SEC Filings

TIME WARNER INC. filed this Form S-4/A on 03/24/2000
Entire Document
   Net Operating Losses. Based on management estimates of aggregate existing
and expected net operating losses of the combined company, assuming that these
net operating losses could be used without limitation through fiscal 2005, and
based upon a 35% federal tax rate and an 11% discount rate, Salomon Smith
Barney derived an implied present value of approximately $1.5 billion for the
tax savings estimated to be achieved from these net operating losses.
   Synergies. Salomon Smith Barney considered the value of the net synergies
related to the merger provided by the management of America Online. The
synergies were discussed with America Online and Time Warner managements,
although Time Warner did not participate in the quantification of the
synergies. The net synergies are estimated to increase EBITDA by $1 billion in
fiscal 2001. The estimates of synergies are based on numerous estimates,
assumptions and judgments and are subject to significant uncertainties. In
addition, the actual synergies realized in the merger may vary materially from
the estimates used in Salomon Smith Barney's analysis.
 America Online Valuation
   Public Market Analysis of America Online. Salomon Smith Barney reviewed and
compared various actual and forecasted financial, operating and stock market
information of the individual America Online businesses listed below,
collectively referred to as the "America Online businesses", with that of
various publicly traded companies in corresponding industries, which companies
Salomon Smith Barney believed are comparable in relevant respects to the
applicable America Online business:     
  .  internet access;
  .  online portals (advertising/e-commerce); and
  .  enterprise solutions.
   Salomon Smith Barney calculated various financial multiples for the America
Online businesses and for each of the applicable groups of comparable companies
including firm value to historical revenues and to estimated forward revenues.
Salomon Smith Barney then calculated, among other things, a range of estimated
Year 2000 revenue multiples, as summarized in the table below. For purposes of
calculating the implied value of the America Online businesses, Salomon Smith
Barney utilized these multiples. The multiple ranges for the comparable
companies that Salomon Smith Barney deemed relevant to this analysis are
summarized below.

                                                                Public Market
Business                                                      Revenue Multiples
--------                                                      -----------------
                                                                Low      High
                                                              -------- ---------
<S>                                                           <C>      <C>
Internet access..............................................     6.0x      8.0x
Online portals (advertising/e-commerce)......................    44.0x    171.0x
Enterprise solutions.........................................    13.0x     15.0x

   None of the comparable companies used in the public market valuation
analyses summarized above is identical to the applicable America Online
business. Accordingly, an examination of the results of the comparable
companies used in this analysis necessarily involved complex considerations of
the businesses and judgments concerning differences in financial and operating
characteristics and other factors that could affect the public trading values
or the acquisition values of these companies. In addition, Salomon Smith Barney
performed its analyses using published analyst reports for forecasted financial
and operating information, including EBITDA estimates for the comparable
companies. Actual results may vary from such estimates and the variations may
be material. Salomon Smith Barney takes no responsibility for any of the
published analyst reports.
   Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of America Online to estimate a range of intrinsic values of
America Online. Salomon Smith Barney applied a