WMG Acquisition Corp. Reports Fiscal Second Quarter Ending March 31, 2005
Quarter Overview
- WMG Acquisition Corp. revenues grew 4.4% to $767 million, with both
Recorded Music and Music Publishing contributing to growth.
- Digital revenue of $35 million or 4.6% of total revenue contributed to
the growth. Digital revenue amounted to $25 million in the first fiscal
quarter of 2005 and $32 million for the full fiscal year 2004.
- Selling general and administrative expenses fell to 38.2% of revenue
compared to 43% last year, reflecting benefits of restructuring
initiatives.
- Operating income was $27 million, compared to an operating loss of $21
million for the same period last year.
- Overall operating income before depreciation and amortization (OIBDA)
was $88 million up 83.3% from $48 million last year. Excluding FAS 123
charges of $7 million, total OIBDA amounted to $95 million up 97.9% from
last year's comparable quarter.
- Cash balance as of March 31, 2005 amounted to $440 million.
WMG Acquisition Corp., a wholly owned subsidiary of Warner Music Group Corp. (WMG - News), today reported fiscal second quarter earnings for the period ended March 31, 2005. Warner Music Group Corp. second quarter earnings are required to be filed with the SEC by the end of June 2005. In 2004, Warner Music Group Corp. and its subsidiaries changed their fiscal year-end to September 30 from November 30. As such, WMG Acquisition Corp. restated prior quarters starting October 1, 2003, under the new fiscal-year format, to enhance comparability between periods.
WMG Acquisition Corp.'s quarterly revenue was $767 million, an increase of 4.4% or up 1.2% on a currency-adjusted basis, when compared to the three months ending March 2004. International revenue was approximately 53% of total revenue. Consolidated operating income was $27 million, up from a prior year loss of $21 million in last year's comparable quarter. The period-over-period operating income growth was driven by double-digit percentage increases from both Recorded Music and Music Publishing. Net loss in the quarter was $18 million, compared to the prior period loss of $45 million. WMG Acquisition Corp. also reported a cash balance as of March 31, 2005 of $440 million.
Recorded Music
Recorded Music revenue expanded by 4.9% to $621 million (up 1.9% currency adjusted), led by digital sales mostly offset by declines in physical sales. Major sellers in the quarter were Green Day, Michael Bublé, T.I., and Big & Rich. Recorded Music OIBDA grew to $72 million from $21 million in last year's comparable quarter and operating income was $30 million compared to a $23 million operating loss in last year's comparable quarter as benefits from the Atlantic Records restructuring initiative and higher margin digital products contributed to results. Recorded Music OIBDA margin rose to 11.6% versus 3.5% in last year's comparable quarter and operating income swung to positive $30 million from a $23 million loss in last year's comparable quarter.
Music Publishing
Music Publishing revenue climbed by 3.4% to $154 million, due mainly to a benefit from foreign currency exchange rates. Increases in performance and synchronization royalties were offset by overall declines in mechanical revenues. OIBDA improved to $47 million from $45 million, and operating income increased to $32 million from $24 million in last year's comparable quarter. Music Publishing OIBDA margin improved marginally, while operating income advanced 33.3% to $32 million.
About Warner Music Group
Warner Music Group, with its broad roster of new stars and legendary artists, is one of the world's major music companies. The company is home to a collection of some of the best-known record labels in the music industry including Atlantic, Bad Boy, Elektra, Lava, Maverick, Nonesuch, Reprise, Rhino, Sire, Warner Bros. and Word. Warner Music International, a leading company in national and international repertoire operates through 37 affiliates and numerous licensees in more than 50 countries. Warner Music Group also includes Warner/Chappell Music, a global music publisher, with a catalog of more than one million copyrights worldwide. For more information about Warner Music Group, visit our corporate website at www.wmg.com.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995:
This communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts" and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward- looking statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Figure 1. WMG Acquisition Corp. – Unaudited Consolidated Income
Statement, Three Months and Six Months Ended 3/31/05 versus 3/31/04
(dollars in millions)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2005 2004(a) 2005 2004(a)
Revenues: $ 767 $ 735 $ 1,855 $ 1,913
Costs and Expenses:
Cost of revenue (400) (388) (981) (1,036)
Selling, general and
administrative (293) (316) (624) (707)
Amortization of intangible assets (47) (52) (93) (112)
Impairment of goodwill and other
intangible assets - - - (1,019)
Restructuring costs - - - (8)
Total Costs and Expenses (740) (756) (1,698) (2,882)
Operating Income $ 27 $ (21) $ 157 $ (969)
Interest Expense (35) (9) (71) (12)
Net investment-related losses - - - (9)
Equity in losses of equity-method
investees - (3) (1) (12)
Deal-related and transaction costs - - - (63)
Other expense, net - - 4 (7)
Income (loss) before income taxes (8) (33) (89) (1,072)
Income tax expense (benefit) 10 12 42 119
Net income (loss) $ (18) $ (45) $ 47 $ (1,191)
(a) - The three month period ended March 31, 2004 is the
combination of the two months ended February 29, 2004 of the
predecessor company and one month ended March 31, 2004 of the
successor company. The six-month period ended March 31, 2004
is the combination of the five months ended February 29, 2004
of the predecessor company and one month ended March 31, 2004
of the successor company.
Figure 2. WMG Acquisition Corp. – Unaudited Segment Income Statement,
Three Months and Six Months Ended 3/31/05 versus 3/31/04
(dollars in millions)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2005 2004(a) 2005 2004(a)
Recorded Music:
Revenue $621 $592 $1,561 $1,620
OIBDA 72 21 266 158
Depreciation and (42) (44) (84) (99)
amortization
Impairment of goodwill and - - - (1,019)
other intangible assets
Operating Income 30 (23) 182 (960)
Music Publishing:
Revenue 154 149 309 308
OIBDA 47 45 71 72
Depreciation and (15) (21) (29) (42)
amortization
Operating Income 32 24 42 30
Total:
Revenue 767 735 1,855 1,913
OIBDA 88 48 278 199
OIBDA (excluding FAS 123 95 48 287 199
expense)
Depreciation and (68) (69) (130) (149)
amortization
Impairment of goodwill and - - - (1,019)
other intangible assets
Operating Income 27 (21) 157 (969)
(a) - The three month period ended March 31, 2004 is the combination of
the two months ended February 29, 2004 of the predecessor company and
one month ended March 31, 2004 of the successor company. The six-month
period ended March 31, 2004 is the combination of the five months ended
February 29, 2004 of the predecessor company and one month ended March 31,
2004 of the successor company.
Supplemental Disclosures Regarding Non-GAAP Financial Information
OIBDA
We evaluate our operating performance based on several factors, including
our primary financial measure of operating income (loss) before non-cash
depreciation of tangible assets, non-cash amortization of intangible assets
and non-cash impairment charges to reduce the carrying value of goodwill
and other intangible assets (which we refer to as "OIBDA"). We consider
OIBDA to be an important indicator of the operational strengths and
performance of our businesses, including the ability to provide cash flows
to service debt. However, a limitation of the use of OIBDA as a performance
measure is that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues in
our businesses. Accordingly, OIBDA should be considered in addition to, not
as a substitute for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with accounting
principles generally accepted in the U.S.
Figure 3. WMG Acquisition Corp. - OIBDA Reconciliation
(unaudited; dollars in millions)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2005 2004(a) 2005 2004(a)
OIBDA (excluding FAS 123 expense) $ 95 $ 48 $ 287 $ 199
FAS 123 expense 7 - 9 -
OIBDA 88 48 278 199
Depreciation expense (14) (17) (28) (37)
Amortization expense (47) (52) (93) (112)
Impairment of goodwill and other
intangible assets - - - (1,019)
Operating income (loss) 27 (21) 157 (969)
Interest expense (35) (9) (71) (12)
Net investment-related losses - - - (9)
Equity in losses of equity-method
investees - (3) (1) (12)
Deal-reltaed and transaction costs - - - (63)
Other expense, net - - 4 (7)
Income (loss) before income taxes (8) (33) 89 (1,072)
Income tax expense (benefit) 10 12 42 119
Net income (loss) $ (18) $ (45) $ 47 $ (1,191)
(a) - The three month period ended March 31, 2004 is the combination of
the two months ended February 29, 2004 of the predecessor company and
one month ended March 31, 2004 of the successor company. The six-month
period ended March 31, 2004 is the combination of the five months ended
February 29, 2004 of the predecessor company and one month ended March
31, 2004 of the successor company.