suspected of engaging in criminal activity and that the information sought would be material evidence in the case. The subject of the information must be afforded the opportunity to appear and contest the govemmental entity's claims. In addition, pursuant to an administrative subpoena, state welfare agencies may obtain the names and addresses of individuals as they appear in the customer records of cable television companies with respect to those who owe, or are owed, welfare support. Such information may be obtained without a court order and does not require that a subscriber be given notice of and the opportunity to contest the disclosure. You have the right to inspect our records that contain information about you and correct any errors in such information. If you wish to inspect our records at our local business office, please notify us in writing thirty (30) days in advance and an appointment will be arranged promptly during our regular business hours. Additionally, as a cable subscriber, the Cable Act provides you with a cause of action for damages, attorney's fees and costs, in Federal District Court should you believe that any of the limitations on the collection, disclosure, and retention of personally identifiable information have been violated by us. (7/98) NEW CUSTOMER INFORMATION BOOKLET TIME WARNER CABLE TIME WARNER Please Read First! CABLE WELCOME ON BOARD Now that you are hooked up to Time Warner Cable TV, here's what you can expect: great reception; a wide variety of satellite -delivered Cable programming which is exclusive, original and very entertaining for your entire family; repair service; convenient office hours; around-the-clock telephone service; the best equipment available today; and monthly rates which compare very favorably with those of any other Cable TV companies in your area. Best of all, you will find a company whose employees are dedicated to providing you with the very best service possible. Thank you for subscribing to Time Warner Cable TV. EQUIPMENT The converters we provide to our customers are and shall remain the property of Time Warner Cable and must be returned to us at any time service is discontinued for any reason. Failure to return a converter may result in a charge being made against your account. Time Warner Cable will replace or repair your converter at no charge in the event of failure due to normal use, but not as a result of abuse or negligence by the customer. Please report lost or stolen converters to us immediately. CHANGES OF SERVICE You may change your combination of services at any time. Call us for pricing and scheduling information. DISCONNECT POLICY You may request that your cable service be disconnected at any time. Your billing for services will stop on the day you request the service to be disconnected. To avoid further liability, all converters must be returned to Time Warner Cable at the time of disconnection. REPAIR POLICY We will replace and/or repair malfunctioning equipment that we provide provided it was not as the result of abuse or negligence by the customer. If you need an additional cable outlet installed or an existing outlet moved within your home, call us for pricing and scheduling information. PROGRAMMING BLACKOUTS The FCC requires that from time to time we "blackout" distant signal importation of certain programming. This requirement results from contractual agreements between programmers and broadcasters. Even though we may be restricted from broadcasting these programs, they may be listed in the TV Guide. We regret any inconvenience these mandated "blackouts" may cause. THEFT OF CABLE SERVICE It is important for you, as our subscriber, to know that we work to protect our service (and yours) from unauthorized reception. The Cable Communications Act of 1984 "prohibits the unauthorized reception of communications service over a cable system." It is a violation of law to alter the cable system or converter to receive services which are not authorized. Time Warner Cable conducts routine audits to insure compliance with the law and to protect our paying customers. We reserve the right to inspect, at our discretion, our converter for signs of tampering. Where violations are found, Time Warner Cable will prosecute to the fullest extent of the law including both civil and criminal action. Unauthorized reception of cable television signals is not a game. It's THEFT, punishable with fines and/or imprisonment. WARNING: Don't tamper with our electrical equipment. It may cause electrical shock. Premium Services If you have an addressable converter, you can order an array of movies and special events with our pay-per-view service, Time Warner Cable Home Theater. You'll love the convenience of ordering your movies from the comfort of your home, with no tapes to rewind or return. The movies or events you order will be included on your next month's cable bill. Your channel lineup card features important pay-per-view ordering informa- tion on its back. Try it, and see just how easy and fun it is to watch Time Warner Cable Home Theater. PREMIUM SERVICES; Time Warner Cable offers the best in commercial -free, premium cable services, with Hollywood blockbusters, championship sports, award-winning original program- ming, shows just for kids and families, plus movies from Hollywood's Golden Age and your more recent favorite flicks. Cinemax- H The sgrp Channel And, Time Warner Cable is pleased to offer its Premium -service customers free, additional channels of their favorite services, like HBO Plus and MoreMAX. These added channels give you more choice and convenience, by offering programs on different days and at different times, to meet anybody's viewing schedule. Call your local Time Warner Cable office for more information on how to add to your television viewing enjoyment with Time Warner Cable Home Theater and our Premium services. TIME WARNER CABLE Trouble Shooting If you are having a reception problem, go through this troubleshooting checklist before calling Time Warner Cable: • Are your TV and converter plugged into a live electrical outlet? • Is your TV turned on? • Are your cable connections tightly secured to the back of your TV set and converter? If you are having a problem with your converter channels, check to make sure that the cable from the street is connected to the "Input" port on the back of your converter. • Is your TV dial set on the proper channel? If you've checked off all of the above, you next need to determine whether to call Time Warner Cable or your TV Repairman. Use the following illustrations to diagnose your problem: "Snow" effect may be accompanied by poor sound. Could be nearby interference or a temporary broadcast problem. Check other channels. If problem persists, call Time Wamer Cable. Screen is lit but no picture; or picture but no sound on every channel; or no light on the screen with or without sound. Call your TV repairman. "Ghosting" double images caused by signal interference usually on channels used by local stations off cable. Adjust fine tuning. If condition persists, call Time Warner Cable. If the picture pulls horizontally, try adjusting the horizontal hold control slowly. May also be too much signal. If condition persists, call Time Warner Cable. Horizontal white line across the center indicates a collapse of vertical amplifier. Call your TV repairman. FA. Speckled bands across the picture could be external interference or a heavy duty appliance running. Turn appliance off or switch channels. If problem persists, call Time Warner Cable. Straight or wavy lines diagonally in picture. Could be the TV set but may also be external interference. If condition persists, call Time Wamer Cable. If picture is rolling vertically, adjust vertical hold control. If problem continues, call your TV repairman. Picture too large or too small for screen vertically or horizontally. Check set adjustments. If condition persists, call your TV repairman. TIME WARNER CABLE Bill of Rights Time Warner Cable is proud of our outstanding customer service record over the past three decades. As one of our customers, you can expect that we will attain these standards under normal operating conditions: ©Every Time Warner cable O All area service outages will be employee will assist you • addressed quickly and efficiently. promptly, courteously, and knowledgeably. O All disputes will be resolved quickly and fairly. ©Your phone call will be answered within 30 seconds with very few exceptions. ®You will receive a written descrip- tion of all rates and services offered in your Time Warner Cable system. You will receive a busy signal less than 3% of the times you • You will receive notification of all call us. changes in rates, channel lineups and programming 30 days prior to these changes being made. Your telephone call will be answered 24 hours a day, 7 days a week. ©You will have requests for standard cable service installa- tions completed by the following business day. Other types of cable service installa- tions will be completed within 5 business days. ® You will discover that we run our operation in a responsible, efficient manner in order to keep operating costs — and your rates — down. ® You will find that our programming lineup provides you with the very best variety of entertainment and information choices. OAll service repairs will be You will find our office hours to be completed within 24 hours of convenient and, in many cases, your telephone call. Further extended to fit the lifestyles of our appointment "windows" of up customers. to 4 hours will be available during normal business hours. OYou will enjoy clear and reliable cable television signals as a result of our stringent technical standards. You will receive a monthly invoice which is clear and concise. These standards exceed those offered by similar service companies for one simple reason: Time Wamer Cable's customers deserve the very best service we can provide. We appreciate your business and trust that these standards will increase your enjoyment of the entertainment we offer. TIME WARNER CABLE Understanding Your Bill It would be a much simpler world for all if we could install every new customer on just one day... the first day of the month! Then, our billing would be a breeze! But, as you know, we install customers all month long and that creates some complex billing situations. So, here's how we calculate your first Time Warner Cable bill: A. Since we bill one month in advance for service, your first bill will consist of two (2) charges: ...service you had in the current month (we call it a "Pro -rate") ...service you will have next month. The best way to explain this is with an example: ...your installation date is September 15 ...your first bill arrives October 1 ...your first bill will consist of these two (2) charges: 1. The service you had from September 15-30 (your "Pro -rate") 2. The service you will have from October 1-31 B. That's easy enough, but there is one complication: if you are installed late in the month past the date when we prepare our bills (we call it our "cut-off" date — it's usually on the 20th), your first Time Warner Cable bill will arrive approxi- mately five (5) weeks after your installation and will consist of these three (3) charges: 1. The service you had from your September installation date to September 30 2. The service you had from October 1-31 3. The service you will have from November 1-30 If you were lucky enough to be installed on the first of the month, your first bill should be a breeze. However, if you weren't, your first bill should be explained in Example "A" or "B" above... it all depends on whether you were installed before or after "cut-off". After your first bill, things will become much easier, we promise. 4 /TIME WARNER `` CABLE SOMETOWN TIME WARNER CABLE 59 CHERRY LANE SOMETOWN, NY 13201 DATE DUE'i_A_MOUNT DUE€ 09/10/93 [ $41.16 1 PLEASE RETURN THIS TOP PORTION ONLY, WITH REMITTANCE TO . Thank Youl .u+ouxs a�sosm 000 -11 -91 -A -C **1 CP 11 . 044222.2Y9**CR 04 MS JOAN SMITH 12 OAK STREET SOMETOWN, NY 13201-1234 20182 009067 01 3 1 007548 FOR- 12 8/01 8/05 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 9/01-9/30 REMIT -TO ADDRESS STREET/P0 BOX SOMEWHERE, NC 00000-0000 AGCOUN7 NUMBER 1 j BILLEO FROM 61LLED 70 I DA7E DUE'E `roc tEUiVEavRT L20182_009007_01_31 109/1/93 09/30/93 4-09/10/93 1 08/25/93 1 OAK STREET PREVIOUS BALANCE PAYMENT BASIC CABLE SUPERSTATION CHANNELS STANDARD CABLE EQUIPMENT CABLEPLUS CHANNELS HBO CINEMAX PAY DISCOUNT FRANCHISE FEE $41.16 $41.16 - $ 6.58 $ 1.10 $12.50 $ .86 $ 2.50 $ 9.75 $ 9.25 $ 2.00 - $ .62 8/31 BALANCE DUE $41.16 ** A MESSAGE FOR YOU ** TIME WARNER CABLE IS HAPPY TO HAVE YOU AS A SUB- SCRIBER! WE ARE COMMITTED TO OFFERING YOU A VARIETY OF PROGRAMMING CHOICES AS WELL AS PROMPT, EFFICIENT SERVICE. PLEASE CALL 000-0000 IF YOU HAVE ANY QUESTIONS. SAMPLE INFORMATION ONLY OFFICE HOURS M - F 0:00 - 0:00 CUSTOMER SERVICE 000-0000 CHARGES 30 DAYS LATE ARE SUBJECT TO A 56 LATE CHARGE LOCAL FRANCHISE AUTHORITY TOWN OF YOURTOWN 3118 RT 433 YOURTOWN, NY 13201 FCC COMMUNITY UNIT IDN NY0296 CO Time Warner Cable address. 0 Remit -to address. 0 Monthly cable charge (changes in service will also appear here). ® Any applicable discount provided for subscribing to a particular package of cable services. 0 Office hours, phone number, and other pertinent information. 8 Any messages regarding special offers, programming or news about your cable service will be found in this space. OLocal Franchise Authority address. We are required by law to provide you with this information. HOME WIRING The following notice will serve to inform you of your options regarding the home wiring located within your dwelling that is used to provide cable service. Home wiring is that cable which runs from your TV set to a point approxi- mately twelve inches outside of your dwelling unit. It includes extra outlets, splitters, connections and fittings or wall plates attached to the wire but does not include terminal devices such as converters, descramblers, A/B switches, parental lockout devices, security devices and the like. Pursuant to FCC regulations, all customers are given the option to acquire the home wiring within their dwelling unit upon termination of cable service. However, even prior to termination of cable service, we allow our customers to remove, replace, rearrange, repair or maintain any cable wiring located within the interior space of the customer's dwelling unit so long as such actions do not interfere with our ability to meet FCC technical standards or to provide service to you or your neighbors. For example, you may not attach any device or equipment to your inside wiring in a way that impairs the integrity of the local cable system, such as creating signal leakage, or which may cause a violation of government regulations. Furthermore, you may not attach devices or equipment to the wiring which alone or together result in a degradation of signal quality to you or your neighbors. If you choose to have us remove, replace, rearrange or maintain the wiring inside your home you will be charged our regulated hourly service charge on a per -visit basis. Furthermore, we are not responsible for problems relating to the operation of customer -owned consumer electronic equipment such as televi- sions, VCRs, home antennas, etc., which may be connected to the inside wiring in your home. We are, however, responsible for problems relating to any equipment which you lease from us, other than problems caused by tampering, neglect or abuse. You also have the option of removing, repairing, rearranging or maintain- ing the inside wiring yourself or of hiring a qualified outside contractor to do the work for you. It is extremely important that only high-quality home wiring materials be used and that these materials be properly installed in order to avoid signal leakage and to maintain signal quality in compliance with FCC technical regulations. If you choose to install, replace or repair your own wiring, or hire a third -party contractor to do it for you, we will be happy to furnish at cost the necessary wiring and connectors that will meet required technical standards, or provide you with a list of technical specifications for the equipment should you choose to purchase it elsewhere. Please note, however, that in the event improper materials or improper installation causes signal degradation and/or leakage, we may be required under federal law to terminate your cable service until the problem can be remedied. TIME WARNER CABLE Subscriber Information Notice All Time Warner Cable customers are entitled to know about all of the programming, rates, charges and services we offer. This information will be provided to you: (a) at the time you first subscribe (b) at the time you request any change in service (c) at the time you make a request for any such information (d) annually Also, if a network or channel is no longer available as part of the level of service to which you subscribe or if certain changes occur in programming or rates, Time Wamer Cable will give you notice of these significant changes thirty (30) days prior to the effective date of the change if we know about it sufficiently in advance. If we don't, we will give you notice within thirty (30) days of the date upon which we first leam of the change. Upon receipt of this rate change notice, you may elect to terminate monthly service or downgrade your existing service. If you inform us of your decision within thirty (30) days of the receipt of this change notice, this work will be performed at no charge. In addition to the foregoing, if a network or channel is moved from one service tier to another or is removed from the system altogether and you first subscribed to our system during the nine months preceding the date of the change, or upgraded your service during the six months preceding the date of the change, you may be entitled to refund of installation, upgrade, or other one-time charges paid to us if you choose to terminate or downgrade your subscription after the change. If a network is moved from the basic service tier to a more expensive tier, you may also have the opportunity to upgrade to the more expensive tier at no charge, if you tell us of your decision within thirty (30) days of our notice. The specific criteria for determining your eligibility for one or more of these opportunities will be explained to you in detail if and when it becomes necessary for us to give you notice of a change in programming or rates. In addition to the above, you are entitled to receive copies of our Billing Practices and Customer Complaint Procedures, Privacy Rights, Equipment Compatibility and Technical Complaint notices. Besides providing these notices each year, copies are also available to any customer upon request. SI(11/98) TIME WARNER CABLE Effective 1/1/99 Monthly Service Fees SERVICES MONTHLY PRICES Basic Cable: $ 12.66 P.E.G. Access fee (City of Ithaca only) $ 1.26 (Services above basic require an addressable home terminal) Standard Plus: $ 21.69 Custom Choice Package: (Includes: ESPN2, Golf Channel, IFC, Sci-Fi Channel and Encore) $ 4.25 Premium Services HBO, HBO Plus and HBO Signature $ 10.95 Showtime $ 10.95 The Disney Channel $ 10.95 Cinemax $ 10.95 Starzl $ 10.95 Addressable Home Terminal Rental: Jerrold CFT 2000 $ 2.92 Watch & Record $ 6.17 Remote Control: $ 0.37 Non -Addressable Converter: Rental/Month $ 0.82 Purchase (add N.Y.S. Sales Tax) $ 52.00 Music Choice $ 6.95 SPECIAL PACKAGES: TV Marquee Includes: Basic Cable, Standard Plus, Custom Choice Package, Home Terminal & Remote Control $ 39.50 Movie Marquee Offers a choice of two packages: TV Marquee, any 2 Custom Premiums & Music Choice $ 54.95 TV Marquee, any 3 Custom Premium Services $ 54.95 INSTALLATIONS & MAINTENANCE: New Install, Unwired $ 35.91 New Install, Wire -in $ 23.61 Add. Outlet Connection At time of initial connect $ 13.51 Separate Trip $ 22.45 Upgrades, downgrades, reconnects, relocates, maintenance/ service calls or any other service requiring a truck roll $ 20.82 Hourly Service Charge $ 33.01 (For non-standard installations and non -system related service calls) Electronic Charge $ 1.99 - Basic services required by Federal law as prerequisite to other services. - Prices do not include franchise fees or taxes. * Within the same household Note: Charges apply to standard residential installations. Maintenance/Service Call charges may be assessed when a trip to the subscriber's premises is requested or required due to damages caused by customer neglect or for non -cable related problems or service. The foregoing rates do not include franchise fees which can range from 0 to 5% depending on the community in which you live, nor FCC regulatory fees of several cents per month. Rates apply to Standard Residential Accounts only. Time Warner Cable 519 West State Street, Ithaca, New York 14850 (607) 272-3456 or email us at ithaca@twcable.com Time Warner Cable Tompkins County Channel Guide BASIC SERVICE 1* Preview Channel 2 E! 3 WSTM-3 (Syracuse, NBC) 4 WCNY-24 (Syracuse, PBS) 5 WNYS-43 (Syracuse, UPN) 6 WSKG-46 (Binghamton, PBS) 7 NewsCenter 7/Marketplace 8 WSYT-68 (Syracuse, FOX) 9 WIXT-9 (Syracuse, ABC) 10 WPIX-11 (New York, IND) 11 WICZ-40 (Binghamton, FOX) 12 WBNG-12 (Binghamton, CBS) 13 Public Access 14 C -SPAN 15 Government Access 16 Educational Access 17 TBS 18 QVC 19 WENY-36 (Elmira, ABC) 20 ValueVision 21* Knowledge TV 76 SCOLA 77 Local Origination/Leased Access 78 Public Access 2 98* Knowledge TV (Gable -ready sets only) 99* Preview Channel (cable -ready sets only) STANDARD PLUS SERVICE 23 Court TV 24 C -SPAN 2 25 Nickelodeon 26 A&E 27 CNBC 28 MSG: Madison Square Garden 29 BRAVO 30 The Discovery Channel 31 AMC: American Movie Classics 32 CNN Headline News 33 FOX Family 34 TNN: The Nashville Network 35 BET: Black Entertainment Television 36 VH -1 37 Lifetime 38 CNN STANDARD PLUS SERVICE continued 39 ESPN 40 The Learning Channel 41 Comedy Central 42 The History Channel 43 TCM: Turner Classic Movies 44 Food Network 45 FoxNews 46 USA 47 Weather Channel 48 TNT 49 TV Land 50 MSNBC 51 CMT: Country Music Television 52 Travel Channel 53 The Cartoon Network 54 HGTV: Home & Garden 55 MW 56 Animal Planet 57 EWTN/INSP CUSTOM CHOICE 59 ESPN 2 60 Encore 61 IFC: Independent Film Channel 62 The Golf Channel 63 Sci-Fi Channel PREMIUM CHANNELS 65 HBO 66 HBO Plus 67 HBO Signature 68 Cinemax 69 Showtime 70 STARZ! 71 The Disney Channel TIME WARNER HOME THEATER 72 VCS 73 Playboy 74 Hot Choice 75 VCS ** Offered at no charge with HBO. CUSTOMER SERVICE 272-3456 TECHNICAL COMPLAINT RESOLUTION NOTICE In compliance with the requirements of Section 76.607 of the FCC Rules, we are required to inform you that Time Warner Cable has in effect the following procedures to insure any complaints that may arise concerning the technical quality of the cable television signals that we deliver are promptly and efficiently resolved: All complaints received concerning the technical quality of cable television signals will be logged in on the same day of receipt, and the date, time and nature of the complaint will be noted, as well as the name, address, and telephone number of the complaining subscriber. These records are available for inspection by the FCC and municipal officials. A technician will analyze the complaint and make an assessment as to its probable cause. Complaints concerning the technical quality of cable television signals will be investigated by a service technician the same or next business day, consistent with our ability to access your premises if such access is deemed necessary to resolve the complaint. If the problem can be resolved without a service call to your premises, you will be advised of this immediately and the resolution of the complaint will be noted in records maintained by the Chief Technician. All efforts will be made by our technicians and other employees to resolve any complaints concerning the technical quality of service promptly and efficiently. If our technician fails to correct the problem, you may contact our office and we will review the complaint and the corrective action taken. All complaints concerning the technical quality of the cable television signals we provide should be put in writing to: General Manager, Time Warner Cable — 519 W. State Street, Ithaca, NY 14850; or you may call (607) 272- 3456. If we are not able to take any further action to correct the problem, we will promptly inform you of our determination and the reasons we cannot correct the problem. If your dispute is still not resolved, you may contact Time Warner Cable, P.O. Box 4872, Syracuse, NY 13221, (315) 463-2288. If you believe our investigation and handling of a complaint is deficient in some manner, you may contact the Mayor, Supervisor, Manager or other municipal official of your community as listed below: Municipality Address City State Town of Caroline Town of Danby Vill. of Freeville City of Ithaca Village of Lansing Town of Ulysses Vil of Cayuga Heights Town of Dryden Town of Groton Town of Ithaca Town of Newfield Town of Candor Town of Covert Village of Dryden Village of Groton Town of Lansing Vil of Trumansburg Vil of Candor Zip Community Identifier PO Box 136 Slaterville Springs NY 14881 NY0088 1830 Danby Road Ithaca NY 14850 NY0310 5 Factory St,Box 288 Freeville NY 13068 NY0622 108 E.Green St. Ithaca NY 14850 NY0092 2405 N Triphammer Rd Ithaca NY 14850 10 Elm St, Trumansburg NY 14886 NY0096 836 Hanshaw Rd Ithaca NY 14850 NY0089 65 E Main St Dryden NY 13053 NY0090 101 Conger Blvd,Box36Groton NY 13073 NY0578 126 E Seneca St Ithaca NY 14850 NY0091 166 Main St Newfield NY 14867 NY0095 Humiston St, Box 6 Candor NY 13743 NY0679 3911 County Rd#150 Interlaken NY 14847 NY1525 16 South St Bx 820 Dryden NY 13053 NY0114 108E Cortland St,Bx146 Groton NY 13073 NY0212 29 Auburn Rd, Bx186 Lansing NY 14882 NY0093 56 E Main St.,Box 718 Trumansburg NY 14886 NY0579 138 Main St, Box 1 Candor NY 13743 NY0087 EQUIPMENT COMPATIBILITY INFORMATION There are some things you should know about how Time Warner Cable service works with your TV and VCR. Some customers may have TVs and VCR's that can tune to all the basic and cable channels that we provide. Others may have older models that cannot tune these channels. In this case, Time Warner Cable can provide you with a basic or an addressable set-top converter (see prices in this insert). You also may choose to buy a converter at a retail store. Even if you have a TV or VCR that was advertised as being able to receive all cable channels, you may still need a converter. Until now, there have been no manufacturing standards for TV's and VCR's that relate to the reception of cable channels and regardless of how it may have been advertised, it may not tune to all the channels we provide. Under new government rules, all TV's and VCR's sold in the US cannot be called "cable ready unless they comply with new requirements, including the ability to properly tune cable channels. Some TVs and VCR's that can tune all cable channels may not be able to do so without causing some interference. If this is the case, you may need to use a converter to eliminate the interference. Additionally, Time Warner Cable scrambles certain channels and you will need a converter with a built-in descrambler should you wish to receive these channels. Our set-top converter will "convert" any cable channel that you tune to one channel (2, 3, or 4, depending on your area) on your TV. Please understand that the process of converting all channels to one channel means that you can only receive one channel at a time through the converter. Because of this, there may be certain features of your TV or VCR — such as taping one program while watching another, recording two or more consecutive programs that appear on different channels or the use of picture -in -picture — which may not function without additional equipment. Should you wish to use some of the features noted above, Time Warner Cable can provide you with supplemental equipment. This equipment might include an additional converter or descrambler with a switch that will enable you to by-pass the converter and tune all unscrambled channels with your TV or VCR. Please contact us for prices for this equipment. You may also purchase by-pass switches and additional converters at retail outlets. Please be advised that converters with descrambling capability can only be obtained from Time Warner Cable. Should you see advertisements for cable converters that have descramblers in them (so-called "pirate boxes" or "black boxes"), you should know that these devices are illegal. Time Warner Cable will not authorize the use of any descrambling device it has not provided. People who use illegal descramblers are stealing cable service and may be prosecuted. Most equipment furnished by Time Warner Cable can be operated by a hand-held remote control device, which is available for a small monthly fee. It is possible that the remote control that may have come with your TV or VCR is capable of controlling our converter as well. If so, feel free to use it. You also may buy a "universal" remote control device capable of working with our converters at many appliance or electronic stores. The following remotes are compatible with the equipment that we currently provide our customers and there may be others: Universal URC 2085, 4000, 5000; Memorex VR4, VR6; US Electronics 3 in 1; Fox 400, 600; Zenith MBC 300P, 100; Magnovox MAG 4000, 6250; General Electric GEU 401; RCA RCU 300; Uniwand URC 2600, 4600, Gemini Quik 30. We hope that this information is helpful. It is up to you to determine if these devices are compatible with your TV and VCR. A schedule of our rates and services is listed in this insert. If you have any questions, please contact us at the number listed on the front of your bill. Time Warner Cable Corporation Billing Practices and Consumer Complaint Procedures This notice contains irnportant information regarding your cable company's billing practices and consumer complaint procedures. We hope with your cooperation and by using the following procedures, any of your billing or other complaints can be resolved. GENERAL PROCEDURES: A. Please notify us by telephone or in writing concerning any service or billing complaint within thirty (30) days from receipt of your bill at the address and telephone number shown on the enclosed coupons or invoices. B. We will promptly investigate your complaint and respond to you in writing within twenty (20) working days of the receipt of your letter or telephone call. If your dispute is still not resolved, you may contact: Time Warner Cable, P.O. Box 4733, Syracuse, New York 13221, (315) 463-2288. C. The subscriber is responsible for paying the undisputed portion of any current or future bill. Service shall not be discontinued due solely to non-payment of the disputed portion of the bill while the dispute is under investigation. D. The subscriber is entitled to a credit for a complete service outage affecting any level of basic cable service or one or more premium services in excess of four (4) continuous hours. The subscriber must immediately notify the cable company, orally or in writing, of the outage. The subscriber must claim credit for the outage within ninety (90) days of its occurrence. E. If the billing or service complaint is not resolved within (30) days of the date it is registered with the cable company, the subscriber may refer the matter to the New York State Public Service Commission, Three Empire State Plaza, Albany, New York 12223, 1-800-342-3330. If the subscriber does not refer the complaint to the Commission within thirty (30) days, the company may commence disconnection procedures. F. Service may not be disconnected for non-payment on a holiday or other day the cable company's office is not open to accept payment. The subscriber must be given at least eight (8) days written notice prior to disconnection. COMPLAINTS REFERRED TO THE N.Y.S. PUBLIC SERVICE COMMISSION: A. Complaints with a financial value of less than $1,000 may be resolved by Commission staff rather than by a hearing officer convening a formal hearing of the parties. B. The Commission may request that telephone complaints be put in writing. C. Both the subscriber and the cable company will be provided the opportunity to present evidence regarding the dispute and challenge the other party's evidence. D. The Commission's determination in the proceeding must be provided to both parties in writing and the decision may be appealed to the Commission within twenty (20) days. LATE CHARGES AND COLLECTION CHARGES: A. The due date for payment of your monthly cable service appears on your bill and is 15 days from the date of mailing. Any charges becoming 60 days delinquent from the due date will be subject to a late charge of $5.00. B. The cable company may charge a reasonable fee when the subscriber makes a payment at his or her residence to prevent disconnection of service. C. Customers may be charged a processing fee for any checks returned due to insufficient funds. PARENTAL CONTROL DEVICES Parental control devices are available for our local access, Pay -TV, or any channel. They may be purchased at cost plus 15%. There will also be an installation charge. Please contact our office to order. Time Warner Cable Customers: PAY-PER-VIEW ORDERING INSTRUCTIONS WILL KEEP YOU ENTERTAINED IT'S SIMPLE! 0 Tune to Channel 1 for program information. © Tune to the channel your movie/event is playing on (the flashing letter "E" means the program is ready for ordering). Channel 72, Viewer's Choice 1 Channel 73, Playboy Channel 74, Hot Choice Channel 75, Viewers Choice 5 © Flashing "E" will appear at start of movie/event and continue for 30 minutes after start. 0 Press select on your remote control or home terminal. An "Enter Password" screen will appear if you have previously created a purchase password. ©Enter your 4 -digit password. If you don't use a password, go directly to step 6. OPress enter. An addressable converter is required to receive services above Basic service. For more information or to order your converter, call Time Warner Cable at (607) 272-3456. TIME WARNER CABLE IT-PPV(2/99) TIME WARNER Effective 1/4/99 CABLE Channel Lineup Card ITHACA/TOMPKINS COUNTY 1. TV Guide Channel 41 Comedy Central 2 E! Entertainment TV 42 The History Channel 3 WSTM-3 (Syracuse, NBC) 43 TCM: Turner Classic Movies 4 WCNY-24 (Syracuse, PBS) 44 Food Network 5 WNYS-43 (Syracuse, UPN) 45 FOX News 6 WSKG-46 (Binghamton, PBS) 46 USA 7 NewsCenter 7/Marketplace 47 Weather Channel 8 WSYT-68 (Syracuse, FOX) 48 TNT 9 WIXT-9 (Syracuse, ABC) 49 TV Land 10 WPIX-11 (New York, WB) 50 MSNBC 11 WICZ-40 (Binghamton, FOX) 51 CMT: Country Music TV 12 WBNG-12 (Binghamton, CBS) 52 Travel Channel 13 Public Access 53 Cartoon Network 14 C -SPAN 54 HGTV: Home & Garden TV 15 Government Access 55 MTV 16 Educational Access 56 Animal Planet 17 TBS 57 EWTN/INSP 18 QVC 59 ESPN2 19 WENY-36 (Elmira, ABC) 60 Encore 20 ValueVision 61 IFC: Independent Film Channel 21 * Knowledge TV 62 The Golf Channel 23 Court TV 63 Sci-Fi Channel 24 C -SPAN 2 65 HBO 25 Nickelodeon 66 HBO Plus 26 A&E 67 HBO Signature 27 CNBC 68 Cinemax 28 MSG: Madison Square Garden 69 Showtime 29 Bravo 70 STARZ! 30 The Discovery Channel 71 The Disney Channel 31 AMC: American Movie Classics 72 Time Warner Home Theater: VC1 32 CNN Headline News 73 Playboy 33 FOX Family 74 Hot Choice 34 TNN: The Nashville Network 75 Time Warner Home Theater: VCS 35 BET: Black Entertainment Television 76 SCOLA 36 VH -1 77 Local Origination/Leased Access 37 Lifetime 78 Public Access 2 38 CNN * 98 Knowledge TV (cable -ready sets only) 39 ESPN * 99 TV Guide Channel (cable -ready sets only) 40 The Learning Channel Bold: Premium Channels Italics: Pay -Per -View Channels Note: These are the available channels. The channels you receive may vary depending upon the services you have ordered. 519 West State Street Ithaca, NY 14850 CUSTOMER SERVICE 272-3456 www.twcny.com IT-CL(2/99) EXHIBIT 19 Attached is a copy of the FCC rules regarding customer service obligations (FCC §76.309). • §76.309 Customer service obligations (a) A cable franchise authority may enforce the customer service standards set forth in section (c) of this rule against cable operators. The franchise authority must provide affected cable operators ninety (90) days written notice of its intent to enforce the standards. (b) Nothing in this rule should be construed to prevent or prohibit: (1) A franchising authority and a cable operator from agreeing to customer service requirements that exceed the standards set forth in section (c) of this rule; (2) A franchising authority from enforcing, through the end of the franchise term, pre-existing customer service requirements that exceed the standards set forth in section (c) of this rule and are contained in current franchise agreements; (3) Any State or any franchising authority from enacting or enforcing any consumer protection law, to the extent not specifically preempted herein; or (4) The establishment or enforcement of any State or municipal law or regulation concerning customer service that imposes customer service requirements that exceed, or address matters not addressed by, the standards set forth in section (c) of this rule. (c) Effective July 1, 1993, a cable operator shall be subject to the following customer service standards: (1) Cable system office hours and telephone availability. (i) The cable operator will maintain a local, toll-free or collect call telephone access line which will be available to its subscribers 24 hours a day, seven days a week. (A) Trained company representatives will be available to respond to customer telephone inquiries during normal business hours. (B) After normal business hours, the access line may be answered by a service or an automated response system, including an answering machine. Inquiries received after normal business hours must be responded to by a trained company representative on the next business day. (ii) Under normal operating conditions, telephone answer time by a customer representative, including wait time, shall not exceed thirty (30) seconds when the connection is made. If the call needs to be transferred, transfer time shall not exceed thirty (30) seconds. These standards shall be met no less than ninety (90) percent of the time under normal operating conditions, measured on a quarterly basis. (iii) The operator will not be required to acquire equipment or perform surveys to measure compliance with the telephone answering standards above unless an historical record of complaints indicates a clear failure to comply. (iv) Under normal operating conditions, the customer will receive a busy signal less than three (3) percent of the time. (v) Customer service center and bill payment locations will be open at least during normal business hours and will be conveniently located. (2) Installations, outages and service calls. Under normal operating conditions, each of the following four standards will be met no less than ninety five (95) percent of the time measured on a quarterly basis: (i) Standard installations will be performed within seven (7) business days after an order has been placed. "Standard" installations are those that are located up to 125 feet from the existing distribution system. (ii) Excluding conditions beyond the control of the operator, the cable operator will begin working on "service interruptions" promptly and in noevent later than 24 hours after the interruption becomes known. The cable operator must begin actions to correct other service problems (3) • the next business day after notification of the service problem. (iii) The "appointment window" alternatives for installations, service calls, and other installation activities will be either a specific time or, at maximum, a four-hour time block during normal business hours. (The operator may schedule service calls and other installation activities outside of normal business hours for the express convenience of the customer.) (iv) An operator may not cancel an appointment with a customer after the close of business on the business day prior to the scheduled appointment. (v) If a cable operator representative is running late for an appointment with a customer and will not be able to keep the appointment as scheduled, the customer will be contacted. The appointment will be rescheduled, as necessary, at a time which is convenient for the customer. Communications between cable operators and cable subscribers. (i) Notifications to subscribers. (A) The cable operator shall provide written information on each of the following areas at the time of installation of service, at least annually to all subscribers, and at any time upon request: (1) Products and services offered; (2) Prices and options for programming services and conditions of subscription to programming and other services; (3) Installation and service maintenance policies; (4) Instructions on how to use the cable service; (5) Channel positions of programming carried on the system; and, (6) Billing and complaint procedures, including the address and telephone number of the local franchise authority's cable office. (B) Customers will be notified of any changes in rates, programming services or channel positions as soon as possible in writing. Notice must be given to subscribers a minimum of thirty (30) days in advance of such changes if the change is within the control of the cable operator. In addition, the cable operator shall notify subscribers thirty (30) days in advance of any significant changes in the other information required by paragraph (c)(3)(i)(A) of this section. Notwithstanding any other provision of Part 76, a cable operator shall not be required to provide prior notice of any rate change that is the result of a regulatory fee, franchise fee, or any other fee, tax, assessment, or charge of any kind imposed by any Federal agency, State, or franchising authority on the transaction between the operator and the subscriber. (ii) Billing. (A) Bills will be clear, concise and understandable. Bills must be fully itemized, with itemizations including, but not limited to, basic and premium service charges and equipment charges. Bills will also clearly delineate all activity during the billing period, including optional charges, rebates and credits. (B) In case of a billing dispute, the cable operator must respond to a written complaint from a subscriber within thirty (30) days. (iii) Refunds. Refund checks will be issued promptly, but no later than either - (A) The customer's next billing cycle following resolution of the request or thirty (30) days, whichever is earlier, or (B) The return of the equipment supplied by the cable operator if service is terminated. • 1 • (iv) Credits. Credits for service will be issued no later than the customer's next billing cycle following the determination that a credit is warranted. (4) Definitions. (i) Normal Business Hours. The term "normal business hours" means those hours during which most similar businesses in the community are open to serve customers. In all cases, "normal business hours" must include some evening hours at least one night per week and/or some weekend hours. (ii) Normal Operating Conditions. The term "normal operating conditions" means those service conditions which are within the control of the cable operator. Those conditions which are not within the control of the cable operator include, but are not limited to, natural disasters, civil disturbances, power outages, telephone network outages, and severe or unusual weather conditions. Those conditions which are ordinarily within the control of the cable operator include, but are not limited to, special promotions, pay-per-view events rate increases, regular peak or seasonal demand periods, and maintenance or upgrade of the cable system. (iii) Service Interruption. The term "service interruption" means the Toss of picture or sound on one or more cable channels. §76.309 Reference • EXHIBIT 20 Attached are the quarterly customer service reports for Time Warner Cable's Syracuse Division, including its Ithaca system, for the past four (4) quarters. r. • i "1"ThilE WARNER CABLE Via Facsimile — October 16, 1998 Via Airborne — October 16, 1998 October 16, 1998 Ms. Anne Dalton Associate Municipal Consultant Public Service Commission Consumer Services Division Three Empire State Plaza Albany, NY 12223-1350 Dear Anne: Enclosed are the customer service diskettes and hard copies for the third quarter of 1998 for cable systems within the Syracuse Division of Time Warner Cable. Systems within the Syracuse Division include Rome/Oneida (includes North Shore), Ithaca, Ilion, Carthage/Watertown, North Country (includes Massena, Potsdam, Ogdensburg, Malone, and Champlain), and Syracuse (includes Oswego, Syracuse, Fulton, Baldwinsville, Cortland, and the City of Syracuse). Please note that we experienced a severe group of thunderstorms, accompanied by winds of over 100 mph, on Labor Day in the Syracuse, Rome/Oneida and Ilion systems, and this is reflected in their statistics. Damage was widespread, and phone volume and the ability to respond to service issues were all impacted by these storms. To improve upon the accuracy and quality of the report, I expanded the definition of certain categories. Total days per month CSRs answer calls was expanded to Total hours per month CSRs answer calls. Total number of requests for service includes all upgrades that involve a truck roll (for example, added outlets, trapped pays or tiers). Number of requests for service completed by a specific date was changed to Number of requests for service completed after 7 days at customer request. Number of service interruptions are all no picture service calls. No picture calls responded to within 24 hours does not include customers who requested an appointment outside a 24-hour window. Number of service calls (truck rolls) to a subscriber residence includes only service calls other than .iul.i Cumpristr i /!rime East Syracuse. NY l:al.i: • P.(1. Bus 1733 Syracuse. .v !:i_:l Te1:il.i.ld7.__all Fax :115. i43.6.S::1 Anne Dalton October 16, 1998 Page 2 of 2 • no picture calls. Credit for no show appointment was changed to total amount of credit issued for customer service guarantees. Anne, please contact me if you have any questions. Sincerely, Steven A. Miron A& -c, ) Vice President, Operations SAM/r1w Enclosures • • 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Wamer Cable Ilion Cable Company System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 208 199 199 (2) Total # of calls company receives per month 6943 6082 5852 (3) Total # of calls per month answered in 30 seconds by company 5942 5590 5449 (4) Total # of seconds to reach a CSR 9 10 8 (5) Total # of calls abandoned 218 150 153 (6) Estimated % of time callers receive a busy signal 5.44% 2.63% 1.22% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 315 602 589 Number of requests for service completed within 7 business days 290 563 520 Number of requests for service completed after 7 days @ cust. request 25 , 39 69 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 73 76 234 68 73 226 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 239 246 334 Number of service calls requested for AM appointments 53 66 77 Number of service calls requested for PM appointments 79 146 152 Number of service calls requested for evenings or Saturday appts. 1 1 5 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $221.46 $180.00 $120.00 The quarterly report regarding customer service standards must be completed using this form or attached diskette. -mpanies that do not have automated telephone systems or computer generated service statistics may submit other 40 propriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Wamer Cable Ithaca Cable Company System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 252 262 252 (2) Total # of calls company receives per month 9479 14313 13857 (3) Total # of calls per month answered in 30 seconds by company 8819 12881 12599 (4) Total # of seconds to reach a CSR 9.3 17.1 12.1 (5) Total # of calls abandoned 81 175 116 (6) Estimated % of time callers receive a busy signal 0.00% 0.24% 0.09% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 741 2032 2068 Number of requests for service completed within 7 business days 531 1339 1285 Number of requests for service completed after 7 days @ cust. request 180 621 626 (2) Number of service interruptions - no picture calls 142 187 247 Number of service interruptions responded to within 24 hours 130 166. 220 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 586 637 780 Number of service calls requested for AM appointments 233 243 291 Number of service calls requested for PM appointments 242 264 321 Number of service calls requested for evenings or Saturday appts. 126 136 171 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $751.70 $527.80 $753.47 The quarterly report regarding customer service standards must be completed using this form or attached diskette. Tmpanies that do not have automated telephone systems or computer generated service statistics may submit other 40 spropriate information or reports which demonstrate compliance. 1998 .QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Wamer Cable Carthage/Watertown Cable Company System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 199 189 189 (2) Total # of calls company receives per month 10559 10672 10876 (3) Total # of calls per month answered in 30 seconds by company 9617 9647 9026 (4) Total # of seconds to reach a CSR 7.4 0.11 0.25 (5) Total # of calls abandoned 250 265 585 (6) Estimated % of time callers receive a busy signal 0.10% 0.39% 2.18% • (1) Number of requests for service (Le. new installs, reconnects) 1038 1126 1259 Number of requests for service completed within 7 business days 974 1052 1125 Number of requests for service completed after 7 days @ cust. request 64 74 134 Service Standards (2) Number of service interruptions - no picture calls 210 ' 256 212 Number of service interruptions responded to within 24 hours 207 250 203 (3) Number of service calls (truck rolls) to sub residence - other than no pic. Number of service calls requested for AM appointments Number of service calls requested for PM appointments Number of service calls requested for evenings or Saturday appts. Number of service calls rescheduled for any reason. (4) Total ($) amount of credit issued for customer service guarantees 480 135 199 2 n/a 451 114 165 24 375 94 160 18 n/a n/a $120.00 $173.18 $68.83 The quarterly report regarding customer service standards must be completed using this form or attached diskette. ('- mpanies that do not have automated telephone systems or computer generated service statistics may submit other .ropriate information or reports which demonstrate compliance. • 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Wamer Cable Oneida/Rome Cable Company System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 232.5 234 444 (2) Total # of calls company receives per month 12081 9923 10820 (3) Total # of calls per month answered in 30 seconds by company 10908 9329 10459 (4) Total # of seconds to reach a CSR 5.4 5.07 2 (5) Total # of calls abandoned.._ 160 165 99 (6) Estimated % of time callers receive a busy signal 0.67% 0.45% 0.49% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 598 783 884 Number of requests for service completed within 7 business days 450 695 743 Number of requests for service completed after 7 days @ cust. request 148 88 141 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 132 142 461 131 140 413 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 431 386 646 Number of service calls requested for AM appointments 168 93 197 Number of service calls requested for PM appointments 183 152 234 Number of service calls requested for evenings or Saturday appts. 31 47 105 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $40.00 $164.58 $372.55 The quarterly report regarding customer service standards must be completed using this form or attached diskette. mpanies that do not have automated telephone systems or computer generated service statistics may submit other •lJroPriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Warner Cable Cable Company North Country (Potsdam, Massena Malone, Ogdensburg, Champlain) System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 194 185 184 (2) Total # of calls company receives per month 8807 9546 10227 (3) Total # of calls per month answered in 30 seconds by company 8468 8820 9499 (4) Total # of seconds to reach a CSR 2.09. _ 4.29:.: 4.57 (5) Total # of calls abandoned 89 150 103 (6) Estimated % of time callers receive a busy signal 0.31 % 0.35% 0.77% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 1157 1304 1514 Number of requests for service completed within 7 business days 1087 1186 1411 Number of requests for service completed after 7 days @ cust. request 70 118 103 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 199 300 178 195 293 170 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 391 337 349 Number of service calls requested for AM appointments 24 16 30 Number of service calls requested for PM appointments 20 16 32 Number of service calls requested for evenings or Saturday appts. 2 2 1 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $354.37 $459.55 $592.54 quarterly report regarding customer service standards must be completed using this form or attached diskette. litmpanies that do not have automated telephone systems or computer generated service statistics may submit other propriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JULY - SEPTEMBER) Time Warner Cable Cable Company Syracuse/Central (Oswego, Syracuse, Fulton, Baldwinsville, Cortland, City of Syracuse) System Telephone Availability (Business Office) July August September (1) Total # of hours per month CSR's answer calls 439.6 447.1 433.5 (2) Total # of calls company receives per month 53979 64888 93920 (3) Total # of calls per month answered in 30 seconds by company 45834 53726 79699 (4) Total # of seconds to reach a CSR 16.3 21.6 18.1 (5) Total # of calls abandoned 2016 2545 3170 «1 Estimated % of time callers receive a busy signal 0.11% 0.63% 0.74% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 2425 4943 3040 Number of requests for service completed within 7 business days 2097 3308 2542 Number of requests for service completed after 7 days @ cust. request 328 1616 268 (2) Number of service interruptions - no picture calls 1193 1171 1474 Number of service interruptions responded to within 24 hours 846 825 1002 (3) Number of service calls (truck rolls) to sub residence - other than no pic. Number of service calls requested for AM appointments Number of service calls requested for PM appointments Number of service calls requested for evenings or Saturday appts. Number of service calls rescheduled for any reason (4) Total ($) amount of credit issued for customer service guarantees 2442 2924 3453 969 914 948 1688 1934 2487 284 538 796 n/a n/a n/a $768.00 $363.00 $713.00 quarterly report regarding customer service standards must be completed using this form or attached diskette. 0 ompanies that do not have automated telephone systems or computer generated service statistics may submit other ppropriate information or reports which demonstrate compliance. TIME WARNER CABLE Via Facsimile and Airborne— January 25, 1999 January 25, 1999 Ms. Anne Dalton Associate Municipal Consultant Public Service Commission Consumer Services Division Three Empire State Plaza Albany, NY 12223-1350 Dear Anne: Enclosed are the customer service diskettes and hard copies for the fourth quarter of 1998 for cable systems within the Syracuse Division of Time Warner Cable. Systems within the Syracuse Division include Rome/Oneida (includes North Shore), Ithaca, Ilion, Carthage/Watertown, North Country (includes Massena, Potsdam, Ogdensburg, Malone, and Champlain), and Syracuse (includes Oswego, Syracuse, Fulton, Baldwinsville, Cortland, and the City of Syracuse). To improve upon the accuracy and quality of the report, I expanded the definition of certain categories. Total days per month CSRs answer calls was expanded to Total hours per month CSRs answer calls. Total number of requests for service includes all upgrades that involve a truck roll (for example, added outlets, trapped pays or tiers). Number of requests for service completed by a specific date was changed to Number of requests for service completed after 7 days at customer request. Number of service interruptions are all no picture service calls. No picture calls responded to within 24 hours does not include customers who requested an appointment outside a 24-hour window. Number of service calls (truck rolls) to a subscriber residence includes only service calls other than no picture calls. Credit for no show appointment was changed to total amount of credit issued for customer service guarantees. ;UI.; C pusrr l Drive East 'vrrrrusv. \'1 1.111.5: • P.U. Box i::::i Syrnru..r. \ 13221 Tel .U5.10.2L.... l ux .113. lba.u.i::s Anne Dalton January 25, 1999 Page 2 of 2 Anne, please contact me if you have any questions. Sincerely, Steven A. Miron Vice President, Operations SAM/rlw Enclosures copy: Mary Cotter Rick Beiswenger Mike Kennedy John Owen Brian Brennan Mark Ryan Phil Smith Henry Pearl Customer Service Managers • 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Warner Cable Ilion Cable Company System Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 221 186 395.5 (2) Total # of calls company receives per month 5898 6521 6590 (3) Total # of calls per month answered in 30 seconds by company 5530 6377 6332 (4) Total # of seconds to reach a CSR 8 8 7 (5) Total # of calls abandoned 135 144 127 (6) Estimated % of time callers receive a busy signal 0.93% 1.82% 0.75% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 605 553 349 Number of requests for service completed within 7 business days 577 473 310 Number of requests for service completed after 7 days @ cust. request 28 80 39 (2) Number of service interruptions - no picture calls 92 79 91 Number of service interruptions responded to within 24 hours 79 60 84 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 225 273 320 Number of service calls requested for AM appointments 44 54 69 Number of service calls requested for PM appointments 86 109 149 Number of service calls requested for evenings or Saturday appts. 3 6 0 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $220.00 $45.81 $0.00 The quarterly report regarding customer service standards must be completed using this form or attached diskette. "ompanies that do not have automated telephone systems or computer generated service statistics may submit other dpropriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Warner Cable Ithaca Cable Company System Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 252 228 252 (2) Total # of calls company receives per month 12151 8267 9312 (3) Total # of calls per month answered in 30 seconds by company 11002 7682 8628 (4) Total # of seconds to reach a CSR 12.5 12.1 11.7 (5) Total:# of calls abandoned 88 . :.: 66 85 (6) Estimated % of time callers receive a busy signal 0.19% 0.21% 0.17% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 921 553 564 Number of requests for service completed within 7 business days 678 467 456 Number of requests for service completed after 7 days @ cust. request 233 80 101 (2) Number of. service interruptions - no picture calls Number of service interruptions responded to within 24 hours 202 93 104 173 81 95 (3) Number of service calls (truck rolls) to sub residence - other than no pic 802 580 727 Number of service calls requested for AM appointments 285 220 282 Number of service calls requested for PM appointments 336 230 308 Number of service calls requested for evenings or Saturday appts. 181 133 137 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $1,296.69 $502.87 $565.60 The quarterly report regarding customer service standards must be completed using this form or attached diskette. mpanies that do not have automated telephone systems or computer generated service statistics may submit other 0.,propriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Warner Cable Carthage/Watertown Cable Company System Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 213 180 198 (2) Total # of calls company receives per month 10495 9578 8998 (3) Total # of calls per month answered in 30 seconds by company 9859 8791 8157 (4) Total # of seconds to reach a CSR 7.54 9.43 10.78 (5) Total # of calls abandoned 181 196 207 Estimated % of time callers receive a busy signal 0.27% 0.31 % 0.25% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 1392 1234 1137 Number of requests for service completed within 7 business days 1320 1166 1002 Number of requests for service completed by specific date requested 72 68 95 (2) Number of service interruptions - no picture calls 172 193 81 Number of service interruptions responded to within 24 hours 171 190 79 (3) Number of service calls (truck rolls) to sub residence - other than no pic 336 334 390 Number of service calls requested for AM appointments 78 66 79 Number of service calls requested for PM appointments 153 126 188 Number of service calls requested for evenings or Saturday appts. 8 9 4 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $149.22 $63.90 $41.59 quarterly report regarding customer service standards must be completed using this form or attached diskette. eve mpanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. i • 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Warner Cable Oneida/Rome Cable Company System, Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 258 214.5 228 (2) Total # of calls company receives per month 10067 8411 8630 (3) Total # of calls per month answered in 30 seconds by company 9857 8154 8257 (4) Total # of seconds to reach a CSR 2.8 1.8 3 (405) Total # of calls abandoned 84 51 82 Estimated % of time callers receive a busy signal 0.27% 0.32% 0.24% Service Standards (1) Number of requests for service (Le. new installs, reconnects) 1682 789 781 Number of requests for service completed within 7 business days 1511 717 690 Number of requests for service completed by specific date requested 171 72 91 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 142 72 83 142 71 78 (3) Number of service calls (truck rolls) to sub residence - other than no pic 401 342 427 Number of service calls requested for AM appointments 130 117 170 Number of service calls requested for PM appointments 196 161 210 Number of service calls requested for evenings or Saturday appts. 64 35 40 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $150.43 $25.40 $60.00 410 te quarterly report regarding customer service standards must be completed using this form or attached diskette. Companies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Warner Cable Cable Company North Country (Potsdam, Massena Malone, Ogdensburg, Champlain) System Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 215 176 192 (2) Total # of calls company receives per month 8460 8699 8438 (3) Total # of calls per month answered in 30 seconds by company 8310 8305 8063 (4) Total # of seconds to reach a CSR 0.63 2.46 2.84 (5) Total # of calls abandoned 40 56 96 (') Estimated % of time callers receive a busy signal 0.18% 0.32% 0.29% • Service Standards (1) Number of requests for service (Le. new installs, reconnects) 1678 1035 1359 Number of requests for service completed within 7 business days 1563 949 1265 Number of requests for service completed by specific date requested 115 86 94 (2) Number of service interruptions - no picture calls 147 174 99 Number of service interruptions responded to within 24 hours 141 166 99 (3) Number of service calls (truck rolls) to sub residence - other than no pic 338 274 361 Number of service calls requested for AM appointments 19 22 38 Number of service calls requested for PM appointments 35 14 38 Number of service calls requested for evenings or Saturday appts. 2 1 1 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $170.36 $71.00 $213.76 quarterly report regarding customer service standards must be completed using this form or attached diskette. iitmpanies that do not have automated telephone systems or computer generated service statistics may submit other propriate information or reports which demonstrate compliance. 1998 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (OCTOBER - DECEMBER) Time Wamer Cable Cable Company Syracuse/Central (Oswego, Syracuse, Fulton, Baldwinsville, Cortland, City of Syracuse) System' Telephone Availability (Business Office) October November December (1) Total # of hours per month CSR's answer calls 448.9 434 438.3 (2) Total # of calls company receives per month 68627 56401 50099 (3) Total # of calls per month answered in 30 seconds by company 58300 51126 45094 (4) Total # of seconds to reach a CSR 15.9 13.7 12.6 (5) Total # of calls abandoned 1944 1548 1202 40 ) Estimated % of time callers receive a busy signal 0.49% 0.37% 0.23% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) Number of requests for service completed within 7 business days Number of requests for service completed by specific date requested 6205 5799 362 1920 2380 1676 2061 196 319 (2) Number of service interruptions - no picture calls 1168 952 1065 Number of service interruptions responded to within 24 hours 805 680 724 (3) Number of service calls (truck rolls) to sub residence - other than no pic 3364 2860 2151 Number of service calls requested for AM appointments 1128 1009 1069 Number of service calls requested for PM appointments 2129 1703 1536 Number of service calls requested for evenings or Saturday appts. 567 492 95 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of'credit issued for customer service guarantees $974.00 $280.00 $280.00 •(he quarterly report regarding customer service standards must be completed using this form or attached diskette. Companies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. TIME WARNER CABLE Via Facsimile and Airborne— Mav 27. 1999 May 27, 1999 Ms. Anne Dalton Associate Municipal Consultant Public Service Commission Consumer Services Division Three Empire State Plaza Albany, NY 12223-1350 Dear Anne: Enclosed are the customer service diskettes and hard copies for the first quarter of 1999 for cable systems within the Syracuse Division of Time Warner Cable. Systems within the Syracuse Division include Rome/Oneida (includes North Shore), Ithaca, Ilion, Carthage/Watertown, North Country (includes Massena, Potsdam, Ogdensburg, Malone, and Champlain), and Syracuse (includes Oswego, Syracuse, Fulton, Baldwinsville, Cortland, and the City of Syracuse). Please note that in March our Ilion and Rome/Oneida systems were impacted by a storm which damaged a significant number of drops. To improve upon the accuracy and quality of the report, I expanded the definition of certain categories. Total days per month CSRs answer calls was expanded to Total hours per month CSRs answer calls. Total number of requests for service includes all upgrades that involve a truck roll (for example, added outlets, trapped pays or tiers). Number of requests for service completed by a specific date was changed to Number of requests for service completed after 7 days at customer request. Number of service interruptions are all no picture service calls. No picture calls responded to within 24 hours does not include customers who requested an appointment outside a 24-hour window. Number of service calls (truck rolls) to a subscriber residence includes only service calls other than no picture calls. Credit for no show appointment was changed to total amount of credit issued for customer service guarantees. 5015 Campuswood Drur. East Syracuse, .VY 13057 • P.O. 13or 4733 Synicuse..VF' 13221 T 1 315.-4):3._!s s 1%u• .11.i.-Na.h314 Anne Dalton May 27, 1999 Page 2 of 2 Anne, please contact me if you have any questions. Sincerely, J'l Steven A. Miron Vice President, Operations SAM/rlw Enclosures copy:.. Staff .. Syracuse Division GMs Syracuse Division CSSMs 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Ilion Cable Company System Telephone Availability (Business Office) January February March (1) Total # of hours per month CSR's answer calls 188 179 223.5 (2) Total # of calls company receives per month 5561 5311 6374 (3) Total # of calls per month answered in 30 seconds by company 5271 4867 5822 (4) Total# of sedonds.to reach a CSR 7 11 10 (5) Total # of calls abandoned 122 123 198 ' Estimated % of time callers receive a busy signal 1.12% 1.13% 1.06% • Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 277 352 601 Number of requests for service completed within 7 business days 266 342 578 Number of requests for service completed after 7 days © cust request 11 10 23 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 83 65 247 79 63 210 (3) Number of service calls (truck rolls) to sub residence - other than no pic 290 189 315 Number of service calls requested for AM appointments 89 55 99 Number of service calls requested for PM appointments 152 109 172 Number of service calls requested for evenings or Saturday appts. 3 2 17 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $121.59 $20.00 $40.00 quarterly report regarding customer service standards must be completed using this form or attached diskette. mpanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Ithaca Cable Company System Telephone Availability (Business Office) January February March (1) Total # of hours per month CSR's answer calls 240 240 252 (2) Total # of calls company receives per month 11118 7675 8344 (3) Total # of calls per month answered in 30 seconds by company 10194 7058 7782 (4) Total # of seconds to reach a CSR 12.4 9.5 9.27 (51Total # of calls abandoned 96 77 76 ! . stimated % of time callers receive a busy signal 0.18% 0.09% 0.11% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 761 627 575 Number of requests for service completed within 7 business days 518 394 366 Number of requests for service completed after 7 days © cust. request 216 233 199 (2) Number of service interruptions - no picture calls 109 75 68 Number of service interruptions responded to within 24 hours 104 64 64 (3) Number of service calls (truck rolls) to sub residence - other than no pic 723 490 540 Number of service calls requested for AM appointments 253 186 196 Number of service calls requested for PM appointments 306 208 209 Number of service calls requested for evenings or Saturday appts. 167 97 139 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $496.78 $123.90 $309.47 /lie quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Carthage/Watertown Cable Company System Telephone Availability (Business Office) (1) Total # of hours per month CSR's answer calls (2) Total # of calls company receives per month (3) Total # of calls per month answered in 30 seconds by company (4) Total # of seconds to reach a CSR (5) Total # of calls abandoned Estimated % of time callers receive a busy signal January 181.5 10190 9585 February March 198 233.75 9113 10360 8549 9812 5.96 6.14 5.55 144 0.37% Service Standards 146 164 0.09% 0.05% (1) Number of requests for service (i.e. new installs, reconnects) 1082 1577 - 1451 Number of requests for service completed within 7 business days 1033 1457 1363 Number of requests for service completed after 7 days © cust request 49 120 88 (2) Number of service interruptions - no picture calls 170 67 161 Number of service interruptions responded to within 24 hours 169 65 151 (3) Number of service calls (truck rolls) to sub residence - other than no pic 382 309 370 Number of service calls requested for AM appointments 100 82 84 Number of service calls requested for PM appointments 134 141 163 Number of service calls requested for evenings or Saturday appts. 11 12 5 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $203.68 $30.00 $50.82 .e quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Oneida/Rome Cable Company System Telephone Availability (Business Office) January February March (1) Total # of hours per month CSR's answer calls 226 205 253 (2) Total # of calls company receives per month 9113 7839 12072 (3) Total # of calls per month answered in 30 seconds by company 8818 7575 11662 (4) Total # of seconds to reach a CSR 3.27 1.76 3.16 (5)Total # of calls abandoned 81 78 86 0 stimated % of time callers receive a busy signal 0.35% 0.24% 0.30% Service Standards (1) Number of requests for service (Le. new installs, reconnects) 646 794 1426 Number of requests for service completed within 7 business days 589 740 1301 Number of requests for service completed after 7 days © cust. request 57 54 125 (2) Number of service interruptions - no picture calls 119 49 206 . Number of service interruptions responded to within 24 hours 118 48 192 (3) Number of service calls (truck rolls) to sub residence - other than no pic 413 311 581 Number of service calls requested for AM appointments 148 110 195 Number of service calls requested for PM appointments 190 137 251 Number of service calls requested for evenings or Saturday appts. 60 38 88 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $60.00 $20.00 $513.96 �1e quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Cable Company North Country (Potsdam, Massena Malone, Ogdensburg, Champlain) System Telephone Availability (Business Office) January February March (1) Total # of hours per month CSR's answer calls 176 167 236 (2) Total # of calls company receives per month 11253 7658 8318 (3) Total # of calls per month answered in 30 seconds by company 10149 7379 8254 (4) Total # of seconds to reach a CSR 6.41 2.14 0.21 (°`Total # of calls abandoned 223 76 30 0 Estimated % of time callers receive a busy signal 0.67% 0.25% 0.17% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 1386 1223 1782 Number of requests for service completed within 7 business days 1326 1150 1684 Number of requests for service completed after 7 days © cust request 60 73 98 (2) Number of service interruptions - no picture calls 178 75 96 Number of service interruptions responded to within 24 hours 177 75 95 (3) Number of service calls (truck rolls) to sub residence - other than no pic 418 275 322 Number of service calls requested for AM appointments 49 19 28 Number of service calls requested for PM appointments 37 24 35 Number of service calls requested for evenings or Saturday appts. 2 1 1 Number of service calls rescheduled for any reason n/a n/a n/a • (4) Total ($) amount of credit issued for customer service guarantees $71.31 $47.54 $218.91. e quarterly report regarding customer service standards must be completed using this form or attached diskette. Illompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (JANUARY - MARCH) Time Wamer Cable Cable Company Syracuse/Central (Oswego, Syracuse, Fulton, Baldwinsville, Cortland, City of Syracuse) System • Telephone Availability (Business Office) January February March (1) Total # of hours per month CSR's answer calls 437.3 410 449.3 (2) Total # of calls company receives per month 55745 52211 59660 (3) Total # of. calls per month answered in 30. seconds by company 53045 49508. 54411 (4) Total # of seconds to reach a CSR 9.2 9.5 11.4 (5) Total # of calls abandoned 824 775 1017 illEstimated % of time callers receive a busy signal 0.21 % 0.68% 0.40% Service Standards (1) Number of requests for service (Le. new installs, reconnects) 2638 2803 4379 Number of requests for service completed within 7 business days 2319 2397 3935 Number of requests for service completed after 7 days © cust. request 319 406 400 (2) Number of service interruptions - no picture calls 1301 934 1172 Number of service interruptions responded to within 24 hours 1104 _ 782 1041 (3) Number of service calls (truck rolls) to sub residence - other than no pic 3017 2428 3179 Number of service calls requested for AM appointments 1054 901 1183 Number of service calls requested for PM appointments 1652 1367 1910 Number of service calls requested for evenings or Saturday appts. 680 574 681 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $759.92 $661.00 $623.00 0 ne quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. • re-& TIME WARNER CABLE Via Facsimile and Airborne— July 15, 1999 July 15, 1999 Ms. Anne Dalton Associate Municipal Consultant Public Service Commission Consumer Services Division Three Empire State Plaza Albany, NY 12223-1350 Dear Anne: Enclosed are the customer service diskettes and hard copies for the second quarter of 1999 for cable systems within the Syracuse Division of Time Warner Cable. Systems within the Syracuse Division include Rome/Oneida (includes North Shore), Ithaca, Ilion, Carthage/Watertown, North Country (includes Massena, Potsdam, Ogdensburg, Malone, and Champlain), and Syracuse (includes Oswego, Syracuse, Fulton, Baldwinsville, Cortland, and the City of Syracuse). We recently acquired TCI systems in Boonville and Central Square. Steve Shufelt, the general manager for thosesystems, will be filing the report for this quarter. To improve upon the accuracy and quality of the report, I expanded the definition of certain categories. Total days per month CSRs answer calls was expanded to Total hours per month CSRs answer calls. Total number of requests for service includes all upgrades that involve a truck roll (for example, added outlets, trapped pays or tiers). Number of requests for service completed by a specific date was changed to Number of requests for service completed after 7 days at customer request. Number of service interruptions are all no picture service calls. No picture calls responded to within 24 hours does not include customers who requested an appointment outside a 24-hour window. Number of service calls (truck rolls) to a subscriber residence includes only service calls other than no picture calls. Credit for no show appointment was changed to total amount of credit issued for customer service guarantees 5015 Campuswood Drive East Syracuse. NY 13057 • P.O. Bar 47.33 Syracuse. .\ r 1.1221 rel :M.46.22% Fa.e :31:;.411:3.'xi )f • Anne Dalton July 15, 1999 Page 2 of 2 Anne, please contact me if you have any questions. Sincerely, Steven A. Miron' Vice President, Operations SAM/r1w Enclosures copy: Staff Syracuse Division GMs Syracuse Division CSSMs • 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL - JUNE) Time Wamer Cable Ilion Cable Company System Telephone Availability (Business Office) (1) Total # of hours per month CSR's answer calls (2) Total # of calls company receives per month (3) Total # of calls per month answered in 30 seconds by company (4) Total # of seconds to reach a CSR (' Total # of calls abandoned *Estimated % of time callers receive a busy signal April May June 203 185 177.5 4139 4028 7 4896 4567 4547 4287 9 8 54 139 96 0.22% Service Standards 0.72% 0.60% (1) Number of requests for service (i.e. new installs, reconnects) 393 458 578 Number of requests for service completed within 7 business days 351 417 544 Number of requests for service completed after 7 days @ rust. request 42 41 34 (2) Number of service interruptions - no picture calls 60 60 57 Number of service interruptions responded to within 24 hours 56 58 54 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 216 241 248 Number of service calls requested for AM appointments 56 59 74 Number of service calls requested for PM appointments 127 148 138 Number of service calls requested for evenings or Saturday appts. 3 .6 4 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $119.17 $42.49 $132.49 I quarterly report regarding customer service standards must be completed using this form or attached diskette. Companies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL - JUNE) Time Wamer Cable. Ithaca Cable Company System Telephone Availability (Business Office) April May June (1) Total # of hours per month CSR's answer calls 252 249 252 (2) Total # of calls company receives per month 7307 10004 9310 (3) Total # of calls per month answered in 30 seconds by company 7259 9467 8670 (4) Total # of seconds to reach a CSR 12.1 12.6 9.4 (5'Total # of calls abandoned 48 88 103 0 stimated % of time callers receive a busy signal 0.14% 0.01% 0.12% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 516 377 948 Number of requests for service completed within 7 business days 435 297 609 Number of requests for service completed after 7 days @ oust request 81 80 339 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours (3) Number of service calls (truck rolls) to sub residence - other than no pic. Number of service calls requested for AM appointments Number of service calls requested for PM appointments Number of service calls requested for evenings or Saturday appts. Number of service calls rescheduled for any reason 78 62 61 71 49 55 483 559 570 183 214 234 200 253 240 104 115 99 n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $120.00 $60.00 $143.61 e quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that'do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL - JUNE) Time Warner Cable Carthage/Watertown Cable Company System Telephone Availability (Business Office) (1) Total # of hours per month CSR's answer calls (2) Total # of calls company receives per month (3) Total # of calls per month answered in 30 seconds by company (4) Total # of seconds to reach a CSR (4Total # of calls abandoned illEstimated % of time callers receive a busy signal April May June 200 182 205.5 7683 7496 2.43 8773 10502 8095 9077 8.12 21.33 83 227 530 0.02% Service Standards 0.44% 3.43% (1) Number of requests for service (ie. new installs, reconnects) 1033 1089 1224 Number of requests for service completed within 7 business days 964 986 1157 Number of requests for service completed after 7 days @ cust. request 69 103 67 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 87 102 85 102 (3) Number of service calls (truck rolls) to sub residence - other than no pic. 337 377 Number of service calls requested for AM appointments 79 104 Number of service calls requested for PM appointments 135 156 Number of service calls requested for evenings or Saturday appts. 24 21 Number of service calls rescheduled for any reason n/a n/a 167 164 411 94 166 24 n/a (4) Total ($) amount of credit issued for customer service guarantees $61.44 $0.00 $90.00 quarterly report regarding customer service standards must be completed using this form or attached diskette. ompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL - JUNE) Time Warner Cable Oneida/Rome Cable Company System Telephone Availability (Business Office) April May June (1) Total # of hours per month CSR's answer calls 232.5 218 234 (2) Total # of calls company receives per month 7909 8570 9612 (3) Total # of calls per month answered in 30 seconds by company: 7756 8321:: 9303 (4) Total # of seconds to reach a CSR 7 1.2 1.8 ("Total # of calls abandoned 54 77 59 0 Estimated % of -time callers receive a busy signal 0.02% 0.30% 0.28% • Service Standards (1) Number of requests for service (Le. new installs, reconnects) 1076 778 1237 Number of requests for service completed within 7 business days 894 685 1125 Number of requests for service completed after 7 days @ cust. request 182 93 112 (2) Number of service interruptions - no picture calls 77 107 121 Number of service interruptions responded to within 24 hours (3) Number of service calls (truck rolls) to sub residence - other than no pic. Number of service calls requested for AM appointments Number of service calls requested for PM appointments Number of service calls requested for evenings or Saturday appts. Number of service calls rescheduled for any reason (4) Total ($) amount of credit issued for customer service guarantees 76 105 118 420 143 221 75 n/a 380 114 195 64 389 131 194 68 n/a n/a $298.95 $324.96 $203.06 quarterly report regarding customer service standards must be completed using this form or attached diskette. Iiiompanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL -JUNE) Time Wamer Cable Cable Company North Country (Potsdam, Massena Malone, Ogdensburg, Champlain) System Telephone Availability (Business Office) April May June (1) Total # of hours per month CSR's answer calls 192 185 204 (2) Total # of calls company receivespermonth 7453 10086 8566 (3) Total # of calls per month answered in 30 seconds by company 7386 9196 .8265. (4) Total # of seconds to reach a CSR 0.39 5.83 1.93 (51 Total # of calls abandoned 18 142 91 0.Estimated % of time callers receive a busy signal 0.16% 0.35% 0.50% Service Standards (1) Number of requests for service (Le. new installs, reconnects) 2090 1248 1539 Number of requests for service completed within 7 business days 1892 1117 1435 Number of requests for service completed after 7 days @ cust request 198 131 64 (2) Number of service interruptions - no picture calls Number of service interruptions responded to within 24 hours 73 148 138 72 146 137 (3) Number of service calls (truck rolls) to sub residence - other than no pic 338 328 377 Number of service calls requested for AM appointments 30 20 30 Number of service calls requested for PM appointments 26 20 15 Number of service calls requested for evenings or Saturday appts. 3 2 2 Number of service calls rescheduled for any reason n/a n/a n/a (4) Total ($) amount of credit issued for customer service guarantees $162.62 $209.47 $177.88 quarterly report regarding customer service standards must be completed using this form or attached diskette. mpanies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. • 1999 QUARTERLY REPORT CUSTOMER SERVICE STANDARDS (APRIL - JUNE) Syracuse/Central (Oswego, Syracuse, Fulton, Baldwinsville, Time Wamer Cable Cortland, City of Syracuse) Cable Company System Telephone Availability (Business Office) April May June (1) Total # of hours per month CSR's answer calls 438.8 446.3 439 (2) Total # of calls company receives per month 46009 54935 55250 (3) Total # of calls per month answered in 30 seconds by company 42027 47896 50297 (4) Total # of seconds to reach a CSR , 10.4 13 10.8 otal # of calls abandoned 786 1209 1098 •Estimated % of time callers receive a busy signal 0.09% 0.34% 0.34% Service Standards (1) Number of requests for service (i.e. new installs, reconnects) 3293 3414 4852 Number of requests for service completed within 7 business days 2887 2815 4065 Number of requests for service completed after 7 days @ cust. request 406 485 646 (2) Number of service interruptions - no picture calls 964 1272 1184 Number of service interruptions responded to within 24 hours 857 1149 1026 (3) Number of service calls (truck rolls) to sub residence - other than no pic. Number of service calls requested for AM appointments Number of service calls requested for PM appointments Number of service calls requested for evenings or Saturday appts. Number of service calls rescheduled for any reason (4) Total ($) amount of credit issued for customer service guarantees 3097 3171 1088 1148 1700 1737 684 769 n/a 3602 1362 2022 776 n/a n/a $557.00 $594.00 $480.00 e quarterly report regarding customer service standards must be completed using this form or attached diskette. Companies that do not have automated telephone systems or computer generated service statistics may submit other appropriate information or reports which demonstrate compliance. • • EXHIBIT 21 Attached are copies of sample bills sent to customers of Time Warner Cable's Ithaca system. J1 21 01 1 20 31 9 TIME WARNER CABLE 519 WEST STATE STREET ITHACA NY 14850-5221 ADDRESS SERVICE REQUESTED DATE DUE 10/05/99 PLEASE SEND NOTES IN A SEPARATE ENVELOPE. PLEASE RETURN THIS TOP PORTION ONLY, WITH REMITTANCE TO ... 744.4 ?jars/ 2476 AT 1 B 11 A 27949 **3DGT .iiIIiI1.II.iI I Ii.IIII.i.I11I.IiIi..IuiIIllluI.iIIii.II 000 -09 -99 -A -C TIME WARNER CABLE PO BOX 2300 ; ITHACA NY 14851-5297 AMOUNT DUE 15.00 S L11IIJ1111• 1• LL���II�LI��J�II�I��L�.11111111SISI•1151 05853 010040 09 4 9 001500 TIME WARNER CABLE ACCOUNT NUMBER 05853-010040-09-4 FOR- 131 E SPENCER ST 2 8/31 BEGINNING BALANCE 9/15 9/30-10/31 9/30-10/31 9/30-10/31 9/30-10/31 PAYMENT -THANK YOU P.E.G. ACCESS FEE REGULATORY FEE BASIC SERVICE FRANCHISE FEE PLEAOE AMOUNT ENI:I' BILLED FROM BILLED TO DATE DUE nlcLUDEs vArrsEars RECEIVED 9r 9/30/99 10/31/99 10/05/99 9/17/99 BUSINESS TELEPHONE HOURS: M -F 8:30 AM - 8 PM, 272-3456. CABLESTORE (FOR WALK IN) M -F 9AM-6PM 8 SAT 10-2. 29.82 CANDOR CUSTOMERS: 1-800-676-2225 29.82- 1.26 .04 12.99 .71 9/30 BALANCE DUE 15.00 • Cable services are billed one month in adl once. Partial month charges will be itemized on vour statement it you add or change service. between billing date.. The charges for one month's service and any installation and/or equipment tees are payable at the time •er'icl' is installed. We do our best to make sur.' that v LI receive (111.1111V cable TV service. II. hi st\'l l'r, v u .111• .•\ t r d:.•.iti.fied, we want to hear from vou. me following procedure has been e.tabli.hed to ensure that any problem you may encounter is dealt lvith in a timely manner. If you e\perience a problem, please follow these steps: 1) Contact.our office. If your problem concern; signal quality and we can't resolve it over the telephone, we will schedule a service call immediately. (I I -rase note that we do not repair televisions or VCR's.) 2) If we are unable to resolve your problem to your satisfaction within a reasonable time period. you mai' contact the government official responsible for dealing with ;able television service in your area: Unresolved Inquiries: NYS Public Service Commission -l -S00-342-3330 TOWN OF CAROLINE P.O. BOX 36 SLATERVILLE SPRINGS, NY 14881 FCC COMMUNITY UNIT NY0088 539-6400 TOWN OF DANBY 1830 DANBY ROAD 'ITHACA, NY 14850 -- FCC COMMUNITY UNIT NY0310 277-4788 VILLAGE OF FREEVILLE 5 FACTORY STREET, BOX 288 FREEVILLE, NY 13068 FCC COMMUNITY UNIT NY0622 844-8301 CITY OF ITHACA CITY HALL 108 E. GREEN STREET ITHACA, NY 14850 FCC COMMUNITY UNIT NY0092 274-6570 VILLAGE OF LANSING 2405 N. TP.IPHAMMER ROAD ITHACA, NY 14850 FCC COMMUNITY UNIT NY0093 257-0424 TOWN OF ULYSSES 10 ELM STREET. BOX U TRUMANSBURG. NY 14886 FCC COMMUNITY UNIT NY0096 387-5767 TOWN OF NEWARK VALLEY 109 WHIG STREET NEWARK VALLEY. NY 13811 FCC COMMUNITY UNIT NY0094 642-8746 VILLAGE OF CAYUGA HEIGHTS 836 HANSHAW ROAD ITHACA. NY 14850 FCC COMMUNITY UNIT NY0089 257-1238 TOWN OF DRYDEN 65 E. MAIN STREET DRYDEN, NY 13053 FCC COMMUNITY UNIT NY0090 844-8622 TOWN OF GROTON 101 CONGER BLVD., BOX 36 GROTON, NY 13073 FCC COMMUNITY UNIT NY0578 898-5035 TOWN OF ITHACA 126 E. SENECA STREET ITHACA, NY 14850 FCC COMMUNITY UNIT NY0091 273-1721 TOWN OF NEWFIELD 166 MAIN STREET NEWFIELD. NY 14867 FCC COMMUNITY UNIT NY0095 564-9981 TOWN OF CANDOR HUMISTON STREET. BCX 6 CANDOR. NY 13743 FCC COMMUNITY UNIT " NY0679 659-3175 VILLAGE OF NEWARK VALLEY PARK STREET, BOX 398 NEWARK VALLEY. NY 13811 FCC COMMUNITY UNIT NY0680 642-8686 TOWN OF COVERT 3911 COUNTRY ROAD. 4150 RDa2 INTERLAKEN. NY 14847 FCC COMMUNITY UNIT 532-8358 NY1525 VILLAGE OF DRYDEN. 16 SOUTH STREET. BOX 920 DRYDEN. NY 13053 FCC COMMUNITY UNIT NY01 f4 844-8122 VILLAGE OF GROTON 108 E. CORTLAND STREET. BOX 146 GROTON. NY 13073 FCC COMMUNITY UNIT NY0212 898-3966 TOWN OF LANSING 29 AUBURN ROAD. BOX 196 LANSING. NY 14882 FCC COMMUNITY UNIT NY0093 533-4142 VILLAGE OF TRUMANSBURG 56 E. MAIN STREET. BOX 718 TRUMANSBURG. NY 14856 FCC COMMUNITY UNI- NYC579 387-6501 VILLAGE OF CANDOR VILLAGE HALL 138 MAIN STREET. BOX 1 CANDOR. NY 13713 FCC COMMUNITY UNIT NY0087 659-7966 • • J1 Al 00 3 OJ 33 2 TIME WARNER CABLE 519 WEST STATE STREET ITHACA NY 14850-5221 ADDRESS SERVICE REQUESTED .7- .122/ DATE DUE 09/20/99 PLEASE SEND NOTES IN A SEPARATE ENVELOPE. PLEASE RETURN THIS TOP PORTION ONLY, WITH REMITTANCE TO — ... 714446 *o.,/ 6062 AB 1 E 24 A 25529 l..l.I..Il .,ilIL.LL.IiI..LEIEI,11.11•I 11II,IuIIII„IIIEI 000-09-99—B—C TIME WARNER CABLE PO BOX 2300 ITHACA NY 14851-5297 AMOUNT DUE 38.03 $ 111111.1,111111.11.111•.II•I1I11.I1II.I��I���III��ullHhts�lIl 05853 021220 03 1 5 003803 TIME WARNER CABLE ACCOUNT NUMBER BILLED FROM BILLED TO DATE DUE PLEASE :NDI.:•' : AMOUNT E%Cl O �' YQLUOES PAYMENTS MEOWDO BY 05853-021220-03-1 9/15/99 10/15/99 09/20/99 9/02/99 BUSINESS TELEPHONE HOURS: M—F 8:30 AM - 8 PM, 272-3456. CABLESTORE (FOR WALK IN) M—F 9AM-6PM & SAT 10-2. 37.91 CANDOR CUSTOMERS: 1-800-676-2225 FOR— 190 PLEASANT GRV RD D5 8/15 8/23 9/15-10/15 9/15-10/15 9/15-10/15 9/15-10/15 9/15-10/15 9/15-10/15 BEGINNING BALANCE PAYMENT—THANK YOU REGULATORY FEE BASIC SERVICE STANDARD PLUS HOME TERMINAL FRANCHISE FEE REMOTE 37.91— .04 12.66 21.69 2.92 .35 .37 9/15 BALANCE DUE 38.03 • Cable services are billed one month in ads an. -e. Partial month nth charges will be itemized in your statement it you add or change service. between billing date.. Thr chargvs It,r one mon th's.ervic1 and any installation and/or equipment tees are payable at the time service i. in' tolled. We du our best to slake sun• that you receive qu.11it‘ cable 'f\ service. It. hi we, rr. you are r, or ..Ii.,ati•tied, we leant to hear from you. The following procedure has been t•.tabli-hed to ensure th,it any problem you may encounter is dealt with in a timely manner. If you e\perienCe a problem, please follow these steps: 1) Contact our office. It your problem concerns signal quality and we can't resolve it oyer the telephone,., e will schedule a service call immediately. (1 i•rase note that we do not repair televisions or VCR's.) 2) If we are unable to resolve your problem to your satisfaction within a reasonable time period. you mal• contact the government official responsible for dealing \yith ;able television ser\ ice in your area: Unresolved Inquiries: NYS Public Service Commission -1-S00-3.12-3330 TOWN OF CAROLINE P.O. BOX 36 SLATERVILLE SPRINGS, NY FCC COMMUNITY UNIT 539-6400 TOWN OF DANBY 1830 DANBY ROAD ITHACA, NY 14850 FCC COMMUNITY UNIT 277-4788 VILLAGE OF CAYUGA HEIGHTS 836 HANSHAW ROAD 14881 ITHACA. NY 14850 NY0088 FCC COMMUNITY UNIT NY0089 257-1238 TOWN OF DRYDEN 65 E. MAIN STREET DRYDEN, NY 13053 NY0310 FCC COMMUNITY UNIT NY0090 844-8622 VILLAGE OF FREEVILLE 5 FACTORY STREET, BOX 288 FREEVILLE, NY 13068 FCC COMMUNITY UNIT NY0622 844-8301 CITY OF ITHACA CITY HALL 108 E. GREEN STREET ITHACA, NY 14850 FCC COMMUNITY UNIT NY0092 274-6570 VILLAGE OF LANSING 2405 N. TRIPHAMMER ROAD ITHACA, NY 14850 FCC COMMUNITY UNIT NY0093 257-0424 TOWN OF ULYSSES 10 ELM STREET. BOX U TRUMANSBURG. NY 14886 FCC COMMUNITY UNIT NY0096 387-5767 TOWN OF NEWARK VALLEY 109 WHIG STREET NEWARK VALLEY. NY 13811 FCC COMMUNITY UNIT NY0094 642-8746 TOWN OF GROTON 101 CONGER BLVD., BOX 36 GROTON, NY 13073 FCC COMMUNITY UNIT NY0578 898-5035 TOWN OF ITHACA 126 E. SENECA STREET ITHACA, NY 14850 FCC COMMUNITY UNIT NY0091 273-1721 TOWN OF NEWFIELD 166 MAIN STREET NEWFIELD. NY 14867 FCC COMMUNITY UNIT NY0095 564-9981 TOWN OF CANDOR HUMISTON STREET. BCX 6 CANDOR. NY 13743 FCC COMMUNITY UNIT " NV0679 659-3175 VILLAGE OF NEWARK VALLEY PARK STREET, BOX 398 NEWARK VALLEY. NY 13811 FCC COMMUNITY UNIT NY0680 642-8686 TOWN OF COVERT 3911 COUNTRY ROAD. #150 RD#2 INTERLAKEN, NY 14847 FCC COMMUNITY UNIT 532-8358 E25 VILLAGE OF DRYDEN 16 SOUTH STREET. BOX 920 DRYDEN. NY 13053 FCC COMMUNITY UNIT NY011.1 844-8122 VILLAGE OF GROTON 108 E. CORTLAND STREET. BOX 146 GROTON. NY 13073 FCC COMMUNITY UNIT NY0212 898-3966 TOWN OF LANSING 29 AUBURN ROAD. BOX 196 LANSING. NY 14882 FCC COMMUNITY UNIT NY0G93 533-4142 VILLAGE OF TRUMANSBURG 56 E. MAIN STREET. BOX 718 TRUMANSBURG. NY 14886 FCC COMMUNITY UNI- N'(057 9 387-6501 VILLAGE OF CANDOR VILLAGE HALL 138 MAIN STREET. BOX 1 CANDOR. NY 13713 FCC COMMUNITY UNIT NYCO87 659-7966 EXHIBIT 22 Attached is a copy of the FCC rules regarding Technical Standards (FCC §76.605). • Note 6: No State or franchising authority may prohibit, condition, or restrict a cable system's use of any type of subscriber equipment or any transmission technology. §76.605 Reference §76.605 Technical standards (a) As of December 30, 1992, unless otherwise noted, the following requirements apply to the performance of a cable television system as measured at any subscriber terminal with a matched impedance at the termination point or at the output of the modulating or processing equipment (generally the headend) of the cable television system or otherwise as noted. The requirements are applicable to each NTSC or similar video downstream cable television channel in the system: (1) (i) The cable television channels delivered to the subscriber's terminal shallbecapable of being received and displayed by TV broadcast receivers used for off -the -air reception of TV broadcast signals, as authorized under part 73 of this chapter; and - (ii) Cable television systems shall transmit signals to subscriber premises equipment on frequencies in accordance with the channel allocation plan set forth in the Electronics Industries Association's "Cable Television Channel Identification Plan, EIA IS -132, May 1994" (EIA IS -132). This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 522(a) and 1 CFR Part 51. Cable systems are required to use this channel allocation plan for signals transmitted in the frequency range 54 MHz to 1002 MHz. This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 522(a) and 1 CFR Part 51. Copies of EIA IS -132 may be obtained from: Global Engineering Documents, 2805 McGraw Ave., Irvine CA 92714. Copies of EIA IS -132 may be inspected during normal business hours at the following locations: Federal Communications Commission, 1919 M Street, NW, Dockets Branch (Room 239), Washington, DC, or the Office of the Federal Register, 800 North Capitol Street, NW., suite 700, Washington, DC. This requirement is applicable on May 31, 1995, for new and re -built cable systems, and on June 30, 1997, for all cable systems. (2) The aural center frequency of the aural carrier must be 4.5 MHz +1- 5 kHz above the frequency of the visual carrier at the output of the modulating or processing equipment of a cable television system, and at the subscriber terminal. (3) The visual signal level, across a terminating impedance which correctly matches the internal impedance of the cable system as viewed from the subscriber terminal, shall not be Tess than 1 millivolt across an internal impedance of 75 ohms (0 dBmV). Additionally, as measured at the end of a 30 meter cable drop that is connected to the subscriber tap, it shall not be less than 1.41 millivolts across an internal impedance of 75 ohms (+3 dBmV). (At other impedance values, the minimum visual signal level, as viewed from the subscriber terminal, shall be the square root of 0.0133(z) millivolts and, as measured at the end of a 30 meter cable drop that is connected to the subscriber tap, shall be 2 times the square root of 0.00662(z) millivolts, where Z is the appropriate impedance value). (4) The visual signal level on each channel, as measured at the end of a 30 meter cable drop that is connected to the subscriber tap, shall not vary more than 8 decibels within any six-month interval which must include four tests performed in six -hour increments during a 24-hour period in July or August and during a 24-hour period in January or February, and shall be maintained within: (i) 3 decibels (dB) of the visual signal level of any visual carrier within a 6 MHz nominal frequency separation; (ii) 10 dB of the visual signal level on any other channel on a cable television system of up to 300 MHz of cable distribution system upper frequency limit, with a 1 dB increase for each , additional 100 MHz of cable distribution system upper frequency limit (e.g., 11 dB for a system at 301-400 MHz; 12 dB for a system at 401-500 MHz, etc.); and (iii) A maximum level such that signal degradation due to overload in the subscriber's receiver or terminal does not occur. (5) The rms voltage of the aural signal shall be maintained between 10 and 17 decibels below the associated visual signal level. This requirement must be met both at the subscriber terminal and • • at the outputs of the modulating and processing equipment (generally the headend). For subscriber terminals that use equipment which modulate and demodulate the signal (e.g., baseband converters), the rms.voltage of the aural signal shall be maintained between 6.5 and 17 decibels below the associated visual signal level at the subscriber terminal. (6) The amplitude characteristic shall be within a range of +/- 2 decibels from 0.75 MHz to 5.0 MHz above the lower boundary frequency of the cable television channel, referenced to the average of the highest and lowest amplitudes within these frequency boundaries. (i) Prior to December 30, 1999, the amplitude characteristic may be measured after a subscriber tap and before a converter that is provided and maintained by the cable operator. (ii) As of December 30, 1999, the amplitude characteristic shall be measured at the subscriber terminal. (7) The ratio of RF visual signal level to system noise shall be as follows: (i) From June 30, 1992, to June 30, 1993, shall not be less than 36 decibels. (ii) From June 30, 1993 to June 30, 1995, shall not be less than 40 decibels. (iii) As of June 30, 1995, shall not be less then 43 decibels. (iv) For class I cable television channels, the requirements of paragraphs (a)(7)(i), (a)(7)(ii) and (a)(7)(iii) of this section are applicable only to: (A) Each signal which is delivered by a cable television system to subscribers within the predicted Grade B contour for that signal; (B) Each signal which is first picked up within its predicted Grade B contour; (C) Each signal that is first received by the cable television system by direct video feed from a TV broadcast station, a low power TV station, or a TV translator station. (8) The ratio of visual signal level to the rms amplitude of any coherent disturbances such as intermodulation products, second and third order distortions or discrete -frequency interfering signals not operating on'proper offset assignments shall be as follows: (i) The ratio of visual signal level to coherent disturbances shall not be less than 51 decibels for noncoherent channel cable television systems, when measured with modulated carriers and time averaged; and (ii) The ratio of visual signal level to coherent disturbances which are frequency -coincident with the visual carrier shall not be less than 47 decibels for coherent channel cable systems, when measured with modulated carriers and time averaged. (9) The terminal isolation provided to each subscriber terminal: (i) Shall not be less than 18 decibels. In lieu of periodic testing, the cable operator may use specifications provided by the manufacturer for the terminal isolation equipment to meet this standard; and (ii) Shall be sufficient to prevent reflections caused by open -circuited or short-circuited subscriber terminals from producing visible picture impairments at any other subscriber terminal. (10) The peak -to -peak variation in visual signal level caused by undesired low frequency disturbances (hum or repetitive transients) generated within the system, or by inadequate low frequency response, shall not exceed 3 percent of the visual signal level. Measurements made on a single channel using a single unmodulated carrier may be used to demonstrate compliance with this parameter at each test location. (11) As of June 30, 1995, the following requirements apply to the performance of the cable television system as measured at the output of the modulating or processing equipment (generally the headend) of the system: (i) The chrominance-luminance delay inequality (or chroma delay), which is the change in delay time of the chrominance component of the signal relative to the luminance component, shall be within 170 nanoseconds. (ii) The differential gain for the color subcarrier of the television signal, which is measured as the difference in amplitude between the largest and smallest segments of the chrominance signal (divided by the largest and expressed in percent), shall not exceed +/- 20%. (iii) The differential phase for the color subcarrier of the television signal which is measured as the largest phase difference in degrees between each segment of the chrominance signal and reference segment (the segment at the blanking level of 0 IRE), shall not exceed +/-10 degrees. (12) As an exception to the general provision requiring measurements to be made at subscriber terminals, and without regard to the type of signals carried by the cable television system, signal leakage from a cable television system shall be measured in accordance with the procedures outlined in §76.609(h) and shall be limited as follows: Signal leakage Distance Frequencies limit (microvolts/ in meter) meters(m) Up to and include 54 MHz: 15 30 Over 54 up to and including 20 3 216 MHz: (b) Cable television systems distributing signals by using methods such as nonconventional coaxial cable techniques, noncoaxial copper cable techniques, specialized coaxial cable and fiber optical cable hybridization techniques or specialized compression techniques or specialized receiving devices, and which, because of their basic design, cannot comply with one or more of the technical standards set forth in paragraph (a) of this section, may be permitted to operate: Provided, that an adequate showing is made pursuant to §76.7 which establishes that the public interest is benefited. In such instances, the Commission may prescribe special technical requirements to ensure that subscribers to such systems are provided with an equivalent level of good quality service. Note 1: Local franchising authorities of systems serving fewer than 1000 subscribers may adopt standards Tess stringent than those in §76.605(a). Any such agreement shall be reduced to writing and be associated with the system's proof -of -performance records. Note 2: For systems serving rural areas as defined in §76.5, the system may negotiate with its local franchising authority for standards Tess stringent than those in §§76.605(a)(3), 76.605(a)(7), 76.605(a)(8), 76.605(a)(10) and 76.605(a)(11). Any such agreement shall be reduced to writing and be associated with the system's proof- of -performance records. Note 3: The requirements of this section shall not apply to devices subject to the provisions of §§15.601-15.626. Note 4: Should subscriber complaints arise from a system failing to meet §76.605(a)(6) prior to December 30, 1999, the cable operator will be required to provide a converter that will allow the system to meet the standard immediately at the complaining subscriber's terminal. Further, should the problem be found to be system -wide, the Commission may order all converters on the system be changed to meet the standard. Note 5: Should subscriber complaints arise from a system failing to meet §76.605(a)(10), the cable operator will be required to remedy the complaint and perform test measurements on §76.605(a)(10) containing the full number of channels as indicated in §76.601(c)(2) at the complaining subscriber's terminal. Further, should the problems be found to be system -wide, the Commission may order the full number of channels as indicated in §76.601(c)(2) be tested at all required locations for future proof -of -performance tests.