“While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of Original programming, Emmy awards, and international members. It wouldn’t be surprising to us if HBO does their best work and achieves their highest growth over the next decade, spurred on by the Netflix competition and the Internet TV opportunity.” – Reed Hastings, April 2013 letter to shareholders February 28, 2014 Volume XL, Issue II SEARCHING FOR VALUE SINCE 1975 Page 1 UPDATE: Bed Bath & Beyond Inc. ($67.82) Bed Bath & Beyond Inc. is a major operator within the retail sector. BBBY operates roughly 1,500 stores and the firm generates annual revenue of over $10 billion. The stores are primarily located in the U.S., and consist of the following brands: Bed Bath & Beyond, Christmas Tree Shops, Harmon, buybuy BABY, and Cost Plus World Market. BBBY has achieved an impressive record of growth during its operating history, but the rate of expansion has moderated during recent years as the business has matured. A key driver of BBBY’s past success has been its coherent and well-executed strategy. Management utilizes an “everyday low price” philosophy to help maintain competitiveness. However, pricing is not the only means of differentiation at BBBY. The assortment and presentation of BBBY’s merchandise are unique factors not typically found at its competitors among both conventional and online players. Moreover, the firm’s emphasis on customer service is a key source of differentiation. The firm’s competitive position is further supported by a strong balance sheet (over $3 per share in net cash), and steady cash flow generation. Management has consistently exhibited a shareholder mindset via BBBY’s significant stock repurchase activity (shares outstanding down by 17% since 2011). Following a modest shortfall in earnings reported in early January, shares have declined about 15%. The negative sentiment toward the stock was exacerbated by a general aversion to retail stocks during early 2014. In our view, this recent pullback in BBBY shares has been unwarranted, and it offers an attractive buying opportunity for long-term investors. Assuming BBBY can eventually trade at 8.5x EV/EBITDA, and our FY 2015 projections are attainable, the stock’s intrinsic value should be at least $100 per share within the next 2-3 years. This estimate implies appreciation potential of 47% relative to the stock’s current price. Page 13 UPDATE: The Madison Square Garden Company ($57.01) While MSG’s shares have been a strong performer since its 2010 spinoff from Cablevision, we continue to believe the current valuation does not reflect its free cash flow generating abilities, further earnings improvement potential at its highly profitable RSNs (MSG & MSG+), long-term earnings visibility thanks to multi-year agreements (affiliate fees, sponsorships and corporate suites) and unique assets that would be nearly impossible to replicate. With MSG’s multi-year, $1 billion+ renovation of its eponymous arena now complete, MSG is on the cusp of experiencing a significant acceleration in free cash flow. Results at the MSG Media segment, which generates the vast majority of overall profitability, have been impressive with revenues and EBITDA increasing at an 11% and 23% CAGR, respectively, over the past 3.5 years with margins expanding by over 1,600 basis points. Despite these strong results, we see further improvement as affiliate fee agreements for the Company’s RSNs (MSG and MSG+) with distributors accounting for ~40% of its subscribers should come up for renewal over the next 2-3 years. Notably, based on our projections, the current market rate for affiliate fees is 10%-15% higher than what these distributors are currently paying. MSG’s Sports and Entertainment segments had been particularly impacted by the Garden’s renovation. However, we see improved prospects for both segments now that the transformation of the iconic arena is complete. Our estimate of the Company’s intrinsic value is $80, representing 41% upside from current levels. There are a number of items that could drive further upside including the deployment of its overcapitalized balance sheet ($155 million of cash and no debt) and growing stream of FCF towards shareholder friendly initiatives, monetization of its valuable air rights, or a going private offer by the Dolan Family Group. Page 33 UPDATE: Time Warner Inc. ($67.13) Time Warner’s stable of businesses include the leading film and TV production studio (Warner Bros.), the dominant premium pay TV network (HBO), a collection of top-10 cable networks (Turner Networks), and the largest domestic print magazine portfolio (Time Inc.). TWX shares have rallied 140% since AAF last profiled the Company in January 2011, reflecting double-digit annual EPS growth as well as improved investor sentiment. However, in our estimation TWX still trades at an unwarranted discount to peers considering its dominant franchises. The upcoming spinoff of Time Inc. could provide a catalyst for closing this discount by separating the un-loved, declining publishing business from TWX’s more attractive assets. Pro forma for the separation, TWX will generate approximately 80% of revenue from subscription and content sources. The Company will also generate close to 30% of revenue internationally. Management expects TWX to grow EPS by double-digits again in 2014, and the Company has a tremendous platform to continue that growth going forward. In our sum-of-the-parts analysis, we apply higher multiples to the premium HBO (12.5x 2016E OIBDA) and Turner Networks (11x) business units than to the low-growth Warner Bros. filmed entertainment division (10x) to derive an estimated intrinsic value of approximately $92 per share. Notably, these multiples still represent discounts to the divisions’ respective peers. Adding in Time Inc. at a discounted 6.5x 2013 OIBDA, TWX shares have 46% upside to our estimate of intrinsic value looking out over the next 2-3 years. In February 2014, TWX also began separately reporting results at HBO and Turner Networks. At the least, this could be a catalyst for investors to begin to properly ascribe a premium multiple to HBO. More optimistically, we would not dismiss the possibility that TWX eventually considers a separation of Turner and/or HBO. Absent further deconsolidation, TWX should continue to create shareholder value via aggressive return of capital. Published by: BOYAR'S INTRINSIC VALUE RESEARCH LLC 6 East 32nd St. 7th Floor New York, NY 10016 Tel: 212-995-8300 Fax: 212-995-5636 www.BoyarValueGroup.com Asset Analysis Focus is not an investment advisory bulletin, recommending the purchase or sale of any security. Rather it should be used as a guide in aiding the investment community to better understand the intrinsic worth of a corporation. The service is not intended to replace fundamental research, but should be used in conjunction with it. Additional information is available on request. The statistical and other information contained in this document has been obtained from official reports, current manuals and other sources which we believe reliable. While we cannot guarantee its entire accuracy or completeness, we believe it may be accepted as substantially correct. Boyar's Intrinsic Value Research LLC its officers, directors and employees may at times have a position in any security mentioned herein. Boyar's Intrinsic Value Research LLC Copyright 2014. This page intentionally left blank. February 28, 2014 Volume XL, Issue II Bed Bath & Beyond Inc. Nasdaq: BBBY Dow Jones Indus: 16,321.71 Initially Probed: Volume XXXVIII, Issue VII & VIII @ $69.77 S&P 500: 1,859.45 Last Probed: Volume XXXIX, Issue XI & XII @ $76.52 Russell 2000: 1,183.03 Trigger: No Index Component: S&P 500 Type of Situation: Business Value Price: $ 67.82 Shares Outstanding (MM): 209.7 Fully Diluted (MM): 212.3 (1.2%) Average Daily Volume (MM): 2.6 Market Cap (MM): $ 14.2 Enterprise Value (MM): $ 13.4 Percentage Closely Held: Insiders ~4% 52-Week High/Low: $ 80.82/56.37 5-Year High/Low: $ 80.82/19.52 Trailing Twelve Months Price/Earnings: 13.8x Overview Price/Stated Book Value: 3.4x Bed Bath & Beyond Inc. (“BBBY” or “the Net Cash & Investments (MM): $ 781 Company”) is a major operator within the retail sector. Upside to Estimate of BBBY operates roughly 1,500 stores and employs Intrinsic Value: 47% approximately 57,000 people throughout North America, and the firm generates annual revenue of over Dividend: $ NA $10 billion. The stores are primarily located in the U.S., Yield: NA and consist of the following brands: Bed Bath & Beyond, Christmas Tree Shops, Harmon, buybuy Net Revenue Per Share: BABY, and Cost Plus World Market. BBBY’s product LTM: $ 55.12 line includes a wide range of domestic merchandise 2012: $ 44.75 and home furnishings. Examples of BBBY’s product 2011: $ 38.95 assortment include bed linens, bath items, kitchen 2010: $ 33.93 textiles, tabletop items, basic housewares, and general home furnishings and consumables. Earnings Per Share: 2012: $ 4.56 A key driver of BBBY’s past success has been 2011: $ 4.06 its coherent and well-executed strategy. BBBY has 2010: $ 3.07 achieved an impressive record of growth during its operating history, but the rate of expansion has Fiscal Year Ends: February 28 moderated during recent years as the business has Company Address: 650 Liberty Avenue gained greater scale. Growth at BBBY has largely been Union, NJ 07083 driven by internal investment opportunities that have Telephone: 908-688-0888 been periodically supplemented by relatively small M&A CEO: Steven H. Temares transactions. Clients of Boyar Asset Management, Inc. own 33,250 shares of Bed The intense competition found within the retail Bath & Beyond Inc. common stock at a cost of $64.40 per share.