1984 Magazines Revenues OpIncome Identifiable assets ROIA (OpInc/Identifiable Assets) ROS (OpInc/Revenues) Books Revenues OpIncome Identifiable assets ROIA (OpInc/Identifiable Assets) ROS (OpInc/Revenues) Programming Revenues OpIncome Identifiable assets ROIA (OpInc/Identifiable Assets) ROS (OpInc/Revenues) Cable Television Revenues OpIncome Identifiable assets ROIA (OpInc/Identifiable Assets) ROS (OpInc/Revenues) Consolidated Revenues OpIncome Identifiable assets ROIA (OpInc/Identifiable Assets) ROS (OpInc/Revenues) 1,321 180 212 85% 14%
1985 1,482 155 582 27% 10%
1986 1,576 153 663 23% 10%
491 60 278 22% 12%
552 83 468 18% 15%
663 73 1,151 6% 11%
810 124 481 26% 15%
854 115 665 17% 13%
952 99 824 12% 10%
510 86 976 9% 17%
584 100 1,024 10% 17%
637 130 1,107 12% 20%
3,067 391 2,615 15% 13%
3,404 388 3,072 13% 11%
3,762 308 4,230 7% 8%
1987 1,621 276 694 40% 17%
1988 1,752 279 923 30% 16%
954 85 1,158 7% 9%
891 100 1,225 8% 11%
971 116 1,054 11% 12%
1,122 136 1,095 12% 12%
714 162 1,195 14% 23%
812 180 1,505 12% 22%
4,193 582 4,424 13% 14%
4,507 653 4,913 13% 14%
Time Assets Current assets Cash & equivalents Receiveables Inventories Prepaid programming Prepaid promotion Other Total CA Investments Net PP&E Goodwill and intangible assets Deferred charges and other assets Programming and other assets Total Assets Liabilities and SE AP & accrued expenses Other Total CL Unearned portion of paid subscriptions LT Debt Deferred income taxes Other liabilities AP due after one year Total S.E. Total Liability and S.E.
Warner
121 506 299 190 205 1,321 740 1,399 986 467 4,913 734 171 905 424 1,485 511 229 1,359 4,913
229 940 459
141 1,769 999 688 1,143 4,599 1,489 44 1,533 721
552 1,793 4,599
Paramount
616 668 416
447 2,147 414
2,817 5,378 964 117 1,081 1,390 641 2,266 5,378
Time Times interest earned Debt ratio Market to book Market value of equity Stock Price June 6, 1989 52 Weeks Beta Debt rating 8.5 0.17 5.3 7,250 126 135.5 v. 93 1 Aa3
Warner 29.0 0.07 5.2 9,579 51 52.75 v. 32 3/8 1.2 A3
Paramount 7.3 0.18 2.8 6,332 54 56.5 v. 37 1/8 1.1 A2
1984 Filmed Entertainment Revenues OpIncome Identifiable Assets ROIA (OpIncome/Identifiable Assets) ROS (OpIncome/Revenue) Music Revenues OpIncome Identifiable Assets ROIA (OpIncome/Identifiable Assets) ROS (OpIncome/Revenue) Cable TV Revenues OpIncome Identifiable Assets ROIA (OpIncome/Identifiable Assets) ROS (OpIncome/Revenue) Publishing Revenues OpIncome Identifiable Assets ROIA (OpIncome/Identifiable Assets) ROS (OpIncome/Revenue) Lorimar Revenues OpIncome ROS (OpIncome/Revenue) Consolidated Revenues EBIT Interest expense, net Gain on sale of subs. Profit before tax Profit after tax
1985
1986
1987
1,090 150 779 19% 14%
1,201 160 950 17% 13%
1,251 172 1,077 16% 14%
1,355 176 1,193 15% 13%
818 90 384 23% 11%
912 112 398 28% 12%
1,139 151 453 33% 13%
1,530 213 998 21% 14%
363 -106 213 -50% -29%
296 -9 300 -3% -3%
326 16 753 2% 5%
387 42 794 5% 11%
115 11 27 41% 10%
122 14 50 28% 11%
133 12 55 22% 9%
130 11 59 19% 8%
334 150 45%
466 67 14%
571 36 6%
637 -39 -6%
2,023 208 139 -611 69 -590
2,235 252 59 208 401 195
2,848 312 55 62 319 252
3,404 399 20 40 419 328
1988
1,571 207 1,536 13% 13%
2,040 319 1,290 25% 16%
456 72 994 7% 16%
139 11 98 11% 8%
525 -362 -69%
4,206 531 26 35 541 423
1984 Entertainment Revenues OpIncome ROS (OpIncome/Revenue) Publishing/Information Revenues OpIncome ROS (OpIncome/Revenue) Consumer/Commercial Finance Revenues OpIncome ROS (OpIncome/Revenue) Consolidated Revenues OpIncome Interest and other EBIT Provision for Income Tax Earnings before extraordinary items Extraordinary items Earnings from discontinued ops Net earnings ROS (OpIncome/Revenue) Identifiable assets ROIA (OpIncome/Identifiable Assets 1,266 109 9%
1985 1,063 69 6%
1986 1,154 129 11%
1987 1,850 297 16%
317 44 14%
798 104 13%
949 141 15%
1,074 162 15%
1,236 188 15%
1,460 251 17%
1,687 290 17%
1,778 324 18%
2,819 283 -68 215 76 139 0 99 238 10% 4,203 7%
3,321 358 -122 236 84 152 0 96 248 11% 4,064 9%
3,790 496 -110 386 158 228 39 0 267 13% 4,243 12%
4,702 722 -114 608 253 355 0 0 355 15% 4,928 15%
1988 1,862 252 14%
1,194 180 15%
2,052 372 18%
5,108 748 -107 641 256 385 0 0 385 15% 5,378 14%
interest rate
13% 1989 1990 118.60 307.60 151.50 8.80 67.50 654.00 578.76 1991 139.70 324.20 181.50 8.90 85.00 739.30 578.98 1992 164.80 343.20 205.80 9.50 124.70 848.00 587.71 1993 180.10 354.40 233.70 10.10 137.20 915.50 561.49 1994 196.20 392.70 266.70 10.80 137.40 1,003.80 544.82
Filmed entertainment Music/Music Publishing Cable TV Publishing Lorimar Total PV of Cash Flows Total PV of Cash Flows
104.00 307.50 42.10 15.20 14.00 482.80 482.80 5,264.50
35%
13%
15%
8%
10%
(based on Wasserstein Parella & Co. Estimates
Warner FCF growth rates (1989
40%
35% 30% 25% 20% 15% 10%
5%
0% 1990 1991 1992 1993 1994
1995 213.70 432.50 298.80 11.60 96.50 1,053.10 505.82
1996 232.90 475.10 327.60 12.40 106.20 1,154.20 490.60
1997 253.80 522.00 355.70 13.30 116.80 1,261.60 474.56
1998 276.50 573.50 386.00 14.20 128.50 1,378.70 458.95
5%
10%
9%
9%
rowth rates (1989-1998)
n Parella & Co. Estimates - Exhibit 8A)
1994
1995
1996
1997
1998
Discount Rate 13% PV of CF PV of TV TV (1) 1998 FCF implied stable growth rate at perpetuity (3) EBIT (4) Implied EBIT multiple for the firm (5)
(2)
Termninal EBIT Multiples 9x 10x 11x 5,265 6,424 11,689 21,807 1,379 6.68% 714 16.38 5,265 7,138 12,403 24,230 1,379 7.31% 714 17.38 5,265 7,852 13,117 26,654 1,379 7.83% 714 18.38
12x 5,265 8,565 13,830 29,074 1,379 8.26% 714 19.38
(1) Calculated by finding the future value of TV (2) Taken from Exhibit 8A (3) Calculated by using the formula: Terminal Value = (1998 FCF)/(r-g), where r and g are discount and growth rates respect
g are discount and growth rates respectively.
Value of firm Adjustments Add: Investments Cash and equivalents Overfunded pension Less: ST debt LT debt Corporate overhead Total net adjustments Value of equity Share of outstanding (fully diluted) Value per share Value per share
11,689
13,116
1,337.5 320.3 26.3 32.2 1,230.3 350.0 71.6 11,760 183.5 64.09 64.08 13,188
71.87 71.86