SEC Filings

S-4/A
TIME WARNER INC. filed this Form S-4/A on 03/24/2000
Entire Document
 
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used the derived valuation ranges to determine the implied exchange ratios. The
following are the three principal valuation methodologies used by Salomon Smith
Barney in this analysis:
 
  .  Public Market Valuation Analysis. A public market analysis reviews a
     business' operating performance and outlook relative to a group of
     publicly traded peer companies to determine an implied unaffected market
     trading valuation range.
 
  .  Private Market Valuation Analysis. A private market analysis provides a
     valuation range based upon financial information of companies involved
     in selected recent business combination transactions or in business
     combination transactions that have been publicly announced and which are
     in the same or similar industries as the business being valued.
 
  .  Discounted Cash Flow Analysis. A discounted cash flow analysis derives
     the intrinsic value of a business based on the net present value of the
     future free cash flow anticipated to be generated by the assets of the
     business.
   
   Salomon Smith Barney considered the values derived for various Time Warner
businesses from the public and private market valuations and the discounted
cash flow analyses under two scenarios. In the "100% Synergies" scenario,
Salomon Smith Barney included merger-related revenue enhancements and cost
savings, commonly referred to as "synergies", provided by the management of
America Online as well as tax savings estimated to be achieved through the
application by the combined company of existing and expected net operating
losses of America Online over five years. The synergies were discussed with
America Online and Time Warner managements, although Time Warner did not
participate in the quantification of the synergies. In the "No Synergies"
scenario, Salomon Smith Barney did not give effect to any synergies or to any
tax savings that may be achieved from the application of the net operating
losses. Salomon Smith Barney considered the values derived for various America
Online businesses from public market valuations and discounted cash flow
analyses. Salomon Smith Barney used the valuation ranges per share listed in
the table below in order to derive a range of implied exchange ratios for each
valuation methodology. Salomon Smith Barney calculated these valuation ranges
per share by dividing the aggregate equity values of Time Warner and America
Online derived as described under "Time Warner Valuation" and "America Online
Valuation" below by the respective number of each company's diluted shares
outstanding as of September 30, 1999.     
 

<TABLE>   
<CAPTION>
                                                           Low        High
                                                       ----------- -----------
Time Warner ("No Synergies" scenario)
-------------------------------------                  (per share) (per share)
<S>                                                    <C>         <C>
Public market value...................................   $69.58      $ 81.46
Private market value..................................    83.47        92.37
Discounted cash flow..................................    71.45        78.16
<CAPTION>
Time Warner ("100% Synergies" scenario)
---------------------------------------
<S>                                                    <C>         <C>
Public market value...................................   $90.85      $102.03
Private market value (does not reflect any synergy or
 tax savings).........................................    83.47        92.37
Discounted cash flow..................................    92.72        99.44
<CAPTION>
America Online
--------------
<S>                                                    <C>         <C>
Public market value...................................   $45.47      $136.28
Discounted cash flow..................................    50.93       107.24
Synergies.............................................   $20.22      $ 20.22
Net operating losses..................................   $ 1.05      $  1.05
</TABLE>
    
 
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