SEC Filings

S-4/A
TIME WARNER INC. filed this Form S-4/A on 03/24/2000
Entire Document
 
<PAGE>
 
terminal value multiple range of 40.0x to 80.0x to America Online's forecasted
EBITDA for calendar 2004. The unlevered free cash flows were then discounted to
present value using various discount rates ranging from of 14.0% to 16.0%.
 
   Contribution Analysis. Salomon Smith Barney performed an exchange ratio
analysis comparing the relative contributions of Time Warner and America Online
to the combined company. The following table displays each company's relative
contribution to the combined company's actual 1998 and estimated 1999, 2000 and
2001 revenues, EBITDA and net income, as well as the combined company's market
fully-diluted equity value as of January 7, 2000 and derived implied exchange
ratios from such relative contributions.
 

<TABLE>
<CAPTION>
                                          % Contribution
                                    -------------------------- Implied Exchange
                          Period    America Online Time Warner      Ratio
                       ------------ -------------- ----------- ----------------
<S>                    <C>          <C>            <C>         <C>
Revenues..............    1998A          11.2%        88.8%          12.6x
                          1999E          17.1         82.9            7.7
                          2000E          20.4         79.6            6.2
                          2001E          24.0         76.0            5.0
EBITDA................    1998A           9.0%        91.0%          16.0x
                          1999E          15.3         84.7            8.9
                          2000E          21.7         78.3            5.7
                          2001E          29.0         71.0            3.9
Net Income............    1998A            NM           NM             NM
                          1999E          45.4%        54.6%           2.2x
                          2000E          55.3         44.7            1.5
                          2001E          57.5         42.5            1.4
At Market............. Equity Value      67.6%        32.4%           0.9x
</TABLE>

 
   Pro Forma Earnings Per Share Impact to America Online. Salomon Smith Barney
reviewed certain pro forma financial effects of the merger on the estimated
earnings per share of America Online common stock. Using First Call estimates,
Salomon Smith Barney compared the earnings per share of America Online common
stock, on a stand-alone basis assuming the merger was not consummated to the
estimated earnings per share of America Online common stock following
consummation of the merger on a pro forma basis. Salomon Smith Barney's
analysis gave effect to the issuance of shares of AOL Time Warner common stock
to America Online and Time Warner stockholders pursuant to the merger agreement
and gave effect to the net estimated synergies. Based on such analysis, Salomon
Smith Barney determined that the merger would be: (a) dilutive to, or result in
a decrease in, the earnings per share of America Online common stock on a pro
forma basis by approximately 404.7% in calendar 2000 and approximately 267.0%
in calendar 2001 using First Call GAAP earnings per share estimates and (b)
accretive to, or result in an increase in, the earnings per share of America
Online common stock on a pro forma basis by approximately 63.6% in calendar
2000 and approximately 48.5% in calendar 2001 using cash earnings per share
estimates which are based on the First Call GAAP earnings per share estimates
and adding goodwill amortization per share.
 
   Other Analyses. Salomon Smith Barney conducted such other analyses as it
deemed necessary, including reviewing selected investment research reports on,
and earnings estimates for, America Online and Time Warner.
 
   Salomon Smith Barney is an internationally recognized investment banking
firm and was engaged as financial advisor to America Online in connection with
the merger because of its experience and expertise and its familiarity with
America Online. As part of its investment banking business, Salomon Smith
Barney is regularly engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
   
   Pursuant to the terms of an engagement letter dated January 9, 2000, America
Online agreed to pay Salomon Smith Barney a financial advisory fee of: $5
million upon the execution of the merger agreement;     
 
                                       46