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DRAFT HBO Divestiture Opportunity
September 23, 2009
-- Confidential -- p. 2
Executive Summary
• SPE is revisiting its global channels portfolio and seeking to rebalance the mix towards channels that are majority controlled and consolidated
• There are two primary channel holdings that SPE anticipates recommending we sell to Time Warner, HBO Central Europe (CE) and HBO Latin America, with discussions active on both
• Studio investments in HBO CE and HBO Latin America was driven by a shared need for a pay outlet in each market that has now been met; operating benefits to SPE’s broader portfolio are expected to be achievable contractually rather than through minority equity stakes
• Sale of SPE’s stake in HBO CE and HBO Latin America is expected to occur at fair valuations, and at prices validated by Disney’s exit of each asset and market comps
• Proceeds from the sale of these channels would facilitate further investment in our majority owned and operated channel portfolio
-- Confidential -- p. 3
Executive Summary - continued
• At this time, SPE is formally submitting for consideration the sale of our 33.3% stake in HBO CE
• SPE believes Time Warner’s desire to consolidate HBO CE makes this the right time to monetize our investment, receive cash of $78MM, and recognize a gain of approximately $39MM– Presents an opportunity to exit a minority position at a full valuation– Time Warner is believed to have a “handshake” deal to buy Disney’s 33.3% stake in HBO CE; SPE’s options
are to exit, maintain a minority position with less board leverage, or exercise our preemptive right to buy-up and maintain equal ownership with Time Warner
• Transaction would be structured to protect SPE’s ongoing operating relationship with HBO in Central Europe
• SPE is requesting approval to execute and close the sale of its HBO CE stake– Closing within FY10 may require executed agreements in October due to potential for a regulatory review
and approval process of up to 6 months (SPE legal verifying timing)
• SPE is also requesting that approval for the sale of all or a portion of its 29.4% stake in HBO Latin America be delegated to Oneda-san, subject to our securing a minimum valuation of $680MM
– SPE is evaluating option to retain a roughly 10% stake in HBO Latin America– Transaction would generate a gain of $107-$162MM and cash of $132-200MM
-- Confidential -- p. 4
Overview of HBO Investments
Overview
Ownership
SPERelationship
• Programs, operates, and distributes HBO and Cinemax channels across Central Europe
• Programs, operates, and distributes HBO and Cinemax channels across Latin and South America
• 33.3% SPE• 33.3% Time Warner• 33.3% Disney
• 29.4% SPE• 58.8% Time Warner• 11.8% Ole Communications(note: Disney sold 29.4% stake to TW in 12/08)
• Distributes and provides services for SPE channels in region
• Licenses content from SPE
• Distributes and provides services for SPE channels in region
• Licenses content from SPE• SPE provides ad sales for HBO &
Cinemax channels in Brazil
-- Confidential -- p. 5
Overview of Time Warner / HBO
HBO Asia HBO Central Europe
HBO Latin America
• TW seeking to buy Disney and SPE stake and fully consolidate
• TW purchased Disney stake in 2008
• TW seeking to purchase SPE stake and fully consolidate
• TW purchased SPE stake in 2008
• TW purchased Universal share in 2008
Overview of Time Warner
• One of the world’s largest media and entertainment conglomerates
• Owns and operates significant channel, film, TV, publishing, and internet assets
• Wholly owns HBO in the U.S. with over 40MM paying subscribers
• Has equity interests in multiple HBO joint ventures around the world
Consolidation Activity / Rationale
• As a major channel operator with common interest in HBO brands across the globe, Time Warner is a likely eventual buyer
• Given that studios primarily invested in HBO channels to create an output for pay content in the regions, SPE, Disney and other content owners are ultimately likely sellers of their minority interests in HBO channels
• Time Warner has been and continues to seek opportunities to increase its ownership in HBO global channels with the goal of full consolidation
-- Confidential -- p. 6
HBO Central Europe
-- Confidential -- p. 7
HBO CE: Additional Background
Overview
Financial Highlights
SPERelationship
• Leading premium movie service in Central Europe• Operates in 12 countries with over 2.1MM paying subscribers• Operates and distributes 13 SD and 3 HD channels under the HBO and
Cinemax brands
• SPE has invested $25.8MM and received $41.3MM(1) in dividends to-date (additional $1.1MM in dividends anticipated in Sept/Oct 2009 with another special dividend to be negotiated)
• Channel has enjoyed double-digit revenue and EBIT growth over last 5 years• Management is forecasting $21MM in Operating Income for CY09 on $110MM
in revenue• Go-forward estimates assume continued growth in core business driven by
strong demand for U.S. content in the region
• HBO CE distributes SPE channel brands (AXN, AXN SciFi, AXN Crime) in Central Europe
– Provides network operations, sales & marketing, and other services– Channels reach 14MM households regionally
• HBO CE licenses approximately $8-9MM of programming annually from SPE(1) Includes $26.6MM in income associated with sale of Spektrum; excludes additional $1.1MM expected in Sept./Oct. 2009.
-- Confidential -- p. 8
HBO CE: Gain, Cash, and Ongoing EBIT Impact
• Valuation analysis includes:– Precedent transactions for minority HBO stakes– DCF of management forecast with assumed liquidity
discount– Trading comparables with assumed liquidity discount
• $234MM valuation is above the high-end of our valuation analysis
• SPE recommends closing the sale at this valuation
Valuation Consideration Gain & Cash Consideration
EBIT Impact
(1) Excludes potential benefit of special dividend; HBO CE will dividend excess cash of ~$10-20MM ($3-7MM to SPE) prior to close(2) FY09 EBIT includes $26.6MM in income from the sale of Spektrum(3) FY10 EBIT impact assumes a December 31, 2009 close(4) Excludes profits from HBO licensing of SPE content
($MM) HBO CE
Minimum Valuation $234.0
SPE Interest Sold 33.3%
Proceeds from Sale $78.0
Book Value of Amount Sold (1) $38.8 as of 12/31/09
Gain $39.2
($MM) FY09 (2) FY10 (3) FY11 FY12
No SaleSPE Share of HBO Net Income (4) $37.9 $6.0 $5.6 $5.8
If Sold
SPE Share of HBO Net Income (4) $37.9 $5.0 $0.0 $0.0
Sale Proceeds (1) $0.0 $39.2 $0.0 $0.0Total $37.9 $44.2 $0.0 $0.0
Variance $0.0 $38.1 ($5.6) ($5.8)
Based on Current Company Forecast
-- Confidential -- p. 9
HBO CE: Valuation Considerations
(1) Calculated Value Before Illiquidity Discount based on average of trailing and forward comps.(2) DCF valuation based on 2010-2013 forecast; assumes 8X terminal multiple applied to 2013 adjusted EBITDA (EBITDA less corporate
allocations) of $26.2MM and 10% discount rate.(3) For values where a liquidity discount is applied, Low applies 40% illiquidity discount to calculated value and High applies 30% illiquidity discount
to calculated value. For values where a liquidity discount is not applied, Low is the lesser of trailing and forward comps and High is the greater of trailing and forward comps
Values in $MM Calculated ApplyValue Before Additional
Illiquidity IlliquidityDiscount Discount Valuation Range
Low (3) High (3)
Precedent Transactions
Disney HBO LA Sale: Revenue Multiple (1) $234.7 Not Applicable $229.0 $240.4
Disney HBO LA Sale: EBITDA Multiple (1) $169.7 Not Applicable $163.0 $176.3
HBO Asia: Revenue Multiple (1) $183.6 Not Applicable $174.5 $192.7
HBO Asia: EBITDA Multiple (1) $214.5 Not Applicable $193.1 $235.9
DCF of 2009 Mgmt Forecast (2) $196.6 Yes $118.0 $137.6
Trading Comps
ProSieben: Revenue Multiple (1) $143.2 Yes $85.9 $100.2
ProSieben: EBITDA Multiple (1) $177.1 Yes $106.3 $124.0
Average $152.8 $172.4
-- Confidential -- p. 10
HBO CE: Historical Returns
A sale of our HBO CE stake at the proposed valuation will provide an attractive return
(1) Includes $26.6MM in income from the sale of Spektrum in FY09 and $1.1MM operating dividend expected in Sept./Oct. 2009(2) Excludes potential benefit of special dividend; HBO CE will dividend excess cash of ~$10-20MM ($3-7MM to SPE) prior to close(3) Excludes license fees for programming paid to SPE to-date
($MM)
Initial Investment ($21.7)(FY98 - FY00)
SPE Share of Operational Funding ($4.1)(FY99 - FY01)
Total Dividends Received by SPE $42.5 (1),(2)
(FY00 - FY10)
Sale to Time Warner $78.0(FY10)
Net Cash as of Close of Sale $94.8 (3)
IRR 17%
-- Confidential -- p. 11
HBO CE Sale: Risks and Mitigations
Risks Mitigations
• Ownership in HBO CE has provided a key platform for growing SPE’s owned and operated channels
• Contracts must be structured to avoid risks to ongoing relationships after the sale of our stake– HBO CE will continue to distribute SPE
channels– SPE will continue to seek licensing revenues
from HBO CE (currently ~$8-9MM annually)
• Deal may not close in FY10 due to time required for regulatory approvals– TW counsel believes approvals may require
up to 6 months (SPE independently verifying timing)
– Timing is not in SPE’s control
• Distribution and licensing relationships will be protected through long-term contracts– Deal extends our distribution services
agreement to 3/31/12 (currently expires 12/31/09) and provides SPE options to extend by up to 8 years
– Deal extends our existing license agreement to 12/31/13 (currently expires 12/31/11) and provides SPE a 4 year option to extend
• October close targeted to allow 5+ months within FY10 for regulatory approvals
-- Confidential -- p. 12
HBO CE: Next Steps
• Secure approvals
• Sign definitive agreements by mid October
• Regulatory review and approval process of up to 6 months (SPE legal is independently verifying)
• Close in February or March 2010, depending on regulatory approvals
-- Confidential -- p. 13
HBO Latin America
-- Confidential -- p. 14
HBO Latin America: Additional Background
Overview
Financial Highlights
SPERelationship
• Leading premium movie service in Latin America• Initially launched by Time Warner and local partner Ole Communications
– SPE invested in 1994; Disney invested in 1996 and sold in 2008
• Owns and operates HBO and Cinemax channels across the region, with 5.6MM HBO and 10MM Cinemax paying subscribers
• SPE has invested ~$63MM and received $116MM in dividends to-date• Estimating revenues of $340MM and Operating Income of $88MM in CY09• Forecasting strong growth through 2014 (7.8% revenue CAGR; 20% Operating
Income CAGR)
• HBO distributes SPE channel brands (SET, AXN, and Animax) in Latin America– Provides network operations and sales/marketing services– Channels reach nearly 30MM households regionally
• HBO licenses $40-50MM of programming annually from SPE in the region• SPE provides ad sales for HBO in Brazil
– Estimating $1.7MM in revenue to SPE in FYE 2010
-- Confidential -- p. 15
HBO Latin America: Gain, Cash, and Ongoing EBIT Impact
EBITImpact
($MM) Retain 10% Full Sale
Minimum Valuation $680.0 $680.0
SPE Interest Sold 19.4% 29.4%
Proceeds from Sale $131.9 $199.9
Book Value of Amount Sold $25.1 $38.1
Gain $106.8 $161.8
Note: Book value as of 12/31/09
Valuation Consideration Gain & Cash Consideration
• Valuation analysis includes– Precedent transactions for minority HBO stakes,
including Disney’s sale of its stake in HBO Latin America at a $680MM valuation
– DCF of management and adjusted management forecasts with assumed liquidity discount
– Trading comparables with assumed liquidity discount• $680MM is within the valuation range of our analysis• SPE seeks approval to close a sale at or above a $680MM
valuation subject to a final review with Oneda-san
(1) Includes $45MM in one time proceeds for SPE not to exercise its right to buy-up as part of the Disney/TW transaction
Actuals
($MM) FY09 (1) Retain 10% Full Sale FY11 FY12
Current MRPSPE Share of HBO Net Income $62.7 $15.0 $15.0 $15.4 $16.4
If SoldSPE Share of HBO Net Income $62.7 $10.3 $9.8 $0.0 $0.0Sale Proceeds $0.0 $108.0 $163.0
Total $62.7 $118.3 $172.8 $0.0 $0.0
Variance $0.0 $103.3 $157.8 ($15.4) ($16.4)
FYE10 Budget FY09 MRP
-- Confidential -- p. 16
HBO Latin America: Valuation Considerations
Values in $MM
(1) Calculated Value Before Illiquidity Discount based on average of trailing and forward comps.(2) DCF valuation assumes 8X terminal multiple applied to 2014 EBITDA (Mgmt Case: $182.5MM; Adjusted Mgmt Case $143.5MM).(3) For values where a liquidity discount is applied, Low applies 40% illiquidity discount to calculated value and High applies 30% illiquidity
discount to calculated value. For values where a liquidity discount is not applied, Low is the lesser of trailing and forward comps and High is the greater of trailing and forward comps.
(4) Disney Actual Value of Latin America Sale ($680) not included in calculation
Calculated ApplyValue Before Additional
Illiquidity IlliquidityDiscount Discount Valuation Range
Low (3) High (3)
Precedent Transactions
Disney Actual Value of Latin America Sale $680.0 Not Applicable $680.0 $680.0
Disney HBO LA Sale: Revenue Multiple (1) $722.4 Not Applicable $715.3 $729.4 Disney HBO LA Sale: EBITDA Multiple (1) $706.7 Not Applicable $670.6 $742.8
HBO Asia: Revenue Multiple (1) $565.1 Not Applicable $545.3 $585.0
HBO Asia: EBITDA Multiple (1) $891.9 Not Applicable $813.6 $970.3
DCFManagement Forecast (2) $1,259.8 Yes $755.9 $881.9
Adjusted Management Forecast (2) $1,013.3 Yes $608.0 $709.3
Trading CompsGrupo Televisa: Revenue Multiple (1) $947.1 Yes $568.3 $663.0
Grupo Televisa: EBITDA Multiple (1) $641.6 Yes $385.0 $449.1
Average (4) $632.7 $716.3
-- Confidential -- p. 17
HBO Latin America: Historical Returns
A sale of our HBO Latin America stake at the proposed valuation will provide an attractive return
(1) IRR if 10% stake retained would be 26.0% prior to sale of our remaining 10% and any future dividend(2) One time proceeds for SPE not to exercise its right to buy-up as part of the Disney/TW transaction(3) Excludes SPE license fees received from HBO Latin America to date
Assumes Sale ofEntire Stake (1)
($MM)
Acquisition of Equity by SPE ($45.0)(FY95-FY04)
SPE Share of Operational Funding ($17.6)(FY95-FY00)
Total Dividends Received by SPE $116.4(FY96-FY10)
Proceeds from Disney Buy-In $37.1(FY97-FY00)
Proceeds from TW/Disney Transaction $45.0 (2)
(FY09)
Sale to Time Warner $199.9(FY10)
Net Cash to Date $335.8 (3)
IRR 27.1%
-- Confidential -- p. 18
HBO Latin America Sale: Risks and Mitigations
Risks Mitigations
• HBO distributes SPE channels in region
• HBO licenses $40-50MM of content from SPE annually
• SPE provides ad sales for HBO channels in Brazil
Anticipated (subject to further negotiations)• If SPE retains an ownership interest
– Retain board seat with decreased governance– Receive a put on remaining stake– Extending license agreement for 6 years
(through 4/2014) plus 4 years at our option
• If SPE sells entire stake– SPE will have a long-term contractual
relationship for HBO to distribute our channels– Extending license agreement for 6 years
(through 4/2014) plus 4 years at our option
• Deal may be subject to potential regulatory approvals
– SPE legal independently reviewing what filings may be required , timing of filings (pre-close vs. post-close) and timing of approvals
– Timing is not in SPE’s control
• Plan to have deal done as quickly as possible to increase likelihood of closing in FY10
-- Confidential -- p. 19
HBO Latin America: Next Steps
• Seek approval to delegate decision to Oneda-san for a transaction valued at or above $680MM
• SPE legal to review regulatory approval requirements
• Finalize negotiation of key terms in late November
• Seek final approvals in December
• Sign and close by end of December
-- Confidential -- p. 20
Appendix – HBO CE
-- Confidential -- p. 21
HBO CE: Equity Build
As of 8/31/09
($000s)Initial Equity
Date Investment Cap Call Income Dividends Change
FY'98 $5,313 $0 ($2,300) $0 $3,013FY'99 $13,305 $2,001 ($2,800) $0 $12,506FY'00 $3,056 $2,010 ($3,900) ($100) $1,066FY'01 $0 $33 $1,300 ($356) $977FY'02 $0 $0 $3,300 ($1,333) $1,967FY'03 $0 $0 $0 ($1,000) ($1,000)FY'04 $0 $0 $2,300 ($1,000) $1,300FY'05 $0 $0 $1,601 ($2,000) ($399)FY'06 $0 $0 $2,391 ($1,500) $891FY'07 $0 $0 $3,930 ($3,499) $431FY'08 $0 $0 $6,879 ($2,000) $4,879FY'09 $0 $0 $37,893 ($26,387) $11,506FY'10 $0 $0 $3,771 ($2,200) $1,571
$21,674 $4,044 $54,365 ($41,375) $38,708
NOTE: Excludes $1.1MM in operating dividends expected in Sept./Oct. 2009 and potential dividend of $10-$20MM in excess cash ($3-$7MM to SPE) prior to close.
-- Confidential -- p. 22
HBO CE: P&L
(1) 2008 Additional Items includes $80.5MM for the sale of Spektrum. (2) Decline in CY09 revenues attributed to loss of operating revenue from Spektrum and weakening of local currencies against the USD
BudgetActuals Reforecast (2) Management Forecast
2005 2006 2007 2008 2009 2010 2011 2012 2013
Net Revenue $70.0 $79.0 $96.1 $117.9 $109.1 $120.5 $127.1 $132.5 $138.3Y/Y Growth 11% 13% 22% 23% -7% 10% 6% 4% 4%
ExpensesProgramming License Fees (21.8) (22.9) (25.9) (30.8) (39.7) (39.9) (42.8) (45.7) (48.0) Other Programming (4.2) (3.7) (4.7) (6.1) (5.9) (7.0) (7.3) (7.7) (8.1) Sales & Marketing (5.8) (8.5) (10.0) (9.3) (8.8) (10.7) (11.3) (11.2) (11.7) Network Operations (9.0) (8.7) (9.9) (10.6) (9.1) (9.0) (9.6) (9.8) (10.0) G&A / Staff (9.6) (8.8) (10.8) (12.9) (10.3) (13.8) (14.5) (15.2) (15.9) Other Expenses (1.6) (0.8) (0.8) (0.5) (0.7) (1.3) (0.9) (0.9) (1.4) Total Operating Expenses (52.1) (53.4) (62.0) (70.3) (74.5) (81.6) (86.3) (90.6) (95.2)
EBITDA $18.0 $25.5 $34.1 $47.6 $34.5 $38.8 $40.9 $41.9 $43.1Operating Margin 26% 32% 35% 40% 32% 32% 32% 32% 31%
Depreciation (1.2) (0.9) (1.1) (1.3) (1.1) (1.5) (1.9) (1.8) (1.8)
EBIT $16.8 $24.6 $33.0 $46.3 $33.4 $37.3 $39.0 $40.1 $41.4
Corporate Allocation (10.6) (11.4) (14.7) (16.5) (12.1) (16.2) (17.0) (17.0) (17.0)
Operating Profit (Loss) 6.2 13.2 18.4 29.8 21.3 21.1 22.0 23.2 24.4
Additional Items (1) (0.2) (1.6) (1.9) 80.5 (3.2) (4.3) (4.5) (4.7) (4.7)
Net Income (Loss) $6.0 $11.6 $16.5 $110.3 $18.1 $16.8 $17.5 $18.5 $19.7
Adjustments to NI (Depreciation, Bad Debt, FX gain) 3.3 3.8 4.3 4.3 4.3
Capex (3.8) (2.7) (4.2) (2.1) (2.1)
∆ Working Capital (13.5) (2.1) (2.4) (2.6) (2.8)
Operating Cash Flow $4.0 $15.9 $15.3 $18.0 $19.0
Values in $MM
-- Confidential -- p. 23
HBO CE: DCF Valuation
(1) DCF valuation assumes 8X terminal multiple applied to 2013 adjusted EBITDA of $26.2MM (EBITDA less corporate allocations).(2) At close HBO CE will have cash of roughly $20MM. As this is considered the necessary working capital it is not added back to the valuation.
Forecast Terminal Multiiple
2010 2011 2012 2013 $197 7X 8X 9X 10XOperating Cash Flow $15.9 $15.3 $18.0 $19.0 9.0% $184.6 $203.2 $221.7 $240.3Terminal Value at 8X (1) - - - $209.4 10.0% $178.7 $196.6 $214.5 $232.4Total $15.9 $15.3 $18.0 $228.4 11.0% $173.1 $190.3 $207.6 $224.8
12.0% $167.7 $184.3 $201.0 $217.6NPV at 10% DR $196.6
ADD: Excess Cash (2) - Enterprise Value $196.6
w/ 40% Illiquidity Discount $118.0w/ 30% Illiquidity Discount $137.6
Dis
cou
ntR
ate
Values in $MM
DCF Valuation
-- Confidential -- p. 24
HBO CE: Multiples-Based Valuation
(1) Based on market value of ProSieben as of 9/18/2009.(2) Based on valuation of $177MM in 2007 for SPE’s sale of HBO Asia; CY07/CY08 Revenue of $113.5/$109.4MM, EBITDA of $20.7/$17.0MM.(3) Based on a valuation of $680MM in 2008 for Disney’s sale; CY08/CY09 Revenue of $323.9/$340.8MM, EBITDA of $86.6/$94.6MM.(4) Implied HBO CE value based on adjusted EBITDA (EBITDA less corporate allocations).
Values in $MM
Multiples Based Valuation
Implied HBO CE ValueRevenue Multiple EBITDA Multiple Revenue EBITDA (4)
Trailing Forward Trailing Forward Trailing Forward Trailing Forward
HBO CE $109.1 $120.5 $22.5 $22.7
Trading Comps
ProSieben (1) 1.3X 1.2X 8.4X 7.3X $141.8 $144.6 $188.6 $165.6Average $143.2 $177.1w/ 40% Illiquidity Discount $85.9 $106.3w/ 30% Illiquidity Discount $100.2 $124.0
Precendent Transactions
HBO Asia (2) 1.6X 1.6X 8.6X 10.4X $174.5 $192.7 $193.1 $235.9Average $183.6 $214.5
HBO Latin America - Disney Sale (3) 2.1X 2.0X 7.9X 7.2X $229.0 $240.4 $176.3 $163.0Average $234.7 $169.7
-- Confidential -- p. 25
HBO CE: Balance SheetAS OF JULY 31, 2009
ASSETS (USD '000)
Current Assets
Cash $43.0
Trade Receivables, Net $27.6
Programming Inventory $13.1
Programming Prepayments $5.5
Other Current Assets $2.8
Total Current Assets $92.0
Non-Current Assets
Property, Plant, & Equipment, Net $6.2
Other Non-Current Assets $0.3
Total Non-Current Assets $6.6
Total Assets $98.5
LIABILITY & EQUITY (USD '000)
Current Liabilities
Accrued Liabilities $7.9
Programming Accruals $10.2
Accounts Payable $1.4
Programming Liability $2.1
Income Tax Liability $2.5
Other Current Liability $2.2
Total Current Liabilities $26.4
Long Term Liabilities -
Total Liabilities $26.4
Equity
Share Capital $56.5
Retained Earnings $14.3
Cumulative Translation Adjustment $1.3
Total Equity $72.2
Total Liabilities & Equity $98.5
In process of negotiating dividend of excess cash prior to close.
-- Confidential -- p. 26
Appendix – HBO Latin America
-- Confidential -- p. 27
HBO Latin America: Equity Build
As of 8/31/2009($000s)
Initial Inv Cap Call Disney Buy-In Other (1) Equity Income Dividends Change
FY'94 $0 $0 $0 $0 $0 $0 $0FY'95 $33,000 $2,597 $0 $0 $2,600 $0 $38,197FY'96 $0 $0 $0 $0 $6,143 ($4,183) $1,960FY'97 $0 $9,229 ($12,117) $7,200 $8,300 ($7,501) $5,111FY'98 $0 $2,507 $0 $0 $300 ($7,979) ($5,172)FY'99 $0 $0 ($12,374) $9,174 $2,100 ($5,405) ($6,505)FY'00 $0 $3,303 ($12,652) $9,462 $3,500 ($4,971) ($1,358)FY'01 $0 $0 $0 $5,333 $6,600 ($3,087) $8,846FY'02 $0 $0 $0 $0 $2,500 ($4,229) ($1,729)FY'03 $0 $0 $0 $5,366 $5,800 ($11,483) ($317)FY'04 $0 $0 $0 $1,341 $9,900 ($12,305) ($1,064)FY'05 $0 $0 $0 $0 $3,000 ($4,934) ($1,934)FY'06 $0 $0 $0 $0 $5,261 ($6,648) ($1,387)FY'07 $0 $0 $0 $0 $9,975 ($8,560) $1,415FY'08 $0 $0 $0 $0 $15,583 ($14,998) $585FY'09 $0 $0 $0 $0 $17,680 ($12,738) $4,942FY'10 $0 $0 $0 $0 $3,290 ($7,396) ($4,106)
$33,000 $17,636 ($37,143) $37,876 $102,532 ($116,417) $37,484
(1) Other values of $7.2MM(FY’97), $9.2MM(FY’99), and $9.5MM(FY’00) reflect the gain on investment from Disney’s buy-in; $5.3MM(FY’01), $5.4MM(FY’03), and $1.3MM(FY’04) represent payments to buyout TVA’s stake.
-- Confidential -- p. 28
HBO Latin America: P&L
NOTE: Free cash flow based on net income plus depreciation; diligence currently ongoing to determine more exact free cash flow forecast, however based on guidance for CAPEX and NWC not expected to be significantly different.
Actuals Re-Forecast ForecastValues in $MM 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenue $187.2 $222.9 $271.5 $323.9 $340.8 $365.6 $399.6 $434.2 $464.4 $496.1Y/Y Growth 19% 22% 19% 5% 7% 9% 9% 7% 7%
Operating Expenses:
Programming (81.2) (96.4) (109.3) (142.2) (150.7) (165.0) (175.1) (179.1) (191.3) (198.2) Cost of Licensing - - - (1.0) (2.5) (3.8) (3.8) (3.8) (3.8) (3.8) Sales (1.4) (1.6) (3.9) (4.1) (4.8) (9.0) (9.3) (5.8) (6.5) (7.5) Marketing (9.0) (12.3) (15.4) (16.8) (18.0) (20.0) (21.6) (23.2) (24.6) (25.9) Network Operation (11.5) (11.3) (10.8) (11.8) (11.5) (13.0) (13.0) (13.0) (11.0) (11.0) General & Administrative (7.5) (7.9) (9.1) (10.9) (10.3) (11.6) (12.3) (13.4) (14.5) (15.5) Bad Debt Expense 0.6 0.8 (0.1) (0.1) - - - - - - Staff Expenses (32.6) (36.5) (42.5) (50.0) (48.1) (49.7) (50.4) (51.7) (51.7) (51.7) Leasing Expenses (0.6) (0.4) (0.3) (0.4) (0.3) (0.2) (0.1) - - -
Total Operating Expenses (143.2) (165.6) (191.4) (237.3) (246.2) (272.3) (285.6) (290.0) (303.4) (313.6)
EBITDA $44.0 $57.3 $80.1 $86.6 $94.6 $93.3 $114.0 $144.2 $161.0 $182.5% of Revenue 24% 26% 30% 27% 28% 26% 29% 33% 35% 37%
Depreciation (7.4) (6.4) (5.8) (6.2) (7.0) (9.3) (9.0) (9.1) (8.6) (7.1) EBIT $36.6 $50.9 $74.3 $80.4 $87.6 $84.0 $105.0 $135.1 $152.4 $175.4
Other (Income) Expenses 1.8 3.1 4.9 1.2 1.3 1.3 1.3 1.3 1.3 1.3 EBT 38.4 54.0 79.2 81.6 88.9 85.3 106.3 136.4 153.7 176.7
VAT, Property, and other Taxes (1.9) (1.8) (2.7) (2.6) (2.2) (2.3) (2.4) (2.6) (2.7) (2.9) Codecine, W/H and Income (18.5) (25.0) (25.4) (34.8) (36.7) (32.6) (37.7) (41.5) (44.9) (48.3)
Net Profit or (Loss) $18.0 $27.2 $51.1 $44.2 $50.0 $50.4 $66.2 $92.3 $106.1 $125.5
% of Revenue 10% 12% 19% 14% 15% 14% 17% 21% 23% 25%
Operating Cash Flow $57.0 $59.7 $75.2 $101.4 $114.7 $132.6
-- Confidential -- p. 29
HBO Latin America: P&L Comparison
• Prior management forecast was provided in 2007• Management did not provide a forecast in 2008 as they were in negotiations with Disney• Current forecast assumes significant growth; we believe management estimates would be
heavily discounted by a 3rd party buyer
Although actual 2008 EBITDA outperformed 2007 Management Forecast by 35%; a 3rd party buyer would likely be skeptical of 2009 Forecast, which continues this trend at greater scale with 57%
over performance thru 2012
Values in $MM2007A/E (1) 2008A/E (1) 2009E 2010E 2011E 2012E
Revenue2009 Forecast $271.5 $323.9 $340.8 $365.6 $399.6 $434.22007 Forecast $252.5 $270.4 $292.0 $307.4 $330.7 $352.8% Difference 8% 20% 17% 19% 21% 23%
EBITDA2009 Forecast $80.1 $86.6 $94.6 $93.3 $114.0 $144.22007 Forecast $71.2 $64.0 $70.8 $75.5 $84.5 $91.9% Difference 13% 35% 34% 24% 35% 57%
Operating Cash Flow2009 Forecast $56.9 $50.4 $57.0 $59.7 $75.2 $101.42007 Forecast $45.7 $36.6 $37.8 $41.3 $47.9 $53.3% Difference 25% 38% 51% 45% 57% 90%
(1) 2007/2008 reflect actuals for 2009 Forecast and estimates for 2007 Forecast.
-- Confidential -- p. 30
HBO Latin America: DCF Valuation
Management Case
(1) DCF valuation assumes 8X terminal multiple applied to 2014 EBITDA (Mgmt Case: $182.5MM; Adjusted Mgmt Case $143.5MM).(2) Cash on the balance sheet considered necessary working capital and therefore is not added back to the valuation.
Values in $MM
Forecast Terminal Multiple 3 Year Forecast2010 2011 2012 2013 2014 ##### 6X 7X 8X 9X 10X
Operating Cash Flow $59.7 $75.2 $101.4 $114.7 $132.6 8.0% $1,120.0 $1,244.2 $1,368.4 $1,492.7 $1,616.9Terminal Value at 8X (1) - - - - $1,460.0 9.0% $1,075.5 $1,194.1 $1,312.7 $1,431.3 $1,549.9Subtotal $59.7 $75.2 $101.4 $114.7 $1,592.6 10.0% $1,033.2 $1,146.5 $1,259.8 $1,373.1 $1,486.5
11.0% $993.0 $1,101.3 $1,209.6 $1,318.0 $1,426.3NPV at 10% DR $1,259.8 12.0% $954.9 $1,058.4 $1,162.0 $1,265.6 $1,369.1ADD: Excess Cash (2) - 13.0% $918.6 $1,017.7 $1,116.7 $1,215.8 $1,314.9
14.0% $884.2 $978.9 $1,073.7 $1,168.5 $1,263.3Enterprise Value $1,259.8
w/ 40% Illiquidity Discount $755.9w/ 30% Illiquidity Discount $881.9
Dis
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Adjusted Management Case
Forecast Terminal Multiple 3 Year Forecast2010 2011 2012 2013 2014 ####### 6X 7X 8X 9X 10X
Operating Cash Flow $69.5 $73.5 $79.2 $86.1 $93.6 8.0% $903.4 $1,001.0 $1,098.7 $1,196.4 $1,294.1Terminal Value at 8X (1) - - - - $1,148.2 9.0% $868.4 $961.6 $1,054.9 $1,148.2 $1,241.5Subtotal $69.5 $73.5 $79.2 $86.1 $1,241.8 10.0% $835.1 $924.2 $1,013.3 $1,102.5 $1,191.6
11.0% $803.5 $888.7 $973.9 $1,059.1 $1,144.2NPV at 10% DR $1,013.3 12.0% $773.5 $855.0 $936.4 $1,017.8 $1,099.3ADD: Excess Cash (2) - 13.0% $745.0 $822.9 $900.8 $978.7 $1,056.6
14.0% $717.9 $792.4 $866.9 $941.5 $1,016.0Enterprise Value $1,013.3
w/ 40% Illiquidity Discount $608.0w/ 30% Illiquidity Discount $709.3
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• Assumes revenue and expense growth in-line with 2009 reforecast (5% and 4% respectively)• Yields 33% EBITDA margins in 2014 (vs. 37% in management case)
-- Confidential -- p. 31
HBO Latin America: Multiples-Based Valuation
Multiples Based Valuation
(1) Based on market value of Grupo Televisa (TV) as of 9/21/2009.(2) Based on valuation of $177MM in 2007 for SPE’s sale of HBO Asia; CY07/CY08 Revenue of $113.5/$109.4MM, EBITDA of $20.7/$17.0MM.(3) Based on a valuation of $680MM in 2008 for Disney’s sale; CY08/CY09 Revenue of $323.9/$340.8MM, EBITDA of $86.6/$94.6MM.
Values in $MM
Implied HBO Latin America ValueRevenue Multiple EBITDA Multiple Revenue EBITDATrailing Forward Trailing Forward Trailing Forward Trailing Forward
HBO Latin America $340.8 $365.6 $94.6 $93.3
Trading CompsGrupo Televisa (1) 2.8X 2.6X 7.1X 6.5X $944.0 $950.2 $672.3 $610.9
Average $947.1 $641.6w/ 40% Illiquidity Discount $568.3 $385.0w/ 30% Illiquidity Discount $663.0 $449.1
Precendent TransactionsHBO Asia (2) 1.6X 1.6X 8.6X 10.4X $545.3 $585.0 $813.6 $970.3
Average $565.1 $891.9
HBO Latin America - Disney Sale (3) 2.1X 2.0X 7.9X 7.2X $715.3 $729.4 $742.8 $670.6Average $722.4 $706.7
-- Confidential -- p. 32
HBO Latin America: Balance SheetAS OF JULY 31, 2009
ASSETS (USD '000)Current Assets
Cash $59.4Accounts Receivable $37.3Inventory $0.9
Total Current Assets $97.5Non-Current Assets
Property, Plant, & Equipment, Net $24.5Deferred Charge $14.1Investments in Related Companies $1.7
Total Non-Current Assets $40.3
Total Assets $137.9
LIABILITY & EQUITY (USD '000)Current Liabilities
Accounts Payable $2.9Accrued Expenses $21.0Taxes $2.7Programming $66.2Deferred Credit $3.1Partner's Accounts Payable $12.7Current Portion of Long Term Lease Liabil ity $2.1
Total Current Liabil ities $110.6Long Term Liabilities
Equipment Lease $3.0Deferred Compensation Liabil ity $0.9
Total Long Term Liabil ities $3.9
Total Liabilities $114.4Equity
Investment $51.5Net Cash Distribution ($28.0)Current Translation Adjustment ($0.1)
Total Equity $23.4
Total Liabilities & Equity $137.9