Warner Music Group Corp. Reports Results for Fiscal Second Quarter Ended March 31, 2016
/EINPresswire.com/ -- NEW YORK, NY -- (Marketwired) -- 05/06/16 --
- Total revenue grew 10.0%, up 13.4% on a constant-currency basis
- Digital revenue grew 21.2%, up 25.0% on a constant-currency basis
- OIBDA was $127 million versus $121 million in the prior-year quarter
- Net income was $12 million versus $19 million in the prior-year quarter
Warner Music Group Corp. today announced its second-quarter financial results for the period ended March 31, 2016.
"These impressive results were driven by outstanding music from our artists and songwriters, the expansion in our global footprint, our leadership in the industry's digital transformation and excellent execution globally," said Stephen Cooper, Warner Music Group's CEO. "We are now the first major music company to report that streaming is the largest source of revenue in our recorded music business, surpassing our revenue from physical formats. And this new milestone comes only four quarters after our streaming revenue first topped our download revenue."
"I am very happy with our growth trends," added Eric Levin, Warner Music Group's Executive Vice President and CFO. "Strong revenue and cash flow have enabled us to pay down $75 million in debt so far this year."
Total WMG
Total WMG Summary Results
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Revenue $ 745 $ 677 10%
Digital revenue 360 297 21%
Operating income 52 44 18%
Adjusted operating income(1) 54 48 13%
OIBDA(1) 127 121 5%
Adjusted OIBDA(1) 129 125 3%
Net income 12 19 -37%
Adjusted net income (1) 14 23 -39%
Net cash provided by operating
activities 111 107 4%
-----------------------------------
(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures.
Revenue grew 10.0% (or 13.4% in constant currency). Growth in Recorded Music digital revenue and artist services and expanded-rights revenue as well as growth in Music Publishing digital and synchronization revenue were partially offset by declines in Recorded Music physical revenue related to currency, declines in Recorded Music licensing revenue related to currency and the impact of a large initial distribution of PLG neighboring rights income in the prior-year quarter, and declines in Music Publishing mechanical revenue, which reflect a continuing shift to digital. Music Publishing performance revenue was flat. Revenue grew in the U.S., Europe and Asia, partially offset by currency-related declines in Latin America. Digital revenue grew 21.2% (or 25.0% in constant currency), and represented 48.3% of total revenue, compared to 43.9% in the prior-year quarter.
Operating income was $52 million compared to $44 million in the prior-year quarter. OIBDA increased 5.0% to $127 million from $121 million in the prior-year quarter and OIBDA margin declined 0.9 percentage points to 17.0% from 17.9% in the prior-year quarter. The increase in operating income and OIBDA is largely the result of the increase in revenue while the decline in OIBDA margin is largely the result of the revenue mix. Adjusted OIBDA rose 3.2% and Adjusted OIBDA margin declined 1.2 percentage points to 17.3% from 18.5%.
Net income was $12 million compared to $19 million in the prior-year quarter. The decline is attributable to an increase in OIBDA and a gain on the sale of real estate being more than offset by a loss on early extinguishment of debt, lower net currency-related gains versus the prior-year quarter on the company's Euro-denominated debt and intercompany loans and higher tax expense versus the prior-year quarter. The higher tax expense results from the use of a discrete tax rate method to calculate income tax expense as compared to the use of an annual effective tax rate method in the prior-year quarter, higher pre-tax income and losses in certain jurisdictions for which no tax benefit could be recorded.
Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude the impact of PLG-related expenses and expenses related to cost-savings initiatives. See below for calculations and reconciliations of OIBDA, Adjusted operating income, Adjusted OIBDA and Adjusted net income.
As of March 31, 2016, the company reported a cash balance of $316 million, total debt of $2.912 billion and net debt (total long-term debt, including the current portion, minus cash) of $2.596 billion. There was no balance outstanding on the company's revolver at the end of the quarter.
Cash provided by operating activities was $111 million compared to $107 million in the prior-year quarter. The change is largely a result of improved OIBDA and the benefit of working capital management. Free Cash Flow, defined below, was $134 million compared to $85 million in the prior-year quarter, reflecting the improvement in cash provided by operating activities and proceeds from the sale of real estate.
Recorded Music
Recorded Music Summary Results
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Revenue $ 621 $ 564 10%
Digital revenue 328 274 20%
Operating income 38 35 9%
Adjusted operating income(1) 40 38 5%
OIBDA(1) 93 91 2%
Adjusted OIBDA(1) 95 94 1%
-----------------------------------
(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures.
Recorded Music revenue grew 10.1% (or 13.1% in constant currency). Growth in digital revenue and artist services and expanded-rights revenue was partially offset by a decline in physical and licensing revenue. The decline in physical revenue was related to currency and the decline in licensing revenue was related to currency and the impact of a large initial distribution of PLG neighboring rights income in the prior-year quarter. Digital growth reflects a continuing shift to streaming revenue. The improvement in artist services and expanded-rights revenue was due to the timing of concert tours. Recorded Music revenue saw strength around the globe with Latin America the main exception predominantly driven by currency. Major sellers included Coldplay, Twenty One Pilots, Ed Sheeran, Charlie Puth and Gesu No Kiwami Otome.
Recorded Music operating income was $38 million up from $35 million in the prior-year quarter and operating margin was down 0.1 percentage point to 6.1% versus 6.2% in the prior-year quarter. Adjusted operating margin declined 0.3 percentage points to 6.4% from 6.7% in the prior-year quarter. OIBDA rose to $93 million from $91 million in the prior-year quarter and OIBDA margin declined 1.1 percentage points to 15.0%. Adjusted OIBDA was $95 million versus $94 million in the prior-year quarter with Adjusted OIBDA margin down 1.4 percentage points to 15.3%. The improvement in OIBDA was driven by revenue growth and the decline in OIBDA margin was driven by the revenue mix including the impact of a large initial distribution of PLG neighboring rights income in the prior-year quarter and higher concert promotion revenue in the current quarter.
Music Publishing
Music Publishing Summary Results
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Revenue $ 127 $ 117 9%
Digital revenue 33 24 38%
Operating income 37 33 12%
OIBDA(1) 54 51 6%
-----------------------------------
(1) See "Supplemental Disclosures Regarding Non-GAAP Financial Measures" at
the end of this release for details regarding these measures.
Music Publishing revenue rose 8.5% (or 13.4% in constant currency). Growth in digital and synchronization revenue was partially offset by a decline in mechanical revenue. Performance revenue was flat.
Music Publishing operating income was $37 million compared with $33 million in the prior-year quarter and operating margin rose 0.9 percentage points to 29.1%. The increase in operating income and operating margin was due to revenue growth. Music Publishing OIBDA rose by $3 million or 5.9% to $54 million, while Music Publishing OIBDA margin declined 1.1 percentage points to 42.5% from 43.6%, due to the revenue mix.
Financial details for the quarter can be found in the company's current Form 10-Q, for the period ended March 31, 2016, 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, Big Beat, Canvasback, East West, Elektra, Erato, FFRR, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Warner Bros., Warner Classics and Warner Music Nashville, 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 address through 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.
Basis of Presentation
The Company maintains a 52-53 week fiscal year ending on the last Friday in each reporting period. As such, all references to March 31, 2016 and March 31, 2015 relate to the periods ended March 25, 2016 and March 27, 2015, respectively. For convenience purposes, the Company continues to date its financial statements as of March 31. The fiscal year ended September 30, 2015 ended on September 25, 2015. For convenience purposes, the Company continues to date its balance sheet as of September 30.
Figure 1. Warner Music Group Corp. - Consolidated Statements of Operations,
Three and Six Months Ended March 31, 2016 versus March 31, 2015
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Revenue $ 745 $ 677 10%
Cost and expenses:
Cost of revenue (374) (318) -18%
Selling, general and administrative
expenses (256) (252) -2%
Amortization expense (63) (63) 0%
------------- ------------- ----------
Total costs and expenses $ (693) $ (633) -10%
------------- ------------- ----------
Operating income $ 52 $ 44 18%
Gain on sale of real estate 19 - -
Interest expense, net (43) (45) 4%
Other (expense) income, net (1) 14 -
------------- ------------- ----------
Income before income taxes $ 27 $ 13 -
Income tax (expense) benefit (15) 6 -
------------- ------------- ----------
Net income $ 12 $ 19 -37%
Less: Income attributable to
noncontrolling interest (1) (1) 0%
------------- ------------- ----------
Net income attributable to Warner
Music Group Corp. $ 11 $ 18 -39%
============= ============= ==========
For the Six For the Six
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Revenue $ 1,594 $ 1,506 6%
Costs and expenses:
Cost of revenue (823) (763) -8%
Selling, general and administrative
expenses (532) (548) 3%
Amortization expense (125) (128) 2%
------------- ------------- ----------
Total costs and expenses $ (1,480) $ (1,439) -3%
------------- ------------- ----------
Operating income $ 114 $ 67 70%
Gain on sale of real estate 19 - -
Interest expense, net (88) (91) 3%
Other income, net 7 5 40%
------------- ------------- ----------
Income (loss) before income taxes $ 52 $ (19) -
Income tax expense (12) (3) -
------------- ------------- ----------
Net income (loss) $ 40 $ (22) -
Less: Income attributable to
noncontrolling interest (2) (2) 0%
------------- ------------- ----------
Net income (loss) attributable to
Warner Music Group Corp. $ 38 $ (24) -
============= ============= ==========
Figure 2. Warner Music Group Corp. - Consolidated Balance Sheets at March
31, 2016 versus September 30, 2015
(dollars in millions)
March 31, September 30,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (audited)
Assets
Current assets:
Cash and equivalents $ 316 $ 246 29%
Accounts receivable, net 318 349 -9%
Inventories 41 42 -2%
Royalty advances expected to be
recouped within one year 135 130 4%
Prepaid and other current assets 64 60 7%
------------- ------------- ----------
Total current assets $ 874 $ 827 6%
Royalty advances expected to be
recouped after one year 203 195 4%
Property, plant and equipment, net 210 220 -5%
Goodwill 1,622 1,632 -1%
Intangible assets subject to
amortization, net 2,348 2,514 -7%
Intangible assets not subject to
amortization 118 119 -1%
Other assets 110 114 -4%
------------- ------------- ----------
Total assets $ 5,485 $ 5,621 -2%
============= ============= ==========
Liabilities and Equity
Current liabilities:
Accounts payable $ 176 $ 173 2%
Accrued royalties 1,102 1,087 1%
Accrued liabilities 249 296 -16%
Accrued interest 53 58 -9%
Deferred revenue 206 206 0%
Current portion of long-term debt 13 13 0%
Other current liabilities 22 24 -8%
------------- ------------- ----------
Total current liabilities $ 1,821 $ 1,857 -2%
Long-term debt 2,899 2,981 -3%
Deferred tax liabilities, net 292 302 -3%
Other noncurrent liabilities 239 242 -1%
------------- ------------- ----------
Total liabilities $ 5,251 $ 5,382 -2%
Equity:
Common stock - - -
Additional paid-in capital 1,128 1,128 0%
Accumulated deficit (702) (740) -5%
Accumulated other comprehensive
loss, net (205) (167) 23%
------------- ------------- ----------
Total Warner Music Group Corp.
equity $ 221 $ 221 0%
Noncontrolling interest 13 18 -28%
------------- ------------- ----------
Total equity 234 239 -2%
------------- ------------- ----------
Total liabilities and equity $ 5,485 $ 5,621 -2%
============= ============= ==========
Figure 3. Warner Music Group Corp. - Summarized Statements of Cash Flows,
Three and Six Months Ended March 31, 2016 versus March 31, 2015
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, 2016 March 31, 2015
--------------- ---------------
(unaudited) (unaudited)
Net cash provided by operating activities $ 111 $ 107
Net cash provided by (used in) investing
activities 23 (22)
Net cash used in financing activities (94) (6)
Effect of foreign currency exchange rates
on cash and equivalents (2) (6)
--------------- ---------------
Net increase in cash and equivalents $ 38 $ 73
=============== ===============
For the Six For the Six
Months Ended Months Ended
March 31, 2016 March 31, 2015
--------------- ---------------
(unaudited) (unaudited)
Net cash provided by operating activities $ 172 $ 142
Net cash provided by (used in) investing
activities 5 (59)
Net cash used in financing activities (100) (9)
Effect of foreign currency exchange rates
on cash and equivalents (7) (13)
--------------- ---------------
Net increase in cash and equivalents $ 70 $ 61
=============== ===============
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 and non-cash amortization of 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 (loss), net income (loss) and other measures of financial performance reported in accordance with U.S. 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 Income
(Loss), Three and Six Months Ended March 31, 2016 versus March 31, 2015
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
OIBDA $ 127 $ 121 5%
Depreciation expense (12) (14) 14%
Amortization expense (63) (63) 0%
------------- ------------- ----------
Operating income $ 52 $ 44 18%
Gain on sale of real estate 19 - -
Interest expense, net (43) (45) 4%
Other (expense) income, net (1) 14 -
------------- ------------- ----------
Income before income taxes $ 27 $ 13 -
Income tax (expense) benefit (15) 6 -
------------- ------------- ----------
Net income $ 12 $ 19 -37%
Less: Income attributable to
noncontrolling interest (1) (1) 0%
------------- ------------- ----------
Net income attributable to Warner
Music Group Corp. $ 11 $ 18 -39%
============= ============= ==========
Operating income margin 7.0% 6.5%
OIBDA margin 17.0% 17.9%
For the Six For the Six
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
OIBDA $ 264 $ 223 18%
Depreciation expense (25) (28) 11%
Amortization expense (125) (128) 2%
------------- ------------- ----------
Operating income $ 114 $ 67 70%
Gain on sale of real estate 19 - -
Interest expense, net (88) (91) 3%
Other income, net 7 5 40%
------------- ------------- ----------
Income (loss) before income taxes $ 52 $ (19) -
Income tax expense (12) (3) -
------------- ------------- ----------
Net income (loss) $ 40 $ (22) -
Less: Income attributable to
noncontrolling interest (2) (2) 0%
------------- ------------- ----------
Net income (loss) attributable to
Warner Music Group Corp. $ 38 $ (24) -
============= ============= ==========
Operating income margin 7.2% 4.4%
OIBDA margin 16.6% 14.8%
Figure 5. Warner Music Group Corp. - Reconciliation of Segment Operating
Income (Loss) to OIBDA, Three and Six Months Ended March 31, 2016 versus
March 31, 2015
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Total WMG operating income - GAAP $ 52 $ 44 18%
Depreciation and amortization
expense (75) (77) 3%
------------- ------------- ----------
Total WMG OIBDA $ 127 $ 121 5%
============= ============= ==========
Operating income margin 7.0% 6.5%
OIBDA margin 17.0% 17.9%
Recorded Music operating income -
GAAP $ 38 $ 35 9%
Depreciation and amortization
expense (55) (56) 2%
------------- ------------- ----------
Recorded Music OIBDA $ 93 $ 91 2%
============= ============= ==========
Recorded Music operating income
margin 6.1% 6.2%
Recorded Music OIBDA margin 15.0% 16.1%
Music Publishing operating income -
GAAP $ 37 $ 33 12%
Depreciation and amortization
expense (17) (18) 6%
------------- ------------- ----------
Music Publishing OIBDA $ 54 $ 51 6%
============= ============= ==========
Music Publishing operating income
margin 29.1% 28.2%
Music Publishing OIBDA margin 42.5% 43.6%
For the Six For the Six
Months Ended Months Ended
March 31, March 31,
2016 2015 % Change
------------- ------------- ----------
(unaudited) (unaudited)
Total WMG operating income - GAAP $ 114 $ 67 70%
Depreciation and amortization
expense (150) (156) 4%
------------- ------------- ----------
Total WMG OIBDA $ 264 $ 223 18%
============= ============= ==========
Operating income margin 7.2% 4.4%
OIBDA margin 16.6% 14.8%
Recorded Music operating income -
GAAP $ 136 $ 87 56%
Depreciation and amortization
expense (109) (115) 5%
------------- ------------- ----------
Recorded Music OIBDA $ 245 $ 202 21%
============= ============= ==========
Recorded Music operating income
margin 10.0% 6.8%
Recorded Music OIBDA margin 18.0% 15.8%
Music Publishing operating income -
GAAP $ 24 $ 33 -27%
Depreciation and amortization
expense (35) (35) 0%
------------- ------------- ----------
Music Publishing OIBDA $ 59 $ 68 -13%
============= ============= ==========
Music Publishing operating income
margin 9.9% 14.0%
Music Publishing OIBDA margin 24.3% 28.8%
Adjusted Operating Income (Loss), Adjusted OIBDA and Adjusted Net Income (Loss)
Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (loss) is operating income (loss), OIBDA and net income (loss), respectively, adjusted to exclude the impact of certain items that affect comparability. Factors affecting period-to-period comparability of the unadjusted measures in the quarter included the items listed in Figure 6 below. We use Adjusted operating income (loss), Adjusted OIBDA and Adjusted net income (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 U.S. GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), OIBDA and net income (loss) attributable to Warner Music Group Corp. 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 to Adjusted Results, Three and Six Months Ended March 31, 2016 versus March 31, 2015 (dollars in millions)
For the Three Months
Ended March 31, 2016
-------------------------
Recorded Music
Total WMG Music Publishing
Operating Operating Operating
Income Income Income
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Reported Results $ 52 $ 38 $ 37
Factors Affecting
Comparability:
PLG Related Costs 2 2 -
----------- ----------- -----------
Adjusted Results $ 54 $ 40 $ 37
----------- ----------- -----------
Adjusted Margin 7.2% 6.4% 29.1%
For the Three Months
Ended March 31, 2016
-------------------------
Music
Total WMG Recorded Publishing
OIBDA Music OIBDA OIBDA Net income
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Reported Results $ 127 $ 93 $ 54 $ 12
Factors Affecting
Comparability:
PLG Related Costs 2 2 - 2
----------- ----------- ----------- -----------
Adjusted Results $ 129 $ 95 $ 54 $ 14
----------- ----------- ----------- -----------
Adjusted Margin 17.3% 15.3% 42.5%
For the Three Months
Ended March 31, 2015
-------------------------
Recorded Music
Total WMG Music Publishing
Operating Operating Operating
Income Income Income
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Reported Results $ 44 $ 35 $ 33
Factors Affecting
Comparability:
PLG Related Costs 1 1 -
Cost-Savings
Initiatives 3 2 -
----------- ----------- -----------
Adjusted Results $ 48 $ 38 $ 33
----------- ----------- -----------
Adjusted Margin 7.1% 6.7% 28.2%
For the Three Months
Ended March 31, 2015
-------------------------
Music
Total WMG Recorded Publishing
OIBDA Music OIBDA OIBDA Net income
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Reported Results $ 121 $ 91 $ 51 $ 19
Factors Affecting
Comparability:
PLG Related Costs 1 1 - 1
Cost-Savings
Initiatives 3 2 - 3
----------- ----------- ----------- -----------
Adjusted Results $ 125 $ 94 $ 51 $ 23
----------- ----------- ----------- -----------
Adjusted Margin 18.5% 16.7% 43.6%
For the Six Months Ended
March 31, 2016
------------------------
Recorded Music
Total WMG Music Publishing
Operating Operating Operating
Income Income Income
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Reported Results $ 114 $ 136 $ 24
Factors Affecting
Comparability:
PLG Related Costs 2 2 -
----------- ----------- -----------
Adjusted Results $ 116 $ 138 $ 24
----------- ----------- -----------
Adjusted Margin 7.3% 10.2% 9.9%
For the Six Months Ended
March 31, 2016
------------------------
Music
Total WMG Recorded Publishing
OIBDA Music OIBDA OIBDA Net income
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Reported Results $ 264 $ 245 $ 59 $ 40
Factors Affecting
Comparability:
PLG Related Costs 2 2 - 2
----------- ----------- ----------- -----------
Adjusted Results $ 266 $ 247 $ 59 $ 42
----------- ----------- ----------- -----------
Adjusted Margin 16.7% 18.2% 24.3%
For the Six Months Ended
March 31, 2015
------------------------
Recorded Music
Total WMG Music Publishing
Operating Operating Operating
Income Income Income
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Reported Results $ 67 $ 87 $ 33
Factors Affecting
Comparability:
PLG Related Costs 5 5 -
Cost-Savings Initiatives 7 4 -
Corporate Headquarters
Consolidation 6 - -
----------- ----------- -----------
Adjusted Results $ 85 $ 96 $ 33
----------- ----------- -----------
Adjusted Margin 5.6% 7.5% 14.0%
For the Six Months Ended
March 31, 2015
------------------------
Music
Total WMG Recorded Publishing
OIBDA Music OIBDA OIBDA Net loss
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Reported Results $ 223 $ 202 $ 68 $ (22)
Factors Affecting
Comparability:
PLG Related Costs 5 5 - 5
Cost-Savings Initiatives 7 4 - 7
Corporate Headquarters
Consolidation 6 - - 6
----------- ----------- ----------- -----------
Adjusted Results $ 241 $ 211 $ 68 $ (4)
----------- ----------- ----------- -----------
Adjusted Margin 16.0% 16.5% 28.8%
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. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. 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 U.S. GAAP.
Figure 7. Warner Music Group Corp. - Revenue by Geography and Segment,
Three and Six Months Ended March 31, 2016 versus March 31, 2015 As
Reported and Constant Currency
(dollars in millions)
For the Three For the Three For the Three
Months Ended Months Ended Months Ended
March 31, March 31, March 31,
2016 2015 2015
------------- ------------- -------------
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
US revenue
Recorded Music $ 258 $ 236 $ 236
Music Publishing 64 52 52
International revenue
Recorded Music 363 328 313
Music Publishing 63 65 60
Intersegment eliminations (3) (4) (4)
------------- ------------- -------------
Total Revenue $ 745 $ 677 $ 657
============= ============= =============
Revenue by Segment:
Recorded Music
Digital $ 328 $ 274 $ 266
Physical 151 157 151
------------- ------------- -------------
Total Digital & Physical 479 431 417
Artist services & expanded-
rights 79 55 55
Licensing 63 78 77
------------- ------------- -------------
Total Recorded Music 621 564 549
Music Publishing
Performance 44 44 41
Digital 33 24 23
Mechanical 17 20 19
Synchronization 30 27 27
Other 3 2 2
------------- ------------- -------------
Total Music Publishing 127 117 112
Intersegment eliminations (3) (4) (4)
------------- ------------- -------------
Total Revenue $ 745 $ 677 $ 657
============= ============= =============
------------- ------------- -------------
Total Digital Revenue $ 360 $ 297 $ 288
============= ============= =============
For the Six For the Six For the Six
Months Ended Months Ended Months Ended
March 31, March 31, March 31,
2016 2015 2015
------------- ------------- -------------
As reported As reported Constant
(unaudited) (unaudited) (unaudited)
US revenue
Recorded Music $ 551 $ 477 $ 477
Music Publishing 107 93 93
International revenue
Recorded Music 807 801 731
Music Publishing 136 143 128
Intersegment eliminations (7) (8) (8)
------------- ------------- -------------
Total Revenue $ 1,594 $ 1,506 $ 1,421
============= ============= =============
Revenue by Segment:
Recorded Music
Digital $ 650 $ 546 $ 522
Physical 399 450 419
------------- ------------- -------------
Total Digital and Physical 1,049 996 941
Artist services & expanded-
rights 162 131 123
Licensing 147 151 144
------------- ------------- -------------
Total Recorded Music 1,358 1,278 1,208
Music Publishing
Performance 87 89 81
Digital 60 48 46
Mechanical 37 43 40
Synchronization 55 52 50
Other 4 4 4
------------- ------------- -------------
Total Music Publishing 243 236 221
Intersegment eliminations (7) (8) (8)
------------- ------------- -------------
Total Revenue $ 1,594 $ 1,506 $ 1,421
============= ============= =============
------------- ------------- -------------
Total Digital Revenue $ 708 $ 592 $ 566
============= ============= =============
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 fund our debt service requirements, ongoing working capital requirements, capital expenditure requirements, strategic acquisitions and investments, and any dividends, prepayments of debt or repurchases or retirement of our outstanding debt or notes 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 management uses.
Because Free Cash Flow is not a measure of performance calculated in accordance with U.S. GAAP, Free Cash Flow should not be considered in isolation of, or as a substitute for, net income (loss) 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 "net cash provided by operating activities" (the most directly comparable U.S. 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 U.S. GAAP, which is "net cash provided by operating activities."
Figure 8. Warner Music Group Corp. - Calculation of Free Cash Flow, Three
and Six Months Ended March 31, 2016 versus March 31, 2015
(dollars in millions)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2016 2015
------------- -------------
(unaudited) (unaudited)
Net cash provided by operating activities $ 111 $ 107
Less: Capital expenditures 13 15
Less: Net cash (received) paid for investments (36) 7
------------- -------------
Free Cash Flow $ 134 $ 85
============= =============
For the Six For the Six
Months Ended Months Ended
March 31, March 31,
2016 2015
------------- -------------
(unaudited) (unaudited)
Net cash provided by operating activities $ 172 $ 142
Less: Capital expenditures 23 39
Less: Net cash (received) paid for investments (28) 20
------------- -------------
Free Cash Flow $ 177 $ 83
============= =============
Media Contact:
James Steven
(212) 275-2213
James.Steven@wmg.com
Investor Contact:
Lori Scherwin
(212) 275-4850
Investor.Relations@wmg.com
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