News Column

Warner Music Group Corp. Reports Results for the Fiscal Fourth Quarter and Full Year Ended September 30, 2012

Dec 13 2012 12:00AM

Marketwire

LogoTracker

NEW YORK, NY -- (Marketwire) -- 12/13/12 --


Both physical and digital Recorded Music revenue grew in the quarterDigital Recorded Music revenue growth more than offset physical decline in the fiscal yearAdjusted OIBDA and Adjusted OIBDA margin expanded in the quarter and fiscal yearPositive Free Cash Flow of $80 million for the quarter and $151 million for the fiscal year

Warner Music Group Corp. today announced its fourth-quarter and full-year financial results for the period ended September 30, 2012.

"We had a very productive year. Warner Music Group performed well and is positioned to capitalize on the industry's more stable recent trends," said Stephen Cooper, Warner Music Group's CEO. "Among our important achievements, we grew global digital and physical Recorded Music sales on an aggregate basis, for the quarter and the fiscal year."

"We improved Free Cash Flow significantly for both the quarter and the full fiscal year, and we nearly doubled our cash balance to $302 million at September 30th -- up by $148 million for the fiscal year," added Brian Roberts, Warner Music Group's Executive Vice President and CFO.

Total WMG


Total WMG Summary Results--------------------------------------------------------------------------(dollars in millions) For the For the For the For the Three Three Twelve Twelve Months Months Months Months ended ended ended ended September September % September September % 30, 2012 30, 2011 Change 30, 2012 30, 2011 Change ----------- ----------- ------ ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Revenue $ 731 $ 718 2% $ 2,780 $ 2,867 (3%)Digital Revenue 241 210 15% 925 820 13%Operating income (loss) 41 (21) - 109 32 241%Adjusted operating income (loss) (1) 49 40 23% 124 100 24%OIBDA(1) 103 41 151% 353 290 22%Adjusted OIBDA(1) 111 102 9% 368 358 3%Net loss attributable to Warner Music Group Corp. (18) (103) 83% (112) (205) 45%Adjusted net loss attributable to Warner Music Group Corp.(1)$ (10) $ (42) 76% $ (97) $ (137) 29%--------------------------------------------------------------------------(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.




Fourth-Quarter Results
For the quarter, revenue grew 1.8%, and 7.3% in constant-currency, as physical Recorded Music revenue and total digital revenue both grew, helped by a more robust release schedule. Constant-currency revenue growth in Japan, Germany, Italy and the U.S. was partially offset by weakness in France related to the company's concert promotion business, and declines in Latin America, Spain and the U.K. Digital revenue grew 14.8%, or 18.1% in constant-currency, and digital revenue represented 33.0% of total revenue for the quarter, compared to 29.2% in the prior-year quarter. The growth in digital revenue reflects growth in subscription/streaming services and global downloads.

Adjusted operating margin expanded 1.1 percentage points to 6.7% from 5.6%. Adjusted OIBDA grew 8.8% and Adjusted OIBDA margin expanded 1.0 percentage point to 15.2% from 14.2%. The growth in Adjusted OIBDA margin was related to the continued shift to digital in the company's Recorded Music business as well as the decline in lower-margin European concert promotion revenue. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA for the quarter included $14 million of severance charges ($11 million in Recorded Music, $2 million in Music Publishing and $1 million in Corporate) compared to $10 million of severance charges in the prior-year quarter ($7 million in Recorded Music and $3 million in Corporate) (the "Quarterly Severance Charges"). See below for calculations and reconciliations of OIBDA, Adjusted Operating Income and Adjusted OIBDA.

Adjusted net loss reflects the impact of a decline in interest expense, to $56 million from $72 million, related to the July 2011 refinancing of certain existing indebtedness in connection with the acquisition of the company by Access Industries. The refinancing in the prior-year quarter resulted in $19 million in tender/call premiums and $15 million of accrued interest paid in connection with the debt obligations repaid in full. See below for calculations and reconciliations of Adjusted Net Income (Loss).

As of September 30, 2012, the company reported a cash balance of $302 million, total long-term debt of $2.21 billion and net debt (total long-term debt minus cash) of $1.90 billion.

Cash provided by operating activities was $102 million compared to cash used in operating activities of $34 million in the prior-year quarter. Free Cash Flow, defined below, was $80 million compared to negative $52 million in the prior-year quarter. The primary factors impacting the comparison of Free Cash Flow were the prior-year quarter's $46 million in expenses related to the acquisition of the company by Access Industries in July 2011 (the vast majority of which were paid in the fourth quarter of fiscal year 2011) and the $34 million in cash paid for tender/call premiums and interest in connection with the July 2011 refinancing.

Full-Year Results
For the fiscal year, growth in digital revenue more than offset physical revenue declines in the company's Recorded Music business. However, this net growth was more than offset by declines in Artist Services and Expanded Rights revenue, Recording Music licensing revenue and Music Publishing revenue. Digital revenue grew 12.8%, or 14.1% in constant-currency, and represented 33.3% of total revenue, compared to 28.6% in the prior year.

Adjusted operating margin expanded 1.0 percentage point to 4.5% from 3.5% in the prior year. Adjusted OIBDA grew 2.8% and Adjusted OIBDA margin expanded 0.7 percentage points to 13.2% from 12.5% in the prior year. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA in the fiscal year included $42 million of severance charges ($35 million in Recorded Music, $4 million in Music Publishing and $3 million in Corporate) compared to $38 million of severance charges in the prior fiscal year ($24 million in Recorded Music, $6 million in Music Publishing and $8 million in Corporate) (the "Fiscal-Year Severance Charges").

Adjusted net loss reflects an increase in interest expense, to $225 million from $213 million, as a result of the July 2011 refinancing of certain existing indebtedness in connection with the acquisition of the company by Access Industries, which resulted in new debt obligations which were issued with higher interest rates.

Cash provided by operating activities was $209 million compared to cash used in operating activities of $52 million in the prior fiscal year. Free Cash Flow was $151 million, compared to negative $221 million in fiscal year 2011. The primary factors impacting the comparison in Free Cash Flow between the fiscal years were the prior fiscal year's $53 million in expenses related to the acquisition of the company by Access Industries (the vast majority of which were paid in the fiscal year) and $41 million in cash paid for tender/call premiums and interest, largely driven by the July 2011 refinancing in connection with the acquisition of the company by Access Industries.

Recorded Music


Recorded Music Summary Results--------------------------------------------------------------------------(dollars in millions) For the For the For the For the Three Three Twelve Twelve Months Months Months Months ended ended ended ended September September % September September % 30, 2012 30, 2011 Change 30, 2012 30, 2011 Change ----------- ----------- ------ ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Revenue $ 605 $ 582 4% $ 2,275 $ 2,342 (3%)Digital Revenue 222 194 14% 864 768 13%Operating income (loss) 35 13 169% 120 110 9%Adjusted operating income (loss) (1) 35 21 67% 120 118 2%OIBDA(1) 77 54 43% 283 282 -Adjusted OIBDA(1)$ 77 $ 62 24% $ 283 $ 290 (2%)--------------------------------------------------------------------------(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.




Fourth-Quarter Results
The company's Recorded Music business experienced growth in both physical and digital revenue due to a more robust release schedule. Recorded Music digital revenue grew 14.4%, or 17.5% in constant-currency, and represented 36.7% of total Recorded Music revenue, compared to 33.3% in the prior-year quarter, as subscription/streaming and download revenue were both strong. Domestic Recorded Music digital revenue was $130 million, or 57.3% of total domestic Recorded Music revenue, compared to 47.6% in the prior-year quarter. Artist Services and Expanded Rights revenue declined, driven primarily by the decline in tours in the company's European concert promotion business, particularly in France. Major sellers included Kobukuro, Tatsuro Yamashita, Green Day, Superfly and Muse.

Recorded Music adjusted operating margin expanded 2.2 percentage points to 5.8% from 3.6% in the prior-year quarter. Recorded Music Adjusted OIBDA grew 24.2% and Recorded Music Adjusted OIBDA margin expanded 2.0 percentage points to 12.7% from 10.7% in the prior-year quarter related to revenue growth in Japan, which is typically a higher-margin territory. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Quarterly Severance Charges.

Full-Year Results
Growth in digital revenue more than offset the decline in physical revenue on a global basis. This marks the first fiscal year in five years where physical and digital sales grew on a combined basis. However, this growth was more than offset by declines in Artist Services and Expanded Rights revenue and Recorded Music licensing revenue. The decline in Artist Services and Expanded Rights revenue primarily relates to a decline in tours in the company's European concert promotion business, particularly in France. Digital Recorded Music revenue grew 12.5%, or 13.7% in constant-currency, and represented 38.0% of Recorded Music revenue for the fiscal year, up from 32.8% in fiscal year 2011. Domestic Recorded Music digital revenue amounted to $489 million, or 53.8% of total domestic Recorded Music revenue, marking the first time digital revenue represented more than half of domestic Recorded Music revenue for the fiscal year. Major sellers across physical and digital formats included Michael Bublé, Kobukuro, Flo Rida, Tatsuro Yamashita and fun.

Recorded Music adjusted operating margin expanded 0.3 percentage points to 5.3% from 5.0% in the prior year. Recorded Music Adjusted OIBDA declined 2.4%, in line with the decline in revenue, while Recorded Music Adjusted OIBDA margin was flat at 12.4%. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Fiscal-Year Severance Charges.

Music Publishing


Music Publishing Summary Results--------------------------------------------------------------------------(dollars in millions) For the For the For the For the Three Three Twelve Twelve Months Months Months Months ended ended ended ended September September % September September % 30, 2012 30, 2011 Change 30, 2012 30, 2011 Change ----------- ----------- ------ ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Revenue $ 133 $ 141 (6%) $ 524 $ 544 (4%)Digital Revenue 22 17 29% 67 60 12%Operating income (loss) 37 40 (8%) 85 73 16%Adjusted operating income (loss) (1) 37 43 (14%) 85 76 12%OIBDA(1) 54 57 (5%) 152 147 3%Adjusted OIBDA(1)$ 54 $ 60 (10%) $ 152 $ 150 1%--------------------------------------------------------------------------(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at the end of this release for details regarding these measures.




Fourth-Quarter Results
Music Publishing revenue declined 5.7%, but grew 0.8% in constant-currency. Digital revenue grew 29.4% while mechanical revenue declined 3.2%, but grew 7.1% in constant-currency as result of the timing of certain society collections. Synchronization revenue declined 10.7%, or 3.8% in constant-currency, reflecting lower video game revenue. Performance revenue declined 13.1%, or 7.0% on constant-currency, partially due to an industry-wide reduction in U.S. radio license fees as mentioned last quarter.

Music Publishing adjusted operating margin contracted 2.7 percentage points to 27.8% from 30.5% in the prior-year quarter. Music Publishing Adjusted OIBDA declined 10.0% and Music Publishing Adjusted OIBDA margin contracted 2.0 percentage points to 40.6% from 42.6% related to revenue mix. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Quarterly Severance Charges.

Full-Year Results
The decrease in Music Publishing revenue was driven by an expected decrease in mechanical revenue due to the ongoing digital transition in the recorded music industry as well as a decrease in performance revenue, partially due to an industry-wide reduction in U.S. radio license fees. This was partially offset by an increase in digital revenue, while synchronization revenue declined slightly, but grew in constant-currency. Digital Music Publishing revenue represented 12.8% of total Music Publishing revenue in the fiscal year, compared to 11.0% in fiscal year 2011.

Music Publishing adjusted operating margin was 16.2%, up 2.2 percentage points from 14.0% in fiscal year 2011. Music Publishing Adjusted OIBDA grew 1.3% while Music Publishing Adjusted OIBDA margin was 29.0%, up 1.4 percentage points from 27.6% in the prior year. The increase in Adjusted OIBDA margin reflects a more disciplined A&R investment and acquisition strategy focused on higher-margin assets. Operating income, adjusted operating income, OIBDA and Adjusted OIBDA reflect the impact of the Fiscal-Year Severance Charges.

Financial details for the quarter and fiscal year can be found in the company's Annual Report on Form 10-K, for the period ended September 30, 2012, filed today with the Securities and Exchange Commission.

This morning, management will be hosting a conference call to discuss the results at 8:30 A.M. EST. The call will be webcast on www.wmg.com.

About Warner Music Group
With its broad roster of new stars and legendary artists, Warner Music Group is home to a collection of the best-known record labels in the music industry including Asylum, Atlantic, East West, Elektra, Nonesuch, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros. and Word, as well as Warner/Chappell Music, one of the world's leading music publishers, with a catalog of more than one million copyrights worldwide.

"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. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, we cannot assure you 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. Please refer to our Form 10-K, Form 10-Qs and our other filings with the U.S. Securities and Exchange Commission concerning factors that could cause actual results to differ materially from those described in our forward-looking statements.

We maintain an Internet site at www.wmg.com. We use our website as a channel of distribution of material company information. Financial and other material information regarding Warner Music Group is routinely posted on and accessible at http://investors.wmg.com. In addition, you may automatically receive email alerts and other information about Warner Music Group by enrolling your email by visiting the "email alerts" section at http://investors.wmg.com. Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this communication.

Explanation of Presentation
The following tables set forth our results of operations as reported in our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). GAAP requires that we separately present our Predecessor and Successor periods results. Management believes reviewing our operating results for the three and twelve months ended September 30, 2011 by combining the results of the Predecessor and Successor periods is more useful in identifying any trends in, or reaching conclusions regarding, our overall operating performance. Accordingly, the tables below present the non-GAAP combined results for the three and twelve months ended September 30, 2011, which is also the period we compare when computing percentage change from prior year, as we believe this presentation provides the most meaningful basis for comparison of our results and it is how management reviews operating performance. The combined operating results may not reflect the actual results we would have achieved had the acquisition by Access Industries closed prior to July 20, 2011 and may not be predictive of future results of operations.


Figure 1. Warner Music Group Corp. - Consolidated Statements of Operations, Three & Twelve Months Ended 9/30/12 versus 9/30/11(dollars in millions) Successor Predecessor ------------------------ ----------- For the For the Combined Three From July From July Three Months 20, 2011 1, 2011 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Revenues $ 731 $ 556 $ 162 $ 718 2%Costs and expenses:Cost of revenues (368) (288) (92) (380) (3%)Selling, general and administrative expenses (274) (186) (76) (262) 5%Merger transaction costs - (10) (36) (46) (100%)Amortization of intangible assets (48) (38) (13) (51) (6%) ----------- ----------- ----------- ----------- ------Total costs and expenses $ (690) $ (522) $ (217) $ (739) (7%) ----------- ----------- ----------- ----------- ------Operating income (loss) $ 41 $ 34 $ (55) $ (21) -Interest expense, net (56) (62) (10) (72) (22%)Other income, net 2 - - - - ----------- ----------- ----------- ----------- ------Loss before income taxes $ (13) $ (28) $ (65) $ (93) (86%)Income tax expense (4) (3) (7) (10) (60%) ----------- ----------- ----------- ----------- ------Net loss $ (17) $ (31) $ (72) $ (103) (83%)Less: income attributable to noncontrolling interest (1) - - - - ----------- ----------- ----------- ----------- ------Net loss attributable to Warner Music Group Corp. $ (18) $ (31) $ (72) $ (103) (83%) =========== =========== =========== =========== ====== Successor Predecessor ------------------------ ----------- For the For the From Combined Twelve From July October 1, Twelve Months 20, 2011 2010 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Revenues $ 2,780 $ 556 $ 2,311 $ 2,867 (3%)Costs and expenses:Cost of revenues (1,459) (288) (1,261) (1,549) (6%)Selling, general and administrative expenses (1,019) (186) (831) (1,017) -Merger transaction costs - (10) (43) (53) (100%)Amortization of intangible assets (193) (38) (178) (216) (11%) ----------- ----------- ----------- ----------- ------Total costs and expenses $ (2,671) $ (522) $ (2,313) $ (2,835) (6%) ----------- ----------- ----------- ----------- ------Operating income (loss) $ 109 $ 34 $ (2) $ 32 -Interest expense, net (225) (62) (151) (213) 6%Other income, net 8 - 5 5 60% ----------- ----------- ----------- ----------- ------Loss before income taxes $ (108) $ (28) $ (148) $ (176) (39%)Income tax expense (1) (3) (27) (30) (97%) ----------- ----------- ----------- ----------- ------Net loss $ (109) $ (31) $ (175) $ (206) (47%)Less: (income) loss attributable to noncontrolling interest (3) - 1 1 - ----------- ----------- ----------- ----------- ------Net loss attributable to Warner Music Group Corp. $ (112) $ (31) $ (174) $ (205) (45%) =========== =========== =========== =========== ======Figure 2. Warner Music Group Corp. - Consolidated Balance Sheets as of 9/30/12 and 09/30/11(dollars in millions) Succesor Succesor ------------- ------------- September 30, September 30, 2012 2011 % Change ------------- ------------- -------- (unaudited) (unaudited)AssetsCurrent assets Cash and equivalents $ 302 $ 154 96% Accounts receivable, less allowance of $63 and $40 million 398 385 3% Inventories 28 29 (3%) Royalty advances expected to be recouped within one year 116 135 (14%) Deferred tax assets 51 54 (6%) Other current assets 44 45 (2%) ------------- ------------- --------Total current assets $ 939 $ 802 17%Royalty advances expected to be recouped after one year 142 173 (18%)Property, plant & equipment, net 152 182 (16%)Goodwill 1,380 1,372 1%Intangible assets subject to amortization, net 2,499 2,678 (7%)Intangible assets not subject to amortization 102 102 -Other assets 64 71 (10%) ------------- ------------- --------Total assets $ 5,278 $ 5,380 (2%) ============= ============= ========Liabilities and EquityCurrent liabilities Accounts payable $ 156 $ 165 (5%) Accrued royalties 997 974 2% Accrued liabilities 258 217 19% Accrued interest 89 55 62% Deferred revenue 101 101 - Other current liabilities 5 10 (50%) ------------- ------------- --------Total current liabilities $ 1,606 $ 1,522 6%Long-term debt 2,206 2,217 -Deferred tax liabilities 375 411 (9%)Other noncurrent liabilities 147 148 (1%) ------------- ------------- --------Total liabilities $ 4,334 $ 4,298 1% ============= ============= ========Equity:Common stock ($0.001 par value; 10,000 shares authorized; 1,000 shares issued and outstanding - - -Additional paid-in capital 1,129 1,129 -Accumulated deficit (143) (31) -Accumulated other comprehensive loss, net (59) (33) 79% ------------- ------------- --------Total Warner Music Group Corp. equity $ 927 $ 1,065 (13%)Noncontrolling interest 17 17 - ------------- ------------- --------Total equity 944 1,082 (13%) ------------- ------------- --------Total liabilities and equity $ 5,278 $ 5,380 (2%) ============= ============= ========Figure 3. Warner Music Group Corp. - Summarized Statements of Cash Flows, Three & Twelve Months Ended 9/30/12 versus 9/30/11(dollars in millions) Successor Predecessor ------------------------ ----------- For the For the Combined Three From July From July Three Months 20, 2011 1, 2011 Months Ended through through ended September September July 19, September 30, 2012 30, 2011 2011 30, 2011 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Net cash provided by (used in) operating activities $ 102 $ (64) $ 30 $ (34)Net cash used in investing activities (22) (1,292) (4) (1,296)Net cash (used in) provided by financing activities (1) 1,199 - 1,199Effect of foreign currency exchange rates on cash 4 (8) 3 (5) ----------- ----------- ----------- -----------Net increase (decrease) in cash and equivalents $ 83 $ (165) $ 29 $ (136) =========== =========== =========== =========== Successor Predecessor ------------------------ ----------- For the For the From Combined Twelve From July October 1, Twelve Months 20, 2011 2010 Months Ended through through ended September September July 19, September 30, 2012 30, 2011 2011 30, 2011 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Net cash provided by (used in) operating activities $ 209 $ (64) $ 12 $ (52)Net cash used in investing activities (58) (1,292) (155) (1,447)Net cash (used in) provided by financing activities (3) 1,199 5 1,204Effect of foreign currency exchange rates on cash - (8) 18 10 ----------- ----------- ----------- -----------Net increase (decrease) in cash and equivalents $ 148 $ (165) $ (120) $ (285) =========== =========== =========== ===========




Supplemental Disclosures Regarding Non-GAAP Financial Measures

We evaluate our operating performance based on several factors, including the following non-GAAP financial measures:

OIBDA
OIBDA reflects our operating income 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 intangible assets. We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses, and believe the presentation of OIBDA helps improve the ability to understand our operating performance and evaluate our performance in comparison to comparable periods. 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 revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income, net (loss) income and other measures of financial performance reported in accordance with GAAP. In addition, OIBDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies.


Figure 4. Warner Music Group Corp. - Reconciliation of OIBDA to Net Loss, Three & Twelve Months Ended 9/30/12 versus 9/30/11(dollars in millions) Successor Predecessor ------------------------ ----------- For the For the Combined Three From July From July Three Months 20, 2011 1, 2011 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)OIBDA $ 103 $ 81 $ (40) $ 41 -Depreciation expense (14) (9) (2) (11) 27%Amortization expense (48) (38) (13) (51) (6%) ----------- ----------- ----------- ----------- ------Operating income (loss) $ 41 $ 34 $ (55) $ (21) -Interest expense, net (56) (62) (10) (72) (22%)Other income, net 2 - - - - ----------- ----------- ----------- ----------- ------Loss before income taxes $ (13) $ (28) $ (65) $ (93) (86%)Income tax expense (4) (3) (7) (10) (60%) ----------- ----------- ----------- ----------- ------Net loss $ (17) $ (31) $ (72) $ (103) (83%)Less: loss attributable to noncontrolling interest (1) - - - - ----------- ----------- ----------- ----------- ------Net loss attributable to Warner Music Group Corp. $ (18) $ (31) $ (72) $ (103) (83%) =========== =========== =========== =========== ====== Successor Predecessor ------------------------ ----------- For the For the From Combined Twelve From July October 1, Twelve Months 20, 2011 2010 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)OIBDA $ 353 $ 81 $ 209 $ 290 22%Depreciation expense (51) (9) (33) (42) 21%Amortization expense (193) (38) (178) (216) (11%) ----------- ----------- ----------- ----------- ------Operating income (loss) $ 109 $ 34 $ (2) $ 32 -Interest expense, net (225) (62) (151) (213) 6%Other income, net 8 - 5 5 60% ----------- ----------- ----------- ----------- ------Loss before income taxes $ (108) $ (28) $ (148) $ (176) (39%)Income tax expense (1) (3) (27) (30) (97%) ----------- ----------- ----------- ----------- ------Net loss $ (109) $ (31) $ (175) $ (206) (47%)Less: (income) loss attributable to noncontrolling interest (3) - 1 1 - ----------- ----------- ----------- ----------- ------Net loss attributable to Warner Music Group Corp. $ (112) $ (31) $ (174) $ (205) (45%) =========== =========== =========== =========== ======Figure 5. Warner Music Group Corp. - Reconciliation of Segment Operating Income to OIBDA, Three & Twelve Months Ended 9/30/12 versus 9/30/11(dollars in millions) Successor Predecessor ----------------------- ----------- For the For the Combined Three From July From July Three Months 20, 2011 1, 2011 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Total WMG operating income - GAAP $ 41 $ 34 $ (55) $ (21) -Depreciation and amortization expense 62 47 15 62 - ----------- ----------- ----------- ----------- ------Total WMG OIBDA $ 103 $ 81 $ (40) $ 41 - =========== =========== =========== =========== ======Recorded Music operating income - GAAP $ 35 $ 17 $ (4) $ 13 -Depreciation and amortization expense 42 31 10 41 2% ----------- ----------- ----------- ----------- ------Recorded Music OIBDA $ 77 $ 48 $ 6 $ 54 43% =========== =========== =========== =========== ======Music Publishing operating income - GAAP $ 37 $ 39 $ 1 $ 40 (8%)Depreciation and amortization expense 17 12 5 17 - ----------- ----------- ----------- ----------- ------Music Publishing OIBDA $ 54 $ 51 $ 6 $ 57 (5%) =========== =========== =========== =========== ====== Successor Predecessor ----------------------- ----------- For the For the From Combined Twelve From July October 1, Twelve Months 20, 2011 2010 Months Ended through through ended September September July 19, September % 30, 2012 30, 2011 2011 30, 2011 Change ----------- ----------- ----------- ----------- ------ (unaudited) (unaudited) (unaudited) (unaudited)Total WMG operating income - GAAP $ 109 $ 34 $ (2) $ 32 -Depreciation and amortization expense 244 47 211 258 (5%) ----------- ----------- ----------- ----------- ------Total WMG OIBDA $ 353 $ 81 $ 209 $ 290 22% =========== =========== =========== =========== ======Recorded Music operating income - GAAP $ 120 $ 17 $ 93 $ 110 9%Depreciation and amortization expense 163 31 141 172 (5%) ----------- ----------- ----------- ----------- ------Recorded Music OIBDA $ 283 $ 48 $ 234 $ 282 - =========== =========== =========== =========== ======Music Publishing operating income - GAAP $ 85 $ 39 $ 34 $ 73 16%Depreciation and amortization expense 67 12 62 74 (9%) ----------- ----------- ----------- ----------- ------Music Publishing OIBDA $ 152 $ 51 $ 96 $ 147 3% =========== =========== =========== =========== ======




Adjusted Operating Income, Adjusted OIBDA and Adjusted Net Income (Loss)
Adjusted operating income, adjusted OIBDA and adjusted net (loss) income is operating income, OIBDA and net (loss) income, respectively, adjusted to exclude the impact of certain items that affect comparability ("Factors Affecting Comparability"). Factors affecting period-to-period comparability of the unadjusted measures in fiscal year 2012 included expenses related to our acquisition by Access Industries, share-based compensation expense, which existed in fiscal year 2011 but not 2012, as well as expenses incurred in relation to the sale of EMI. We use adjusted operating income, adjusted OIBDA and adjusted net loss to evaluate our actual operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies in our industry and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, OIBDA and net loss attributable to WMG as indicators of operating performance, and they may not be comparable to similarly titled measures employed by other companies.


Figure 6. Warner Music Group Corp. - Reconciliation of Reported Results to Adjusted Results, Three and Twelve Months 9/30/12 and 9/30/11(dollars in millions) For the Three Months ended September 30, 2012---------------------------------------------------------------------------- Recorded Music Total WMG Music Publishing Operating Operating Operating Total WMG Income Income Income OIBDA ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Reported Results $ 41 $ 35 $ 37 $ 103Factors Affecting Comparability: EMI Sale-Related Expenses(1) 8 - - 8 ----------- ----------- ----------- -----------Adjusted Results $ 49 $ 35 $ 37 $ 111----------------------------------------------------------------------------For the Three Months ended September 30, 2011---------------------------------------------------------------------------- Recorded Music Total WMG Music Publishing Operating Operating Operating Total WMG Income Income Income OIBDA ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Reported Results $ (21) $ 13 $ 40 $ 41Factors Affecting Comparability: Acquisition Expenses(2) 46 - 2 46 Share-Based Compensation Expense(3) 14 8 1 14 EMI Sale-Related Expenses(1) 1 - - 1 ----------- ----------- ----------- -----------Adjusted Results $ 40 $ 21 $ 43 $ 102----------------------------------------------------------------------------For the Twelve Months ended September 30, 2012---------------------------------------------------------------------------- Recorded Music Total WMG Music Publishing Operating Operating Operating Total WMG Income Income Income OIBDA ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Reported Results $ 109 $ 120 $ 85 $ 353Factors Affecting Comparability: Acquisition Expenses(2) 1 - - 1 EMI Sale-Related Expenses(1) 14 - - 14 ----------- ----------- ----------- -----------Adjusted Results $ 124 $ 120 $ 85 $ 368----------------------------------------------------------------------------For the Twelve Months ended September 30, 2011---------------------------------------------------------------------------- Recorded Music Total WMG Music Publishing Operating Operating Operating Total WMG Income Income Income OIBDA ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Reported Results $ 32 $ 110 $ 73 $ 290Factors Affecting Comparability: Acquisition Expenses(2) 53 - 2 53 Share-Based Compensation Expense(3) 14 8 1 14 EMI Sale-Related Expenses(1) 1 - - 1 ----------- ----------- ----------- -----------Adjusted Results $ 100 $ 118 $ 76 $ 358---------------------------------------------------------------------------- For the Three Months ended September 30, 2012---------------------------------------------------------------- Net loss attributable Music to Warner Recorded Publishing Music Group Music OIBDA OIBDA Corp. ----------- ----------- ------------ (unaudited) (unaudited) (unaudited)Reported Results $ 77 $ 54 $ (18)Factors Affecting Comparability: EMI Sale-Related Expenses(1) - - 8 ----------- ----------- ------------Adjusted Results $ 77 $ 54 $ (10)----------------------------------------------------------------For the Three Months ended September 30, 2011---------------------------------------------------------------- Net loss attributable Music to Warner Recorded Publishing Music Group Music OIBDA OIBDA Corp. ----------- ----------- ------------ (unaudited) (unaudited) (unaudited)Reported Results $ 54 $ 57 $ (103)Factors Affecting Comparability: Acquisition Expenses(2) - 2 46 Share-Based Compensation Expense(3) 8 1 14 EMI Sale-Related Expenses(1) - - 1 ----------- ----------- ------------Adjusted Results $ 62 $ 60 $ (42)----------------------------------------------------------------For the Twelve Months ended September 30, 2012---------------------------------------------------------------- Net loss attributable Music to Warner Recorded Publishing Music Group Music OIBDA OIBDA Corp. ----------- ----------- ------------ (unaudited) (unaudited) (unaudited)Reported Results $ 283 $ 152 $ (112)Factors Affecting Comparability: Acquisition Expenses(2) - - 1 EMI Sale-Related Expenses(1) - - 14 ----------- ----------- ------------Adjusted Results $ 283 $ 152 $ (97)----------------------------------------------------------------For the Twelve Months ended September 30, 2011---------------------------------------------------------------- Net loss attributable Music to Warner Recorded Publishing Music Group Music OIBDA OIBDA Corp. ----------- ----------- ------------ (unaudited) (unaudited) (unaudited)Reported Results $ 282 $ 147 $ (205)Factors Affecting Comparability: Acquisition Expenses(2) - 2 53 Share-Based Compensation Expense(3) 8 1 14 EMI Sale-Related Expenses(1) - - 1 ----------- ----------- ------------Adjusted Results $ 290 $ 150 $ (137)----------------------------------------------------------------(1) Adjusted Results for the three months and twelve months ended September 30, 2012 exclude $8 million (all corporate) and $14 million (all corporate), respectively, and for the three months and twelve months ended September 30, 2011 exclude $1 million (all corporate) in professional and other fees incurred in connection with the sale of EMI and subsequent regulatory review. These costs primarily included advisory, legal and other professional fees.(2) Adjusted Results for the twelve months ended September 30, 2012 exclude $1 million (all corporate) and for the three months and twelve months ended September 30, 2011 exclude $46 million ($44 million corporate and $2 million Music Publishing) and $53 million ($51 million corporate and $2 million Music Publishing), respectively, in fees incurred in connection with the acquisition of the Company by Access Industries. These costs primarily included advisory, accounting, legal and other professional fees.(3) Adjusted Results for the three months and twelve months ended September 30, 2011 exclude $14 million ($5 million corporate, $8 million Recorded Music and $1 million Music Publishing) in share-based compensation expense incurred in connection with the acquisition of the Company by Access Industries.




Constant Currency
Because exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of revenue on a constant-currency basis in addition to reported revenue helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period over period. We use results on a constant-currency basis as one measure to evaluate our performance. We calculate constant-currency results by applying current-year foreign currency exchange rates to prior-year results. However, a limitation of the use of the constant-currency results as a performance measure is that it does not reflect the impact of exchange rates on our revenue, including, for example, the $37 million, $28 million and $9 million unfavorable impact of exchange rates on our Total, Recorded Music and Music Publishing revenue, in the three months ended September 30, 2012 compared to the prior-year quarter. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant-currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.


Figure 7. Warner Music Group Corp. - Revenue by Geography and Segment, Three & Twelve Months Ended 9/30/12 versus 9/30/11 as Reported and Constant Currency(dollars in millions) Successor Predecessor Predecessor ----------------------- ----------- ----------- For the For the For the Combined Combined Three From July From July Three Three Months 20, 2011 1, 2011 Months Months Ended through through ended ended September September July 19, September September 30, 2012 30, 2011 2011 30, 2011 30, 2011 ----------- ----------- ----------- ----------- ----------- As reported As reported As reported As reported Constant $ (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)US revenue Recorded Music $ 227 $ 175 $ 52 $ 227 $ 227 Music Publishing 51 41 6 47 47International revenue Recorded Music 378 281 74 355 327 Music Publishing 82 63 31 94 85Intersegment eliminations (7) (4) (1) (5) (5) ----------- ----------- ----------- ----------- -----------Total Revenue $ 731 $ 556 $ 162 $ 718 $ 681 =========== =========== =========== =========== ===========Revenue by Segment:Recorded Music Physical $ 270 $ 193 $ 46 $ 239 $ 228 Digital 222 147 47 194 189 ----------- ----------- ----------- ----------- ----------- Total Physical and Digital 492 340 93 433 417 Artist Services and Expanded Rights 66 75 22 97 89 Licensing 47 41 11 52 48 ----------- ----------- ----------- ----------- -----------Total Recorded Music 605 456 126 582 554Music Publishing Performance 53 41 20 61 57 Mechanical 30 24 7 31 28 Synchroni- zation 25 21 7 28 26 Digital 22 15 2 17 17 Other 3 3 1 4 4 ----------- ----------- ----------- ----------- -----------Total Music Publishing 133 104 37 141 132Intersegment eliminations (7) (4) (1) (5) (5) ----------- ----------- ----------- ----------- -----------Total Revenue $ 731 $ 556 $ 162 $ 718 $ 681 =========== =========== =========== =========== =========== ----------- ----------- ----------- ----------- -----------Total Digital Revenue $ 241 $ 161 $ 49 $ 210 $ 204 =========== =========== =========== =========== =========== Successor Predecessor Predecessor ----------------------- ----------- ----------- For the For the For the From Combined Combined Twelve From July October 1, Twelve Twelve Months 20, 2011 2010 Months Months Ended through through ended ended September September July 19, September September 30, 2012 30, 2011 2011 30, 2011 30, 2011 ----------- ----------- ----------- ----------- ----------- As reported As reported As reported As reported Constant $ (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)US revenue Recorded Music $ 909 $ 175 $ 781 $ 956 $ 956 Music Publishing 204 41 155 196 196International revenue Recorded Music 1,366 281 1,105 1,386 1,339 Music Publishing 320 63 285 348 331Intersegment eliminations (19) (4) (15) (19) (19) ----------- ----------- ----------- ----------- -----------Total Revenue $ 2,780 $ 556 $ 2,311 $ 2,867 $ 2,803 =========== =========== =========== =========== ===========Revenue by Segment:Recorded Music Physical $ 966 $ 193 $ 839 $ 1,032 $ 1,015 Digital 864 147 621 768 760 ----------- ----------- ----------- ----------- ----------- Total Physical and Digital 1,830 340 1,460 1,800 1,775 Artist Services and Expanded Rights 244 75 235 310 295 Licensing 201 41 191 232 225 ----------- ----------- ----------- ----------- -----------Total Recorded Music 2,275 456 1,886 2,342 2,295Music Publishing Performance 202 41 173 214 205 Mechanical 129 24 118 142 137 Synchroni- zation 112 21 92 113 111 Digital 67 15 45 60 60 Other 14 3 12 15 14 ----------- ----------- ----------- ----------- -----------Total Music Publishing 524 104 440 544 527Intersegment eliminations (19) (4) (15) (19) (19) ----------- ----------- ----------- ----------- -----------Total Revenue $ 2,780 $ 556 $ 2,311 $ 2,867 $ 2,803 =========== =========== =========== =========== =========== ----------- ----------- ----------- ----------- -----------Total Digital Revenue $ 925 $ 161 $ 659 $ 820 $ 811 =========== =========== =========== =========== ===========




Free Cash Flow
Free Cash Flow reflects our cash flow provided by operating activities less capital expenditures and cash paid or received for investments. We use Free Cash Flow, among other measures, to evaluate our operating performance. Management believes Free Cash Flow provides investors with an important perspective on the cash available to service debt, fund ongoing operations and working capital needs, make strategic acquisitions and investments and pay any dividends or fund any repurchases of our outstanding notes or common stock in open market purchases, privately negotiated purchases or otherwise. As a result, Free Cash Flow is a significant measure of our ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of our operating performance. We believe the presentation of Free Cash Flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. In addition, Free Cash Flow is also a primary measure used externally by our investors and analysts for purposes of valuation and comparing our operating performance to other companies in our industry.

Because Free Cash Flow is not a measure of performance calculated in accordance with GAAP, Free Cash Flow should not be considered in isolation of, or as a substitute for, net (loss) income as an indicator of operating performance or cash flow provided by operating activities as a measure of liquidity. Free Cash Flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, Free Cash Flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Because Free Cash Flow deducts capital expenditures and cash paid or received for investments from "cash flow provided by operating activities" (the most directly comparable GAAP financial measure), users of this information should consider the types of events and transactions that are not reflected. We provide below a reconciliation of Free Cash Flow to the most directly comparable amount reported under GAAP, which is "net cash flow (used in) provided by operating activities."

Unlevered After-Tax Cash Flow
Free Cash Flow includes cash paid for interest. We also review our cash flow adjusted for cash paid for interest, a measure we call Unlevered After-Tax Cash Flow. Management believes this measure provides investors with an additional important perspective on our cash generation ability. We consider Unlevered After-Tax Cash Flow to be an important indicator of the performance of our businesses and believe the presentation is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. A limitation of the use of this measure is that it does not reflect the charges for cash interest and, therefore, does not necessarily represent funds available for discretionary use, and is not necessarily a measure of our ability to fund our cash needs. Accordingly, this measure should be considered in addition to, not as a substitute for, net cash flow provided by operating activities and other measures of liquidity reported in accordance with GAAP.


Figure 8. Warner Music Group Corp. - Calculation of Free Cash Flow and Unlevered After-Tax Cash Flow, Three & Twelve Months Ended 9/30/12 versus 9/30/11(dollars in millions) Successor Predecessor ----------------------- ----------- For the For the Combined Three From July From July Three Months 20, 2011 1, 2011 Months Ended through through ended September September July 19, September 30, 2012 30, 2011 2011 30, 2011 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Net cash flow provided by (used in) operating activities $ 102 $ (64) $ 30 $ (34)Less: Capital expenditures 8 11 3 14Less: Net cash paid for investments 14 3 1 4 ----------- ----------- ----------- -----------Free Cash Flow $ 80 $ (78) $ 26 $ (52) =========== =========== =========== =========== Plus: Cash paid for interest - 34 - 34 ----------- ----------- ----------- ----------- Unlevered After-Tax Cash Flow $ 80 $ (44) $ 26 $ (18) =========== =========== =========== =========== Successor Predecessor ----------------------- ----------- For the For the From Combined Twelve From July October 1, Twelve Months 20, 2011 2010 Months Ended through through ended September September July 19, September 30, 2012 30, 2011 2011 30, 2011 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited)Net cash flow provided by (used in) operating activities $ 209 $ (64) $ 12 $ (52)Less: Capital expenditures 32 11 37 48Less: Net cash paid for investments 26 3 118 121 ----------- ----------- ----------- -----------Free Cash Flow $ 151 $ (78) $ (143) $ (221) =========== =========== =========== =========== Plus: Cash paid for interest 193 34 176 210 ----------- ----------- ----------- ----------- Unlevered After-Tax Cash Flow $ 344 $ (44) $ 33 $ (11) =========== =========== =========== ===========





Media Contact:
Will Tanous
(212) 275-2244
Email Contact

Investor Contact:
Erika Begun
(212) 275-4850
Email Contact





Source: Marketwire