Saturday, February 26, 2005

More than I'll ever make

From the Financial Times Online (via Tom Lefsetz)

Warner Music executives net $21m
By Tim Burt in London
Published: February 20 2005

Warner Music, the former subsidiary of Time Warner, paid its top five executives more than $21m in salary and bonuses following last year's $2.6bn acquisition of the US music group by a private equity consortium.

The pay-outs include further guaranteed bonuses or change of control payments at the world's fourth-largest music groupboasting 38,000 artists including Green Day, Linkin Park and Madonna.

According to documents filed with the US Securities and Exchange Commission, last year's total executive remuneration was more than three times higher than Warner Music's $7m operating income for the 10 months to September 30.

In that period, the company reversed previous operating losses of $197m as sales increased from $2.49bn to $2.55bn.

The management payments reflect Warner's success in cutting costs following last year's completion of the Time Warner disposal. The company expects to deliver $250m of annualised savings by May this year, achieved mainly through 1,600 job losses.

Of the top management, Edgar Bronfman Jr, the chairman who led last year's buy-out, received a $1m salary and $5.25m bonus. Paul Rene Albertini, head of Warner's international operations, was paid $1.25m in salary and a $3.15m bonus.

Lyor Cohen, head of the US recorded music business, received $1m and $5.24m respectively. Les Bider, the veteran chairman of the Warner Chappell music publishing business, received a $2.44m total payment.

The SEC document, filed as part of a $565m bond exchange offer by Warner Music, also reveals misgivings by outside auditors over internal accounting skills and royalty payment systems.

In its "S4" filing, Warner insists it has addressed problem areas such as appointing a permanent chief financial officer and establishing an audit committee.

But the company admits "additional measures will be necessary and these measures along with other measures we expect to take to improve our internal controls may not be sufficient to address the issues identified by our outside auditors".

Warner Music explained that these further measures would involve setting up financial controls and management systems that were previously handled by Time Warner, its former parent company, but were absent in the demerged company.

The weaknesses were identified as Warner Music is considering a potential initial public offering in the first half of this year, expected to place a $5bn enterprise value on the company.

The audit concerns do not relate to executive remuneration.

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