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"As Warner Music Group’s cash balance continued to build and year-end financials came into focus, we recognized that the company would substantially exceed our conservative cash estimates at the time of the acquisition."
——Edgar Bronfman, Jr., WMG Chairman/CEO
WARNER MUSIC GROUP'S
IN THE MONEY
$350 Million to be Paid to Shareholders, with Cash Generated From Operating Results, Lowered Restructuring Costs
They're in the money.

The Warner Music Group announced that, based on strong operating results, significant excess liquidity, and the successful implementation of its restructuring program, it plans to provide for a return of capital of up to $350 million to its shareholders, which means the folks at Thomas H. Lee and Bain Capital that helped finance the deal. The return of capital will be funded out of the Company's excess cash balance and not from incurring additional debt.

WMG reported $421 million in cash as of May 31, which has grown to $519 million as of August 31. The company currently projects having $300 million in cash on hand by Nov. 30. The Music Group also reaffirms its previously issued guidance on revenues and adjusted pro forma EBITDA for the year ended November 30, 2004 and on the expected restructuring savings and costs as outlined in the Warner Music Group bondholder call of August 19, 2004.

WMG Chairman/CEO Edgar Bronfman, Jr. was so happy, he composed a new song for the next Green Day album: "As we reported at the end of the second quarter, our profitability and cost-saving initiatives are running ahead of plan and in line with previous guidance, restructuring costs are lower than we budgeted, and working capital needs are lower than forecasted. At the time of the acquisition, the company was capitalized very conservatively given the magnitude of the contemplated restructuring. With the majority of the restructuring completed in April, we have been operating successfully with a new management team and leaner organizational structure for quite some time. As Warner Music Group’s cash balance continued to build and year-end financials came into focus, we recognized that the company would substantially exceed our conservative cash estimates at the time of the acquisition. As a result, the Company has significant excess cash on hand. Now, can someone lend me 75 cents for the Coke machine?"

Bronfman said the company will use the excess cash to return $350 million of capital to the equity investors in the company, pursuant to the terms of the bond indenture. "After this distribution, the Company will continue to have substantial liquidity and financial flexibility to fuel future growth."

WMG also announced that it plans to change its fiscal year-end to September 30 from November 30. The Company’s next earnings call will address the four months ended September 30, 2004.

To provide for the return of capital and the year-end change, the company is currently in the process of seeking an amendment to its credit agreement. The proposed return of capital is permitted by the Company's bond indenture.

Recent speculation has WMG offering an IPO of its music holdings, while possibly rolling in a management entity derived from The Firm's merger with the likes of Irving Azoff, Howard Kaufman or Pat Magnarella.

More creedence was given to this theory when it was reported that Thomas H. Lee took a minority interest in The Firm just last week.

 

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