Warner Music Group Reports First Half Results

Warner Music Group today announced its financial results for the first half of 2004. The Company's restructuring plan is proceeding ahead of schedule -- operating costs have been lowered substantially, revenue is on plan and adjusted pro forma EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 17% for the six months ended May 31, 2004, over the six months ended May 31, 2003.

"We have now completed the majority of our restructuring effort, positioning Warner Music Group as a lean and flexible music company," said Edgar Bronfman, Jr., Chairman and CEO of Warner Music Group. "We have merged the Atlantic and Elektra labels, consolidated and streamlined certain overhead operations, lowered variable costs and significantly reduced and focused our artist roster, all while maintaining strong cash flow. With an outstanding management team in place -- one that combines the talent and experience of WMG's existing leadership with superbly qualified executives from outside the company -- we are building our traditional recorded music and music publishing businesses, and meeting the dynamic challenges of the marketplace."

Warner Music Group's expense reduction efforts continue to be implemented ahead of plan. Cost savings expected to be realized in 2004 are significantly higher than the $60 million estimate noted in the Company's offering memorandum to bondholders. Over $225 million of recurring annualized savings have been implemented to date, and recurring savings of more than $250 million are expected by the end of the restructuring. The Company also noted that the one-time costs associated with the restructuring plan are forecast to be below the original estimate of $310 million.

The attached select financial information is for the pre-acquisition first quarter ended February 29, 2004, and for the post-acquisition second quarter ended May 31, 2004, and provides comparable adjusted pro forma information for 2003.

Six Months Ended May 31, 2004

Revenue was $1.5 billion for the six months ended May 31, 2004, flat when compared with the six months ended May 31, 2003, and consistent with the expectations in the plan. This reflects a 3% decline in recorded music and a 16% increase in music publishing.

For the six months ended May 31, 2004, recorded music revenue declined 3% to $1.22 billion versus $1.26 billion in the six months ended May 31, 2003. During the first half of 2004, the Company had a number of highly successful albums from Josh Groban, Twista, Alanis Morissette, Michael Bublé, Eric Clapton, Jet, and The Darkness among others. This compares to the first half of 2003, when the Company had more multi-platinum and platinum albums including Linkin Park's "Meteora," Madonna's "American Life," and Kid Rock's "Cocky."

Music Publishing revenue was $286 million for the six months ended May 31, 2004, a 16% increase from $248 million in the prior year. Mechanical, synchronization and performance revenues all contributed to the substantial increase during 2004.

For the six months ended May 31, 2004, pro forma operating income was $21 million versus a pro forma loss of $36 million in the same period of the previous year. Adjusted pro forma EBITDA for the six months ended May 31, 2004, was $135 million compared to $115 million for the six months ended May 31, 2003. The improvements reflect cost savings realized from the restructuring plan as the improvement in music publishing revenue was offset by the decline in recorded music revenue.

Cash flow from operations for the six months ended May 31, 2004 was $340 million and cash on hand as of May 31, 2004 was $421 million.

Three Months Ended May 31, 2004

For the three months ended May 31, 2004, overall revenue declined 10% from 2003 to $717 million.

For the three months ended May 31, 2004, recorded music revenue declined 14% to $591 million versus $688 million in the three months ended May 31, 2003. Most of the second quarter decline occurred in the East Coast operations, where the Atlantic and Elektra labels were merged into the new Atlantic Records Group as part of the restructuring plan. As anticipated in the plan, revenues at these labels were lower due to actions taken to enhance earnings, including reducing and focusing the artist roster and delaying releases. The Company expects that revenues for the Group will improve in 2005 as the release schedule is normalized.

Music Publishing revenue was $129 million for the three months ended May 31, 2004, an 11% increase from $116 million in the prior year. Mechanical and performance revenues both increased during 2004 contributing to the publishing division's strong performance.

For the three months ended May 31, 2004, operating income was $16 million versus a pro forma loss of $3 million in the same period of the previous year. Adjusted pro forma EBITDA for the three months ended May 31, 2004, was $74 million compared to $68 million in adjusted pro forma EBITDA for the three months ended May 31, 2003. The increase in EBITDA was driven by the positive impact of the restructuring plan and other cost savings partially offset by the impact of the decline in revenues.