NEW YORK (WMG PR) - Warner
Music Group (WMG) today announced financial results for the 10 month period ended
September 2004. The company is reporting results for a 10 month transition period due to the change in 2004 of its fiscal year end from November 30 to
September 30.
Highlights
Revenue for the period was $2.5 billion, up two percent from the 10 months ended September 2003. Operating income increased to $7 million from a loss of $197 million in the prior year period. Net loss improved to $136 million in 2004 from a net loss of $239 million in 2003. Operating income before depreciation and amortization, OIBDA, increased to $219 million from $75 million in the prior year. OIBDA includes certain restructuring and other one-time costs of $26 million in 2004 and $39 million in 2003. In fiscal year 2004, OIBDA replaced EBITDA as the Company's non-GAAP measure of financial performance.
"Warner Music Group has continued to make significant progress on a number of fronts since our last earnings announcement. The financial results reflect the continued successful implementation of the restructuring plan and the total commitment of our colleagues in positioning Warner Music Group for success in a changing market," said Edgar Bronfman, Jr., Chairman and CEO of Warner Music Group.
"Now that the lion's share of the restructuring has been completed, we can turn our entire focus to building and developing the company's roster of recording artists and songwriters."
The restructuring program remains ahead of schedule. Based on results to date, WMG forecasts at least $250 million of recurring annualized savings will be realized by the end of 2005. Annualized cost savings implemented through September 30, 2004 are approximately $240 million. Furthermore, the cost to implement the program is now projected between $225 million and $250 million, below the original budget of $310 million.
10 Months Ended September 2004
Total revenue was $2.5 billion for the 10 months ended September 2004, up two percent, from the same 10 month period in the prior year. Excluding favorable foreign exchange, total revenue declined 3% versus 2003. International revenue increased six percent compared with the prior year, while U.S. revenue was down slightly. Excluding favorable foreign exchange, international revenue declined four percent.
Worldwide recorded music revenue increased one percent versus the same 10 month period in the prior year to $2.06 billion. Excluding favorable foreign exchange, worldwide recorded music revenue decreased approximately four percent. The results were driven primarily by lower sales volume attributable to the timing and number of new releases as compared with the prior year. International recorded music revenue was $1.09 billion and increased five percent compared with the prior period. Excluding favorable foreign exchange, international recorded music revenue declined five percent. U.S. recorded music revenue declined approximately three percent to $977 million.
The company's major sellers in 2004 included albums by Josh Groban, Green Day, Big & Rich, Twista, Jet and Michael Buble, among others. Last year's major selling albums included multi-platinum hits from Linkin Park, Sean Paul, Madonna and Metallica.
Worldwide publishing revenue increased to $505 million for the 10 months ended September 2004, up eight percent versus 2003. Mechanical, performance and synchronization revenues all increased, while print revenue declined. Excluding favorable foreign exchange, worldwide publishing revenue increased one percent, driven principally by the U.S. market which grew four percent to $218 million. International publishing revenue increased 11 percent to $287 million. Excluding favorable foreign exchange, international music publishing revenue declined one percent.
OIBDA for the 10 month period ended September 30, 2004 was $219 million, compared with $75 million for the 10 month period last year. The increase in OIBDA was driven principally by cost savings associated with our restructuring program and lower manufacturing costs. After factoring in lower depreciation and amortization costs, operating income grew to $7 million for the 10 month period ended September 30, 2004, compared to a loss of $197 million in the comparable period of last year.
Net loss improved to $136 million for the 10 month period ended September 30, 2004, compared to a net loss of $239 million for the same 10 month period in the prior year. The improvement was due to the operating income gains mentioned above, offset in part by higher interest expense principally relating to acquisition-related debt.
Liquidity
Adjusted EBITDA, a measure calculated in accordance with the terms of the company's credit agreement, was $378 million on a rolling 12 month basis for the period ended September 30, 2004.
Cash flow from operations for the 10 months ended September 30, 2004 was $407 million and cash on hand as of September 30, 2004 was $555 million. As noted in the Company's October 4th press release, the Company returned $350 million of capital to its equity investors on September 30, 2004 as permitted by the Company's bond indenture and by an amendment to the Company's credit agreement. $342 million of the $350 million return of capital was paid subsequent to September 30, 2004 and reduced the cash position accordingly.
On December 6, 2004, we amended our senior secured credit facility to make certain changes. In particular, the changes:
- Allow WMG Holdings Corp., the direct parent of WMG Acquisition Corp., the issuer of our outstanding notes, to incur permitted indebtedness that accrues up to $35 million in cash interest in any fiscal year. Prior to the change, any permitted indebtedness incurred by Holdings was required to be pay-in-kind interest for at least the first five years.
- Remove a constraint based upon a maximum leverage ratio at WMG Acquisition Corp. that limited our ability to incur permitted indebtedness at Holdings.
- Adjust the method of calculating EBITDA (as defined in the credit agreement) when measuring the leverage ratio of Holdings so that it is consistent with the method of calculation used in the indenture for our notes. In order for Holdings to incur permitted indebtedness under the senior secured credit facility, it must show compliance with a leverage ratio test on a pro forma basis for the incurrence of such indebtedness.
Note to Financial Information
As a result of the change in accounting basis that occurred relating to Warner Music Group's acquisition from Time Warner Inc., financial information for the 10 month period is separated into pre-acquisition and post-acquisition periods. The attached selected financial information is, therefore, for the three month pre-acquisition period ended February 29, 2004 and the seven month post-acquisition period ended September 30, 2004.
The selected pro forma financial information for the 10 months ended September 2004 discussed above represents the mathematical addition of the three month pre-acquisition period ended February 29, 2004 and the seven month post-acquisition period ended September 30, 2004.
This approach is not consistent with GAAP, and may yield results that are not strictly comparable on a period-to-period basis primarily due to (i) the impact of required purchase accounting adjustments and (ii) the new basis of accounting established on the closing date of the acquisition. We believe this is the most meaningful way to present our results of operations. Such results are not necessarily indicative of what the results for the respective periods would have been had the acquisition not occurred. In order to enhance comparability, unaudited selected financial information for the comparable ten month period in the prior year is also attached. Based on how our closing schedule occurred in 2003, the selected financial information for the period ended September 30, 2003 consists of 43 weeks, as compared to 44 weeks contained in the ten month period ended September 30, 2004.
