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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-32502
| | |
Warner Music Group Corp. (Exact name of Registrant as specified in its charter)
|
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Delaware (State or other jurisdiction of incorporation or organization) | | 13-4271875 (I.R.S. Employer Identification No.) |
| 1633 Broadway New York, NY 10019 (Address of principal executive offices) (212) 275-2000 (Registrant’s telephone number, including area code) | |
___________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class (a) | | Trading Symbol(s) | | Name of each exchange on which registered |
None | | None | | None |
(a)There is no public market for the registrant’s common stock. As of May 7, 2020, the registrant had no shares of Class A common stock, par value $0.001 per share, and 510,000,000 shares of Class B common stock, par value $0.001 per share, outstanding. All of the registrant’s common stock is owned by affiliates of Access Industries, Inc. The registrant has filed all Exchange Act reports for the preceding 12 months.
WARNER MUSIC GROUP CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Warner Music Group Corp.
Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| (in millions, except share data) | | |
Assets | | | |
Current assets: | | | |
Cash and equivalents | $ | 484 | | | $ | 619 | |
Accounts receivable, net of allowances of $21 million and $17 million | 763 | | | 775 | |
Inventories | 65 | | | 74 | |
Royalty advances expected to be recouped within one year | 189 | | | 170 | |
Prepaid and other current assets | 82 | | | 53 | |
Total current assets | 1,583 | | | 1,691 | |
Royalty advances expected to be recouped after one year | 232 | | | 208 | |
Property, plant and equipment, net | 294 | | | 300 | |
Operating lease right-of-use assets, net | 281 | | | — | |
Goodwill | 1,761 | | | 1,761 | |
Intangible assets subject to amortization, net | 1,644 | | | 1,723 | |
Intangible assets not subject to amortization | 151 | | | 151 | |
Deferred tax assets, net | 55 | | | 38 | |
Other assets | 123 | | | 145 | |
Total assets | $ | 6,124 | | | $ | 6,017 | |
Liabilities and Deficit | | | |
Current liabilities: | | | |
Accounts payable | $ | 246 | | | $ | 260 | |
Accrued royalties | 1,591 | | | 1,567 | |
Accrued liabilities | 564 | | | 492 | |
Accrued interest | 34 | | | 34 | |
Operating lease liabilities, current | 39 | | | — | |
Deferred revenue | 167 | | | 180 | |
Other current liabilities | 91 | | | 286 | |
Total current liabilities | 2,732 | | | 2,819 | |
Long-term debt | 2,983 | | | 2,974 | |
Operating lease liabilities, noncurrent | 312 | | | — | |
Deferred tax liabilities, net | 154 | | | 172 | |
Other noncurrent liabilities | 228 | | | 321 | |
Total liabilities | $ | 6,409 | | | $ | 6,286 | |
Equity: | | | |
Common A stock ($0.001 par value; 1,000,000,000 shares authorized; 0 and 0 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively) | $ | — | | | $ | — | |
Common B stock ($0.001 par value; 1,000,000,000 shares authorized; 510,000,000 and 505,830,022 issued and outstanding as of March 31, 2020 and September 30, 2019, respectively) | 1 | | | 1 | |
Additional paid-in capital | 1,127 | | | 1,127 | |
Accumulated deficit | (1,166) | | | (1,177) | |
Accumulated other comprehensive loss, net | (268) | | | (240) | |
Total Warner Music Group Corp. deficit | | (306) | | | (289) | |
Noncontrolling interest | 21 | | | 20 | |
Total deficit | (285) | | | (269) | |
Total liabilities and deficit | $ | 6,124 | | | $ | 6,017 | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Operations (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in millions, except share and per share data) | | | | | | |
Revenue | $ | 1,071 | | | $ | 1,090 | | | $ | 2,327 | | | $ | 2,293 | |
Costs and expenses: | | | | | | | |
Cost of revenue | (535) | | | (559) | | | (1,200) | | | (1,185) | |
Selling, general and administrative expenses (a) | (538) | | | (354) | | | (917) | | | (730) | |
Amortization expense | (47) | | | (55) | | | (94) | | | (109) | |
Total costs and expenses | (1,120) | | | (968) | | | (2,211) | | | (2,024) | |
Operating (loss) income | | (49) | | | 122 | | | 116 | | | 269 | |
Loss on extinguishment of debt | — | | | — | | | — | | | (3) | |
Interest expense, net | (33) | | | (36) | | | (66) | | | (72) | |
Other (expense) income | | (4) | | | 29 | | | (9) | | | 57 | |
(Loss) income before income taxes | | (86) | | | 115 | | | 41 | | | 251 | |
Income tax benefit (expense) | | 12 | | | (48) | | | 7 | | | (98) | |
Net (loss) income | | (74) | | | 67 | | | 48 | | | 153 | |
Less: Income attributable to noncontrolling interest | — | | | — | | | (2) | | | — | |
Net (loss) income attributable to Warner Music Group Corp. | | $ | (74) | | | $ | 67 | | | $ | 46 | | | $ | 153 | |
| | | | | | | |
(a) Includes depreciation expense: | $ | (14) | | | $ | (14) | | | $ | (38) | | | $ | (28) | |
| | | | | | | |
Net (loss) income per share attributable to Warner Music Group Corp.’s stockholders: | | | | | | | |
Basic and Diluted | $ | (0.15) | | | $ | 0.13 | | | | $ | 0.09 | | | $ | 0.30 | |
Weighted average common shares: | | | | | | | | | | | |
Basic and Diluted | 501,991,944 | | | 501,991,944 | | | | 501,991,944 | | 501,991,944 |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in millions) | | | | | | |
Net (loss) income | $ | (74) | | | $ | 67 | | | $ | 48 | | | $ | 153 | |
Other comprehensive loss, net of tax: | | | | | | | |
Foreign currency adjustment | (15) | | | (10) | | | (8) | | | (26) | |
Deferred loss on derivative financial instruments | (23) | | | (3) | | | (20) | | | (9) | |
Other comprehensive loss, net of tax | (38) | | | (13) | | | (28) | | | (35) | |
Total comprehensive (loss) income | (112) | | | 54 | | | 20 | | | 118 | |
Less: Income attributable to noncontrolling interest | — | | | — | | | (2) | | | — | |
Comprehensive (loss) income attributable to Warner Music Group Corp. | $ | (112) | | | $ | 54 | | | $ | 18 | | | $ | 118 | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | |
| Six Months Ended March 31, | | |
| 2020 | | 2019 |
| (in millions) | | |
Cash flows from operating activities | | | |
Net income | | $ | 48 | | | $ | 153 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 132 | | | 137 | |
Unrealized gains and remeasurement of foreign-denominated loans and foreign currency forward exchange contracts | (7) | | | (24) | |
Deferred income taxes | (31) | | | 27 | |
Loss on extinguishment of debt | — | | | 3 | |
Net loss (gain) on divestitures and investments | 15 | | | (32) | |
Non-cash interest expense | 3 | | | 3 | |
Equity-based compensation expense | 160 | | | 14 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | 6 | | | (90) | |
Inventories | 9 | | | 13 | |
Royalty advances | (47) | | | (61) | |
Accounts payable and accrued liabilities | (109) | | | (100) | |
Royalty payables | 38 | | | 46 | |
Accrued interest | — | | | 1 | |
Operating lease liabilities | (2) | | | — | |
Deferred revenue | (14) | | | (19) | |
Other balance sheet changes | (37) | | | 28 | |
Net cash provided by operating activities | 164 | | | 99 | |
Cash flows from investing activities | | | |
Acquisition of music publishing rights and music catalogs, net | (18) | | | (16) | |
Capital expenditures | (28) | | | (59) | |
Investments and acquisitions of businesses, net of cash received | (5) | | | (218) | |
| | | |
Net cash used in investing activities | (51) | | | (293) | |
Cash flows from financing activities | | | |
Proceeds from issuance of Acquisition Corp. 3.625% Senior Secured Notes | — | | | 287 | |
Repayment of Acquisition Corp. 4.125% Senior Secured Notes | — | | | (40) | |
Repayment of Acquisition Corp. 4.875% Senior Secured Notes | — | | | (30) | |
Repayment of Acquisition Corp. 5.625% Senior Secured Notes | — | | | (27) | |
Call premiums paid and deposit on early redemption of debt | — | | | (2) | |
Deferred financing costs paid | — | | | (4) | |
Distribution to noncontrolling interest holder | (1) | | | (2) | |
Dividends paid | (244) | | | (31) | |
Net cash (used in) provided by financing activities | (245) | | | 151 | |
Effect of exchange rate changes on cash and equivalents | (3) | | | (1) | |
Net decrease in cash and equivalents | | (135) | | | (44) | |
Cash and equivalents at beginning of period | 619 | | | 514 | |
Cash and equivalents at end of period | $ | 484 | | | $ | 470 | |
See accompanying notes
Warner Music Group Corp.
Consolidated Statements of Deficit (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | | | Class B Common Stock | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Warner Music Group Corp. Deficit | | Noncontrolling Interest | | Total Deficit |
| | | | | | | | | | | | | | | | | | | |
| Shares | | Value | | Shares | | Value | | | | | | | | | | | | |
| (in millions, except share and per share data) | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2019 | — | | | $ | — | | | 505,830,022 | | | $ | 1 | | | $ | 1,127 | | | $ | (1,177) | | | $ | (240) | | | $ | (289) | | | $ | 20 | | | $ | (269) | |
Cumulative effect of ASC 842 adoption | — | | | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | | | — | | | 7 | |
Cumulative effect of ASC 718 accounting policy change | — | | | — | | | — | | | — | | | — | | | 33 | | | — | | | 33 | | | — | | | 33 | |
Net income | — | | | — | | | — | | | — | | | — | | | 46 | | | — | | | 46 | | | 2 | | | 48 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (28) | | | (28) | | | — | | | (28) | |
Dividends ($0.15 per share) | — | | | — | | | — | | | — | | | — | | | (75) | | | — | | | (75) | | | — | | | (75) | |
Distribution to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other | — | | | — | | | 4,169,978 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at March 31, 2020 | — | | | $ | — | | | 510,000,000 | | | $ | 1 | | | $ | 1,127 | | | $ | (1,166) | | | $ | (268) | | | $ | (306) | | | $ | 21 | | | $ | (285) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | | | Class B Common Stock | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Warner Music Group Corp. Deficit | | Noncontrolling Interest | | Total Deficit |
| | | | | | | | | | | | | | | | | | | |
| Shares | | Value | | Shares | | Value | | | | | | | | | | | | |
| (in millions, except share and per share data) | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 | — | | | $ | — | | | 510,000,000 | | | $ | 1 | | | $ | 1,127 | | | $ | (1,088) | | | $ | (230) | | | $ | (190) | | | $ | 21 | | | $ | (169) | |
| | | | | | | | | | | | | | | | | | | |
Cumulative effect of ASC 718 accounting policy change | — | | | — | | | — | | | — | | | — | | | 33 | | | — | | | 33 | | | — | | | 33 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (74) | | | — | | | (74) | | | — | | | (74) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | | | — | | | (38) | |
Dividends ($0.07 per share) | — | | | — | | | — | | | — | | | — | | | (37) | | | — | | | (37) | | | — | | | (37) | |
Distribution to noncontrolling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at March 31, 2020 | — | | | $ | — | | | 510,000,000 | | | $ | 1 | | | $ | 1,127 | | | $ | (1,166) | | | $ | (268) | | | $ | (306) | | | $ | 21 | | | $ | (285) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | | | Class B Common Stock | | | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Warner Music Group Corp. Deficit | | Noncontrolling Interest | | Total Deficit |
| | | | | | | | | | | | | | | | | | | |
| Shares | | Value | | Shares | | Value | | | | | | | | | | | | |
| (in millions, except share and per share data) | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2018 | — | | | $ | — | | | 501,991,944 | | | $ | 1 | | | $ | 1,127 | | | $ | (1,272) | | | $ | (190) | | | $ | (334) | | | $ | 14 | | | $ | (320) | |
Cumulative effect of ASC 606 adoption | — | | | — | | | — | | | — | | | — | | | 139 | | | — | | |